One thing I’ve never understood is why a smart guy like Tom Vilsack put the full weight of his administration’s political capital behind the Iowa Values Fund.
As Jason Hancock discusses in this story at Iowa Independent, the impact of that fund on jobs created and retained in Iowa has been questionable:
Colin Gordon, senior research consultant with the Iowa Policy Project, said the fear many critics of the Values Fund have is that once contracts expire and companies have received their last payment, the jobs that were created will disappear.
[…]
Companies make location decisions based on infrastructure needs, available workforce, skill level of the workforce and amenities, to name just a few reasons, Gordon said.
“It does not follow – just because a firm pockets money from the Values Fund – that the Fund can claim credit for all the jobs and investment that come afterward,” Gordon said. “We have no way of knowing whether Values Funds money actually attracts these firms. Certainly the academic research on this question is unequivocal that firms make location decisions based on local suppliers, customers and workers. No one turns down subsidies or tax breaks being thrown at them, but these are rarely the keys to investment and location decisions.”
Competition is fierce among states, IDED’s Bjornson said, and if Iowa doesn’t pony up, other Midwestern states will.
Swenson called this a “race to the bottom,” with Midwestern states trying to beat their neighbors but only making matters worse.
“Infrastructure, amenities, education, it all suffers, and thus, the Midwest becomes a less desirable place to do business,” he said. “The Midwest, including Iowa, is doing more damage to itself than anything else.”
Hundreds of millions of dollars have been doled out by the Values Fund, Swenson said, but Iowa has still grown at only one-third the rate the rest of the nation has. In 1982 Iowans made 92 percent of the national average for earnings per job. Today that figure stands at 78 percent.
[…]Gordon said IDED can point to a few scattered success stories, but in the end the true impact of the Values Fund is murky at best.
“It diverts money from improving the things that truly matter to companies, and that hurts Iowa in the long haul,” he said. “These incentives are a short-term, politically easy fix to a much bigger problem. If you ask a business, and they answer honestly, they will say these incentives make very little difference to their final decision of where to locate.”
Count me among those who think the Values Fund is glorified corporate welfare. In some cases corporations didn’t even need to promise to create new jobs to receive money–they just had to promise not to decrease their current number of employees. But in an economic downturn, I don’t think those promises will make much difference.
Look at Lennox International. The slowdown in home construction has to be brutal for that manufacturer of heaters and air conditioners. Not surprisingly, the company will lay off 150 people in Marshalltown this August and 100 more people there next year. The Values Fund promised Lennox $6.6 million in forgivable loans in 2006, but it looks like Iowa taxpayers aren’t going to receive good value for that money.
We needed more leadership from Governor Vilsack on other economic policy issues, but he seemed to focus way too much on the Values Fund.
If anyone has any educated guesses or inside knowledge about why Vilsack believed so strongly in the Values Fund, please post a comment or send me an e-mail about it. It’s a real puzzle to me. A policy wonk like Vilsack should have been aware of research indicating that these state and local incentives are not major factors driving employment figures.