When Quality Consulting Inc. in Clive needed additional working capital to finance for expansion, it secured a $750,000 loan package through the Iowa Department of Economic Development.

That was in 2001, two years before the Grow Iowa Values Fund, the high-profile, $500 million business incentive program, came into being. QCI, which has more than doubled its workforce in the past four years, is among more than 700 businesses that have received funding from Iowa’s long-standing economic development program, the Community Economic Betterment Account program.

Through CEBA, which is approaching its 20th year of existence, the state has awarded more than $125 million in loans or forgivable loans to companies over the past two decades. As a condition for obtaining these loans, each company pledged to create or retain a certain number of jobs within two years and maintain that employment level for another three years.

The companies’ cumulative track record for meeting their job targets is impressive. More than 88 percent of the 54,718 jobs that were pledged by the 630 companies whose projects reached their completion dates were in fact created, according to data tracked by the Iowa Department of Economic Development.

Businesses that create only a portion of the promised jobs must repay a proportional amount of any forgivable loan, and are subject to an increased interest rate on their repayable loans. If the business fails to create at least 50 percent of the pledged jobs, it is required to repay the entire CEBA award at a 6 percent interest rate. The term of the loan is negotiated based upon the business’s financial ability to make payments.

To verify the positions were actually created, “we have a list of specific positions that will be created as part of the project, and we follow that up by looking at payroll records to match those,” said Tina Hoffman, the IDED’s acting deputy director and communications manager. In cases where the company has committed to building infrastructure, the department staff may also conduct on-site visits to physically verify the completion of the project, she said.

The program is one component of what the IDED considers a “toolbox” of economic development programs it can offer to businesses as incentives to expand, start up or relocate to Iowa.

The ability to quickly get additional working capital to expand QCI was one of the biggest benefits of using CEBA, said Irving Hahn, the company’s senior vice president.

“I think the big thing is the speed at which you can expand,” he said. “We have a good banker, but if you’re talking $300,000 to put into your business, that’s not a trivial amount.”

QCI qualified for a $750,000 loan, half of which was a zero-interest loan and half of which would be a forgivable loan if its workforce reached 200 employees. It repaid the three-year loan last year, but chose not to take the forgivable portion, Hahn said.

“We don’t plan to be in a position to take (the second portion) by its expiration since our business growth is not strictly people-based and much of our people-based growth is outside of Iowa,” he said.

Born during the farm crisis of the mid-1980s, CEBA has evolved from a program aimed largely at bolstering Iowa’s manufacturers to one that now focuses on higher-paying technology positions, said IDED Director Mary Lawyer. To be counted as an eligible job, a position must now exceed 100 percent of the average county wage. Prior to fiscal year 2004, that requirement had been 90 percent of the average wage. Correspondingly, the average wage for the jobs pledged in the most recent round of loans in October was $18.14 per hour, compared to an average of $15.74 per hour for jobs pledged in fiscal year 2004.

“The other shift has been that we used to do more predominantly forgivable loans in the early years,” Lawyer said. “You’ll see a larger balance of loans to forgivable loans as the years have proceeded.” Last fiscal year, $2 million of the $5.3 million loaned was repayable.

Initially funded through the state’s General Fund, CEBA was for a few years funded through the Strategic Investment Fund, a predecessor of the Values Fund. The Values Fund is now the sole funding source for CEBA.

A similar program, the Entrepreneurial Ventures Assistance program, was started in 1998 to assist higher-risk start-up companies with awards of up to $250,000, and later became a component of CEBA. In fiscal year 2004 that program provided $1.73 million in direct financial assistance, mostly in the form of grants. EVA recipients typically agree to repayments to the state through royalties on sales of their products.

CEBA funding helped Innovative Injection Technologies Inc. through a rough patch in the economy and enabled it to stay in Iowa, CEO Bob Janeczko said.

The precision plastics molder, formerly a division of Morton Custom Plastics before Janeczko and other managers bought it, borrowed $300,000 in a loan/forgivable loan package two years ago to create seven jobs and retain 95 existing positions. The funding enabled the company to continue leasing a building in West Des Moines rather than moving to Peoria, Ill., to use a vacant building Janeczko owned there.

“I would say the project turned out very well,” Janeczko said. “Part of the CEBA responsibility is to pay the loan back, which we have been able to do every period.”

The company currently has 142 employees, though not all of those positions are counted toward the jobs to be retained or created. Its loan will be reviewed in May 2006 to determine whether the remainder of the loan will be forgiven. “We certainly intend on meeting that timeline,” he said.

“Our intention is to be in business long after 2006,” Janeczko said. “I have a very good manufacturing business; my son plans to take over the business and he’s only 30 years old, so he has a lot at stake in the community.”

For B.J. Do, founder and CEO of ABC Virtual Communications in West Des Moines, borrowing money from the state with the promise of creating jobs is something he said he’ll never do again.

The information technology company, which borrowed $500,000 five years ago to move to a bigger office, promised it would more than double its workforce by adding 175 positions. Instead, the company, though profitable, had to shed employees following the post-9/11 economic downturn and the subsequent trend among companies to offshore IT services. After 18 months of consistent hiring, the company has now rebounded to 60 employees.

“So we went through a very rough period after we moved to this location in 2001,” Do said. “From a company point of view, we’re a better company today than in 2000. Do we have the head count that we wanted to have? No. But back then, I think everyone thought that IT growth would continue. But we’ve found that’s not the case. We’ve had to compete with offshore companies to keep our costs low.”

ABC has repaid about 80 percent of its zero-interest loan, and is negotiating with the IDED about repayment terms for the remainder of the loan, he said.

“What we have learned is, you don’t go out and tell people how many people you’re going to hire,” Do said. “In the future, we would do everything on our own.

For a small amount of money, you have a heavy commitment. So to me, it’s not worth it to go through the hassle to get the money. At the same time, a bigger company might have bigger pockets and they can meet their goals.”

Lawyer said there has always been the hope that the CEBA program could become self-sufficient through repayment of loans, but because of the program’s structure, that will probably never happen.

“At the interest rates some of the businesses can get their funds at now, to give them a low- or no-interest loan isn’t that large of an incentive,” she said. “So you have to give them some component that’s a forgivable loan, and when you do that, you’re not going to be self-sustaining.”

In response to the growing number of economic development projects since the creation of the Values Fund three years ago, the IDED recently restructured the way it reviews and monitors projects, Lawyer said.

“What we’ve done is we have our business finance people who take the projects up to and through board action, and then we have a team it’s handed to that will work with the business from that point on,” she said. “It used to be also that our business finance folks had program specialties, for instance, an enterprise zone specialist, a Value Added Agricultural Products & Processes Financial Assistance program specialist. We’re trying to make them more generalists now because we tend to see programs coupled together, such as a tax credit program and a direct assistance program. We think it’s better if the company works with one person.

“And now on the back end as well, we’re going to have one person working with the company, rather than separate people from each program contacting them. So we’re trying to be more customer-friendly. We’re also trying to develop staff expertise so they can deal with all the front-end or back-end work.”