Twenty-three companies that received public money for projects during a 10-year period failed to meet state grant requirements, according to an audit.
The state should have recouped an estimated $8.7 million, but the agency in charge — the Virginia Economic Development Partnership — didn’t seek to recover the money, the report said.
That was just one part of a highly critical audit of the partnership released last week by the Joint Legislative Audit and Review Commission, the state’s legislative watchdog agency. The commission concluded that the companies failed to meet at least one of three performance requirements: jobs created, capital investment or average wages.
The rationale used by the partnership staff for not seeking repayment of all or a portion of the grant — referred to as a “clawback” — in some cases “does not appear legally permissible,” the report said.
The companies in question were involved in projects across the state, but one of the three largest was in Richmond, at the Virginia BioTechnology Research Park.
Philip Morris USA, now within Altria, won approval for a $3 million grant from a fund administered by the economic development partnership for its $300 million research and technology center at 601 E. Jackson St.
Another company, American Funds, twice failed to meet grant performance requirements for projects in Chesapeake. Then-Gov. Mark Warner approved a $200,000 grant for the investment company to open a customer service center. In 2007, then-Gov. Tim Kaine approved an additional $200,000 grant for it to expand that center.
In another example, then-Gov. Bob McDonnell in 2011 approved a $1 million grant for Noblis, a nonprofit, to build a computing center in Danville. And Canon Virginia in 2008 failed to meet requirements for a $1.5 million grant approved under Kaine to expand operations in Newport News, according to the report of the commission, known as JLARC, which analyzed data provided by the economic development partnership.
The grants in these situations came from the Governor’s Opportunity Fund, known as GOF, which has been renamed the Commonwealth’s Development Opportunity Fund.
“In practice, VEDP staff have not consistently enforced clawback provisions and companies have been allowed to keep public funds even though they did not meet their contractual requirements,” the audit commission report said.
Altria spokesman Steve Callahan said in an email that because of changing business needs, the company notified the partnership that it would not meet its job creation requirement “and amicably resolved this issue.
“In correspondence with us, the VEDP said ‘In consideration of the significant capital investment made at the [Center for Research and Technology] and other recent actions by PMUSA and Altria that have added jobs and additional capital investment to the Richmond area, we do not intend to ask for any clawback of the GOF grant proceeds.”
Partnership spokeswoman Suzanne Clark acknowledged in an email that the agency granted leeway on clawbacks if a company exceeded in other areas “or created a lasting community asset.”
The agency did seek refunds for $10.5 million and recouped $7 million, with an additional pending repayment of $1.5 million, as of July.
But an estimated $8.7 million should have been recovered and wasn’t, the auditors found. The commission reviewed 133 projects completed between fiscal 2006 and fiscal 2015.
In one case, a company that was supposed to create 219 jobs created only 69, but the partnership didn’t enforce a clawback provision because the company funded tech programs in Southwest Virginia. State law “provides no basis on which this decision could be justified,” the report said.
The law allows companies that get the grants to receive one 15-month extension of the time to meet performance requirements. The commission found that in the past 10 years, staffers of the state agency and local officials approved multiple extensions for at least 10 projects, and the actual number and length of the extensions was not well-documented.
The Virginia Economic Development Partnership is a state authority supervised by a 24-member board appointed by the governor and the General Assembly. Lawmakers are promising reforms following the audit and news earlier this year that $1.4 million was given to an illegitimate company for a manufacturing project in Appomattox County that never happened, a project that remains under Virginia State Police investigation.
Old Dominion University associate professor Larry “Chip” Filer, chairman of its economics department, has had discussions with the partnership this year as it makes changes.
He said big job announcements generate good headlines, but it’s not surprising that some companies don’t create the number of jobs required by grants.
“I do believe VEDP is under pressure to make deals through the Commonwealth’s Opportunity Fund that have levels of jobs attached to them that are higher than what the firm may want,” he said.
“Or worse, they’re only going out on marketing efforts and trying to find firms that are going to bring 300-plus jobs, or 250 — the point is that it has to be big.”
Delegate Chris Jones, a member of the audit commission and chairman of the House Appropriations Committee, is among many lawmakers who want to analyze the need for fixes at the economic development partnership.
“The integrity of any program depends upon its administration,” Jones said, “and the JLARC report certainly brings into question the way the [Commonwealth’s Development Opportunity Fund] was administered in certain instances.” S