Public officials and bond professionals could face new due diligence mandates under the recommendations of a Missouri House panel that has been investigating the financial collapse of an artificial sweetener factory.
A report prepared for a special House committee suggests new laws requiring state economic development officials to more thoroughly vet companies seeking state incentives and to share information with local communities competing to attract those businesses. The report, obtained by The Associated Press, also suggests legislation requiring insurance for municipal bonds and mandating that private-sector bond professionals investigate the viability of the business projects, not merely the ability of a local government to make its bond payments.
The report is the culmination of House hearings into the financial collapse of Mamtek U.S. Inc., which had promised to build an artificial sweetener factor in Moberly that Democratic Gov. Jay Nixon had said could create 612 jobs. Construction of the factory halted last fall after Mamtek missed a payment toward $39 million of bonds issued by Moberly, which has since said it will default. Although the state offered up to $17 million of incentives, nothing was paid, because the deal fell apart before Mamtek could trigger the aid.
The report, which was being circulated Monday among members of the House Committee on Government Oversight and Accountability, concludes the Department of Economic Development should have forwarded to Moberly officials an email it had received from its consultant in China raising questions about whether Mamtek actually was producing any artificial sweetener there.
"Had the department shared those emails, it is likely that the bonds would never have been issued and this catastrophe would have been averted," the House committee report states.
Even then, the project might have been scuttled if private-sector bond consultants had more thoroughly investigated Mamtek, the report says. It cites the failure of firms serving as the bond underwriter and bond counsel to review the operations and financial condition of Mamtek and an "A-" credit rating from Standard & Poor's that the committee report said did not take into account Mamtek's viability while determining whether Moberly could pay its debt.
"What the committee found was that the Mamtek failure was the result of a toxic combination of inadequate government oversight by the Department of Economic Development and the abrogation of professional duty by America's bond industry," said committee chairman, Rep. Jay Barnes, R-Jefferson City.
Department spokesman John Fugure said Monday that he hadn't seen the report but stressed that "not a single dollar from the state" went to the Mamtek project "due to existing safeguards in our economic incentive programs."
During committee testimony late last year, department officials defended their review of Mamtek and stressed that it would be a waste of taxpayer money - and potentially harmful to Missouri's business environment - to more thoroughly screen the companies seeking state aid.
The committee report suggests legislation should be passed to require the department to seek third-party verification of financial information submitted by businesses applying for state incentives. It also suggests legislation requiring companies to submit contact information for vendors about whom they claim to have pre-sold their products and to require key officers in startup companies to pay for criminal, personal and financial background checks.
In addition to requiring the state to share any information it has obtained with local economic development officials, the committee report also suggests a law requiring local officials to tell the state about negative information they receive about a company.
The report recommends a delay before cities could issue municipal bonds, either by adopting time standards for bond procedures or amending the state Sunshine Law to require longer periods of public notice before votes on bond issuances.
Alternatively, the report suggests a prohibition on municipalities issuing bonds without first holding an election.
The report also takes a dig at Nixon's practice of billing the Department of Economic Development for flights on the state airplane.
It cites the gubernatorial travel while suggesting the department should also have room in its budget to pay consultants in foreign countries to travel for due-diligence investigations of companies seeking state incentives.