Requiring in-person work for office development tax breaks: Des Moines likely sets new norm

• In what could be a new norm for local governments, the city of Des Moines is linking office development inventives to in-person work
• To get the aid, new Kum & Go owner FJ management will have to ensure its workers report to its regional headquarters in downtown Des Moines at least three days a week
• It's a way of ensuring FJ doesn't become just another employer with an empty office in the central business district, where businesses depend on daytime worker traffic

A recent city of Des Moines incentive package for a company that's establishing a downtown office, requiring it to have workers report there in person at least three days a week, may be a new norm for local governments, experts say.

Such measures are likely to become more common as cities and employers struggle to reset expectations about in-office work in the wake of the COVID-19 pandemic, they say.

The city struck the deal in early September with FJ Management, the new, Utah-based owner of Des Moines' Kum & Go convenience store chain. FJ, the operator of 380 Maverik convenience stores, agreed to an incentive package providing it $25,000 a year over 10 years as it establishes a regional headquarters. FJ is leasing space in a building owned by Nationwide Insurance, 1100 Locust St., which is near the current Kum & Go offices, at former owner the Krause Group's signature Renzo Piano building overlooking the Pappajohn Sculpture Park.

To receive the incentive, FJ must maintain at least 250 jobs based in the new office with pay at or above an annual average of $98,000. But the city also added its new twist: stipulating that workers must spend at least three days each week in the office.

Protecting public investment in downtown Des Moines

The move reflects what many are expecting to be the new standard for office workers ― a hybrid arrangement in which they split their time between the office and home. But it also likely signals that going forward, to get city financial support, a company will have to assure that workers still will spend a substantial amount of their time downtown, where their foot traffic supports local restaurants, bars, merchants and service providers.

Des Moines has invested hundreds of millions of dollars over the past three decades revitalizing its downtown as an attractive base for corporate offices and luring them with tax breaks and other aid, helping reinforce its role as the dynamic core of the Midwest's fastest-growing large metro.

“We don’t want tax dollars (from incentives) going for jobs that are working in other locations, maybe even in other states. We want public dollars going for jobs that are going to continue supporting downtown,” said Carrie Kruse, economic development coordinator for the city of Des Moines.

Kruse said tying incentive packages to job creation is not new, pointing to pre-pandemic economic incentives to companies like EMC, American Republic and the Krause Group. Those deals tied the money directly to bringing specific numbers of jobs downtown. But the requirement that employees work on-site is new, a reaction to an unenvisioned legacy of the pandemic.

“Previous deals have required job numbers at locations, but this is the first that has had a specific definition of three days a week" working at the site, Kruse said. It will likely be the new norm for such agreements moving forward, she said.

Previously:With Wells Fargo's exodus, what else to know about Des Moines' changing downtown landscape

“Economic development efforts will be somewhat of a balancing act going forward with recognition that a hybrid workforce splitting time between the office and remote is the new reality," she said. "We recognize there is a need to be flexible in order for companies to retain top talent. If not, those employees could be lost to other companies that allow remote work.”

Accommodating work from home comes with a cost

David Spalding, dean of Iowa State University’s Ivy College of Business, said that with remote work becoming an expected feature of employment, it will be important for communities to take that into consideration when awarding economic development grants.

Without employees doing a substantial part of their work on site, the community is really not getting value for its investment, said Spalding, who also heads the university’s economic development efforts.

“So if companies are building a facility or they’re establishing an office, the reason for the community to provide a grant is because the jobs are being created in that location. And those jobs not only have a direct impact on the community, but an indirect impact in terms of spending that the workers do in the community,” he said.

An agreement like the one with FJ requires the city to provide a certain amount of leeway for coping with the new workforce expectation of flexibility, and that carries a cost, he said.

“As long as work from home remains a part of employee expectations, communities can essentially end up with a discounted value for those jobs, Spalding said. "I mean, even with this arrangement, they're talking about Maverik having employees back in the office three days a week, meaning you’re only getting 60 percent of the value of those jobs" compared to if they were in the office full time, five days a week.

“And so as economic developers, you have to think about what that means in terms of the funding you are willing to provide for each position.”

Commercial real estate exec: 'Hybrid workweek is here to stay'

Though there may be drawbacks and compromises required, the new condition is a strategy endorsed by Thomas "TJ" Jacobs, a West Des Moines-based vice president of Dallas' CBRE commercial real estate brokerage.

“The city of Des Moines understands that if they provide a grant or incentive to help a company justify staying downtown, they will also want the positive impact of maintaining, if not increasing, the daytime population for downtown by adding this provision,” Jacobs said.

The daytime traffic of downtown workers is the lifeblood of smalll businesses that derive much of their income from them, he said.

“I expect to see more requirements like this by the city of Des Moines to help ensure a healthy population throughout the entire workday instead of the high evening and weekend traffic that it's been experiencing over the past three years,” he said.

“The three- to four-day hybrid workweek is here to stay. We just need more employers to enforce the in-office piece,” he said.

How can in-office work requirements be enforced?

One question is how the city can monitor compliance with its in-office work requirements

Kruse said the answer lies in another feature of modern work: the security badges most office workers now carry to swipe their way into and out of access-controlled buildings.

Badge use can be tracked to determine the average number of days an employees is in the office, she said.

“As a condition of receiving annual payments, Maverik will have annual reporting requirements that include reports on their overall employment, wages, in-office policies, average time worked in the office and an annual certification statement from their CEO/CFO that the information contained in their annual report is true and accurate,” she said.

Kruse said she is optimistic downtown Des Moines will continue to grow even if it doesn’t look exactly like it did prior to the pandemic.

“We are seeing companies return to the office, many with a mixture of remote work, and some of these businesses are as efficient as they’ve ever been with the new model,” she said.

Downtown restaurateur: Adaptations will continue

While saying it's too early to tell whether the city's return-to-the-office economic development strategy will increase downtown restaurant traffic, Adam Bartelt of Orchestrate Hospitality said anything that brings more residents and workers downtown is a good thing.

Orchestrate, which operates downtown restaurants that include Centro, Django, Bubba, Malo, South Union Bread and Zombie Burger, has adjusted its operations to reflect the changing demands of a hybrid workforce, said Bartelt, the company's marketing director.

Django, for example, is open only for dinner hours, while Centro has cut hours because of less lunchtime business, Bartelt said.

"What we are seeing is less traffic on Monday and Friday because of the flexibility workers now have with their schedules," he said. "I think we are still learning the economics and trying to come up with a common understanding of how things work" after the pandemic."

Kevin Baskins covers jobs and the economy for the Des Moines Register. Reach him at kbaskins@registermedia.com.