Orascom Construction Credit Boost Criticized

Two Iowa senators questioned whether a “comfort letter” Gov. Terry Branstad sent to Orascom Construction Industries obligated the state economic development board to provide $25 million more in tax credits for the $1.8 billion fertilizer plant in southeast Iowa.

The Iowa Economic Development Authority board agreed Friday to boost the tax credits to Orascom’s Iowa Fertilizer Co. project in Lee County near Wever. It pushes the state’s total tax credits to the company, based in the Netherlands, to $82.5 million.

The company, which also received other state and local incentives, can come back for another $25 million next fiscal year.

“The governor and Director (Debi) Durham are making commitments that basically require the board to approve them,” said Sen. Joe Bolkcom, an Iowa City Democrat. “It makes the worst economic development deal in the state’s history even worse.”

At the meeting, Sen. Steven Sodders, D-State Center, questioned whether the letter could open the state to a lawsuit if the board decided against providing the incentives. “If the governor sent a letter saying you’re going to get this … could the company get this money anyhow?” said Sodders, who also questioned the multiyear timing of the incentives.

The Branstad letter to Orascom in July encourages the company to seek added tax benefits. A contract the state signed with Orascom also outlines the same opportunities for future tax credits.

“Because we are enthusiastic about the prospect of bringing this project to Iowa, we encourage you to submit a revised application requesting up to $100 million in capital investment tax credits,” Branstad said in the letter. The state has said it offered more incentives to Orascom because of intense competition with Illinois for the project.

Tina Hoffman, a spokeswoman for the Iowa Economic Development Authority, said comfort letters outline the incentives that are possible for a company, but the agency can’t commit to providing them. The economic development board sets the incentives for companies. “It doesn’t give them a right to future tax credits. It gives them the right to request the tax credits from the board,” she said.

Durham, the economic development director, typically sends the comfort letters to companies coming to the state for incentives, Hoffman said. But Branstad sometimes sends the letter when he’s more directly involved in the deal.

Board chairman David Bernstein said it was the board’s intention in September to provide Orascom with $100 million in tax credits based on capital investment. That’s when the board agreed to boost the incentives to $50 million, and told the company it could come back for $25 million in added tax credits annually for two years.

In February, the board agreed to provide Orascom, formerly based in Egypt, a $1.61 million loan and forgivable loan for the project, plus access through the state to a federal tax-exempt bond program to finance the project. That’s expected to save the company about $300 million.

The project also received a nearly $2 million state transportation grant and about $1.8 million in assistance for job training. Local governments are expected to forgo an estimated $133 million in property taxes.

Tim Whipple, the authority’s attorney, said companies can seek 10 percent of their capital investment in tax credits. But projects like Orascom and CF Industries’ $1.7 billion fertilizer expansion near Sioux City would bust a cap on tax credits. Last year, the tax credit cap was raised to $170 million from $120 million.

Whipple said the tax credits have been negotiated down but still require that they be awarded in stages. “This is legal and sensible,” he said.

CF Industries also can seek additional tax credits — $48 million over four years.

“We made a commitment, at least verbally, when they (Orascom) committed to Iowa,” said Bernstein, an owner of State Steel in Sioux City. “I personally don’t want to be going back on something like that, unless something has substantially changed … and I don’t believe it has.”

Sodders and Bolkcom said they planned to ask the Iowa attorney general’s office to review the Orascom contract and comfort letter.

Source: Des Moines Register