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Yost Calls for Tighter Controls in Monitoring Economic Development Loan Programs

2/24/2020

(COLUMBUS, Ohio) — Ohio Attorney General Dave Yost today recommended that the General Assembly and Gov. Mike DeWine’s administration review the efficacy of the state’s economic development loan programs and determine whether there are sufficient controls in place to ensure the public’s dollars are being wisely spent.

“This is not about fixing blame, but fixing a system,” Yost said. “Compliance should be based on agreed upon terms and not adjusted midway through to look better. Ohioans deserve transparency, not fuzzy math.”

Following a rigorous review of Ohio Development Services Agency (DSA) grants, the attorney general’s office released its 2019 Report to the General Assembly on Compliance with State Awards for Economic Development. The report, which is required to be submitted by the Attorney General to the General Assembly pursuant to statute, analyzes whether companies and organizations that were awarded certain economic development incentives complied with the requirements of those state awards. Today’s report reviewed recipients which had performance periods ending in calendar year 2018.

In a letter to the General Assembly, Yost noted that “the historical performance of DSA should not implicate the practices of our new chief executive, Gov. Mike DeWine.”

Yost also recommended the General Assembly consider legislative changes to transfer the responsibility of compiling the report to the Auditor of State. He added that the auditor’s office has an experienced team of auditors who are well equipped to conduct this review.  

Among the findings of the review:

  • Only 50% of Economic Development Loan Awards closed out in 2018 had substantially complied with the terms of the loans. The noncompliant awardees received a total of $13.9 million in loans.
  • The worst performing of the loan portfolio group was the Innovation Ohio Loan Fund Program, which had a 25% compliance rate.
  • None of the 34 Roadwork Development grants evaluated in 2018 included firm job creation requirements, and grant terms from prior years were modified under the Gov. John Kasich administration by DSA to reduce or eliminate those requirements to allow grantees to be compliant. By comparison, in 2015, more than 63% of Roadwork Development grants contained job-creation requirements.
  • DSA only considers project completion, job creation, job retention and payroll commitments in determining compliance. Other secondary goals in contracts were not required, and their progress was not monitored by DSA during the Kasich administration.
  • Of the 81 Tax Credit Award Recipients closed out in 2018, a third were substantially non-compliant (27), with the value of awards totaling $4.8 million to date. Consequently, the DSA adjusted the terms of the awards to reflect underperformance, lowering the tax credit amount.
  • For all types of awards, DSA accepts 90% compliance with terms of the agreement as compliant.
  • DSA did not provide this office a hybrid list of JobsOhio Economic Award Recipients.
Yost also made other specific recommendations in his letter:
  • DSA should be required by statute to provide a hybrid list of JobsOhio Economic Award Recipients to the entity conducting this review in future years.
  • Modification of agreement terms after entering into award agreements seems like adjusting terms to means. If lower targets were sufficient to justify the deal, it would seem that those targets would be adopted originally. If it is in the public interest to change terms post facto, those changes ought to at least be reviewed by an independent authority prior to making the modification.
  • In the spirit of the economic development nature of the awards, DSA should require Job Creation and Retention expectations for all Roadwork Development grants.
The report can be found here.

An accessible version of the linked file is available by request.

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David O'Neil: 614-728-6069
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