Warren Buffett, Kraft Heinz, AP photo (CMS only)

Berkshire Hathaway Chairman and CEO Warren Buffett in a May 3, 2015, file photo. Berkshire Hathaway Inc.'s third-quarter profit more than doubled as the completion of the Kraft-Heinz merger boosted the value of its stake in the food giant, the firm announced Friday, Nov. 6, 2015. 

Next year, Kraft Heinz will begin work on a new $200 million plant near Eldridgem Iowa.

But when the company moves from its longtime location in downtown Davenport, it guarantees taking only 475 workers with it. Possibly hundreds more will lose their jobs.

Yet, Kraft Heinz, a company that reported nearly $6.4 billion in sales last quarter, will pocket millions of dollars in state and local incentives.

For people who have argued that it's folly to give financial incentives to private companies, this deal is one that sticks especially hard in their craw.

"We're underwriting a net loss in jobs and pretending it's a gain," said Dave Swenson, an economist at Iowa State University and a longtime critic of the state's development policies.

The state approved $1.75 million in tax credits for the project, as well as another $3 million forgivable loan to demolish Kraft Heinz's West 2nd Street plant.

The city of Davenport also plans to offer $10 million in tax increment financing over the next 15 years. Another $5.8 million in state and city funds will be pooled to build a road near the new plant.

Kraft Heinz's announcement a little more than a week ago that it is closing seven plants in the U.S. and Canada was a stunner in many communities.

In Madison, where Kraft's Oscar Mayer plant goes back to 1919, nearly 1,000 jobs will be lost. The city's mayor said the impact will be in the "hundreds of millions" of dollars.

It's that prospect that local officials say Davenport dodged with Kraft Heinz's decision to invest in the Eastern Iowa Industrial Center.

"We could have lost the whole shebang," Davenport Alderman Gene Meeker, at-large, who also sits on the board of the Greater Davenport Redevelopment Corp., said last week. The corporation, a public-private nonprofit group, owns the 70 acres where Kraft Heinz will build its new plant. "It's just one of those things we had to do to hold what we've got."

But some critics say states and cities are just too eager to hand out incentives in the hyper-competitive business of luring new jobs and investment.

"These incentives have become automatic in many, many places in Iowa. Any development is good development," said Sen. Joe Bolkcom, D-Iowa City.

Critics of big incentive packages, such as the $107 million state investment to lure Orascom's $1.9 billion fertilizer plant in Lee County, say big payouts to companies leave fewer resources for other priorities.

State Rep. Cindy Winckler, a Davenport Democrat whose district includes the West 2nd Street plant, has argued corporate incentives are leaving less money for schools.

But in this case, she said, it's difficult not to back incentives that will keep 475 jobs, if not 1,400.

"It kept some jobs, and we have a higher unemployment rate," she said.

The Quad-Cities has struggled to recover from the recession, and there have been a raft of layoffs lately.

The metro area lost 4,200 jobs between September 2014 and September of this year. Although Scott County gained jobs in that period, its 4.3 percent unemployment rate still is higher than Iowa's 3.6 percent jobless rate.

Swenson, the Iowa State economist, said a big part of his objection is the lopsided balance of power in negotiations between governments and corporations.

"The city knows nothing except what the firm tells them," he said.

Peter Fisher, research director for the Iowa Policy Project, which has been critical of state's incentives practices, calls the choice made in this case difficult. He said he wouldn't want to have to explain losing all the jobs, when there is the possibility of saving some. Still, he worries about handing out incentives to companies that promise to retain jobs, rather than create new ones.

"In general, the idea you can pay for retained jobs is a slippery slope," he said.

Backers of the incentives argue, however, that the handwriting was on the wall for Davenport's Kraft Heinz plant. When Kraft and Heinz merged early this year, the company made clear it would consolidate, said Tina Hoffman, a spokeswoman for the Iowa Economic Development Authority.

She also notes the Davenport plant was built 100 years ago. The company also was considering building its new plant in a different state, state and local officials say.

The state says its deal does acknowledge the job loss that will come with the plant's move. Hoffman said Kraft Heinz could have qualified for $16 million in investment tax credits, but got none.

"We were trying to find the balance and do the right thing," she said. "The incentives are pretty modest compared with what they actually were eligible for under our guidelines.”

Local officials also think the new plant has the potential to lure suppliers and spinoff business.

There appeared to be no doubts on the Davenport City Council. It voted unanimously to move ahead with the state and local incentives.

There is a wrinkle in this for the city.

The new Kraft Heinz plant will no longer be in the Davenport Community School District. It will be in the North Scott Community School District. And that will cost the Davenport district money.

School districts are reimbursed for lost property tax revenues in tax increment finance districts. So although the TIF designation for the new plant will divert revenues from city and county coffers for 15 years, schools won't lose out. But it will be the North Scott district that gets the revenue, not Davenport.

That concerns Winckler, who has pushed for more spending on the state's schools. And it likely won't be greeted favorably by the Davenport district, which already has waged a high-profile campaign to gain more equity in how it is financed.

Richard Clewell, a Davenport school board member, said last week he hadn't realized until recently the new plant wouldn't be in the district. He said he didn't know the significance of the lost revenue, but added, "I think we need to talk about that. Certainly, it's going to have an impact on the district we’re going to have to deal with."

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