When Nationwide Mutual Insurance Co. constructed a huge building at 1100 Locust St. a few years ago but left a vacant space immediately to the west, city leaders and business people all assumed one thing: Expansion is in the cards.

But when attorney Doug Gross contacted the city on behalf of the insurance company, bearing the news that other cities were interested in becoming its next building site, he held the winning hand in a high-stakes game of poker.

“I think we do take (the company’s) word” about having competitive offers, said interim City Manager Rick Clark, “but we also have our own sense of what the market is. They came to us and said they were looking elsewhere in the metro and several other states, and I know for a fact they did look at West Des Moines.”

The result? After an apparently low-key round of negotiations, the city offered a standard package of financial incentives to Nationwide, which plans to add to its existing building and later build a second building to the west. The city’s offer still must be approved by the City Council.

Nationwide has received approval of an aid package offered by the Iowa Department of Economic Development, where the company found another receptive audience.

“We try to figure out how real the competition is” when a company asks for financial help, said Mary Lawyer, acting director of the IDED. “We try to figure out how their economic development tools stack up against us. We tried to figure that out in this case.” Lawyer said the state knew of specific offers from elsewhere, but declined to identify them.

The state, like the city, came through with a fairly standard batch of incentives.

In the eyes of Clark, Lawyer and other government officials, it’s the kind of deal that pays off both in new jobs and in new corporate taxes.

Observers who disagree include David Swenson, a scientist in the economics department at Iowa State University, who said: “Jobs are great, but trying to justify so much of a taxpayer investment paying off down the road is bogus. Those workers are all going to demand goods and services. At best, a city over 15 years might break even. And people who do this research say we can’t find evidence that these deals actually do break even. They end up becoming a net subsidy.”

Private citizens and business owners who aren’t receiving economic incentives occasionally object, too. “We get positive and negative feedback,” Lawyer said. “Some people express concern about ‘corporate welfare.’ But in this competitive environment, in order to compete, this is what we have to do.”

The common assumption that Nationwide already planned to build next door couldn’t be relied upon, in Lawyer’s view. “You could easily sell that piece of land,” she said.

The IDED justifies its participation in such deals on the basis of increased payroll and corporate taxes, Lawyer said. “We use a formula that was put together by four economists,” she said. “It’s a return on investment model, and we know the return is significant for the state.”

Clark said the city bases its decisions about economic incentives not on jobs and their assumed multiplier effect but on hard cash-flow projections. In this case, the key number is $65.5 million – the city’s agreement with Nationwide sets that as the minimum assessed value of the project.

That means the completed project will generate approximately $2.5 million per year in property taxes within its tax-increment financing district. When Clark calculates the costs of the $350,000 annual economic development incentive and the long-term city expenses for building skywalk bridges and helping to pay for a parking garage, he sees the city profiting by more than $1 million in the first year after construction is complete, “using the most conservative assumptions.”

ISU’s Swenson said: “The public sector is supposed to keep its hands off the private sector unless public dollars can create dollars that wouldn’t have come anyway. That’s a pretty heavy test.”

But Clark described the deal more as a way to invest the public’s money. “We don’t have to dip into bonds or take from anything else,” he said. “This deal brings in enough in taxes to pay for the various things we’re promising to do.”

Lawyer pointed to one major factor that has made it more likely the state will participate in such projects. “We’ve only had the Grow Iowa Values Fund for two and half years. Prior to that, it would have been difficult to put together a package this competitive,” she said. “Now other states are asking us how we do it.”

Clark said he sees other cities and states at very different extremes when it comes to economic incentives. “I am concerned about bidding the costs up,” he said. “I’m sometimes appalled by how much money some states throw at it.”

On the other hand, he added, “you can go to cities that are so booming that the practice of putting government money into private projects is almost unheard of. But we’re not Vancouver, British Columbia. We have to work at it really hard.”