Economic Development Grants: Progress Report

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Economic Development Grants: Progress Report

by Ari Armstrong, October 3, 2005

Dear Mr. Vogt,

I wrote to you on October 1 concerning the Economic Development Commission (EDC), one division of Colorado's Office of Economic Development and International Trade, which you direct. My purpose here is to summarize additional information, restate the questions I asked you a couple days ago, and add a few new questions. My commentary, then, is followed by a set of questions.

Two main criticisms have been leveled against my paper, Wasteful Spending by Colorado Government, which discusses EDC grants especially to corporations. The first criticism is that, supposedly, my paper does not address the fact that EDC grants are typically awarded one year and paid out in future years. In an October 3 Speakout for the Rocky Mountain News, I address this criticism, pointing out that I discuss the fact that grants are originally listed as "pending" or "contracted," and I link to a document that updates the status of EDC grants from 2001 through 2004. (See http://www.freecolorado.com/2005/09/budgetdocs.html.)

However, since you raise the issue of pay-out schedules, I asked you to name all the corporations awarded an EDC grant prior to 2001 but paid out since then. That question is reiterated below.

The second criticism against my paper is that I don't point out that EDC grants may be funded partly through federal funds. That is the main issue I am persuing here. Your answers to the questions below will help establish the background and full set of relevant facts regarding this matter.

Previously, I supposed that EDC grants were funded entirely by general funds. I based this supposition on two facts. First, budget documents (long bills) from 2001 through 2005 show -- see http://www.freecolorado.com/2005/10/econdevel.html -- that EDC is funded exclusively through the general fund, with no listing for federal funds. EDC has been allocated just under a million dollars in general funds for each of the last few years. However, "Small Business Development Centers," another item under "Economic Development Programs," does list federal funds, in an amount of $1,199,212 for 2005-06.

The second reason I thought EDC grants were funded entirely by general funds is that, on August 3, 2005, John Ziegler of the Joint Budget Committee said, "You had asked a question about the Economic Development Commission, where the sources of the funding for the grants comes from. It's general fund. So general fund monies are put into the Colorado Economic Development Fund, and then they use the money in that fund to get the grants."

However, since the publication of my paper, three newspaper pieces (including one by you) have claimed or suggested that EDC grants are funded partly or entirely through federal funds. That claim gains plausibility because of some numbers related in my paper (page 6). I state, "The Economic Development Commission (EDC)... cost $5,246,886 from 2001 through 2005, all from the General Fund." That's the figure based on the legislature's budget documents. However, I also point out, "In a September 1, 2005, e-mail, Evan Metcalf, Senior Division Director for EDC, states that, between 2001 and 2004, EDC approved 146 projects for a total of $11,948,041." Of that amount, Metcalf said that $2,224,200 was withdrawn, funded elsewhere, or returned, leaving a remaining amount of $9,723,841. While there's no reason to expect that grant payments and expected payments should equal the amount budgeted, the second figure is nearly twice as large as the first, which raises some questions that my paper does not address.

On September 27, Lynn Bartels writes for the Rocky Mountain News, "Vogt said his office in 2002 received an infusion of federal money via the governor for job creation, tourism and job training." But this statement doesn't indicate how much federal money, if any, contributed or is expected to contribute to EDC grants.

On October 1, Bob Ewegen writes for The Denver Post, "Brian Vogt, director of economic development for Colorado, noted the restaurant chain [Red Robin] hasn't received a penny from Colorado yet. It has been offered some federal job creation funds awarded to this state after the Sept. 11 terrorist attacks, but it won't get that money unless it meets rigid targets for job creation. If it does meet those targets, the chain gets $500 per job created. Vogt outlined the incentive program to me Friday and confirmed that the federal funds involved were earmarked for such economic development projects and can't be switched to other needs like roads or schools, as Caldara suggested they should have been."

Here, Ewegen clearly claims that EDC grants are funded by federal funds. Furthermore, Ewegen suggests that EDC grants are funded exclusively by federal funds. It now seems plausible that EDC grants have been subsidized by federal funds, yet this point has not been firmly established. However, Ewegen's suggestion that EDC grants are funded exclusively by federal funds seems unlikely.

In the 2005-06 budget, "Economic Development Commission -- General Incentives and Marketing" is allocated $959,795, exclusively from general funds. So where does Ewegen believe this general-fund money goes? The long bill lists "2.0 FTE" associated with the EDC general-fund expense. That means two "full-time equivalent" salaries. Unless EDC is paying average annual salaries of nearly a half million dollars per employee, that leaves several hundred thousand dollars of general-fund money every year.

Today I called Ziegler and commented about EDC general funds: "My assumption is that some of the money is going to salaries, and the rest is going to the grant structure." He replied, "That's my assumption." However, Zielger also said that it's possible that not all federal money appeared in the long bill. If EDC got federal money, "those monies aren't in the long bill," he said. He continued, "Whenever we can find out about federal grants, we like to put them in the long bill."

In a follow-up e-mail the same day, Ziegler stated (with spelling corrected), "Ari, You called me earlier today with questions regarding clarification about the funding for the EDC. In June and October of 2003 the state of Colorado received Federal Flexible fund payments totaling $146.3 million. The Governor took the position that these funds could be allocated by the Executive Branch without the input of the Legislative Branch. The Governor allocated $10M of that sum for 'jobs for Colorado' economic development programs and $2.5 M for job training. I am not sure how these moneys were distributed to the eventual recipients or by whom. Prior to receipt of these one-time federal funds, it is my understanding that the EDC was primarily funded through General Fund dollars. However, the Executive Branch could recieve federal funds that I am not aware of and allocate them to the EDC. The EDC still recieves the General Fund as reflected in the Long Bill each year."

On October 2, you (Vogt) wrote for The Denver Post, "The [EDC] is entrusted with less than $1 million a year from the Colorado's general fund for a host of projects statewide. The only reason we have been able to provide broad job-creation incentives [grants] for the past few years is because of a federal grant. These funds came to each state as an economic recovery tool after the 2001 national recession. Gov. Bill Owens used this grant for three major efforts -- to fund incentives [grants] for quality job creation, provide job training and market Colorado to attract tourists..."

This comment states outright that EDC received federal money (that was not recorded in legislative budget documents). However, left unanswered is what proportion of EDC grants is subsidized by federal funds. (Another issue is when the funds arrived. Is Ziegler correct that the funds were not available until 2003?)

EDC documents make clear that some EDC grants have been given to corporations prior to 2002. EDC publishes reports online from 1999 through 2004 -- see http://www.state.co.us/oed/edc/EDCReports.html. At least the grants from 1999 through 2001 were issued without the anticipation of the federal money. If Ziegler's dates are correct, then the report for 2002 also involves grants issued without anticipation of federal money.

So here is a list of grants awarded to corporations during those years. (I do not here list the current status of the grants, nor do I list other sorts of grants.)

1999

StarTek USA, Inc. $100,000 EDC grant, plus a $90,000 "Customized Job Training" grant

2000

Time Warner Telecom, Inc. $300,000 EDC grant

American Scandia Life Assurance Corporation $94,500 EDC grant

Fextronics International $300,000 EDC grant, plus a $320,000 "Customized Job Training" grant

Dura-Line Corporation $150,000 EDC grant

Swiss-O-Matic, Inc. $34,000 EDC grant

Inc. Magazine Advertising $250,000 EDC grant

2001

CAE Electronics, Ltd. $105,000 EDC grant

MSS Group, Inc $125,000 EDC grant

Innovative Manufacturing Company, LLC $35,000 EDC grant

Rocky Mountain Sugar Growers Cooperative $400,000 EDC grant

Stewart Lodges $150,000 EDC grant

Wausau Homes Incorporated $190,000 EDC grant

Prairie Development Corporation $30,000 EDC grant

2002

Renaissance Mark, Inc. $50,000 EDC grant

Structural Component Systems $132,000 grant, plus a $48,448 "Colorado First" grant

Premier Roasters $80,000 EDC grant

Neoplan US Corporation $500,000 EDC grant

Mexicana Airlines $500,000 EDC grant

* * *

Quite obviously, EDC awarded grants to corporations prior to the infusion of federal money after 9/11.

Please answer the following questions.

1. How much is your annual salary?

2. How many people work for EDC, how many hours, and what is their rate of pay?

3. What percent of EDC general-fund allocations goes to fund grants? Please include figures from 2001 to the present. If any EDC general-fund money is spent on anything other than salaries and grants, please specify the items and dollar amounts.

4. Article XI, Section 2 of the Colorado Constitution states, "Neither the state, nor any county, city, town, township, or school district shall make any donation or grant to, or in aid of, or become a subscriber to, or shareholder in any corporation or company..." In your opinion, do the EDC grants violate this provision of the Constitution? Please explain your reasoning.

5. How much federal money went into your office since 2001 that is not reflected in the long bills? Please state the dates of the transfers.

6. Where, specifically, did this federal money go? How much of it went to EDC? How much to Colorado First? How much to other divisions of your office?

7. Did the federal money come with any strings attached? If so, please specify.

8. Please provide a list of all corporations that were awarded EDC grants prior to 2001, but paid by EDC, in part or in whole, since 2001. Please include dollar amounts and, where applicable, anticipated future amounts.

Please send your answers to Bob Ewegen, Lynn Bartels, Vincent Carroll, Dave Kopel, Ed Quillen, Jon Caldara, John Ziegler, and me.

Sincerely,

Ari Armstrong

* * *

Following is Vogt's preliminary reply of October 1.

Dear Mr. Armstrong:

Thank you for your e-mail. I too am very anxious for there to be no misunderstanding about the EDC and the Office of Economic Development in general. For a delineation of EDC processes, you might want to check out an op ed I wrote for Sunday's Denver Post.

Perhaps you might want to see a qualifications/policy statement the EDC uses for grant applications. I'd be happy to forward that to you and will also look into your other inquiries next week.

As for my qualifications, next March I will celebrate 20 years of economic development work in Colorado having been hired to create the South Metro Denver Economic Development Group in 1986. The Group is a division of the South Metro Chamber where I served as President from 1990 until 2004 when I was asked by the Governor to serve as OEDIT Director. I was a founder of the Metro Denver Network, served as its Chair and specialized in business retention and expansion programs. I could go on but would risk being boring.

And by the way, I had a double major in classical antiquity and political science, the latter of which was not terribly useful, while my classics degree continues to serve me well.

Best regards,

Brian Vogt

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