Senator Joe Bolkcom on Monday challenged Governor Branstad to explain why $250 million in state and local tax dollars was spent to attract a fertilizer plant to Iowa when the international company involved already stood to gain as much as $300 million in federal taxpayer subsidies, but only if it invested in Iowa.
“It was clear by mid-April that that the Illinois sites were never really in the running,” said Bolkcom. “We should have cut commercial property taxes for every Iowa business instead of giving a multinational corporation $250 million when we didn’t have to.”
In discussions with Iowa Department of Economic Development officials, Bolkcom, the chair of the Senate Ways and Means Committee, learned that Orascom was approved for $1.2 billion in Midwestern Disaster Area (MDA) bonds by the Iowa Finance Authority on April 13, 2012. MDA bonds were created to help businesses recover from the historic 2008 floods that devastated parts of the Iowa and the Midwest. Every site under consideration in Iowa qualified for the bonds; the competing Illinois sites did not .
“This is the worst economic development deal in state history,” said Bolkcom. “Illinois could never compete with the federal subsidies worth as much as $300 million that Orascom Construction Industries would gain for siting the plant in Lee County, a federally declared flood disaster area.”
The bonds allow private companies to borrow at tax-exempt rates, meaning they save 1 to 2 percent on their borrowing costs. Assuming the bonds produce a net savings of $300 million to Orascom, the corporation would receive a total of $550 million in taxpayer subsidies from federal, state and local governments. This means that 165 permanent jobs created will cost approximately $3.3 million per job.
…for Iowa in the Orascam negotiations, if the Governor had only realized it.
Midwestern Disaster Area (MDA) bonds were created to help businesses recover from the historic 2008 floods that devastated parts of the Iowa and the Midwest. These bonds were created after the floods of 2008. They were modeled after bonds created after 9/11 (Liberty Zone bonds) and after Hurricane Katrina (Gulf Opportunity bonds). They expire at the end of the calendar year.
MDA bonds allow private companies to borrow at tax-exempt rates. The bonds are purchased by anyone from insurance companies, pension funds, investment funds, to private individuals. The interest earned on the bonds is exempt from federal taxes (not Iowa state taxes).
MDA bonds are only available in counties that received a FEMA Disaster Declaration after the 2008 floods. Lee County, where the Orascam plant is to be located, received this Disaster Declaration in 2008. The Illinois sites under consideration were Peoria (Peoria County) and Pekin (Tazewell County). Neither was eligible for federal Midwest Disaster Area bonds.
Orascam, also known as the Iowa Fertilizer Company, applied and was approved for $1.2 billion in MDA bonds by the Iowa Finance Authority on April 13, 2012.
Information from officials at the Iowa Finance Authority indicates that the spread would likely range from 1 percent to 2 percent. For a $1.19 billion bond issue to be repaid in equal annual installments over a 20-year period, the savings in interest would amount to between $153 million and $297 million, depending on what the interest rate differential turned out to be.
Sources: Iowa Finance Authority and the Iowa Policy Project.