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Economic Development head says staff knew of suit

Mackenzie Elmer, Associated Press

DES MOINES, Iowa (AP) -- The Iowa Economic Development Authority director told lawmakers Tuesday her team knew an Egyptian company seeking tax breaks to build a fertilizer plan in southeast Iowa was being sued by the federal government, but no one told her.

Agency director Debi Durham earlier said the state's vetting didn't uncover the lawsuit, which alleges a company subsidiary defrauded U.S. taxpayers out of millions of dollars. Durham had told The Associated Press, "I'm not sure how anyone would have found that."

On Tuesday, Durham told lawmakers she has learned her team knew of the 2004 lawsuit against the subsidiary of Cairo-based Orascom.

"My team did know," Durham said. "They didn't think there was a material reason to bring it forward."

Durham argued the lawsuit is an "unproven, civil allegation" and if the federal government does work with this company, "is that not good enough for the state of Iowa?"

Sen. Herman Quirmbach, D-Ames, told Durham he wasn't satisfied with her explanation.

"Your explanations are pretty unsatisfactory in a number of dimensions," said Quirmbach, adding the federal government's business judgment can't always be trusted. "It sounds like as long as they can pay the bills we didn't care if they're involved in fraudulent activity."

Durham told lawmakers, "I'm not proud of it, but that's what happened."

Sen. Matt McCoy, D-Des Moines, said it is alarming that the authority didn't feel the need to pursue an investigation of the lawsuit further.

Timothy Whipple, general counsel for the Economic Development Authority, said though they knew about the lawsuit, state law does not require they investigate such allegations.

"Out-and-out fraud ought to be one of the questions we ask during our due diligence process," McCoy said.

Legislators also criticized Durham for the $200 million in tax breaks given Orascom.

Durham said it was necessary to offer millions of federal Midwest Disaster Bonds as incentives to Orascom when the company backed out of a site in Scott County last September and the states of Illinois and South Dakota started to compete for the plant.

"These bonds were designed to do the very thing they did, which is to create economic stability," she said.

Sen. Joe Bolkcom, D-Iowa City, expressed skepticism about the idea that Iowa was competing hard with other states.

"I think the whole idea that we won this by the skin of our teeth was made-up. I don't believe it to be true," Bolkcom said.

Sen. Randy Feenstra, R-Hull, complimented Durham for her work to bring the fertilizer plant to Lee County and said he was disappointed at the criticism of the director.

"We need to have a serious conversation about how we can be more competitive instead of throwing arrows at each other," he said.

Earlier in the day, Gov. Terry Branstad was asked about the tax breaks given to the planned fertilizer plant and said he wasn't worried by criticism or the federal lawsuit against the company.

"This company has an excellent track record and the fact that somebody filed a lawsuit that has been on hold for six years is not something that should deter us," he said.

Bolkcom denied Durham's request to make any closing statements and plans to ask her back for another hearing.

"It's germane to have this conversation and make sure that our director and her staff isn't simply shoveling money out the door unnecessarily," he said.