In Sunday's editions, The Atlanta Journal-Constitution examined state grants used to attract companies to Georgia over the last decade. The AJC looked at state records for more than 150 completed projects and found that in 48 percent of the awards, the businesses failed to deliver the full number of jobs they promised. Yet rarely did the state recover the funds.
Today’s story looks at weaknesses in the way the state vets companies looking for public assistance.
George Thorogood’s “Bad to the Bone” pumped through loudspeakers at Fort Benning’s Redcloud Range in 2004 as a nine-man squad leaped from an armed personnel carrier and blasted away with sleek new XM-8 assault rifles at targets on a nearby hillside.
The state was on board; it chipped in a $300,000 grant to entice the rifle’s maker, the German company Heckler & Koch, to build a new gun factory in Columbus. H&K promised at least 200 jobs.
There was just one catch, which neither H&K nor county officials apparently told the state: No $1 billion federal contract for the XM-8, no plant. When the Pentagon cancelled the weapons program, the promised plant was downsized to a distribution center that employed 15 people, according to state records.
As the H&K saga suggests, state officials who awarded hundreds of millions of dollars to lure jobs here sometimes missed critical red flags in vetting the grant recipients. A review by The Atlanta Journal-Constitution of more than 150 economic development incentive files found that some companies omitted critical information. Other times, state officials noted a troubling trail of financial clues and awarded the money anyway.
The state’s highest-profile flop was Range Fuels, the Soperton project that was supposed to convert middle Georgia’s thick timber forests into ethanol. Federal officials had labeled the alternative energy company “a high risk venture” that should raise “a red flag.” A memo from the state Department of Community Affairs cautioned that “the research is still years away from being completed and as of yet is unproven.”
Nevertheless, in 2007 the project was awarded a $6.25 million state grant. Four years later, Range Fuels shut down without ever producing a drop of ethanol. Another company is in control of the site with plans to produce a similar fuel.
The list goes on.
In South Georgia, the state spent $1.2 million to help land Jacksonville, Fla.-based Sherrod Vans. The public money, funneled through the Okefenokee Development Authority, was used to build a manufacturing facility where the company would add luxury packages to conversion vans.
The state’s initial assessment of the company was littered with cautionary signs.
“The financial analysis of Sherrod Vans revealed several weaknesses, including losses in the past several years, negative equity, increasing insolvency ratios, and the CPA statement regarding the company’s ability to continue as a going concern,” the 2003 report said.
The grant was awarded anyway. Sherrod Vans promised 150 jobs but, even after the state granted it several extensions, delivered just 27 by the deadline specified in the award.
The company did not return phone calls seeking comment; it is unclear how many people it currently employs.
“I think our state has the ability to do a better job of looking out for taxpayer money here,” said state Sen. Lester Jackson, a Savannah Democrat.
Jackson supports legislation that would provided more transparency to the state’s various economic development incentive programs to see if they are working.
But state Sen. Frank Ginn, who was appointed in January as chairman of the Senate Economic Development Committee, defended the state’s record. He said was satisfied with the program’s overall numbers: more than 22,000 jobs, for an outlay of $160 million, awarded over a decade to 150-plus projects.
“That sounds like a pretty good investment in state taxpayer funds,” he said.
Brian Williamson, a deputy commissioner at the state Department of Community Affairs, which oversees the state grants, said the program has improved its vetting over time. Today, there is a credit team that digs into company finances as part of the approval process, he said.
A sweet ending?
The sticky, sweet Goo Goo cluster is Standard Candy Company’s undisputed claim to fame. But in 2007 the confectioner tried to capitalize on the growing health food movement, adding granola and protein bars into the mix.
State officials noted in their review that the Nashville-based company had low cash balances at the end of 2005 and 2006, with checks written in excess of its bank balance each year. Still, Georgia backed the venture, pouring in a little more than $1 million in grants and a loan to help the company upgrade equipment at its Dodge County factory. In return, the company promised 77 new jobs.
But Standard Candy soon abandoned the plant, blaming a salmonella outbreak among Georgia peanuts, which prompted the state to enact stricter food safety requirements. The state recovered most of its money but lost about $96,000. Officials gave the company credit for jobs created even though those jobs didn’t stay. Standard’s chief executive Jimmy Spradley said the company’s finances were fine and the candy maker offered positions in Tennessee to their jobless Georgia workers willing to relocate.
But there was still the matter of the building. Neal Spradley, the onetime plant manager, tried for about a year to sell the Georgia facility. Today, it serves as home to a flea market. It isn’t quite what local officials had envisioned, but the building is at least being put to use.
“I think it’s a success story,” Spradley said.
In some cases, state officials failed to catch the risky finances of the company principals.
Officials in middle Georgia had high hopes for King David Kosher when it opened up in an abandoned Cagle’s poultry plant with the help of a $500,000 state grant. Part of the appeal was the company’s charismatic chief executive, Johnny Imerman, a wealthy Atlanta recycling magnate.
When the company failed, it emerged that Imerman had a checkered financial record, including a history of unpaid bills as well as a foreclosure in the 1990s on his $7.5 million Buckhead home. The troubles would have been apparent to anyone checking court files, and state and local officials now say they should have exercised more due diligence in examining Imerman’s personal finances. Attempts to reach Imerman were unsuccessful.
Passing grade
In a few instances, state officials went ahead with a grant even though an independent economic analysis showed that the project would hurt — rather than help — the public balance sheet over time, sucking up more taxpayer funds than it would generate in taxes.
One example was in Macon, where Kohl’s sought state grants for a distribution center that promised 200 jobs.
Pat Topping, senior vice president of the Macon Economic Development Commission, said the region had recently lost its top employer, tobacco giant Brown & Williamson. So state officials were willing to bet that a big retailer like Kohl’s would not only meet its goals but exceed them.
In fact, Kohl’s now has at least 250 workers, according to Topping. The wager, he said, paid off.
Meanwhile in Columbus, Heckler & Koch still operates its distribution center. Company officials did not respond to requests for comment on their abortive plan for an arms factory. The state froze the $300,000 grant, and no state grant funds were lost.
The project did have one lasting impact: It seems to have spurred the state to create a mechanism for recovering incentive funds when businesses don’t live up to their end of the deal.
“We must put an accountability policy in place to help us deal with these situations,” Williamson, the DCA official, wrote in an email. “Unless the company or local development authority is accountable for performance through a legally binding agreement with the state, these types of issues will continue to occur.”
But that accountability policy still allowed companies considerable leeway. As first enacted, it said the state could demand money back only if the company produced less than 70 percent of the jobs and private investment it promised. Williamson said he chose that number because at the time his children were in school, and 70 percent represented a passing grade.
“(J)ust like with a child, you want that kid to get 100 percent on every test, an A-plus, and they don’t — but you keep the kids,” Williamson explained.
Under his successor, the requirement has been boosted to 80 percent.
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