Senator Joe Bolkcom presenting information to the Iowa Senate on the worst Iowa economic development deal ever, the Orascom deal.
July 10, 2014
(DES MOINES) State Senator Joe Bolkcom of Iowa City, the chair of the Senate Ways and Means Committee, today warned Iowa taxpayers that the Branstad Administration is on the verge of spending $25 million more on Iowa’s “worst economic development deal ever.”
“Orascom has already taken Iowa taxpayers to the cleaners and we have no legal obligation to throw more good money after bad,” said Bolkcom. “That money should be used to help Iowans instead.”
The Branstad Administration’s Economic Development Authority Board is expected to vote as early as next week to give an additional $25 million to Orascom, the Egyptian multinational building a fertilizer plant in southeast Iowa. Under the 2012 Orascom agreement, the Branstad Administration agreed only to consider the additional incentives. The Board is scheduled to meet on July 18 at the Economic Development Authority’s office in Des Moines.
Governor Branstad personally led the secret negotiations which gave Orascom more than half a billion dollars in federal, state, and local incentives in exchange for creating 165 jobs in Lee County (financial breakdown below).
Iowa’s governor became convinced he fighting Illinois for the fertilizer plant, overlooking the fact that $300 million in federal flood development subsidies were available only at the Iowa sites. Orascom success at negotiating such generous incentives were the major reason Governor Branstad was named the “2013 Foreign Direct Investment Politician of the Year” during the 10th Annual World Forum for Foreign Direct Investment in Shanghai, China.
Orascom’s CEO, Nassef Sawiris of Egypt, traveled to Des Moines to meet personally with Governor Branstad during the negotiations. Sawiris is reportedly worth roughly $7 billion dollars and is ranked as 193rd richest person in the world by Forbes. Sawiris was recently in the news when he paid $70 million in cash, the most ever, for a penthouse in New York City.
“The Economic Development Authority Board members were appointed by Governor Branstad and it is led by his Director of Economic Development,” said Bolkcom. “I call on Governor Branstad to put the best interests of Iowans first and stop this rip-off of Iowa taxpayers. I encourage the Board to reject any additional money for Orascom. They have no obligation to waste an additional $25 million on this fiasco.”
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Background
When the 2012 Orascom deal was announced, Governor Branstad said the $250 million package of state and local economic incentives was necessary to outbid a competing offer from Illinois. Independent economic development experts quickly noted that Orascom would also receive an estimated $300 million in federal flood disaster area incentives available only at the Iowa site.
In the end, Orascom will receive approximately $550 million in taxpayer subsidies from federal, state and local governments. The 165 permanent jobs projected to be created at the new fertilizer plant in Lee County will cost taxpayers roughly $3.3 million per job.
Orascom was approved for $1.2 billion in Midwestern Disaster Area (MDA) bonds by the Iowa Finance Authority on April 13, 2012, six months before Governor Branstad announced the agreement. The bonds allow private companies to borrow at tax-exempt rates, meaning they save 1 to 2 percent on their borrowing costs. MDA bonds were created to help businesses recover from the historic 2008 floods that devastated parts of Iowa and the Midwest. Every site under consideration in Iowa qualified for the bonds; the competing Illinois sites did not. For Orascom fertilizer plant in Iowa, this meant a savings of approximately $300 million.
Breakdown of the $545,260,000 Orascom incentive package:
o $300 million in Midwest disaster area bonds
o $133 million in property tax exemptions approved by the Lee County Board of Supervisors
o $100 million in investment tax credits promised over 4 fiscal years
o $7,440,000 of refunded sales or used taxes paid during construction
o $60,000 of supplemental Research and Development tax credits
o $805,000 loan from IDEA
o $805,000 forgivable loan from IDEA
o $1.65 million grant from the Iowa Department of Transportation
o $1.5 million for job retraining
Relevant section of the contract with Orascom:
“ Recipient is eligible for an allocation of additional Tax Benefits during the fiscal years July 1, 2013 – June 30, 2014 and July 1, 2014 – June 30, 2015 (collectively, the “Future Tax Benefits”). Recipient may submit a request for the Future Tax Benefits on or before July 1 of each fiscal year. The award and amount of such Future Tax Benefits will be contingent upon the approval of IEDA’s Board at its first meeting of each fiscal year, as well as Recipient’s showing of the expected ability to utilize such Tax Benefits, including the consideration of the impact of any changes to Iowa’s corporate income tax rates, apportionment methods, or other laws applicable to Iowa’s corporate income tax. If the Future Tax Benefits are not allocated to Recipient during the fiscal years ending June 30, 2014 and June 30, 2015, the Recipient’s eligibility for the Future Tax Benefits shall be carried forward into future fiscal years until such amounts are awarded in full, contingent upon Recipient’s showing the ability to utilize such Future Tax Benefits, and if at the end of the fiscal year ending June 30, 2013 or June 30, 2014, there remains to IEDA a balance of tax credits allocated to the High Quality Jobs Program that were not awarded, those remaining credits may be awarded to Recipient by IEDA’s Board at its last meeting of the fiscal year for which credits are allocated to the High Quality Jobs Program.”
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