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200,000 new jobs?

The math behind Gov. Branstad’s lofty campaign pledge and his new economic development model

By Bret Voorhees

Will Gov. Terry Branstad make good on his campaign promise to deliver 200,000 new jobs in Iowa?

The answer depends on who’s doing the math.

Tim Albrecht, the Governor’s director of communications, says they will be counting the “gross” number of jobs created as the administration works toward the campaign pledge rather than using net jobs gained over the benchmark of the 1,576,500 Iowans who were working in January when Branstad took office.

“ The administration will stand by each job created,” Albrecht wrote in an email to Cityview. “A job is a job, and to those needing employment, Gov. Branstad will work each day to ensure a job is there for them.”

A closer look at the April unemployment figures from Iowa Workforce Development (IWD) — the state agency that coordinates worker development programs — helps explain the difference. Over the course of the month, 3,700 jobs were created, led by growth in manufacturing. But 3,000 jobs were also lost — most of which were in “other services” and “leisure and hospitality” — leaving a net gain for the month of 700. Even so, Branstad will count 3,700 jobs toward his stated goal.

The difference between net and gross may seem innocuous to some, but it is substantial in terms of the challenge and impact, especially to the 101,900 Iowans listed as unemployed in January. Adding 200,000 net jobs would greatly improve their odds of finding work. But if 150,000 are lost, the impact is significantly less.

Peter Orazem, an economics professor from Iowa State University, isn’t surprised that Branstad would use the gross number as his preferred way to count jobs. He said a number of academicians were asked about that goal during the 2010 Iowa gubernatorial campaign, and their conclusion was that it would require much faster economic growth than the state has experienced during the past 30 years.

“ The bottom line is that it would be hard to achieve in normally good economic times,” Orazem said.

Orazem’s observations are supported by historical data from IWD, which indicates that adding 200,000 new net jobs would be an enormous hill to climb. Over the past five years, the state lost a net total of 800 jobs with the low point in 2009 when 33,900 net jobs were lost. In the best year of 2006, a total of 33,200 net jobs were gained.

Albrecht stressed that economic development is the main priority of the Branstad administration, and the Governor makes it a personal commitment.

“ He’s hands on,” Albrecht noted, “and this is his top priority.” Albrecht said the Governor makes personal calls to promote and sell the state to prospective companies on a day-to-day basis.

The Governor’s proposed budget, however, cuts spending on economic development. Iowa Department of Economic Development (IDED), the agency responsible for promoting the state and adding jobs through a variety of tax and financial incentives, requested $14,176,802 for staff and operating costs in the coming fiscal year. Branstad slashed that by more than 17 percent to $11,691,496.

“ It’s a tough financial year and a tough budget,” noted Albrecht before directing further explanations for the budget reduction back to IDED.

According to Albrecht, Branstad is proposing to meet the 200,000 jobs goal, in part, with a major revamping of the economic model at the state level.

The new economic development model

One of the cornerstones of Gov. Branstad’s job creation and economic development efforts centers on revamping IDED. While the Iowa House has approved a bill to change IDED, as of press time it has not passed in the Senate and is one of the pieces on the table as part of the budget negotiations. While some disagreements exist, basic changes to the economic model used at the state level seem to have bipartisan support.

“ There is support from the Democratic Senate. We want this to go and want 200,000 jobs as much as he (Branstad) does,” said Sen. Jack Hatch, D-Des Moines. Hatch noted that a similar model was proposed to create a Wallace Technology fund to drive research in the early 1990s.

Developing and managing the changes will fall to Debi Durham, who was appointed to be the director of IDED by Branstad. Durham brings a wealth of local economic experience to the table, serving as president of the Siouxland Chamber of Commerce since July of 1995; president of The Siouxland Initiative, the economic development corporation that serves the tri-state metropolitan area; and the Siouxland Chamber Foundation.

“ The department was not broken,” Durham said while explaining the new economic model. “It’s just that when we asked, ‘Can it be operated more effectively?’ the answer was yes.”

So what’s new?

Two new areas of change tend to have bi-partisan agreement. The first is a high level strategic executive think tank; the second is a private non-profit corporation.

The big-picture, strategic group is called the Iowa Partnership for Economic Progress, or Partnership, for short. It is a seven-member advisory board appointed by the Governor and chaired by the Governor or Lieutenant Governor. Its membership will include top level management from the following business sectors targeted for growth: advanced manufacturing, renewable energy, biosciences, information technology, financial services and food manufacturing.

“ This is one of the most important pieces. We’ve become very reactionary and good at order taking,” Durham said. “This will help us be proactive and more thoughtful in our growth model. This group can identify emerging markets, trends and competitive forces on a global economy.”

This “Partnership” will set large strategic goals. Interestingly, according to House File 590, the group is also responsible to “set annual numerical goals to the creation of jobs in the state. If such goals are not met, an explanation of the reasons shall be provided to the general assembly.” These goals will be passed down to the two operating arms, the current public department and the new private non-profit corporation.

The second new piece is a private non-profit company, the Iowa Innovation Corporation (IIC). The IIC will start with seven members appointed by the Governor and then elect its own new members. Durham said its goals are to complete the due diligence needed to ensure that an idea is viable and to help emerging companies move from the start-up demonstration phase to be packaged and viable for more traditional funding from capital sources such as banks.

Durham said she expects the corporation to create a for-profit arm that will develop seed capital funds from strictly private sources, a model commonly used at the local level. The IIC will not receive public money from the general fund. Durham said funding companies after the start-up “is a higher risk area that is the role of the private sector.” The IIC can receive public funds and be contracted to provide specific research and marketing services associated with innovations.

What’s the same?

The third and last piece of the new economic model involves recreating the current Iowa Department of Economic Development into an “Authority.”

Durham said there will be little change for current state employees in the department.

“ This takes care of the staff with no loss of service or benefits,” she said. “The department will continue to serve as the main economic marketing arm and will continue to offer a variety of incentive programs. It will have nine members appointed by the Governor.”

Changes would involve moving industrial revenue and Midwest disaster bonds to the Authority from the Iowa Finance Authority, a state government agency that provides programs to assist in the attainment of housing for low- and moderate-income residents.

“ This will help business by making it a one-stop shop instead of them dealing with two government agencies,” Durham said.

She said the model “allows government to do to what it does best and the private sector to do what it does best.” She noted that communication between the IIC and the Authority will be critical.

Two areas are expected to require changes for passage in the Senate. The initial proposal would no longer have the Governor appoint the Director of the Authority — that would be accomplished by the Economic Development Authority Board. An expected compromise would continue to have the Governor make that appointment with a six-year term and Senate confirmation.

The second issue deals with transparency, and the private Corporation is expected to conduct open meetings on any program that involves public funding while retaining its right for privacy with private funds.

As far as the budget cuts, “We can manage with what we’ve been given,” Durham said. She stated that more interest centers on reinstating $15 million in business incentives cut under the original House budget.
Reaction to the changes
Mike Blouin, who serves as president of the Greater Dubuque Development Corporation and was the former Director of IDED, leads a private, non-profit corporation much like what is being proposed and brings a local and state viewpoint to the table.

“ While it is hard to determine because it is still evolving, I don’t know if it will make any difference or whether it will help or hurt,” said Blouin, who lost a 2006 Democratic Party primary for Governor of Iowa. “The key will be leadership and staff. You need a comprehensive, well-focused program.”

Both Blouin and Hatch offer high praise for Durham.

“ Debbie Durham is as good as they come; she is high class. Any concerns disappear with her running it,” Blouin said.

“She (Durham) is good and has the energy and knowledge to make it work,” Hatch said.

But Hatch and other Senate Democrats say there is a giant “missing piece” in the Governor’s plan — workforce development.

“ It is bizarre they would pursue this new model without training and investing in the workforce,” Hatch said.

Sen. Bill Dotzler, D-Waterloo and a long-standing member of the IWD board, echoes Hatch’s concerns.

“ The number one factor that is limiting growth is a lack of skilled qualified workers,” Dotzler said. “And it is accelerating. Iowa is in a war for talent.”

Dotzler and Hatch say continued budget cuts by the Governor and Republicans for community colleges, Regent universities and IWD are damaging. Dotzler said those cuts ignore the primary limiting factor — the skill sets workers need.

“ Long-time, laid-off workers need to refresh and update their skills to be looked at more positively by prospective employers,” Dotzler said while noting that the five areas for potential growth require high technical jobs and highly-skilled workers to fill them.

“ I don’t want him (Branstad) to fail. We want to prosper and grow,” Dotzler said. “But they are missing the training piece.”

Some question why private companies would participate in a system that asks them to contribute funds to bring in potential competitors. Durham says companies realize that a stronger and healthier state is better to bring in a critical mass of people.

“ They understand they win by creating a culture where people want to move to. It helps them in recruiting,” he said.

Blouin notes on the local level that companies feel that by bringing in competitors, “at least they are on the same basis and same playing field.” He added that grouping similar companies also can add more educational institutions and workforce development programs.

Orazem’s concern is that, although those principles may apply at the local level, they might not transfer to the state level.

“ Local companies have a vested interest in bringing jobs into the community, and there are local benefits of expansion at the local level,” he said. “But states compete on a larger, national — rather than regional — level.” He also said meeting the new jobs goal will take major structural change, and he does not believe that tweaking the tax structure will make much of a difference.

“ It (200,000 jobs) is an ambitious goal, and it is tied to also increasing Iowa family income by 25 percent,” Albrecht said. “We are poised for growth and will target any company to expand in Iowa.” CV