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Iowa’s economic authority board members award their own companies with incentives

2/26/2013

DES MOINES – Members of an Iowa board charged with doling out millions to lure business to the state often work for companies that benefit from the incentive programs they oversee, an Iowa Watchdog review shows.

Additionally, Iowa Economic Development Authority board members donated thousands of dollars to political campaigns, including Gov. Terry Branstad, prior to their nominations to the board. The Republican governor led the charge to create the authority when he took office in 2011 and appointed its entire board, which has to gain final approval from a majority in the Iowa Senate.

CONFLICTING INTERESTS? Board members on Iowa’s Economic Development Authority have what some say are conflicting interests.

CONFLICTING INTERESTS? Board members on Iowa’s Economic Development Authority have what some say are conflicting interests.

The board selected dozens of companies in the past year to receive a combined $189 million in taxpayer money and tax breaks, with the goal of luring more busines to Iowa and growing its economy. An Iowa Watchdog review of state campaign donor lists, legislation and records from the authority showed a majority of the money went to fund projects at existing businesses, rather than to land out-of-state or new companies.

“Whenever there is even an appearance of a conflict of interest we abstain,” said Theodore Crosbie, an authority board member and vice president of global plant breeding at Monsanto. “We take the subject seriously. All members have been diligent about this matter.”

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But the review found potential conflicts of interest among board members. Specifically, it showed:

  • Six companies – John Deere, Aviva USA, Monsanto, Cargill, Brownells Inc. and Interstate Companies – received at least $39.6 million in tax incentives and state grants and loans, despite leaders from the respective companies serving on the authority’s board. In exchange, the companies promised to create 983 jobs. State documents did not show a figure for the incentives received by Brownells.
  • Monsanto, an agriculture-related business, received three separate tax credit awards from the authority totaling $20 million. The company promised 72 new jobs from the projects, but created only 21. A $10 million tax break awarded for a Monsanto project in Waterloo but was later rescinded, although officials didn’t cite a reason.
  • Eight authority board members and three of the companies they worked for gave a combined $481,931 in campaign contributions in the past decade. Of that, nearly $43,300 went to Branstad, while thousands more went to fund the Republican Party and prominent state senators, such as Gronstal. Peter Brownell, owner of Brownells, spent the most, giving $133,240 to Iowa politicians, including $32,240 to Branstad. Other contributors include board members Crosbie, David Bernstein, John Lisle, Daniel White, Brenda Cushing, Brownell, Delia Meier and Dawn Ainger. Companies contributing include Monsanto, Aviva and FBL Financial Group.

Tim Albrecht, a Branstad spokesman, did not return calls and messages seeking comment. Tina Hoffman, spokeswoman for the Iowa Economic Development Authority, did not return a request for comment and failed to provide requested information detailing the role of the authority and board, as well as measures of progress and reporting requirements. None of that information is on the authority’s website.

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The authority replaced the Iowa Department of Economic Development in 2011 after lawmakers and Branstad signed off on legislation to scrap the public department and create a partnership between the public and private sector that would offer more opportunities for business growth in Iowa.

Its board members, who serve for four years, oversee and approve all state economic aid for companies looking to come to Iowa or expand their presence. The new authority comes at a time when most states, including Iowa, have sweetened their offers to attract companies in hopes of offsetting other faltering industries.

Branstad pursued the public-private partnership shortly after taking office, but he got resistance from Senate Democrats, who feared it would lead to further secrecy in a program that was already heavily veiled, said Senate Majority Leader Mike Gronstal, D-Council Bluffs.

The Senate ultimately approved Branstad’s measure in exchange for increased transparency. It remains to be seen whether that will be the case, said Mike Owen, assistant director at the Iowa Policy Project.

Owen’s organization, a nonprofit based in Iowa City, has not had enough time or information to evaluate the new authority and whether previous problems still exist, he said.

“We’ve seen no evidence of new accountability,” Owen said. “When this happened our biggest concern was that already there were serious issues of transparency and accountability with Iowa’s economic programs. We wondered if this was going to make things worse. We can’t say that it has. But we can’t say it’s better.”

The authority’s website provides a list of businesses that received grants and tax incentives in 2010 and 2011. Links explaining the information, as well as others providing insight into the new agency and its transition from the Iowa Department of Economic Development, were broken. Another link regarding reporting requirements also did not work. The issues went unresolved after  Iowa Watchdog made the authority aware of them a week ago.

Additionally, minutes from only five authority board meetings between July 2012 and November 2012 were posted; others were missing.

“One of the things we did when we worked with the governor on passing his economic authority is we insisted on transparency,” Gronstal said.

In its first year, the authority broke spending records to lure major businesses to Iowa. One of those was a subsidiary of Egypt’s largest company, Orascom Construction Industries, which sought to build a $1.4 billion fertilizer plant near Burlington.

State and local officials promised the company $200 million in tax breaks to build the project. What they didn’t know was the company faced a pending lawsuit alleging an Orascom subsidiary defrauded U.S. taxpayers out of millions of dollars, according to the Associated Press. Orascam was not required to inform Iowa officials, who also failed to adequately vet the company before making the deal, critics have alleged.

It’s subsidiary, Virginia-based Contrack International, was alleged to have been improperly awarded $332 million in construction contracts in Egypt funded by the United States, the AP reported.

“There is very little information available to the public on how this money is being spent, whether it’s being spent on public purposes or things that will advance the economy,” Owen told Iowa Watchdog. “It’s based on, ‘Give us tax breaks and everything will be better.’ Public dollars should be accounted for in a way that the public can understand.”

Contact Sheena Dooley at dooley@iowawatchdog.org. Sheena Dooley is the Iowa bureau chief for Watchdog.org, where this story first appeared.

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