
Iowa's handout to Apple illustrates the folly of corporate welfare deals - sverige
http://www.latimes.com/business/hiltzik/la-fi-hiltzik-apple-iowa-welfare-20170829-story.html
======
colechristensen
These are property tax abatements. I don't see the big deal. Apple has to pay
the property tax equal to the farmland for the next 20 years instead of the
much higher tax on the datacenter property. Who cares? Unless someone is
arguing the datacenter is going to use a lot of tax funded city services
(police? fire? ... ?), Waukee isn't giving Apple anything. On top of that
Apple is pledging to give them $100M for various things. Seems more like
instead of paying property taxes, Apple is donating money to the city which
will probably get it an income tax deduction. It's a scam I don't really care
about.

If you do care about it, maybe you should be complaining much more about all
of the corporations that are "Delaware" corporations to avoid state taxes
instead of being corporations where they're actually located.

~~~
fulafel
Companies are supposed to pay taxes so we can have schools, healthcare, basic
income etc. When they bid countries or states against each other to get tax
breaks and governments play the game, citizens lose.

Yes, it happens in other cases too, and citizens should also protest against
those other cases.

~~~
lend000
> When they bid countries or states against each other

I have nothing to say specific to this case, but there _is_ a market for
governments (very distorted since options are very practically limited for
most people, although corporations have an advantage here), and we should
encourage competition in this market, as well as political markets.
Competition results in better products. Washington already won me over
[partially] due to not having a state income tax and yet having infrastructure
comparable to my previous high-tax state, although Seattle is working hard to
change that. I think the US being a federation of states that compete at some
level (since it's relatively easy to move between states) is a large reason
that the country has been so successful.

~~~
lumberjack
Competition between governments is harmful to citizens because in general,
labour is never going to be as mobile as capital. And this is not just limited
by regulations and laws (which it is). People just aren't going to move across
borders because of politics, unless things get really bad. It just costs too
much to move.

~~~
murph-almighty
>People just aren't going to move across borders because of politics

But they'll move across borders because of the effects of politics. My parents
are looking to move from NJ after they retire due to the high tax obligation-
not just income, but gasoline, tolls and property taxes as well. It's more
tolerable when you're working but a little less so when your income stream
isn't as high.

~~~
tacomonstrous
I feel like you made the parent's point for them. Your parents are moving,
yes, but only after they're no longer part of the labor force.

~~~
KekDemaga
I live in PA on the border of NJ and I worked in NJ while I was looking to buy
my house. Buying in NJ would of cut my commute at the time by 45 minutes each
way but the property taxes were nearly $600 a month compared to under $1300 a
year in PA for a similar home (the PA home is in a better neighborhood and
isn't a townhouse as well). I made the choice to buy in PA then after a year
or so found a PA job. NJ just does not provide much value for your tax dollar
and I imagine many other people make the choice I made every day.

~~~
tacomonstrous
Not everyone lives close enough to a state line to relocate without changing
jobs though. I personally live in a different state than my job, though not
for tax purposes. It's possible to do this in the Northeast, but in few other
places.

------
farnsworth
I'm a programmer. Every time I go home to Iowa, people try to tell me that
Iowa is now a booming tech hub, with Microsoft, Facebook and Apple "offices",
and that I should get a job there. I try to explain why I probably won't end
up there, but the point is that they are extremely proud of all of these data
centers.

~~~
davis
Yup. This is about half of the conversations I have with my family whenever I
visit for the holidays.

~~~
nihonde
Probably the same conversations happening in “booming” industrial cities in
China. Cheap land, low cost of living...eventually the race to zero gets you
and the big players move on.

------
quasse
Luckily Wisconsin figured out the solution to this problem... Make the
corporate welfare deals an order of magnitude larger and give 3 billion to
Foxconn instead of a piddly tenth of that.

Even in the best case for "jobs created" (10,000) pushed by our politicians
the state might as well just give 10,000 people $30,000 a year for 10 years.

Realistic estimates are saying the new jobs might be more in the range of
3,000, which is an astonishing cost of $1,000,000 per job.

~~~
diddid
Nobody is giving anyone money, they are just not charging them tax. It's an
important distinction I don't understand how people keep glossing over it.

If it creates 10,000 local jobs, those 10,000 jobs are still going to get
taxed. So the locale is going to get money, just not from the corporate tax.

So it's not a great deal but it's not a horrible deal. I'd prefer nobody made
them but once on place does they all have to in order to compete. But if they
built overseas they'd get no corporate tax either... so some slice of the pie
is better than none.

~~~
kkielhofner
Some estimates show that to cover the generous incentives Wisconsin will most
likely need to pay Foxconn cash from the treasury for the foreseeable future:

[http://www.jsonline.com/story/news/politics/2017/07/28/foxco...](http://www.jsonline.com/story/news/politics/2017/07/28/foxconn-
could-get-up-200-million-cash-year-state-residents-up-15-years/519687001/)

The "local jobs" argument is eroded further for Wisconsin when you consider
that the proposed sites are all well within commute range for a large
population of Illinois residents - something that didn't seem to occur to WI
legislators until far too late in this "deal":

[https://www.reuters.com/article/us-foxconn-wisconsin-
illinoi...](https://www.reuters.com/article/us-foxconn-wisconsin-illinois-
idUSKCN1B42DZ)

As a Wisconsin resident who's town (near the proposed sites) is overrun with
Illinois license plates this was an obvious issue from the beginning (on top
of everything else).

My (somewhat cynical) belief is that Foxconn has been several steps ahead of
our local politicians (who are desperate to put up healthy job numbers). This
"realization" of the proximity to Illinois is likely (and unfortunately) the
first of many ways Wisconsin is going to get schooled by Foxconn here.

~~~
diddid
Nowhere in that article does it state how they’ll just get checks. Maybe I’m
not understanding tax credits because that article says the same thing, they
will get up to 200 million a year in tax credits. If you have no tax, you get
no credit. Better than a deduction, but not writing a check. Anything past
that is all “some estimates” which really are just people making things up.

Also, people commute, you can’t stop them all. That’s the nature for all
business and it’s part of the game you play with these deals.

~~~
kkielhofner
The article states:

"... because Wisconsin already waives almost all taxes on manufacturing
profits in the state, these incentives represent not a lost opportunity at
collecting revenue but an obligation to pay cash to Foxconn out of the state
treasury for up to 15 years."

Put another way:

[http://fortune.com/2017/07/31/foxconn-wisconsin-plant-tax-
br...](http://fortune.com/2017/07/31/foxconn-wisconsin-plant-tax-breaks/)

"Although the state measures to attract Foxconn are labeled tax incentives,
they largely would be paid in cash since the effective Wisconsin state tax
rate is 0.4% on manufacturers."

Of course people commute (and they should)! However, for a state negotiating
an incentive package they should have been aware of this basic fact,
especially given the extremely close proximity to another state that
(amazingly) isn't contributing to the incentive package.

------
vturner
Just for all the inevitable comments about "the government should have just
given X people Y dollars instead..."

Iowa isn't "giving money." It does not have the additional revenue before
Apple arrives, thus, it can't give anyone those revenues. All it can do is
tell Apple you have to give us, Iowa, less than the state next door... now
whether this is a good economic plan I disagree. I'd rather have a thousand
small businesses be guaranteed no regulatory or other fees for the first five
years than a corporate overlord be granted no requirement to pass on the
enormous amount of wealth they extract from the land and environment but
that's another discussion...

~~~
vacri
So Iowa doesn't have to deal with providing services to the site? Land
management services, emergency services, water, sewerage, etc?

~~~
jessriedel
Why would Iowa agree to an amount of revenue that doesn't even cover the cost
of additional services?

~~~
rtpg
because the decision makers on this deal are not those who have to manage the
costs down the row? Pretty classic principle-agent problem

~~~
jessriedel
I mean, that applies to all local government actions. And in any case, we
don't need to speculate. You can just total up these costs.

~~~
macintux
Totaling up the public infrastructure costs of one specific user of resources
is non-trivial. What are the additional road repair costs? How much extra
money and time do local firefighters spend to be trained on how to deal with
data centers?

~~~
jessriedel
There is lots and lots of data on this.

------
rdtsc
Saw this happen a few times. One instance was when NCR (National Cash
Register) headquartered in Dayton, OH decided to move to Georgia because it
had gotten $60M worth (in 2009 dollars) of tax breaks and other incentives
there.

It followed the incentives sure, so from that point can't blame it, but it had
cost Dayton, an already struggling city, even more pain.

Another motive behind forced moves is to shed experienced (and thus expensive)
/ senior people who had been there longer. They are more likely to have
families, kids in schools, homes, etc and so might not move.

~~~
pfranz
Interesting podcast talking about companies moving from one side of Kansas
City to another:

[http://www.npr.org/sections/money/2016/05/04/476799218/episo...](http://www.npr.org/sections/money/2016/05/04/476799218/episode-699-why-
did-the-job-cross-the-road)

------
desdiv
>Apple’s deal with Iowa, which includes about $20 million in a state
investment tax credit and a 20-year tax abatement from the city of Waukee
worth nearly $190 million, underscores all these elements.

Dumb question: how do these deals not violate the Equal Protection Clause?

Other businesses in Waukee obviously aren't privy to the same state tax
credits from Iowa and the same tax abatement from the city of Waukee. Doesn't
that mean that the tax code is effectively discriminating against all these
non-Apple businesses?

~~~
ceejayoz
> Other businesses in Waukee obviously aren't privy to the same state tax
> credits from Iowa and the same tax abatement from the city of Waukee.

Sure they are - they can request it, just like Apple does, and be evaluated on
a case-by-case basis. It's no more an equal protection violation than city
government hiring one person over another is.

~~~
kevin_thibedeau
Just like petitioning a king for favorable treatment.

------
mikeash
It's odd to see so many comments defending Apple on the basis of their $100
million pledge. I guess you all just skimmed the article and didn't really
read it? They pledged _up to_ $100 million. In other words, they're not
spending $100 million.

~~~
esmi
The minimum initial payment from Apple is $20M.

However since we have no data on the cost to Iowa or Waukee we can't say
whether or not this is cash positive to the state or county.

My guess is because the payment is variable and a function of the size of the
facility Apple is basically paying for its hookup to streets, water,
electricity, etc. with a park thrown in on the side.

------
watchdogtimer
As an Iowa resident, I think it's worth mentioning that all this is happening
at a period in time when state government has been experiencing multiple years
of unexpected revenue shortfalls.

The governor may have to call the legislature back into special legislative
session again next month because revenue is again coming in less than
expected.

The three state universities will be increasing tuition 7% per year for each
of the next five years because of budget cutbacks caused by these revenue
shortfalls.

Part of the decline in revenue is due to the decline in the ag economy, but
some have also attributed it to the increasing amount of tax breaks like these
that Iowa has been giving out.

Furthermore, this is not just farmland. Waukee is a west Des Moines suburb,
the fastest growing part of the state and supposedly one of the fastest
growing parts of the US. If Apple hadn't purchased that land, it likely would
have been purchased and developed by someone else soon.

------
thanatropism
Pretty much unrelated, but that columnist's piece on price-gouging[0] is so
analytically atrophied and emotionally charged that I can't help but imagine
him as Tom Jumbo-Grumbo, the whale-news announcer from _Bojack Horseman_ [1]

[0] [http://www.latimes.com/business/hiltzik/la-fi-hiltzik-
price-...](http://www.latimes.com/business/hiltzik/la-fi-hiltzik-price-
gouging-harvey-20170828-story.html)

[1]
[https://www.youtube.com/watch?v=lMePJM86Ueo](https://www.youtube.com/watch?v=lMePJM86Ueo)

------
BurningFrog
These things feel to me like when cities pay tons of money to get a sports
team.

It's always sold as an investment that will pay off, but in reality it's - In
My Cynical Opinion - about local pride.

With an NFL team, Shelbyville becomes a _major_ city, and with an Apple data
center Iowa becomes a _high tech_ state. Expensive, sure, but the good things
in life aren't free!

~~~
colek42
The state isn't paying for the data center, they are lowering the tax burden.

~~~
evanwolf
Forgone income is forgone income no matter what you call it.

------
drewg123
So $208M for 50 jobs. Wouldn't they be better off just giving those 50 lucky
folks $4M each? Or giving 800 people $250K ? At least those 800 people would
likely spend the money locally and stimulate the state economy.

~~~
gtCameron
They aren’t handing Apple $208m. They are giving them tax breaks. If Apple
didn’t build a data center in Iowa they would also collect $0 in taxes from
them. The cost/benefit calculation is no where as simple as this article or
comments make it out to be.

It could still be a bad deal, but there is not really an honest attempt to
figure that out here.

~~~
dahdum
Exactly - states competing on incentives obviously doesn't increase gross tax
collection on a _national_ level, but the article makes much bolder claims
that it doesn't help anywhere.

Specifically this claim: "There is virtually no association between economic
development incentives and any measure of economic performance."

The article states that the 1.3 billion dollar data center will get $39
million tax break up front on hardware, and another $190 million abatement
over 20 years from the city. They will invest at a minimum $20 million into
Waukee, a city of 20k people, and expect 50 permanent employees + ancillary
services.

Waukee will see a construction boom, higher employment, and more tax revenue.
The state will see a reduction in the data center decline + additional tax
revenue.

Unless they were sure Apple had no other option but Iowa for this project, the
state and community were better off making a deal than not.

~~~
vacri
> _Waukee will see a construction boom, higher employment, and more tax
> revenue._

The city will also now have a major corporation throwing its weight around to
get its way; one with no loyalty to the residents or their concerns.

------
ourmandave
Maybe they're working on the "your first one is free" hook.

The 50 jobs at the data center will attract a McDonalds across the street and
then Waukee can hit those McGuys with a Burger Tax.

Let's see. $208M at 5 cents per burger is only, uh, ...

Well, the company slogan is "Billions and Billions Served."

~~~
yeldarb
You know, I think you said this facetiously.. but you might be on to
something.

The Facebook data center in Altoona is on building 4, after all:
[http://www.desmoinesregister.com/story/money/business/develo...](http://www.desmoinesregister.com/story/money/business/development/2017/05/09/facebook-
breaks-ground-biggest-altoona-data-center-yet/314322001/)

It’s a much easier choice to expand an existing facility than to create an
entirely new one.

------
cmurf
Basically it's, would you like to have $0 in taxes paid by Apple (by assuming
they won't come to Iowa if they aren't given a discount), or would you like
$76 million in taxes and $100 million in public improvement funds that will
mainly benefit Apple?

But it proves the asymmetric negotiation power Apple has compared to
constituents. Apple is in a position to say, take it or leave it. And the
constituents can't really do that, for them to move elsewhere is much more
expensive, for possibly not much of a gain. So basically Apple gets a
significant advantage because local officials are looking at money rather than
fairness. Why doesn't everyone get the same discount? Oh well, that wouldn't
work would it?

It also shows that at scale the property taxes are possibly too high. Which
means the property taxes in general are probably too high. But now, because of
this "deal", the constituents have even less negotiating power to get their
taxes lowered, because the local government sold them out, and now depends on
their taxes even more seeing as they can't raise Apple's property taxes for 20
years per this deal.

"This puts Iowa on the world stage," Gov. Kim Reynolds

Debi Durham, director of the Iowa Economic Development Authority, "All eyes
are on Iowa for building this technology ecosystem," she said

The handful of eyes that give a crap about this story, will see how far Iowa
has debased themselves. Iowa just got its 15 minutes of fame, it's already
over, you're not getting anymore out of this deal than what's already
happened. Unless of course, you whore yourselves out yet again to another
company. That's what you've just advertised, Iowa.

Two perspectives from inside Iowa:

[http://www.desmoinesregister.com/story/news/2017/08/25/7-thi...](http://www.desmoinesregister.com/story/news/2017/08/25/7-things-
know-apple-data-center-waukee/599347001/)

[http://www.desmoinesregister.com/story/opinion/readers/2017/...](http://www.desmoinesregister.com/story/opinion/readers/2017/08/29/apples-
waukee-data-center-deal-win-win-iowa/610288001/)

~~~
throwaway2048
If nobody cut deals like this, apple would be forced to pay taxes somewhere,
so no matter what _somewhere_ is losing a huge amount of tax.

Its a race to the bottom.

~~~
cmurf
Fairness and consistency is not a race to the bottom. It's what builds trust.

------
MechEStudent
It isn't folly. Apple bought their politician and received a good payoff for
it. It was textbook business. Because this is becoming again a nation where
corruption is the norm, this "folly" will be the new norm.

------
B4CKlash
The math isn't as simple as $280M for 50 jobs and it's unfair to frame it from
that perspective. The facility itself will cost $1.3B. That's a direct
injection of capital into the surrounding community. Even without the jobs;
Apple is improving once (~)worthless land.

Some property tax revenues or no property tax revenues?

A silly race to the bottom.

------
breck
> We were highly skeptical of this deal when it was announced Aug. 24. In the
> fullness of time, we’ve subjected it to closer scrutiny. And now it looks
> even worse.

Oh great, so you carefully gathered data and put it into some sort of
spreadsheet or something? Where's the spreadsheet? Where's the decision tree
that shows this is a bad deal for Iowa? Oh, you don't have any of that actual
diligence? You started with a conclusion and then wrote a bunch of B.S. with
cherry picking and misleading statements throughout? This is why I flagged it.

~~~
privong
> You started with a conclusion and then wrote a bunch of B.S. with cherry
> picking and misleading statements throughout? This is why I flagged it.

Can you expand on this and point to some of the misleading statements and why
you think they're misleading?

~~~
cabaalis
I think it is misleading to say everything was in return for only 50 jobs.
Data centers require huge investments in development, connectivity, energy
supply. All of these things take people to make happen.

~~~
Caveman_Coder
This is true...the union halls will be busy with "travelers" to make up for
the lack of local IBEW journeyman. There will be a flurry of economic activity
during the construction phase but it will taper off eventually as the site
completes construction. There will be continual economic activity for the
contractors (electricians, pipe fitters, fire protection system technicians,
etc.) that will service the data center.

------
chmaynard
Glad to see that Iowa is diversifying its economy. Known primarily for growing
corn and soybeans, the state is now going whole hog into pork.

------
bb88
Iowa is a very short sighted state.

On one hand they're trying to be this tech savvy state by bringing in Apple
and Google data centers, on the other hand getting decent broad band is
terrible in all the rural parts of the state.

So they did what any conservative state would do and relied upon the free
market to get them high speed bandwidth. And that's not been real successful.
So they had to subsidize it.

From this article in 2015 [1]:

"Four communications providers have received more than $53 million in federal
funds to expand high-speed Internet service to nearly 90,000 rural Iowa homes
and businesses."

That's roughly 3% of the population.

Okay, so one might say that's just the cost of doing business. The thing is
that Iowa already has a $200 million dollar fiber optic network that connects
all 99 counties with over 8000 miles of fiber called the Iowa Communications
Network. So why don't they use that to extend broad band to rural areas?

From the Iowa Communications Network home page [2]:

"The ICN provides high-speed flexible broadband Internet, data, video
conferencing, and voice (phone) services to authorized users, under Code of
Iowa, which includes: K-12 schools, higher education, hospitals and clinics,
state and federal government, National Guard armories, and libraries"

That's awesome if you're an authorized user. But the sad part is there is more
than just those users that could use broadband, and it seems like Iowa decided
to leave them out in the cold.

[1] [http://www.thegazette.com/subject/news/business/rural-
iowa-g...](http://www.thegazette.com/subject/news/business/rural-iowa-getting-
more-broadband-as-gov-branstad-lauds-infrastructure-spending-20150831)

[2] [http://icn.iowa.gov](http://icn.iowa.gov)

~~~
gragas
I'm glad we're not a tech savvy state.

A huge portion of the people I've met in tech are class-A douche bags. They
are obsessed with salary, or the fact that they work for X instead of Y. They
are extremely elitist.

 _All_ of my friends who went to high school in the Bay Area have classmates
who killed themselves over (lack of) prestige.

You won't see any of that in Iowa. It is a much more honest place. People work
hard but aren't obsessed with where you want to college or how much money you
make.

I would be genuinely sad if Apple or Google opened a SWE location in Iowa. The
culture is basically the antithesis of the old Midwest.

------
JudasGoat
I would think this deal would give any large Iowa employer the idea that taxes
are negotiable, especially if a move to another state is threatened. This will
begin eating the existing revenue.

------
dyarosla
It's stuff like this that severely damages the little credibility the govt has
with respect to using taxpayer money. So few politicians are incentivized to
save money, those who are cut costs in 'unneeded areas' like education and
healthcare, and others go out of their way to burn money like in this article.

Edit: That said, and reading other comments here, I am curious just how bad of
a deal this really comes out to overall. Perhaps the article is really just
cherry picking arguments but it does paint a very grim picture.

------
thinkloop
If there were a law that states could not make deals with individual entities,
it is likely both states and citizens would be better off, and companies would
be unharmed.

------
smegel
$208M is around 27 years of salary for 50 employees on $150k.

~~~
brianwawok
Data center grunts and security guards are NOT making 150k.

~~~
Caveman_Coder
...depends on what you mean by "data center grunts"

As a former "data center grunt" for Google, I can tell you that total comp was
around $140k, which was great for Iowa. The fix-it roles made less and the
security guards made just a tad bit over min wage.

------
wils124
Why does farmland get a preferential tax rate in the first place?

~~~
bb88
You know this is Iowa, right? The farmers are a powerful political force
there.

------
acjohnson55
As someone who grew up in the era of floppy disks that were actually floppy,
this is so mindblowing.

------
qaq
Oh those horrible shareholders Vanguard, Blackrock, FMR etc. oh wait it's our
pension funds how evil

------
ringaroundthetx
cool, does YC's general counsel teach us how to do this when our company gets
into the growth phase?

role model

