Will the Values Fund run out of time?
If the Grow Iowa Values Fund had been put in place seven years ago, the state wouldn’t be in the budget crunch it is today, says Michael Blouin, director of the Iowa Department of Economic Development.
According to an economic projection, Iowans’ personal income will grow by nearly $3 billion over the next 10 years as a result of strategic investments the Values Fund and IDED boards have committed to a dozen companies statewide.
Billed as an economic development vehicle that would have $503 million to invest over seven years, the fund is in danger of running out of money by about this time next year unless the Legislature acts, say officials. That’s because the fund’s revenues past its second year are tied to growth in sales tax revenues, which are expected to remain flat for the next several years.
Some view the Values Fund’s direct incentives to companies as “corporate welfare,” and are opposed to the state providing money to entice businesses to expand in or relocate to Iowa. One legislator has been seeking support for a bill that would divert the fund’s 2004 allotment of federal grants of $41 million to fund education instead.
Supporters of the Values Fund are seeking to shore up its financing by issuing bonds that would be repaid from gambling taxes. However, the leaders of the Republican majority in the Senate says he plans no changes to the fund until at least the next session. Waiting would be a mistake, Blouin said.
“We have an incredible head of steam built up, and it’s for the whole state, not just one region,” he said. “And it’s predicated on the perception that we have a $500 million, seven-year program here. If we run out of money, we will nose-dive and run out of prospects, and it will be incredibly hard to get them back because credibility will be lost.”
Since the fund was authorized, the number of companies on the IDED’s prospect list for relocating or expanding in Iowa has grown from 90 a year ago to about 275 currently.
More than 3,400 new jobs will be created from the projects funded so far, and more than 1,400 existing jobs in the state will be retained by assisting companies that would otherwise have moved, according to statistics tracked by the IDED. Overall, the average salary for the positions created or retained is $38,500.
Using recommendations from several economic research sources, the board has focused its efforts on three key industries that have the greatest potential for creating high-wage jobs: financial services, advanced manufacturing and the biosciences.
At its first meeting in July, the board committed $10 million to Wells Fargo & Co. for two major expansion projects in Greater Des Moines. Most recently, the board approved more than $17 million in funding for for six technology projects across the state.
In all, the Values Fund board and the IDED board have now committed more than $54 million to 12 projects.
With the state’s other budget concerns, dealing with the Values Fund isn’t a priority this year, said Senate Majority Leader Stewart Iversen. “I’ve said from the very beginning that we’ve put enough money into it for two years,” he said. “I’ve also said we’re not going to address it this year; we’re going to address it next year. People say, ‘Let’s just bond it,’ but it’s not that simple.”
The budget situation is one reason for not putting more into the fund this year, he said. “And we do have a court case pending on that regarding the governor’s veto. It is doubtful we’ll hear anything (further on that case) before the session’s over.”
Republican leaders in July 2003 filed suit against Gov. Tom Vilsack, challenging his line-item veto of tax cuts, workers’ compensation and tort reform provisions in House File 692, which also created the Values Fund.
Blouin said a short-term funding option for the Legislature would be to accept Vilsack’s proposed 2005 budget, which would add $23 million to the fund to provide full funding through fiscal year 2005. The problem with doing nothing about the Values Fund until the next session begins in January is that a new General Assembly is unlikely to act on the issue immediately, Blouin said, which means action probably wouldn’t be taken until March or April 2005. “If we break stride, we will regret it,” he said.
Funding limitations have already affected Iowa’s three Regents’ universities, which collectively had anticipated receiving $25 million from the Values Fund to expand their technology incubator facilities. In October, the Values Fund board approved approximately $4 million each to the University of Iowa and Iowa State University, and about $2 million to the University of Northern Iowa for the next two years, with a pledge to disburse the remainder if future sales tax receipts provide sufficient funding. As a result, the universities have had to scale back their projects and look for alternative financing arrangements.
“It’s been a significant problem, obviously,” said Robert Downer, chairman of the Iowa Board of Regents’ Economic Development and Technology Committee. The committee was formed last year to coordinate the commercialization of research activities at Iowa’s state universities, which Downer said “clearly represents a good investment” for the state.
“This hasn’t been optimal from an implementation standpoint,” he said, “but I think all of them are dealing with it one way or another. They’re not just sitting around waiting for the money.” Rep. Clarence Hoffman, a Charter Oak Republican who’s chairman of the House Economic Growth Committee, said getting a more reliable revenue source for the Values Fund “is still my No. 1 priority this session. I would like to find the funds this session.”
At least two bills that have been proposed call for issuing bonds rather than counting on sales tax receipts going up. One version, House File 2439, sponsored Des Moines Democrate Janet Petersen, calls for a bond issue of $500 million, which would be repaid from gambling tax revenues.
The bill proposes using the bonds to guarantee the Values Fund’s revenue for the next five years, and is similar to legislation the House approved that passed by 79 votes last session, Petersen said.
The bill would also restore many of the quality of life initiatives that were in that original bill, she said, and includes a provision for regional economic development initiatives. It would also create a “red tape commission” to review state policies and rules to determine which ones may be hurting economic growth efforts.
“I believe that if we don’t provide ongoing funding for the Iowa Values Fund, those (new business) leads won’t be around for very long if you don’t have the funding to back it up,” Petersen said. Hoffman said there appears to be sufficient support for a bonding bill in the House, but he’s not sure whether the legislation would make it through the Senate.
“In my opinion, bonding is the absolute right solution when interest rates are so low,” he said, “especially when you look at the potential return on investment. We have a good thing going and we need to maintain it.”
Persuading companies to commit to Iowa when the state no longer has enough money in the bank to back its commitments will be tough, Blouin said.
“The good part of it now is that we’ve got money up front,” he said. “You get into next year when the pot’s empty, everything will be betting on the come. You’re rolling the dice, and companies aren’t inclined to gamble on a promise.
“It’s either a priority or not – the Legislature can fund it this year if they choose to.”