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The Difficulties of Balancing Insight, Industry and Incentives


Iowa City Press-Citizen

May 8, 2006

[Note: This material is copyright by the Press-Citizen, and is reproduced here as a matter of "fair use" for non-commercial, educational purposes only. Any other use may require the prior approval of the Iowa City Press-Citizen.]

It's hard to tell who was at fault in the recent announcement that Applied Systems Inc. not only will leave Coralville but also will leave Iowa altogether ("Applied Systems leaving C'ville," April 28). Company officials said current Coralville sites are inadequate for the company's needs, that they had found a possible site in North Liberty and that Coralville refused to give permission for the company to receive state funds to help with the relocation.

Coralville officials said that the city has tried to work with the company to keep it in Coralville -- offering multiple other sites in the city, even seeking out a developer who would offer an aggressive rate -- but that the company is using the city as a scapegoat to explain why it is relocating to its headquarters in University Park, Ill.

Without taking sides in this he-said/she-said debate, the conflict between the city and the company reemphasizes the difficulties that cities, counties and states face when deciding whether to offer economic incentives. They have to predict which companies will prove worthy of all the time and money invested -- which companies will stick around long enough to make the investment worthwhile.

Applied Systems, which employs about 100 people, provides automated insurance agency services. The company could be located virtually anywhere, but received $200,000 in city and state grants when it moved to Coralville nine years ago. It is unclear what will happen to its local employees once the company's Coralville lease expires in December.

Opinions will differ over whether Applied Systems was a good investment for the city, but cities often tend to offer too many incentives rather than too little. Electoral politics, for example, stacks the deck so that city officials seldom face consequences for offering unnecessary incentives, but face severe consequences if voters think they are letting companies get away.

There are those who say that, all things being equal, Coralville should have helped Applied Systems to secure state money for its relocation to North Liberty. After all, those 100 jobs then would have remained in the North Corridor labor market, and the employees would have been little affected by the location change.

But the push for regionalizing the North Corridor should not detract from any city's autonomy. We're glad to hear that the state has such requirements in place to encourage cooperation between cities. Even if it's found that Coralville officials could have done more to keep the company in the region, it doesn't change the fact that not every civic investment is going to pay off. Companies, like individual employees, tend to move when offered more money or more opportunities. Sometimes it's in everyone's interests to just let them go.

It's always a mistake to look at such situations in stark, black-and-white terms. Cities should not be acquiescing to every demand of private industry, but neither is every economic incentive package a case of corporate welfare. Instead, city leaders should use this case as a reminder that not all their long-term investments pay off.