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18. January 2018

Radford foundry refuses to pay back economic development incentive, putting VEDP reforms to the test

A shuttered foundry on the banks of the New River closed five years ago, but the state’s attempt to reclaim $600,000 in taxpayer funds contributed to the failed project drags on.

The Virginia Economic Development Partnership and Grede Radford LLC have so far been unable to resolve the standoff, which has led to sharp exchanges — one lawyer called another a “moron” — and periods in which opposing sides simply ignored one another for months.

Next week, VEDP’s board of directors will consider whether to take advantage of a new law that allows the agency to ask the state Attorney General’s Office to get involved.

The city of Radford, meanwhile, gave the company its own incentive package worth another $600,000, but it has no plans to seek repayment.

The dispute has unfolded as VEDP, the state’s leading economic development agency, has been broadly criticized for its mishandling of economic incentive grants. Executives have been fired, the agency has been reorganized, a division was created to monitor contract compliance, and legislators have created new avenues to pursue repayment from delinquent companies.

Now, as Radford has failed to take legal action and Grede’s billion-dollar parent company has shown no interest in refunding the incentive check, the case offers VEDP a chance to project strength and move past episodes when it drew criticism from state auditors for failing to protect taxpayer funds.

Since the Radford facility closed, Grede merged with other manufacturing companies and was acquired by American Axle & Manufacturing in a 2016 deal valued over $3 billion.

“We rarely run into the situation that a company owes us a repayment and seemingly has the financial wherewithal to make repayment, but simply refuses to do so,” VEDP General Counsel Sandra McNinch wrote in an email to The Roanoke Times. “That appears to be the case with Grede.”

The foundry’s struggles date to at least 2008, when then-owner Intermet filed for bankruptcy and shuttered the plant. Virginia Casting Industries bought the facility in 2010 and announced plans to revive it as a manufacturer of steel automotive parts.

The announcement was seen as a major economic win for the region, as VCI promised to hire 300 workers and invest $9.1 million to get the facility up and running.

Then-Gov. Bob McDonnell gave the company a $600,000 grant from the Governor’s Opportunity Fund — contingent on hitting those milestones. The city of Radford matched the funds with an electric utility credit in the same amount, bringing the total incentive package to $1.2 million.

Things didn’t take off as quickly as expected, and VCI soon sold the plant to Grede Radford LLC in 2012. At the time, Grede was a large company that operated 16 other foundries across North America.

The incentive obligation transferred with the sale, but VEDP and Radford worked with the new owner to renegotiate the terms of the deal.

The initial performance agreement required the company to maintain 300 jobs through a so-called “performance date” of July 1, 2013. The amendment gave Grede more time to hit the milestones, but pushed the performance date back to July 2014.

Grede did briefly hit the investment and employment targets, but then it shuttered the plant in December 2013.

When the amended performance date rolled around, the plant was inactive. VEDP says that’s a breach and therefore Grede needs to repay the entire grant.

McNinch wrote in an email that VEDP initially waited to ask for its money back because there were some opportunities to reuse the facility’s equipment after the 2013 closure — though none of those possibilities materialized.

Instead, the 68-acre site was sold again in 2015, this time a metal recycling company going by Radford Trading LLC. That’s about the time Giles Seawell, who owns Economy Auto Body across the street, said he began noticing trucks carting away loads of machinery from the plant.

The facility that was once a major employer for Radford was being carried away piece by piece, in a pile of scraps.

Two months after the sale, VEDP began demanding repayment of the incentive grant designed to help save the plant.

“The taxpayers of the Commonwealth have not received what they paid for,” McNinch wrote the company in one of several letters demanding repayment.

Radford Economic Development Director Basil Edwards has disagreed with VEDP’s interpretation, noting that the plant did make major investments and employ hundreds of workers before closing.

Radford, which has been dipping into reserves for years to balance its own budget, has no plans to seek repayment of the $600,000 it contributed to Grede’s incentive package through electric utility credits. Edwards said the company at one point did create the jobs it promised, even if the plant isn’t still open today.

“If they [VEDP] look at the contract per the letter, I can see their point,” Edwards said. “But I think from a practical standpoint, they [Grede] met their obligation.”

The rift is further complicated by a section of the contract that left the city responsible for collecting repayment of not just its own contributions if the deal turned sour — but also VEDP’s funds.

That means VEDP wants its money back, but it must rely on a city that has taken a more lenient stance in order to get the funds.

“We have discussed with the locality that it is their contractual responsibility to go after the funds from Grede,” McNinch, VEDP’s lawyer, wrote in a statement to The Roanoke Times.

According to records obtained through the Virginia Freedom of Information Act, McNinch has suggested Radford take legal action, but that hasn’t happened.

At VEDP’s request, Edwards sent an initial demand letter in February 2015. Since then, the city has been only a passive observer of the dispute.

“We need to discuss next steps,” McNinch wrote to Edwards in March 2017. “Perhaps you should be warming up your County Attorney to filing suit to seek repayment.”

Edwards said no lawsuit has been filed. He did not dispute that it’s Radford’s responsibility, but he noted the city doesn’t have an attorney at the moment.

“We have not gone down that road yet,” Edwards said. “I felt like the state’s horsepower would be much greater than ours in seeking that repayment.”

Grede’s attorney, Sarah Williams of Michigan-based Bodman PLC, initially responded to the repayment demand by arguing the funds were not requested in a timely manner — and therefore don’t need to be repaid.

Williams did not respond to request for comment for this article. American Axle & Manufacturing, which has acquired Grede, also could not be reached for comment.

“Please draft a response letter telling Ms. Williams, in nice language, that she is a moron,” McNinch wrote to a colleague after receiving the company’s response. “We will be asking the locality to explore all avenues for seeking repayment of the full GOF [Governor’s Opportunity Fund].”

The correspondence show McNinch continued to contact Williams periodically for nearly a year — without email responses.

VEDP fell under harsh scrutiny during that time, sparked by a Roanoke Times investigation that found the agency performed little due diligence before awarding a $1.4 million grant to a Chinese company, Lindenburg Industry, promising a catalytic converter plant in Appomattox. That project never got started. VEDP has so far been unable to retrieve the funds.

The Joint Legislative Audit and Review Commission eventually released a 130-page report in November 2016 that found VEDP had operated for more than 20 years without “a formal due diligence process to protect the state from fraud and loss.”

Almost half of 133 completed projects under the Commonwealth’s Opportunity Fund — formerly the Governor’s Opportunity Fund — did not meet all of their contractual requirements, according to the report.

The report found the state was owed $22 million in paybacks but had successfully recouped $7 million as of July 2016. VEDP had not pursued repayment from 23 projects that did not meet contractual obligations.

Among the report’s many recommendations was that VEDP should develop policies to consistently enforce repayments.

“Your client’s failure to live up to its obligations to the Commonwealth is not going unnoticed,” McNinch wrote Williams in March 2017 regarding Grede, three months after the watchdog report was released. “Please pay me the courtesy of letting me know the status of this matter.”

Asked about the unpaid funds, outgoing Gov. Terry McAuliffe said his administration has inked 1,100 of these kinds of deals with a comparatively low default rate. He added unpaid paybacks are a “cost of doing business.”

He also pointed to changes VEDP has made to tighten contract provisions that allow the state to get its money back. Many companies, he said, now don’t receive any funds until they prove they can first hit milestones.

“In business it doesn’t always work,” McAuliffe said. “I started 30 businesses in my life. I tried entrepreneurship. It’s hard. Some work; some don’t. You want to make sure you can get all your money back.”

VEDP’s board will meet later this month and is expected to consider asking the office of the Attorney General to help chase the Grede debt.

Virginia’s departing Secretary of Commerce and Trade Todd Haymore said state officials have been working to whittle down the number of outstanding repayments identified in the report, bringing the number down to “single digits.”

Haymore didn’t rule out the possibility of a lawsuit over the Grede matter, but he said it would be up to the attorney general to determine what happens next.

“Unfortunately, there are always a handful of ones you have to go after. That’s what’s going on now,” Haymore said. “They [the attorney general’s staff] are the lawyers of the commonwealth and they’ll be utilizing whatever authority and powers they have.”

Source: roanoke.com

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