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September 2012 Policy Study, Number 12-11


Orascom or OraScam? Corporate Income and Property Tax Reform Needed


Executive Summary



One can’t blame Iowans for having questions about the Iowa Fertilizer Company (Orascom) project, but the relevant answers aren’t about whether the owners are foreign or domestic, or how much each permanent job is costing the taxpayers, or even how many “net jobs” will be created, but rather why is this giveaway of taxpayers’ money still necessary? Why haven’t Iowa politicians long since reformed the corporate income and property tax system so that we have a better, level “playing field” for all businesses who want to start or expand in our state? Why do Iowans put up with a “scam” wherein politicians shower our tax dollars on well-to-do businesses that would probably erect the firms in question even without any incentives?


This fertilizer plant is the largest capital investment project ever in the state of Iowa. Lee County and southeastern Iowa need the jobs, estimated at 2,000 or more during the two-year construction period and 165 once the factory is running. The new facility will be built on 300 acres near Wever, Iowa, and will be in full production by 2015.


Admittedly, in building this plant Orascom is taking advantage of every economic development incentive they can wrangle out of the state of Iowa and local governments. As of September 12, 2012, the package includes $1.6 million in forgivable and low-interest loans from the state, a $1.7 million job training program, and almost $1.2 billion in federal tax-exempt bonds through the 2008 flood-relief money, $2 million for road and rail improvements, and various smaller, local government incentives. The total bonding ability under the Midwest Area Disaster Relief program is $2.6 billion. Orascom is requesting and receiving almost half of this money, at $1.2 billion. About half of the loan is tax incentivized, the rest is forgivable.


The lure of a huge fertilizer plant, potentially providing several thousand construction jobs over the next two years and upwards of 165 regular, full-time, good-paying jobs when in operation, is very enticing. But is it “enticing” as in something that is real and will last, or “exciting” as in winning the lotto, only to find out that after taxes are paid you have less in your pocket than before you bought the block of tickets containing the winner? Is this claim of 165 jobs real? Is it based on gross jobs created, or net jobs created? Will the 165 new jobs in Lee County result in unfair competition with existing fertilizer plants which are not being provided with state-of-the-art production with taxpayer money? Will those existing plants fire workers when their sales decline?


Attracting new companies and new jobs to Iowa should not involve the government picking winners through state taxpayer subsidies and federal loan programs, but should be based on lower taxes and a level playing field for all.


In 2012 the Iowa Legislature failed to take significant action on either the Tax Increment Financing system or commercial property and income taxes this Legislative session. The opposition to the far reaching proposals from Governor Branstad and the Iowa House of Representatives was led by State Senator Bolkcom and his political party. Governor Branstad has now publicly stated that one of his goals for the next Legislative session is addressing the corporate tax structure so that special incentives for individual companies are not necessary. His proposal should be solid and robust – addressing the wide range of special interest loopholes in the Iowa tax structure, simplifying the process, and lowering the rates for everyone. If we can continue to win companies from Illinois and other states and facilitate the growth of locally owned businesses by having a better tax structure for all businesses and not just for some, this will be a win – not a scam – for everyone.




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