JEFFERSON CITY, Mo.—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 that was projected to employ more than 600 people. A legislative committee reached a similar conclusion earlier this year, though the state agency has continued to defend 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 has filed theft and fraud charges against Mamtek CEO Bruce Cole; the federal Securities and Exchange Commission has filed a civil suit seeking financial penalties against Cole; Moberly’s credit rating has been downgraded; bankruptcy proceedings have been initiated against Mamtek and its equipment and 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 claims about its operations, including its available financial resources and the apparently false assertion that it had an affiliate in China already producing sucralose.
In a written response included in the audit, the state Department of Economic Development said it “performed substantial due diligence related to the Mamtek project.”
But 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 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. 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 that all municipal bonds should be subject to a public vote.
The audit noted that Missouri has no law limiting the amount of appropriation-backed bonds that can be issued by local governments, nor does it require that they be placed on the ballot for approval.
Schweich’s audit also addressed broader tax credit policies, recommending lawmakers prohibit certain projects from being able to claim multiple tax credits—a suggestion also made last year by the Tax Credit Review Commission which has not yet been enacted.
The audit said Missouri issued tax credits totaling $134 million for project costs that were claimed under more than one tax credit program between the 2000 and 2011 fiscal years. Additionally, the audit said the state could have saved $68 million in tax credits over that same period if it had mirrored a federal law reducing the project costs eligible for low-income housing tax credits by the amount already covered by historic preservation tax credits.