Many jobs state says it creates don’t exist [The Blade, Toledo, Ohio]

Oct. 29--Last of three parts

It's a numbers game when it comes to job creation in Ohio.

A Blade investigation into whether taxpayer funding creates jobs revealed state documents contain vastly skewed numbers -- inflating the number of jobs created by more than 11,000.

Officials at the Ohio Development Services Agency said they improved the process for tracking whether state loans, grants, and tax credits stimulate job growth, but The Blade found the state agency still is largely unaware if companies create the jobs they promise.

About 37 percent of the grant reports that businesses submitted to the state contained errors, including incorrect job-creation numbers. The Blade received reports that were dated as early as 2006 and continued through 2013.

The inaccurate grant reports are an example of lapses in the way Ohio manages its business incentives. The state often is in the dark about problems at firms and is hard-pressed to recoup the money it lends or gives to companies that fail to create jobs.

The state is dependent on the word of companies to assess whether they actually create jobs. Firms self-report their employment numbers via the Internet. Although the Development Services Agency, formerly the Ohio Department of Development, is responsible for keeping track of job-related data, its employees almost never visit businesses that receive state incentives.

And now, most of the records related to job growth are shielded from public scrutiny.

Republican Gov. John Kasich has come under fire for promoting the creation of JobsOhio -- a private, nonprofit agency -- to head up the state's economic development efforts. JobsOhio says it creates jobs, but there is no way of confirming that because its records are not open to the public.

Mr. Kasich's office did not respond to repeated requests for comment.

Even Ohio Auditor Dave Yost is barred from inspecting most of JobsOhio's records. Mr. Yost's office subpoenaed JobsOhio for its records earlier this year and won that battle, but the Republican-led General Assembly responded by passing legislation that states JobsOhio's funding is private and future financial audits will be performed by a private accounting firm.

The auditor's office conducts a yearly review of the Development Services Agency, but that examination only extends to a few duties of the agency and doesn't typically include a look at grant funding or the state's loan portfolio.

Mr. Yost, a Republican, said it's crucial that all of the state's job-creation efforts are evaluated on a regular basis.

"It's not just important to have a set of eyes on what government does, it's important to have a set of independent eyes," he said.

Although the office of Ohio Attorney General Mike DeWine scrutinizes whether state loans, grants, and tax credits successfully aided job creation, that review relies on records maintained by the Development Services Agency -- the same records that were riddled with errors. The attorney general's office is required by state law to perform this task each year.

Even when it does find problems, the attorney general's office is not legally permitted to attempt to recoup state money until it gets the green light from state development officials.

"If the [Development Services Agency] makes a determination that someone is out of compliance, they then send it over to us and certify it," Mr. DeWine said. "The point [at which] they send it over to us is up to them."

The Blade found numerous instances in which state development officials were lax about asking the attorney general to collect taxpayer funding from companies that didn't create the jobs that they promised or failed to repay loans.

The state's development office has not referred any loans for criminal prosecution since Governor Kasich took office, although several firms that received loans have gone out of business and failed to return taxpayer money.

Inflated figures

Some state records contain exaggerated numbers for the jobs that companies said they created. In other cases, records show that businesses failed to create jobs, but state officials later claimed that those firms did hire more employees.

For instance, a report for American Axle & Manufacturing states that the firm created 488 jobs in Minerva, Ohio, but after being contacted by The Blade, state officials said the firm only created 391 jobs.

But The Blade's investigation found a much bigger problem:

-- Reports from businesses that have open grants -- meaning they still are using state grant money -- inflated job figures by 59 percent. The 294 reports that were reviewed stated firms created 27,815 jobs, but state officials said they created 16,458 jobs -- a difference of 11,357 fewer jobs.

-- Reports from businesses that finished spending state grant money show they failed to create 83 percent of the jobs they promised to the state. The 240 reports reviewed stated those firms promised to create 10,173 jobs, but said they created only 1,775 positions. Officials at Ohio Development Services Agency, however, claim those companies created 15,006 jobs.

Of the 534 grant records reviewed, 195 contained errors, including incorrect job-creation numbers. The Blade asked the state about each error it found and state officials replied with new data, which was used to determine if companies created or lost jobs.

The corrected state data was not recorded on official documents, but was sent to The Blade via email.

The Development Services Agency implemented a new computer system in 2013 that allows companies to self-report how many jobs they create. That allows the state to compile more accurate data, said David Goodman, director of the Development Services Agency.

"Until 2012, there had been no structure and no process for what happened in the closeout year of a project," Mr. Goodman said. "There was no real follow-up to whether the jobs promised [were] actually created. We're getting annual reports in addition to getting companies to file their annual reports; we're reaching out."

The problems with state record keeping extend beyond whether companies are truthful on the reports they submit to the Development Services Agency. The issues, which members of Governor Kasich's administration say they addressed, continue to appear in reports filed after development officials changed how the state tracks job creation.

Task for interns

In 2009 and 2010, paid college interns and administrative staff at the former Department of Development were assigned the task of reviewing the job-creation information that businesses sent to the state. In 2011, the state began reassigning that duty to economic development professionals, said Lyn Tolan, deputy director of policy and communications for the Development Services Agency.

The agency, though, still uses interns to review company reports. It currently has four interns who can perform those duties, Ms. Tolan said.

"Most are master's degree candidates; one undergraduate student is majoring in financial mathematics," she said. "They may have assignments with the quality-assurance group, but are never the only person reviewing annual report information."

The Development Services Agency also formed a quality-control team in 2012 to assess the reports that companies file. The team has 15 members and is responsible for identifying problems at firms. It works alongside other development employees who examine information submitted by businesses.

"If we are reviewing them on a yearly basis, we know whether they are meeting their marks or not meeting their marks," Mr. Goodman said. "If they are not, we reach out to them and we talk with them, and we try to help them be successful."

Although state officials say the newly formed Development Services Agency is more accurate than its predecessor, The Blade found many errors continue to slip past the safeguards that have been put in place.

A review showed there were 51 errors on grant reports after the state revamped its procedures in the first quarter of 2012. The errors appeared in about 30 percent of the 172 reports submitted by businesses after that quarter.

The state database that catalogs loan and grant awards also contained 188 entries that listed different award amounts than what were recorded on grant documents. The Blade discovered the differences while cross-referencing state documents with information the Development Services Agency puts online.

"These are public funds that the taxpayers have entrusted to JobsOhio or the executive branch of government," Ohio Senate Minority Leader Eric Kearney, a Democrat, said. "We have to make sure they are used wisely and where there is the highest likelihood of success.

"Maybe the General Assembly needs to take up this cause and provide legislation that reviews these issues."

Good intentions

State loans, grants, and tax credits aid struggling businesses and help companies stay ahead of their competition. It's a system that the Ohio Development Services Agency and Governor Kasich credit with boosting the state economy.

But companies with good intentions have fallen behind on loan payments and haven't created the jobs they promised to the state.

Ask Steve Malbasa about the weight of keeping a business open while trying to repay a state loan and the cheery 60-year-old's face dims. Mr. Malbasa owns Hanover Marine, a luxury sailboat manufacturer in Fairport Harbor, Ohio, which has fallen more than 160 days and $117,106 behind in repaying its $2 million state loan.

Mr. Malbasa purchased Hanover in 2010 after the company received state funding.

The boating industry was blindsided by the recession, and its recovery has been painful, he said. Sales plummeted by about 75 percent across the yachting industry.

Hanover was fortunate to survive the economic doldrums of the last five years and was able to keep its doors open because of the state loan it received in 2009. Without that taxpayer funding, the company would have closed, Mr. Malbasa said.

"We've got folks out here working for hourly wages I'd love to increase more," Mr. Malbasa said. "We're building stuff that people are sailing across the Atlantic and Pacific oceans."

Firms such as Hanover represent a delicate balance the state tries to strike between creating jobs and safeguarding taxpayer money.

In the dark?

The state doesn't always know what it's getting into when it hands out loans and grants. The Blade's investigation shows that state officials knew very little about the financial and legal problems of firms that received state incentives.

Myriad Health, a defunct software development company that was based in Chagrin Falls, Ohio, a suburb of Cleveland, is one of those businesses. It received a $750,000 loan in 2008.

Problems at Myriad don't appear in the firm's state loan file, which was heavily redacted by the Development Services Agency. Problems involving Pamela Priddy, Myriad's owner and operator, also are not mentioned in those records.

According to state records, Myriad closed its doors in 2011 without informing development officials, which is in direct violation of its state loan agreement. The firm failed to repay its loan.

The attorney general's office is trying to collect the money the state loaned to Myriad, and a court-appointed receiver, David Douglass, has been probing the company's operations.

According to court documents filed by Mr. Douglass, Ms. Priddy "improperly commingled" the firm's funds and assets with other companies she ran, including a health-insurance firm. The records also state that Ms. Priddy and another board member of Myriad engaged in "unlawful conduct" that "was solely designed and directed to harm Myriad Health by means which were dishonest, unfair, fraudulent, and improper."

A September, 2011, report Mr. Douglass filed with Geauga County Common Pleas Court states that he received a phone call in which a former business associate of Ms. Priddy stated "it was his opinion that Pamela Priddy had committed fraud in obtaining the loan from the state of Ohio."

Mr. Douglass would not comment on the case.

Dan Dansberg, who worked at Myriad as a software engineer, told The Blade that the company laid off most of its staff shortly after it received the state loan in 2008. Mr. Dansberg was among the employees who lost their jobs.

"It wasn't long after they got the money that most of us were let go," he said.

The firm pledged to create 15 jobs.

An April, 2012, document from the Ohio Department of Insurance states Ms. Priddy admitted to improperly handling insurance claims and was fined $50,000.

The Blade went to Ms. Priddy's home in Newton Falls, Ohio, and to her current business, Youngstown-based Health Plan Administrators, to ask her why Myriad failed to repay its $750,000 state loan, but Ms. Priddy was unavailable for comment. A Blade reporter left his business card at both locations.

Ms. Priddy's attorney, Daniel Bell, sent the following to The Blade after the visits: "Until I tell you differently, in writing, you are banned from the Health Plan Administrators business office and the immediately surrounding area. ... Likewise, until I tell you differently, in writing, you are banned from entering on or being around Mrs. Priddy's personal [residence] property for the same reasons."

Loan hassles

Some states, such as Indiana, don't include loans in the incentives they offer to businesses.

The Indiana Economic Development Corp., which awards taxpayer-funded incentives, does not make loans to businesses because they're a hassle to monitor, said Eric Shields, the organization's policy director. The corporation mainly awards tax credits, he said.

The corporation made the decision to not grant loans when it was formed in 2005, Mr. Shields said.

"We're not a bank," he said. "We're in the economic development business, and we let banks do lending."

The lapses in Ohio's oversight of taxpayer-funded incentives are not surprising, said Stephen Buser, professor emeritus of finance at the Ohio State University. Mr. Buser said banks and private lenders have a hard time tracking what happens with the loans they give out, and it's even more difficult for public bodies.

"I sympathize greatly with the public entities that are caught between a rock and hard place," he said. "On one hand, it's perfectly legit to help promote businesses. On the other hand, a certain percent of those loans are going to be shady and a certain percent are going to be bad."

Kris Turner can be reached at: or 419-724-6103.

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