DES MOINES, Iowa — When Apple announced recently it planned to build two data centers in Iowa, Gov. Kim Reynolds saw it as a clear win.
Against the backdrop of the state Capitol, the new Republican governor touted the deal as one that will create jobs, spur economic growth and elevate Iowa’s status. Yet the project carries $208 million in state and local tax breaks, a high cost at a time when Iowa is facing a budget crunch and a figure that drew criticism from Democrats and even some Republicans as next year’s race for governor looms.
Cedar Rapids Mayor Ron Corbett, Reynolds’ main challenger in the Republican Party’s primary, said he supports companies like Apple investing in Iowa, but he felt the 50 permanent jobs attached to the project was too low. He also noted the deal followed recent budget cuts that have forced reduced services and higher college tuition.
“With all these other issues going on, it begs the question, ‘Well if the state can’t afford to support the universities, support the community colleges, support the health system, how can it possibly embark on this path?'” he said.
Fred Hubbell, a businessman and philanthropist who’s seeking the Democratic nomination for governor along with six others, blasted the plan as a “better deal for Apple than it is for Iowa’s taxpayers.” State Sen. Nate Boulton, another Democratic gubernatorial hopeful, criticized Reynolds for “handing out excessive corporate tax credits to the detriment of other essential Iowa services and a sound budget.”
The Republican Governors Association later defended Reynolds, saying the governor was “securing unprecedented investment and expanding opportunity across the state.”
But even some within the GOP have acknowledged skepticism. Rep. Pat Grassley, head of a key legislative budget committee, tweeted “Not convinced today’s announced incentives of $400k per job is good value for Iowa taxpayers.”
Later, he tweeted out blame to legislative Democrats, claiming they didn’t support efforts last session to reform how Iowa distributes tax credits. Republicans hold large majorities in both chambers.
States for decades have used tax incentives to lure companies that promise jobs and investments, but the practice has recently become more complicated as Iowa and other states grapple with budget constraints and studies raise doubts about the long-term benefits of such commitments.
In Wisconsin, lawmakers are completing a $3 billion tax incentive package for Taiwanese electronics giant Foxconn that is contingent upon the company investing $10 billion and hiring 13,000 workers at a new factory in the state. The package has garnered bipartisan support, but some lawmakers have raised concerns, pointing to a nonpartisan analysis that it would take at least 25 years for taxpayers to break even on the incentives.
In 2014, Nevada state officials were criticized for approving $1.3 billion in state tax incentives for Tesla Motors to build a $5 billion factory based on projections that it’ll employ 6,500 people at full production. The deal came after a bidding war with several states.
“This is certainly something that ribbon-cutting politicians are going to keep pursuing, but there is increasing skepticism among some on the right and on the left about the long-term value of these incentives,” said Brett Theodos, a senior research associate at the nonpartisan Urban Institute, a Washington-based think tank.
Mike Owen, executive director of the Iowa Policy Project in Iowa City, said attention on Iowa’s tax credits have grown as they eat more of the budget. The non-partisan Legislative Services Agency estimates tax credits will cost the state nearly $430 million this budget year. Property tax credits and economic incentives programs will be another $561 million.
Reynolds is currently weighing whether she will call a special legislative session to plug a possible shortfall in the roughly a roughly $7.2 billion state budget.
“It’s coming to a head possibly because we have budget problems,” Owen said. “But I would argue also that there is a lot of traction now on both sides of the aisle for reform of our economic development policies and specifically the issue of tax credits.”
Reynolds has pushed back against the criticism, with her administrative staff using email and social media to praise the deal, which is spread out over several years and includes a $188 million break on property taxes from Waukee. Apple has also promised to invest up to $100 million for community development that includes revitalizing streets, libraries and parks.
Asked about the criticism, Reynolds told reporters on Aug. 29, “It’s not just a snapshot in time. You’ve got to look long term and see the benefits that will continue to grow.”
Reynolds’ campaign manager, Phil Valenziano, argued that anyone who opposed the plan was against jobs. Supporters point out that hundreds of construction jobs will also come from the deal.
Valenziano said other gubernatorial candidates criticizing the deal “have no jobs message. As in, all of their policies would create no jobs. We feel confident this is a net win for Iowans.”