The Department of Economic and Community Development was cited by state auditors for forgiving or modifying state loans to companies totaling $23.6 million and awarding $16 million in excess assistance through the First Five Plus program, according to a new state audit.
The audit comes as DECD Commissioner David Lehman works to change the way Connecticut handles business incentives. Lehman has said the department will no longer offer grants to companies and will provide loans and tax breaks piecemeal based on the company meeting hiring goals.
The audit, which spanned the years of 2015 and 2016, found the department “amended or modified the assistance agreement for 3 companies, which resulted in the companies receiving $21,550,000 of loan forgiveness that they would not have been entitled to under the original assistance agreements.”
“In addition, two of the companies would have owed a total of $2,282,144 in penalties under their original assistance agreements,” the report said.
The report also found DECD amended assistance packages for two companies who actually lost employees and did not notify the State Bond Commission of the changes.
In one instance, a $20 million loan was modified so the company could reduce the number of employees from 2,000 to 1,000 and still receive partial loan forgiveness. The company reduced its number of jobs by 1,326 between 2012 and 2018 but still received $11.4 million in loan forgiveness, according to the audit.
In one instance, a $20 million loan was modified so the company could reduce the number of employees from 2,000 to 1,000 and still receive partial loan forgiveness. The company reduced its number of jobs by 1,326 between 2012 and 2018 but still received $11.4 million in loan forgiveness, according to the audit.
DECD responded that it modified the loans to prevent at least one company from relocating and thus losing all the jobs and that the department acted under statutory authority to amend the agreements.
The auditors argued that if the company moved out of state it would be liable to repay the total loan, plus a penalty.
According to the audit, DECD awarded $16 million to a company through the First Five Plus Program to create 200 jobs in five years. However, the auditors say the company should have had to invest $25 million, rather than $9.1 million.
The department also awarded $20 million in assistance to a company to create 100 jobs even though it did not meet the requirements for a First Five company.
In both cases, the auditors argue, the companies should not have received more than $10 million based on state statute and should not have been included in the First Five Plus Program. This resulted in $16 million in excess assistance awarded by the state through the Manufacturing Assistance Act.
DECD partially disagreed with the finding because the company’s total investment, including the state’s $16 million in assistance, was more than $25 million. The auditors argued the $25 million investment should not include state funds and recommended that a formal opinion from the Attorney General be requested or the statute be amended legislatively.
“We would note that the DECD First Five Report stated that a company needs to invest $25 million, not that the total investment must be $25 million,” the audit states. “DECD should either seek a formal opinion from the Attorney General on this question or ask the General Assembly to clarify the statute.”
The auditors also found the department awarded $900,000 in secondary loans to three companies that were already delinquent in paying off their first loans by up to 2.5 years. “The financial reviews performed for these companies raised concerns regarding their ability to complete the new projects or repay the loans,” the auditors wrote.
DECD had given 50 companies multiple loans, according to the report. DECD agreed with this finding and noted they are adjusting their auditing requirements and database system.
Additionally, the auditors found multiple loan deferments, inadequate financial reviews of companies, incorrect interest calculation on loans, inadequate monitoring of lending partners who administer small business loans, excessive department sponsorship of a particular company and inadequate job audit controls when measuring whether or not a company met its hiring goals.
The DECD has been at the forefront of economic debate in Connecticut as it leverages bonded funds to assist companies in the form of loans, grants, and tax credits in exchange for company investment and job growth.
Despite the investments, Connecticut’s economy over the past ten years has lagged much of the nation and is only now showing signs of life during an extended upturn in the national economy.
Perhaps most controversial, is the First Five Plus program instituted by Gov. Dannel Malloy, which offers assistance to major corporations. According to the audit, DECD does not require financial reviews for First Five Plus program companies.
Despite the economic assistance offered to some of those major companies, some have left the state, like Alexion Pharmaceuticals, and others, like ESPN, received assistance but laid off employees.
In other instances, businesses which received economic assistance through the small business express program were given secondary loans, loan modifications and forgiveness even though they were delinquent in paying off their original loan. A whistleblower within DECD brought the information to auditors in a 2018 complaint.
In one instance, a non-existent company received $400,000 from the state. The owner of Amoun Pita was eventually arrested after he fled to Canada.
During 2015 and 2016, the DECD awarded $112.1 million in grants and $324.5 million in loans through the Manufacturing Assistance Act – which includes the First Five program – the Small Business Express program and Brownfield projects, according to the audit.
Gov. Ned Lamont has tried to limit state borrowing under his proposed “debt diet,” and the DECD is adjusting their methods of offering assistance to companies.
alfredo
March 4, 2020 @ 4:20 pm
That was Dan Malloy’s slush fund. Some say he has his current job thanks to the Jackson Labs deal.
There were scores and scores of phony payouts and payouts that should never have been made.
Back9? Hybrid Insurance? Check to see what companies are still around that received cash…the burrito place, the million dollar indoor tomato farm the paintball course. The fish excrement project in Waterbury…money that went to a non-profit..how did that work out?
There was not one legitimate study that showed benefits for programs like these, but Malloy embraced it. Cuomo, next door is just as bad. His latest $750M state loss on the batter plant,upstate, should spark talk of impeachment!
And Catherine Smith. She fought oversight and disclosure and then moved along.
Bob
March 10, 2020 @ 9:19 am
I wonder how much money was used to sway votes to the current state administration? Why isn’t the attorney general investigating every single instance of improper accounting practice and prosecuting the offenders?