Why would Governor Reynolds and the Iowa GOP think they need to bribe Apple to come to Iowa? Apple was likely coming to Iowa anyway because of Iowa’s combination of cheap and green energy. Iowa is one of the few states that offers these two essential resources Apple demands. Iowa leads the nation in developing the cheap, renewable wind energy that Apple and most of the major high tech companies require. Iowa is not only the current leader in providing clean wind energy, it is on track to be the national leader for years to come. Apple’s CEO Tim Cook announced why they chose Iowa; it’s Iowa’s “world-class power grid!”
Knowing that Iowa has two of the most crucial elements that Apple wants and needs, why would Governor Reynolds’ Department of Economic Development lavish huge additional tax handouts on them? It’s not that cheap green energy is a secret requirement for these tech companies. Facebook, Google and Microsoft have all chosen to build in Iowa in recent years for the same reason.
The data center Apple is building in Iowa takes massive amounts of electricity, and the cheaper it is, the lower the cost of their facilities. Thanks to our growing cheap wind energy, Iowa currently ranks in the top ten in the nation for the lowest cost of electricity. Perhaps more importantly, Apple and these other giant tech data centers are looking to their future energy needs.
It’s estimated that future data centers’ energy needs will triple in the next ten years. From streaming movies to liking on Facebook, the internet cloud energy requirements will quickly create additional new demands for energy. Iowa already provides 37% of its energy needs through renewable wind. Mid-American, one of Iowa’s major energy utilities, is currently producing 55% of their energy needs from wind power. When their latest wind farm is complete in 2019, wind power will produce 89% of Mid-American’s energy. Just as importantly, they are producing that energy at 37% below the national average electricity cost. Add the fact that wind-produced energy is predicted to drop in cost by another 50% by 2030, and you can see why these tech giants value Iowa as the best choice for their future data centers.
Iowa is the current leader in the percentage of energy produced from wind. It is on schedule to lead the nation in new generation capacity in the near future. It is also very possible Iowa will be able to offer the lowest price electric costs in the nation in a few years.
There are certainly other factors that these tech giants look at before picking a site to build. They include a well-qualified workforce, large tracts of available land and high-speed fiber optics. Iowa offers all these components, but the cheapest green energy outweighs them all.
Experts suggest Iowa and Reynolds got taken simply because they don’t understand the needs of these companies. Anyone making these deals should have a basic understanding of what these companies require. Reynolds and her predecessor Branstad gave away huge amounts of future tax revenue simply because they didn’t do their homework.
The LA Times called Reynolds’ deal corporate welfare folly: “These incentives often are an unnecessary bonus to companies that already have made a site location decision based on more important factors. Yet states and localities have persuaded themselves that the incentive packages are an indispensable lure to employers and that without them their economies will collapse.”
“Firms know where they want to be,” says economist David Swenson of Iowa State University. “The question of how much in rents they can extract from state and local governments is phase two. But taxes are a secondary consideration … It only makes sense from a politician’s point of view.”
When Reynolds was asked to defend Iowa’s $20 million handout to Apple she offered this answer.
“This is Apple,” she told reporters. “They chose Iowa.”
Reynolds’ comment suggests that it was the pure gleam of landing Apple that blinded the Department of Economic Development into shoveling massive tax giveaways to Apple. We need a governor that can negotiate a fair deal. We need a governor that has both a basic understanding of a company’s needs, and a comprehension of the critical value of Iowa’s inexpensive green energy resources.
by Rick Smith