Editorial: State agency misled the public on job-growth incentives

By the Register's Editorial Board

Iowa’s state auditor released an eye-opening report three weeks ago that indicates the Iowa Economic Development Authority is cooking the books when it comes to a few of the job-creation programs it administers.

In fact, IEDA isn’t just cooking the books, it’s baking, boiling, deep-frying and sautéing those books.

The audit report focuses on two of the state’s job-creation programs — the High-Quality Jobs Program and the Grow Iowa Values Fund — and their performance between the years 2003 and 2014.

Through those programs, corporations can apply for loans and other forms of assistance in exchange for creating a specified number of jobs in Iowa. Combined, the two programs have doled out almost $310 million to businesses that have promised to create, or at least retain, 57,584 jobs.

The obvious question is, "How many of those jobs were actually created or retained?" That’s hard to say because, as the state auditors observed, IEDA isn’t fully reporting the current status of each individual project — and this failure makes it impossible to determine whether the programs are really working.

Although IEDA publishes an annual report with detailed information on the agency's job-creation programs, some of the data in those public reports is, as the state auditor politely puts it, “misleading.”

For example:

  • The published annual reports list 26 projects involving $9.6 million in public investment that have supposedly resulted in “full recapture” — implying complete repayment — of the money that was loaned out. Two other projects involving almost $1 million in public investment are said to have resulted in “partial recapture." In reality, all 28 of those projects were written off by IEDA as uncollectable debts.
  • IEDA publicly reported 32 other projects, involving $7.6 million in loans, as “full recapture.” But IEDA’s internal records show that 29 of those 32 projects are going through collection efforts, while the remaining three are tied to companies mired in bankruptcy proceedings.
  • IEDA claims the cost of each job created under the two programs is $5,392. But that calculation excludes tax credits given to the businesses as part of the deal. Once those credits are factored in, the cost balloons to $29,750 — more than five times the reported amount.  

It may not have been IEDA's intent, but the annual reports imply the agency has recovered millions of dollars in taxpayer money loaned out to certain businesses when the agency's own records show some of these businesses have defaulted on their obligations. What's more, the agency is also under-reporting the public cost of the incentives awarded to some businesses.

It's telling that although the auditors examined only a small sampling of 125 projects, they found that 29 of them were inaccurately described in the agency’s published annual reports.

In one case cited by the auditors, a business received a traditional $300,000 loan in exchange for retaining — not creating, but merely retaining — 84 Iowa jobs. The business filed for bankruptcy after repaying just $15,000 of the loan, and the 84 jobs were lost. The IEDA board eventually wrote off the $285,000 loan balance as “uncollectable,” but the IEDA staff published an annual report in which the project is described as "full recapture."

IEDA officials say the the "recapture" phrase is intended only to convey the agency's desire to recover the money — not to indicate that it has actually done so. They say that fact should be clear to anyone who reads the annual reports, but the auditor disagrees, saying, "Reporting projects as 'recaptures' instead of 'written off,' 'in collection,' or 'in bankruptcy' misleads the users of the report. ... The state will not collect these funds."

The auditor has recommended a number of changes at IEDA, including revisions to the descriptions used in the annual reports. IEDA says it is in the process developing "a new application" that will provide greater clarity as to the status of the various projects.

One sign that IEDA still doesn’t get it: Agency regulations explicitly require the businesses that accept loans from the state to use an independent auditing service to calculate their job-growth data. But very few businesses are complying with that regulation, and IEDA officials have actually advocated the elimination of this requirement.

That’s hardly in taxpayers’ best interests. It’s as if IEDA has no confidence in the numbers it’s relying on, but doesn’t want to run the risk of having an independent auditor derail the gravy train.

This is an issue that should be taken up by the Iowa Legislature’s Government Oversight Committee. Lawmakers should demand that IEDA provide a full, detailed report on the current status of all job-creation incentives.

After all, millions of taxpayer dollars and thousands of Iowa jobs are at stake, and the public clearly can't rely on IEDA's annual reports.