What do windmills, protein extraction, underground storage-tank funds, and the minimum wage have in common? If you guessed that they are part of a left-wing agenda, you’d be only partially right. Actually, they are components of a new proposal by the governor of Iowa, Democrat Tom Vilsack, called “Iowa Works.” It’s become a huge part of Vilsack’s re-election campaign, and he claims it will promote economic growth in Iowa.
Most likely it would slow economic growth. For example, Vilsack advocates raising the state minimum wage from $5.15 an hour to $6.15 an hour over two years. Recently, the Small Business Survival Committee ranked Iowa 44th out of 50 states for a policy climate conducive to small business and entrepreneurship. One of the factors the SBSC considers is the state minimum wage, which it states “raises the costs for business — being particularly harmful to smaller firms.” One can only wonder how much worse Vilsack could make Iowa’s small-business climate by raising his state’s minimum wage to a dollar above the federal minimum wage.
Indeed, Iowa Works seems designed not so much as to promote economic growth as to buy votes. The reason, it seems, is that Vilsack has panicked.
Vilsack was supposed to have all the reason to be calm. A year ago, his re-election prospects looked good. Iowa has a habit of re-electing incumbents as long as they don’t make any major mistakes, and to that point Vilsack had made none. Further, the two announced GOP candidates, Steve Sukup and Bob Vander Plaats, seemed like weak challengers. Vilsack appeared headed for another four years in the Governor’s mansion.
Cracks in the Vilsack armor began to appear early this year. What had been a minor state budget shortfall at the end of 2001 quickly ballooned into a major one in January 2002. It was clear that Iowa would not take in enough revenue in the coming fiscal year to meet previous levels of government funding. If Vilsack was going to balance the budget, as Iowa law requires, he was going to have to either raise taxes, cut spending, or raid various state trust funds. A Republican controlled state legislature made the first option highly unrealistic. In the end, Vilsack gritted his teeth and made some spending cuts, but also managed to persuade the GOP legislature to raid some of the trust funds.
But even the budget troubles weren’t supposed to be a major problem for Vilsack. Vilsack avoided making the type of cuts that would upset his base, namely the teachers’ and public employees’ unions. Of Vilsack’s handling of the budget, David Yepsen, the savvy political columnist for the Des Moines Register, remarked that “It’s a lousy way to manage government, but it’s a very smart way to campaign.” Additionally, as the Governor now constantly reminds us Iowans, he balanced the budget without raising taxes.
The supposed icing on the cake for Vilsack was a very heated GOP primary that appeared to leave the Republicans deeply divided. Late in the primary the former chief-of-staff for former Governor Terry Branstad, Doug Gross, jumped into the race. One of his opponents, Steve Sukup, began slinging mud, accusing Gross, who is an attorney, of representing some unsavory clients. Although Gross did win the primary, he did so by the smallest of margins, garnering just over 35% of the vote. Vilsack probably felt reassured as Gross emerged from the primary bruised and battered with a seemingly fractured party behind him.
Then, in early July, the bottom fell out. The Des Moines Register released a poll showing that 43% of Iowans intended to vote for Vilsack, 41% for Gross. The supposedly divided Republican Party had coalesced behind Gross. Not only was Vilsack well below 50% (always trouble for an incumbent) the Green Party candidate was siphoning off 4% of the vote. Furthermore, Vilsack’s approval rating had dropped to 48%. It appeared that many Iowa voters were worried about the budget mess and they held Vilsack largely responsible. The Vilsack campaign had struck an iceberg.
Vilsack scrambled to keep the ship afloat. The result was a hastily assembled patchwork of new government spending proposals he dubbed “Iowa Works.” The panic that gave birth to Iowa Works is apparent in these proposals. For example, since the state currently has a budget shortfall, Vilsack would fund most of Iowa Works not through general revenues but through various state “funds.” One such fund is the “Underground Storage-Tank Fund,” which Vilsack wants to use to give every county in Iowa a $1 million matching grant for a growth-related project. As my colleague Steven Garrison of the Public Interest Institute points out, since the Underground Storage-Tank Fund is specifically earmarked for cleaning up underground storage tanks, Vilsack would need to change the law to use the Fund for development purposes. Another problem: Since Iowa has 99 counties, the matching grants would total $99 million; the Underground Storage-Tank Fund presently has only $75 million in it.
The “protein extraction” portion of the plan would sink $50 million into the development of a bio park north of Des Moines. Supposedly this would create a new industry in Iowa dedicated to extracting protein out of soybeans to be used as a food additive. However, Iowa has already had experience with the government trying to create a new industry. It is called “ethanol.” The results have been, at best, mixed. It should serve as a warning to let the market, and not government, determine what Iowa’s new industries should be.
The plan also allocates $20 million to Internet providers to supply high-speed Internet access to areas of the state that do not have it. Yet the market has already spoken about the attempt to provide universal high speed Internet access: Companies like Global Crossing and WorlCom have gone belly up. There isn’t enough demand for such access to make it feasible. Thus, to provide Internet access to areas that don’t have it will take more than just a one-time grant; it will probably develop into a state government subsidy.
Indeed, it seems that Iowa Works was not designed with much consideration for state funding concerns or market feasibility. Rather, it was designed to win votes. The alternative energy portion will no doubt make environmentalists happy, possibly shifting some of their support away from the Green Candidate. Since it raises the minimum wage and since many of the funds in Iowa Works will go to construction projects, it will please the unions. And since the funds will go to many local governments, it will win the support of many local officials.
While Iowa Works may please many Iowa voting constituencies, it also has the potential to backfire. For example, Doug Gross has begun criticizing Vilsack for proposing to use the Underground Storage-Tank Fund for economic development, saying the plan could threaten Iowa’s environment. Furthermore, if many Iowans hold Vilsack responsible for the budget mess, they probably realize that he made the mess by increasing government spending. And what is Iowa Works but another government spending proposal? If enough Iowa voters connect the dots, Vilsack could be a one-term governor.