IOWA CITY, Iowa — The state treasurer has blocked a proposal by Gov. Terry Branstad's administration to finance a new $68 million communications system for Iowa emergency responders through a lease-purchase agreement with vendor Motorola Solutions.
Treasurer Michael Fitzgerald told The Associated Press that he has refused to approve the deal because it adds roughly $9 million in interest payments to the price during the 13-year term. He noted the state's lease payments would be tax-free income for Motorola, which was chosen last year to build the system following a controversial bidding process.
"It would be a nice financial deal to them, but to the state it's going to cost us $9 million to $10 million," Fitzgerald said. "We have real problems with this lease-purchase that they are trying to run through."
Fitzgerald, a Democrat whose office manages state investments, said that in order to avoid the interest payments, Branstad and lawmakers could agree next year to pay for the project upfront by tapping the state's surplus. Lawmakers discussed but rejected that approach earlier this year.
Alternatively, Fitzgerald said the state could save $2 million by borrowing money at a lower-interest rate and paying it back through a revenue bond. The proposed deal with Motorola calls for a 3.6 percent interest rate, compared to 2.8 percent the state could get elsewhere, a Fitzgerald aide said.
Fitzgerald said he was investigating other options "to correct this financing mistake," and believes Motorola would be open to negotiating a different arrangement to get the project built.
Iowa first responders say a radio system that will let them communicate during emergencies — across agencies, municipalities and states — is long overdue and critically necessary. They say their responses during incidents such as manhunts and disasters have been hampered by poor communication.
The system will be funded through surcharges paid on phone bills for 911 services.
The Department of Administrative Services last year picked Motorola to build the system — which will initially be used by state police and corrections agencies — and provide necessary equipment. Rival bidders, including Marshalltown, Iowa-based Racom Corp., have complained that Motorola appeared to have the inside track and argued the process was flawed. But Racom recently dropped a legal appeal challenging the award to Motorola. Branstad has noted that Motorola was the lowest bidder after a process that included input from an expert outside consultant.
Department of Administrative Services spokesman Caleb Hunter said the consultant recommended lease-purchase financing — often touted as an alternative to taking on public debt — to finance the project. But he said the agency is aware of Fitzgerald's objections and is working across the executive branch to consider alternative ways to pay for the project.
Under the lease-purchase proposal, Motorola would build and own the towers and buildings but they would revert to state ownership after the final lease payment is made. Iowa would pay about $4 million per year.
Motorola proposed the arrangement in its winning proposal, and Branstad in July approved the first $4 million annual payment to get the project started. Last month, the administration signed a customer service agreement with Motorola outlining the terms of work and envisioning lease-purchase financing.
Iowa law requires state agencies to get approval through Fitzgerald's office and a committee of state lawmakers before entering into lease-purchase agreements. Fitzgerald and Senate Majority Leader Mike Gronstal, D-Council Bluffs, said they were not consulted before the customer service agreement was signed, and both have since objected to the proposed lease-purchase proposal.
"I have concerns about it whenever the executive branch ignores state law, and even more so when that ignoring of state law ends up costing millions of dollars more. I think it's fairly absurd," Gronstal said.
Hunter said the administration was following the law and would obtain necessary approvals from the treasurer and legislative committee before entering into any such agreement.