Audit faults screening used for Mamtek incentives
Tuesday, September 25, 2012
JEFFERSON CITY, Mo. (AP) — Missouri’s economic development agency could have done a better job of screening applicants for business incentives, and the state could have saved millions of dollars if it had tightened guidelines for tax credits, the state auditor said Tuesday.
A report released by Auditor Tom Schweich concludes that the Department of Economic Development, the city of Moberly and private entities were not diligent enough in reviewing Mamtek U.S. before authorizing incentives for the company to build an artificial sweetener facility projected to employ more than 600 people. A legislative committee reached a similar conclusion earlier this year, though the state agency has defended its review process.
Construction of the sucralose factory halted one year ago after Mamtek failed to make a payment toward $39 million of bonds issued in 2010 by Moberly’s development agency. The state had offered additional incentives of up to $17 million, but they never were paid because Mamtek didn’t trigger their criteria before failing.
Since then, Attorney General Chris Koster filed theft and fraud charges against Mamtek CEO Bruce Cole; the federal Securities and Exchange Commission brought a civil suit seeking financial penalties against Cole; Moberly’s credit rating was downgraded; bankruptcy proceedings were initiated against Mamtek and its assets are to be auctioned off Oct. 24.
The audit cites various ways in which state and local officials could have done a better job of scrutinizing Mamtek’s perations, including its available financial resources and the apparently false assertion that it had an affiliate in China already producing sucralose.
“What I see is obvious red flags being ignored, and to me that implies a strong desire to get this through — to the point that sometimes they were blinded to the risks of the project,” Schweich said Tuesday.
In a written response included in the audit, the Department of Economic Development said it “performed substantial due diligence related to the Mamtek project.” A department spokesman declined further comment Tuesday.
In February 2011, the department adopted new due diligence procedures for its business incentives, which Schweich praised as “significant improvements” but said could be strengthened even further.
While announcing the criminal charges last week, Koster said “there were opportunities, perhaps, for more due diligence” in the Mamtek project.
The state House Committee on Government Oversight and Accountability issued a report in February also faulting due diligence efforts. It said the department should have forwarded to Moberly officials an email from its consultant in China raising questions about whether Mamtek actually was producing artificial sweetener there.
It also said private-sector bond consultants and credit-rating agencies should have more thoroughly scrutinized Mamtek and the city’s ability to repay the bonds.
Among its many recommendations, the House committee said all municipal bonds should be subject to public votes.
The audit noted Missouri has no law limiting the amount of appropriation-backed bonds that can be issued by local governments, nor does it require they be placed on the ballot for approval.
Schweich’s audit also addressed broader tax credit policies, recommending lawmakers prohibit projects from being able to claim multiple tax credits — a suggestion also made last year by the Tax Credit Review Commission but hasn’t been enacted.
The audit said Missouri issued $134 million of tax credits for project costs claimed under more than one program between the 2000 and 2011 fiscal years. Developers could have been issued up to $3.27 in federal and state tax credits for every $1 of project costs, the audit said.
Additionally, the audit said Missouri could have saved $68 million over that period if it had followed the federal government’s lead by reducing the amount of low-income housing tax credits available for developers who also claimed historic preservation tax credits.
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