clock menu more-arrow no yes mobile

Filed under:

Apple Is Ready to Play Politics in Iowa

Apple is bringing a data center and jobs to Iowa as part of its pledge to be a morally responsible company. But critics say the deal is just another example of a powerful corporation exploiting investment-hungry state governments for its own ends.

Getty Images/Ringer illustration

“I think we have a moral responsibility to help grow the economy, to help grow jobs, to contribute to this country.” That’s not a politician talking. It’s Apple CEO Tim Cook, stumping across the American Heartland in the waning weeks of summer. Cook (probably) has no intention of running for political office, but he’s aware that corporate executives are increasingly expected to do good by people who aren’t their own shareholders. The United States is careening through the Trump years with a partially-staffed government and a lack of coherent administrative vision. Meanwhile, tech giants are steadily amassing greater power, even as individual users and politicians become more skeptical that their growing influence is in the public interest. High-profile leaders like Cook have no choice but to campaign for their companies if they want to maintain the goodwill Silicon Valley has enjoyed since Apple first supplanted Microsoft as the sector’s more empathetic standard-bearer.

So it makes sense that one stop on Cook’s national tour was Des Moines, Iowa, where he announced that Apple was opening a new data center in the nearby suburb of Waukee.The $1.3 billion facility will help ensure online users across North America can continue flaking on appointments via iMessage and answering mundane trivia via Siri. At 400,000 square feet, it’s a massive, expensive reminder that all digital ephemera must ultimately wind its way back to the rows and rows of hulking back servers that keep the internet humming.

Cook, alongside Iowa Governor Kim Reynolds, cast the new project as a victory for both Apple and the state. For Apple, the W is clear: The company received more than $200 million in tax breaks for a facility that will ultimately require only 50 full-time employees. For Iowans, the math is murkier. By one set of calculations, Iowa is offering more than $4 million in tax breaks per job, an incentive so generous that one economist I talked to called it “reckless.” By another formula, the state will generate tens of millions of dollars in additional revenue thanks to Apple’s presence, while further cementing its reputation as a Midwestern tech hub. No matter how Iowans spin the deal, the reality is that this sparsely populated state has become vital to the physical infrastructure of the internet. Its residents are experiencing both the benefits and drawbacks of that distinction.

Iowa has the natural gifts to be a data-center hub, as well as the financial ones. The gusty winds there have led to an abundance of clean energy, which is attractive to tech companies like Apple that have pledged to go fully green. The electricity, nearly a third of it siphoned from the wind turbines that dot the landscape, is priced below the national average. The weather is cold, which keeps those always-buzzing servers from overheating, and predictable, which lowers the chance they’ll be knocked offline in a natural disaster.

Still, it was money that made these benefits too difficult for businesses to ignore. In 2009, Google became the first major tech company to open a data center in Iowa, in part because the state legislature approved sales- and use-tax exemptions on the equipment and electricity Google would need to run its new facility in Council Bluffs. The business-friendly law helped attract Microsoft to the state in 2009 and Facebook in 2013. By the time Apple's data center opens in 2020, Iowa will be home to two others owned by Google, three owned by Microsoft, and four owned by Facebook.

Most of the data centers are clustered in the Des Moines region, putting them close to a major airport and a burgeoning tech scene known as Silicon Prairie. Government officials see the facilities as a key component in Iowa’s transformation into a home for the companies of the future and their workers. “Having Google, Microsoft, Facebook, Apple in our state obviously is a pretty powerful marketing message to the rest of the world,” says Tina Hoffman, the communications director for the Iowa Economic Development Authority, a state agency involved in the negotiation of the deal. “It does help solidify us as a technology and innovation hub, which we are. We’re happy to have those big names draw attention to that.”

According to Hoffman, the deal with Apple was ironed out over the course of 20 months. In addition to the tax exemption guaranteed by the 2009 law, Apple is getting a $20 million tax break on construction costs from the state, as well a $188 million property tax abatement from the city of Waukee. It’s fairly common in these deals for the vast majority of tax savings to come from local governments, Hoffman says.

Waukee became involved in the negotiations last July, according to Dan Dutcher, the city’s community and economic development director. Though Apple has only committed to constructing two buildings on the site, he hopes they’ll eventually erect more. “Having them come to our town has certainly put Waukee on the map, both nationally and internationally,” he says. “I think it just helps us market the city and what we have to offer.”

Both Hoffman and Dutcher bristle at the claim that the deal is costing Iowa more than $4 million per job (a calculation derived by dividing the $208 million in tax breaks by the 50 full-time workers Apple has promised to hire). In addition to the Apple employees, around 500 construction workers will be contracted to build the facility. As Dutcher explains it, even if Apple is getting a significant tax incentive (more than 70 percent of its property tax will be waived), it will still end up paying Waukee $3.8 million per year, which the city plans to use to build a new sports complex and other recreational amenities. The scale of Apple’s investment validates the tax incentives necessary to land the deal, officials argue. “People want to say we’re giving them a $180 million discount. Yeah, but you have to compete in this world,” Dutcher says. “You do what you have to do to attract these companies because it is very beneficial to cities like us to get a project like this.”

But prioritizing investment over jobs is a reversal of previous economic development norms, according to David Swenson, a regional economist at Iowa State University. “It used to be, in terms of public investment and job creation, especially during hard times, you tried to maximize the number of jobs created and you tried to minimize the amount of public assistance,” he says. “It’s now all been flipped on its head. They now try to maximize the amount of capital investment irrespective of the job growth, and if the capital investment is really, really high, they are willing to pledge a tremendous amount of property tax forgiveness using a sort of distorted logic.”

Even among some of the less academically minded, the deal has not been all that popular. The Des Moines Register blasted the lack of public involvement in a decision that will affect how their tax dollars are allocated. A Los Angeles Times columnist called Waukee a “first-class patsy” for agreeing to the deal. And gubernatorial candidates on both sides of the aisle, sensing an easy knock against Reynolds in the 2018 race, assured voters they could have negotiated much better terms.

While Reynolds has earned plenty of flack, less attention has been paid to whether Apple—now guided by a self-proclaimed moral compass—should be finagling these kinds of deals in the first place. State governments nervous about a fast-changing job market are often desperate to align themselves with prosperous industries, and corporations leverage this anxiety to their financial advantage. Twenty-seven states now have economic incentive programs specifically targeting data centers, according to a study by Good Jobs First, a Washington, D.C.–based policy resource center that tracks government subsidies. “When you’ve got these famous companies, they milk that fame,” says Greg LeRoy, executive director of the organization. “They have disproportionate power at the bargaining table.”

In 2009, Apple toyed between building a data center in either Virginia or North Carolina, prompting North Carolina’s legislature to rush through a new law that granted Apple $46 million in income tax breaks (the facility, eventually built in the town of Maiden, did little to help local residents). Facebook played a similar game last year with suburbs of Albuquerque, New Mexico, and Salt Lake City, Utah. While Apple didn’t publicly announce any other potential locations for the Waukee data center, the unspoken threat that the company could choose another state colored the negotiation process. “We felt as if we were competing for this project amongst other states,” Hoffman says. “Those are the kind of things that you never really know on our side of things, typically.”

Apple is quick to point out that it is the largest taxpayer in the United States and tends to offset some of its local tax breaks with charitable programs to benefit the community. In Waukee that means contributing between $20 million and $100 million to a public improvement fund for community development and infrastructure projects, based on how many data centers Apple builds there. But the company has also been defiant against critics who claim it evades taxes, arguing that it’s the responsibility of the government to change its laws if it doesn’t want corporations to exploit them. (Apple did not respond to a request for comment.)

The Waukee data center won’t be the last one Apple builds. Our voracious consumption of online content continues to grow, as do the needs for physical space to store and process all of that data. The question is whether tech companies have finally overplayed their hand in pursuing such generous deals. If Reynolds’s alliance with Apple becomes a sticking point in next year’s governor’s race, it will show that citizens believe it’s time corporations simply pay their fare share. If the criticism subsides, expect more such deals in Iowa and other states.

No matter who ends up winning Iowa’s election, though, Apple has already come out on top. Tim Cook says he wants to do good as a CEO, but over recent years he and his peers have effectively worked with governments to reframe what “good” is. Now a deeply subsidized server farm manned by 50 employees qualifies. To me, that reads less like “moral responsibility” and more like good old-fashioned politicking. Cook may not be running for office, but that doesn’t mean he’s doesn’t know how to play political games.