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ANALYSIS: Oversight of Missouri business incentives questioned

Saturday, October 15, 2011 | 4:27 p.m. CDT

JEFFERSON CITY — Visiting the future assembly-line floor of Wi-Fi Sensors Inc., Missouri Gov. Jay Nixon announced a $1 million loan for the new high-tech company that he said would create dozens of well-paying jobs in rural northern Missouri.

He lauded the firm as a model for Missouri's economic development strategy as it emerged from a recession.

"What we're doing right now is looking for projects just like this around the state," Nixon said at the July 2009 event at Wi-Fi Sensors, according to the Kirksville Daily Express.

The governor's words turned out to be true — but not in a way that he would have liked.

Wi-Fi Sensors has since laid off its employees and defaulted on the state loan.

Yet a similar scenario has played out again.

In July 2010, Nixon traveled to the northern Missouri town of Moberly to announce $7.6 million of state incentives and $37 million of local bonds for Mamtek International to open a manufacturing plant for artificial sweetener that could employ more than 600 people. A little more than a year later, Mamtek is producing nothing, has no employees and is behind on its bond payments.

Rather than modeling Missouri's economic success, the collapse of the two companies has highlighted what some lawmakers fear is a disturbing tendency of the Department of Economic Development to rush through state-aid packages for businesses without properly vetting them.

In another embarrassing example, Nixon traveled to Cape Girardeau in December 2010 to announce incentives for a local health care cooperative — only for it to be revealed in the media a few days later that the project was led by a man on probation for passing more than $90,000 in bad checks. The state then canceled the incentives.

"There's no doubt that three separate projects with the same type of lack of oversight or due diligence is a red flag," said Sen. Kurt Schaefer, R-Columbia, a member of a Senate committee that has launched an investigation into Missouri's economic development policies.

"There is a troubling trend," adds the committee chairman, Sen. Jim Lembke, R-St. Louis. "What the committee is trying to find out is do we have in place sufficient oversight and safeguards" to avoid investing state dollars in poor business deals?

The new concerns about Missouri's economic development incentives could not have come at a worse time for Nixon.

At the governor's call, lawmakers convened in a special session Sept. 6 to consider an overhaul of the state's existing tax credits and the creation of several new business incentives. News of Mamtek's financial troubles broke a few days later, and some lawmakers have cited it as a reason for opposing the creation of additional incentive programs.

Nixon has sometimes bristled when questioned about the failed business incentives, calling that an "excuse" for not acting on new incentives during the special legislative session and noting that the problems in Moberly and Cape Girardeau were caught before any state incentives actually were paid.

"We have check marks in place," Nixon said this week.

"I mean, if the standard is that every business deal has to work perfect ... ," Nixon said without finishing his sentence. He then changed course and added: "We've got to be aggressive; we've got to look to the future."

Some would argue that Missouri needs to learn from its past.

The incentives for Wi-Fi Sensors were small in comparison to the Mamtek deal, yet both were hatched in an economic environment where local communities and elected officials are under pressure to create jobs because of a lingering high unemployment rate.

In addition to the $1 million loan through the Community Development Block Grant program — which is composed of federal money funneled through states — Wi-Fi Sensors had received a state offer of up to $1.3 million in tax incentives from the Missouri Quality Jobs program and $375,000 in state funds to reimburse employee training costs, said Phil Tate, director of job creation at Kirksville Regional Economic Development Inc. Those incentives were never paid because Wi-Fi Sensors laid off its manufacturing workforce after filling only a limited number of orders for its wireless sensor devices.

After the company missed its scheduled loan repayments, the case was turned over in April to Attorney General Chris Koster, who now is prepared to sue to try to recoup the $1 million loan, said Koster spokeswoman Nanci Gonder.

The loan to Wi-Fi Sensors had been vetted in advance by the Department of Economic Development, Tate said. The department also was responsible for screening the Mamtek proposal, which Tate said "would have raised a question in most economic development professionals' opinion." In fact, Mamtek was turned down by some North Dakota officials.

"Many people would have at least raised their eyebrows and questioned whether you could come up with 600 people in that labor market, and where those people would come from with those kinds of salary levels they were talking about," said Tate, who served as director of business expansion and attraction in the Missouri Department of Economic Development from 1997 to 2003.

Department of Economic Development spokesman John Fougere said each application for state tax incentives is vetted by the agency to ensure it meets program requirements and produces jobs. He said the department is continually adjusting its due-diligence process.

"We take our responsibility of managing and investing taxpayer resources to help create jobs and grow our economy very seriously," Fougere said in an emailed statement.

Tate said he knows from personal experience that there is intense pressure to announce job-creation deals. In a good economy, there may be 4,000 local economic development organizations around the nation competing for 300 to 500 new projects in any given year, he said. In a poor economy, the competition only heightens.

"There's all kinds of pressure brought to bear that hurries these things along. There's pressure from the community; there's political pressure; there's the desire for the governor to show results of his administration," Tate said. "All of that can cause you not to be as cautious as you should be."

"Should we do a better job of vetting these?" Tate asked. "Yes, we probably should at the state level. We probably should at the local level."


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