The Ottumwa Courier

May 1, 2013

Other opinions Are huge giveaways the best strategy?

Ottumwa Courier

---- — State and local leaders heralded the announcement that Facebook will build a computer center in the eastern Polk County city of Altoona as evidence that Iowa is on an economic-development roll in attracting high-tech jobs and investment.

Facebook’s Altoona data center represents a major investment by any measure. It will begin with a $300 million development and will grow to an investment of perhaps $1 billion in a sprawling computer processing center that will rival a small college campus in size. It will create a massive presence in the community that is also home to Prairie Meadows Racetrack and Casino and the Adventureland amusement park.

Still, it’s fair to ask whether the direct economic benefits to the state have been oversold in light of substantial taxpayer incentives offered by the state and the city of Altoona.

The project will mean as many as 250 temporary jobs and ripple effects throughout the central Iowa economy during construction. Longer term, however, the computer server facility will demand a lot of electricity but not a lot of people: Facebook says it will employ 31 people at the Altoona center. Meanwhile, the state has agreed to give the company $18 million in tax credits and the city of Altoona will forgo all property taxes on the facility for 20 years.

The state incentives alone come out to be more than $580,000 per employee. It’s hard to calculate how much property-tax revenue Altoona will forfeit for two decades, but in the meantime, the city will be investing $1.35 million in infrastructure improvements, in part to accommodate this project, and it will have to provide police and fire protection to the facility.

There is more at stake for the state and the city than just 31 jobs, no doubt. A lot of money will be spent to keep a facility that size in operation beyond those employed by Facebook. That will ripple throughout the central Iowa economy. Also, state officials believe landing Google and now Facebook could serve as a catalyst for attracting even more high-tech employers.

But how much public gain will there be beyond the public investment?

Iowa Economic Development Director Debi Durham said that based on a cost-benefit analysis, she is satisfied the state incentives will be repaid in economic benefit. “We do a return-on-investment analysis” on every project, she told the Register, “and this one had a positive return. The downstream benefit will be huge.”

It will be some time before that return begins to flow to the state, given the size of its investment. As for the city, a child born in Altoona today would be a senior in college before the city reaps any property-tax benefit from the Facebook center.

The question is whether the state’s investment in these huge projects, including a similar project by Google in Council Bluffs and the Orascom fertilizer plant in Lee County, are the best strategy for attracting and growing companies that offer good wages and benefits.

Do enormously profitable companies like Facebook, Google and Microsoft really need government assistance financed by Iowa taxpayers? These tax incentives not only create a bidding war among states desperate for jobs but these incentives are now the minimum expectation.

Might the resources devoted to these big projects create more jobs, and long-term economic growth, if they were spread among smaller companies? Do these projects fit Iowa’s long-term goal of focusing on a few key areas, such as biotechnology and cutting-edge manufacturing that adds value to Iowa products?

The people of Iowa are being asked to spend substantial amounts of tax money on economic development incentives to businesses. That is money that cannot be spent on other things, including clean rivers and lakes, world-class schools, libraries and other public services that have direct economic impact by making Iowa an attractive destination for employers and employees.

Iowa has landed some big developments in recent years, but the state must demonstrate that the public investment in those projects will result in a greater public benefit.

— The Des Moines Register. April 28, 2013.