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Civic Skinny

Winners (Waukee, Apple) and losers (Iowa) in Apple deal. Massachusetts issues larceny warrant for Tirrell arrest.

10/4/2017

That Apple deal with Waukee is a whole lot richer for the town than even its biggest advocates say. Perhaps at least 10 times richer than the biggest figures being bandied about.

And it could be a whole lot sweeter for Apple than the papers and blogs and TV stations have been reporting.

But it could cost the state a lot more in development grants than state officials are saying.

And it raises a really interesting political question.

Those are the only conclusions you can come to after studying the Apple deal with Waukee and with the state of Iowa, after looking at the history of the deals the state has made with Google, Microsoft and Facebook and after querying gubernatorial candidates.

Ames Chamber

The announcements, the stories and the lunch-counter talk have centered on the facts in the late-August press release: That Apple is going to build a 400,000-square-foot data center in Waukee, that it will spend more than $1.3 billion to build the two-building center, and that over the years it will contribute up to $100 million to Waukee for a Public Improvement Fund.

And the facts provided by state and local officials: That Waukee will abate 71 percent of the property taxes Apple would ordinarily have to pay for the first 20 years and that the state will give an investment tax credit of $19,650,000 to Apple under the “high-quality jobs program” — $9,825,000 for each of the two buildings that Apple plans to build, or, put another way, for about $400,000 for each of the 50 jobs Apple plans to create.

All this was greeted by glee in Waukee, by pride in the chambers of economic-development groups and Republican state officeholders — particularly by Gov. Kim Reynolds — but by dismay in the quarters of Democratic politicians (and, oddly, by Pat Grassley, the Republican state legislator and wannabe state secretary of agriculture) and Iowans who wonder if that’s a wise use of tax incentives.

We’ll get to that political question in a minute.

But there’s more to the story.

Apple is buying around 2,000 acres in Waukee, land straddling Hickman Road on the west side of town, and it is saying privately that it hopes to build 20 — perhaps more — data centers on the site. And it has a deal with Waukee that each building will get the same abatements.

That’s a spectacular deal for Waukee. Waukee is currently getting about $20,000 a year in taxes on the land, which is taxed at the low agricultural-land rate. There is an agreement that each building will have a minimum assessed valuation of $200 million. After the rollback provided to non-agricultural property by Iowa’s tax laws, and after setting aside money to pay interest owed on outstanding bonds issued by the city, the county and the school district, and after forgiving 71 percent of the taxes that normally would be owed — after all that Waukee will collect from Apple about $1.5 million each year in property taxes on that first building. And another $1.5 million on each subsequent building.

Put another way: On just one building, the city each year will bring in 75 times the tax revenue it now is getting off all of that land. Two buildings will bring $3 million directly to the city’s coffers. Per year. Keep multiplying that out, and you get to $30 million per year for 20 buildings.

Apple already has agreed to start work on two buildings. People familiar with the plans expect it to start two new buildings every two years.

Then throw in the money for the Public Improvement Fund — $500,000 per building per year until the total hits $100 million — and you’ve got a really nice deal.

It’s true the city could have waited for other developers to come, eventually, and perhaps build equally expensive projects on that land, eventually, and perhaps have gotten even more money, eventually. But that’s a risky gamble, while the discounted Apple deal is a sure thing. It’s clearly a good deal.

For the city. (The way the deal is structured, neither Dallas County nor the school district will share directly in this property-tax take other than the money to pay interest on bonds.)

And it’s a sweet deal for Apple as well. Over the 20 years, it will save an estimated $188 million by not paying the full property-tax rate in Waukee on just the first two buildings. That money will go up about $6.5 million per year for each additional building built. And, of course, it will get the state incentives, though those can’t be calculated beyond the promised $19,650,000 for the first two buildings.

But it’s no sweet deal for the state.

The state has made an agreement with Apple for just two buildings, and it has made no promises for anything beyond those two. But if you look at the state’s history in dealing with Google and Microsoft and Facebook for the data centers they are building — you see the till is always open.

Indeed, so far those four companies have received about $130 million in tax breaks from the state — in return for 520 jobs. That’s $250,000 per job. So there’s no reason to think the current administration, if re-elected, wouldn’t continue the handing out of credits for additional Apple buildings.

Google was first to announce plans for a giant data center in Iowa, in 2007, when Chet Culver was Governor and the Democrats controlled both houses of the Legislature. The center was to be in Council Bluffs, home of Senate leader Mike Gronstal, so Gronstal made sure the law was changed to allow state aid for data centers. Microsoft followed in 2008 with plans for a center in West Des Moines, and Facebook in 2013 with a proposal for Altoona.

Google now has gone to the well four times, getting more state incentives each time. The first one, in 2007, provided just $1.4 million in a sales-tax refund for a $300 million project. Since then, it has gotten awards totaling $36.6 million. (At the end of 2016, Google had about $86 billion in cash.)

Microsoft got an original award of about $2.5 million in 2008 and has received another $45 million in investment-tax credits and sales-tax refunds in four subsequent awards from the IDED. (On June 30 of this year, Microsoft had about $130 billion of cash.)

And Facebook got an original award of $18 million in 2013 and an additional $8 million earlier this year. (At the end of last year, Facebook had cash of about $30 billion.)

In fact, though, that money is just chump change for the companies. Apple has about $255 billion stuffed under the mattress, so there are lots of people outside the Governor’s office who doubt that it was the $19 million tax break that persuaded Apple to choose Iowa. Rather, they say, it was the available land, the relatively inexpensive power (which is tax-free for data centers in Iowa), the abundance of water, the ability to boast that all the power would be from renewable energy (which is important for their image) and the low possibility of natural disasters that make Iowa so attractive to the data-bank companies.

These people say the state got rolled.

They say the state — unlike Waukee — gets nothing out of the deal, and they say that if the data companies paid their full share of taxes there would be $140 million or so that could have been invested in education, or mental-health facilities or the like. They acknowledge the data centers provide hundreds of construction jobs — lifetime jobs, probably, for some — but they say you shouldn’t have to give big breaks to get construction jobs.

Now, with elections looming next year, the Apple deal has become as much a question of politics as of economic development. CITYVIEW asked this question to Republican challenger Ron Corbett and Democratic candidates Andy McGuire, John NorrisFred Hubbell, Cathy Glasson and Nate Boulton:

If/when you are governor, and Apple comes back and tells you it is ready to break ground on buildings 3 and 4 in Waukee, another $1.4 billion deal employing another 50 (or fewer) people, and asks for another $20 million or so in tax incentives (investment tax credit or sales-tax refund), what will you say?

Their answers are in the accompanying columns. …

The state of Massachusetts has issued a warrant for the arrest of Marty Tirrell, the Des Moines sports-talk guy who owes a lot of people a lot of money. The warrant was issued June 23 and cites “larceny over $250 by false pretenses.” It contains no details, says a person at the Greenfield District of the state’s courts.

Tirrell, who has lived in Iowa for 20 years or so and is registered to vote in Polk County, apparently still has a Massachusetts driver’s license along with his Iowa license. The warrant prompted the Massachusetts department of motor vehicles to suspend his license “for an indefinite period” — until the warrant has been cleared by the court, according to the department.

As of the other day, the warrant had not been cleared, according to the court.

Larceny of more than $250 is a felony in Massachusetts punishable by up to five years in prison.

Meantime, as readers of the web version of CITYVIEW know, after CITYVIEW went to press last month the Eighth Circuit Court of Appeals upheld the federal bankruptcy court decision denying Tirrell’s petition for bankruptcy, meaning his hundreds of thousands of dollars of debts will not be discharged. …

Your tax or tuition dollars at work: The costs are starting to roll in for that political decision former Iowa State President Steve Leath made to squelch the free speech of the students who put the cannabis leaf along with the ISU logo on T-shirts advocating the legal use of marijuana in Iowa.

The Eighth Circuit the other day awarded $178,825 in fees and expenses to a Washington law firm that represented the students and $14,434 to the Des Moines office of Faegre Baker Daniels.

Those were just the costs of the appeal. The federal district court, which ruled against Leath and ISU, has yet to set the damages — or legal fees — for the case as a whole….

The Des Moines Register has made further newsroom cuts, eliminating four jobs. Among the departing: Dan Holm, a 28-year veteran who had covered sports and news in Ankeny, where he was widely admired, and Jeff Charis-Carlson, the Iowa City-based reporter who had been covering higher education. …

Senior Federal Judge Robert Pratt fined Dico Inc. and its affiliated Titan Tire Corp. about $11 million in a long-running case brought by the federal government and involving the sale 10 years ago of contaminated buildings in a scheme to avoid cleaning up a hazardous site Dico owned in Des Moines. About half the judgment is for punitive damages.

In an earlier go-round in that case, the fine was nearly $3.1 million. Morry Taylor, one-time presidential candidate and until recently the chief executive of Titan, dismissed that award as “a big joke.”

Dico never has paid an earlier judgment against it. In 2000, in another long-running case, Judge Ron Longstaff entered a judgment for environmental cleanup costs due to groundwater contamination against Dico of $4,129,626.67. The decision was upheld by the Eighth Circuit in 2001, and it remains unsatisfied. ♦

 

Candidates’ views of Apple deal

Fred Hubbell
If Apple is having a good experience in Iowa because of a number of very attractive factors that drew them initially — Iowa offering a low cost of energy, a high percentage of renewable energy, safety from most natural disasters and a quality workforce, on top of an existing sales tax exemption for equipment — then they really don’t need our money to build more.
Apple is already getting a great deal because of all those factors and we should not fall over ourselves to needlessly sweeten the pot for them. I’ve been critical of Apple’s deal and others like it, because they are bad deals for Iowans. Apple is a company with $260 billion in cash reserves and certainly does not need $20 million of our taxpayers’ dollars, which could be spent on helping our small businesses grow, or staving off the severe cuts to Medicaid, mental health funding, education, law enforcement, and state worker benefits that [Gov. Kim] Reynolds is proposing to off-set her $350 million budget deficit. I’m open to having a conversation with Apple about bringing a design center and hundreds of jobs, but unequivocally I will not give them another $20 million taxpayer handout for 50 permanent jobs.

Andy McGuire
Iowa is awash in tax breaks for out-of-state corporations. The investments have not paid off. In fact, Iowa’s local governments and community schools have taken the biggest hit in lost revenues due to commercial property tax reform and tax incentives to businesses such as Apple. Reimbursements for lost revenue have never been realized and common sense will tell you that $4.6 million ($400,000 in state incentives) per job is not a good trade.
Governor Reynolds is poised to dip into Iowa’s rainy day fund to make up for mismanagement and poor decisions. Doling out more money on a wing and a prayer isn’t good business.

Cathy Glasson
I would say no. You’re a high-profit company. We’re not playing those kinds of games with Iowa taxpayers’ money anymore. Iowa has low unemployment. We have a lot of jobs — the problem is they’re not good-paying jobs. That’s why among my top priorities will be quickly raising the minimum wage to $15 and making it easier for Iowans to join unions and employee associations, to raise wages and improve the standard of living for hundreds of thousands of working people in our state. As Governor I will make sure taxpayers are getting their money’s worth by investing in areas that have a guaranteed return for hundreds of thousands of Iowans, like healthcare and education, not giving millions of dollars in tax breaks to profitable corporations that really don’t need the help.

John Norris
To continue this pattern of corporate welfare is simply unsustainable. That $20 million could help make college more affordable, could help train high school students through internships and apprenticeships and get many of our young Iowans into the workforce, could help meet needs of pre-K through 12th grade public schools, could help finance ways to make our water safe to drink and many of our lakes and rivers safe for swimming, could help provide needed mental health services in a state that has closed its two mental health hospitals without providing any meaningful alternative, and could help ease the burden on our hospitals, particularly our rural hospitals, that have been hurt by state Medicaid rulings.
Iowans are excited that Apple is part of our state. But its presence here comes with the same responsibility all Iowans have, that it pay its fair share of taxes.

Ron Corbett
The Apple deal needed to have more jobs for the incentives. The state should have pushed for more than 50 jobs associated with the data center. Apple is a big company and other divisions or aspects of business should have been pursued.
All deals have to have a public benefit. In the event Apple wants to expand, and based on the purchase of acres that seems plausible, as Governor I will be open to additional incentives for future expansions. The jobs numbers need to be much higher than round one.

Note: Nate Boulton did not respond to CITYVIEW’s request. ♦

 

John Tapscott

One day in 1974, I ran into Harold Hughes in the Red Carpet Room of United Air Lines at O’Hare Airport in Chicago. He was in his final year in the United States Senate, and I was in my first year as executive editor of The Des Moines Register.

We chatted for a moment, and then he blurted out: “Why don’t you do something about those drunks who work for you in the newsroom?”

That took me aback, but he went on. He named a couple of names and said that, statistically, there were more.

I knew Harold Hughes usually knew what he was talking about, and I knew he particularly knew what he was talking about when it came to drunks. He had been a long-time alcoholic himself. So I asked how I should deal with these guys — they were all men — and he said, “Call John Tapscott.”

Tapscott was a former legislator, a one-time gubernatorial candidate and a long-time counselor to alcoholics. We got together. “How do I do this?” I asked. He explained that often a boss is the only person who can force an alcoholic to get treatment because the boss controls the paycheck, “and that’s the leverage.”

“Call them in,” he advised, and I can still picture the conversation 43 years later. “Tell them you know they’re a drunk. Tell them you don’t care why they drink, that you don’t care about their personal problems, that you don’t care about their family difficulties, that all you care about is getting from them a day’s work for a day’s pay — and that you’re not getting that day’s work. Don’t listen to their excuses or their denials.”

And then, he went on, tell them they have two choices: They can quit, right then, or they can go up to Methodist Hospital and check in for in-patient treatment. Tell them you’ll go with them, he said. And tell them they’ll be on the payroll the whole time — the treatment will take a month or so, he said — and tell them the job will be waiting for them when they get out. Tell them the newspaper will pay for the hospitalization.

Over the next three or four years, I had those conversations six or seven times — whenever I was convinced a reporter or editor had a serious drinking problem and I wasn’t getting a day’s work for a day’s pay. Each meeting was traumatic, for both of us, but each ended up with a trip to Methodist.

There was one failure. But the others came back — the first stop was usually to seek me out and give me a hug — and went on to generally happy and successful and sober lives. I worked with them for years, and I would see them periodically for decades.

I often wondered if they knew that John Tapscott had perhaps saved their lives.

I never mentioned it to them.

And I never thanked John.

Now, there is no chance. John Tapscott died in August of a rare heart disease. He was 87. ♦

— Michael Gartner

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  1. Pingback: Everything we know about: Apple coming to Iowa – Clay & Milk

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