$503 million economic-development fund passed by the Iowa Legislature in a special session

"No one should kid themselves," editorialized the Register. "The
economic-development fund passed by the Legislature in a special session
this week is not good enough. It is too small – $503 million over seven
years – and there is too little money upfront.

It exemplifies Iowa’s
tendency to be timid, to settle for half measures. It should have been $1
billion, backed by bonds, so investors would have received an unmistakable
message that Iowa is committed to improving its economy and quality of
life."

An Editorial
Des Moines Register

Worse, it is part of a package that includes troubling income-tax cuts and changes in business law that favor employers at the expense of workers and companies over consumers. It skimps on promoting cultural attractions and outdoor recreation that make people want to live here.

That said, this probably is the best that Gov. Tom Vilsack, a Democrat, will get out of the Republican-led General Assembly, and he should sign the legislation.

Otherwise, the state has few economic-development tools.

The $503 million fund – with $62 million in the first year, $66 million in the second year – would let Iowa pursue a variety of incentives to keep and attract companies. Those could include job training, tax abatement, forgivable loans, repayable zero-interest loans and grants. Dollars also will go to cutting-edge research at the state universities. The fund would be run primarily by an 11-member board, mostly from the private sector, appointed by the governor and confirmed by the Senate.

"If this becomes law, we will be in a position to be players at the table in competition with other states to bring projects to Iowa, to create jobs and to grow industry in information solutions, advanced manufacturing and life sciences," said Mike Blouin, director of the Iowa Department of Economic Development.

That all sounds promising, but here’s a reality check: Trans Ova Genetics, the Sioux Center biotechnology company that has requested $33 million in state aid to expand, in theory would eat up more than half the $62 million set aside for the fund in the first year.

Besides the $503 million fund, the Legislature added $125 million for school infrastructure.

The half-hearted approach to the fund, however, is not the only thing that should make Iowans nervous.

The state income-tax cut that the governor must accept if he wants the fund is flawed in a number of ways.

* It was rushed through, so repercussions aren’t entirely clear yet.

* It threatens essential state services, such as public schools. The estimated net revenue loss from the cut in the budget year that starts July 1, 2005, is $132 million. Unless the economy picks up to backfill that hole and then some, the state could find itself continuing to underfund basic needs.

* Meanwhile, the state would delay the phase-out of the utility sales tax to help offset revenue lost because of the income-tax cut. That will hurt poor Iowans the most, which simply isn’t fair.

This comes at the same time the state is cutting aid to cities, which have been engines of economic growth. They had hoped to get some of the new federal aid for states, but instead Iowa’s share of federal money will pay for the economic-development fund’s first two years. In future years, anticipated tax revenue from Internet and catalog sales is supposed to maintain the fund, but that revenue isn’t a sure thing.

The fund could be in jeopardy in its third year and beyond.

So it’s an inadequate fund, backed by uncertain revenue, accompanied by risky tax cuts. But it’s the most this Legislature seems capable of.

Late Wednesday, the governor announced that he would review the legislation, without indicating whether he favors it. Either way, lawmakers must return to the topic next session – to improve this year’s inadequate effort if he signs it or to start over if he doesn’t.