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LovelandPolitics
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Loveland - March 30, 2012
One Loveland businessman who watched the March 27, Loveland City Council study session reported to
LovelandPolitics, "they are drinking their own bath water" when commenting on the staff report regarding Loveland
business incentive subsidies of recent years. In order to show a successful business incentive campaign, city staff
changed baseline goals, reported false numbers to council and even changed the definition of common business terms so
Loveland's investment of $2,208,953 in 11 companies from 2008 to 2009 can be reported as a success on balance.
Betsey Hale, Loveland's Director of Economic Development, provided a 7 page written report to council before their
Tuesday study session to review the history of the city's business incentive fee waivers and direct cash subsidies.
Prior to the March 27, council study session, the Loveland Reporter-Herald (RH) published a long article on March 24,
2012 titled "Loveland Business Incentives Reap Mixed Results" reporting on Hale's findings that claimed success for the
city's business incentive program as mixed but on balance positive - not coincidently reflecting Hale's conclusions almost
exactly.
The Best (Agrium) and Worst (vNet) Both Reported Incorrectly
Staff claimed success for the city's subsidy of Agrium saying it brought 390 jobs and nearly $150,000 additional
property tax collections for local governments. Staff also employed blame shifting for the vNet debacle onto the city's
elected officials by saying the process was not driven by staff but instead the elected council. Either way, both
subsidies represent the largest numbers whether claiming property tax return, jobs created or lost and overall amount of
subsidy provided (61% of the total). The other 9 company subsidies were relatively small in comparison so this story
focuses mostly on the largest two subsidies.
Loveland Reporter-Herald Story Propagates Staff Misleading Numbers
Unfortunately, the recent RH news article (like the staff presentation to council) is riddled with factual errors and
invented histories that attempt to create from whole cloth new job goals for incentives paid three years prior while
claiming revenue as the result of subsidies that, in fact, the city never receives. Below is an excerpt from the recent
Reporter-Herald article which repeated misinformation apparently gleaned from Hale's report to council;
"Likewise, the $300,000 cash incentive to Crop Production Services and $142,000 to Agrium Advanced Technology
-- located in adjacent Centerra office buildings -- have resulted in 390 new living-wage jobs in the city, plus steep
rises in property taxes for the city, county and school district."
When Agrium consolidated its operations mostly from Greeley, Colorado into Centerra in east Loveland, the company
literally moved less than 7 miles from its former location. Whether employees relocated from their current homes in
surrounding communities (including Loveland) or not is information not provided to the council.
While it is academically correct to say those 390 jobs are now within Loveland city limits, the fact most Loveland
residents commute outside city limits to work might indicate that moving regional jobs less than 10 miles has little to no
impact on the local economy. Likewise, job consolidations by Agrium and its subsidiary company Crop Production
Services (CPS) from other locations outside Greeley was already decided by the company's Board of Directors long
before Loveland offered any incentives to locate into the company's current Centerra location.
Agrium & CPS $442,000 Subsidy Actual History - Subsidy Followed Company
As reported by LovelandPolitics in 2009, Mike Masciola, then head of the NCEDC (Northern Colorado Economic
Development Council) told Loveland's Council in a public meeting that the final decision by Agrium and its subsidiary
Crop Production Services (CPS) to consolidate jobs into a new Loveland area location was already made by early April,
2009 - more than a month before the city's incentive/subsidies were offered and approved on May 22.
Ironically, the city's subsidy had, in part, the opposite impact than what was recently reported by the RH of "steep rises
in property taxes for the city,county and school district."
Agrium identified various candidate locations in Loveland and Johnstown (adjacent to Loveland) already but hadn't
decided which property to choose. Loveland's combined subsidies totaling $442,000 for Agrium and CPS were tied only
to a single McWhinney owned property inside Centerra that is part of the Centerra URA (Urban Renewal Authority) thus
preventing the city, county or schools from benefiting from any increase in property tax assessments for at least 20
years.
In a 2010 study, LovelandPolitics reported that only 1.2% of property taxes collected in Centerra's URA actually go
towards government entities outside Centerra. This is because the URA diverts any amount collected over the base
agricultural assessed value of the land into repaying public bonds taken by McWhinney's Metro Districts to pay for the
developments. When the properties are sold, the dramatic increase in value caused by the public bond expenditures
becomes profit for McWhinney and isn't used to repay the public debt created to improve the infrastructure.
The Agrium subsidies were approved on May 22, 2009 after the Loveland Council backed away from its verbal support
for McWhinney's request to gut the plus $10 million escrow account (held jointly by the city and Centerra) to improve
the dangerous I-25 and Highway 34 cloverleaf interchange. Previously, McWhinney convinced the Loveland City
Council and the Loveland Reporter-Herald reported, that a "fortune 500" company whose name could not be disclosed
publicly was looking to locate into Northern Colorado only if the $10 million of Centerra bond proceeds were redirected
towards McWhinney's new Rangeview project instead of being used to improve the dangerous intersection.
On April 13, 2009 LovelandPolitics reported the "Mystery Fortune 500 Company" was really Agrium in Greeley where
hundreds of local residents were already employed. The release of this information created a strong public backlash
against plans to gut the I-25/34 improvements by McWhinney by the City of Greeley and the Colorado Department of
Transportation not to mention many residents of Loveland who filled the Reporter-Herald's RH Line with complaints.
See LovelandPolitics story about McWhinney pulling their request to use the I-25/34 money for "jobs"
Later, Loveland's Council approved the subsidies to Agrium and CPS to make amends with McWhinney and assist in
locating the companies inside Centerra. Eventually, Agrium and CPS did narrow their Loveland area choices to only two
properties; one inside Centerra and the other across the street inside Johnstown city limits. Loveland's $442,000
combined cash subsidy wasn't so much a "jobs incentive" package as Hale now pretends but instead a subsidy for
McWhinney's location over a neighboring developer who previously worked for McWhinney now in Johnstown.
Due to the close proximity of both locations, any claim that jobs were attracted as a result to Loveland is largely
academic because those same jobs would have been located across the street had they gone to 2534 in Johnsontown
(the southwest corner of I-25/34 interchange). CSU Prof. Martin Shields, whose salary is partly contributed to by
McWhinney, sold the unconventional subsidy idea to Loveland's council in a public meeting on May 19, 2009 using a
presentation first reported on by LovelandPolitics on May 17, 2009.
Arguably, if the alternative non-URA Johnstown site in 2534 had been chosen, the spike in property tax revenues for the
county and schools reported by the Reporter-Herald would indeed be accurate because the increased property value
would have benefited directly both Larimer County and the Thompson School District. Ironically, it was Loveland's
intervention on behalf of McWhinney using the cash subsidies that contributed to Agrium and CPS locating into its new
Centerra location thus diverting future property taxes away from those two public entities for decades to come.
On July 12, 2009 the Loveland Reporter-Herald published an article in the Sunday edition of the newspaper reporting on
the ground breaking for Agrium that stated,
"In May, the Loveland City Council approved an economic development incentive package of up to $442 million for
the two divisions to bring jobs to Loveland. The company expects the two divisions to offer 420 jobs......."
By Tuesday the same week the newspaper corrected the business incentive number by stating the actual number,
$442,000 instead of million, but never corrected the jobs number. In fact, internal city memorandum from the same
period reflect the projected jobs number for the Agrium business incentive as touted by the company and McWhinney
from 450 to 600 jobs.
Who Believes The Jobs Numbers?
These numbers point to the larger issue of the city selling proposed business incentives to the public by forecasting a
high number of jobs but later disowning the forecast once the actual results differ and the subsidy is spent. So far, in
the few agreements that linked jobs to a dollar value of incentives (IE. vNet and Lightening Hybrids) the city is running
negative numbers. This is partly because the type of job, location, salary and whether it existed already determine
whether it counts as a "new" job created by the business incentive or not.
In cases where there are no metrics defining either the number of jobs created or documenting the number originally
promised, the city can fudge numbers and claim overwhelming success later. The city has been surprisingly successful
at avoiding the later negative press one would expect when projections fail to materialize as forecasted.
If one considers, for example, that the Agrium/CPS jobs were mostly already in the area and the subsidy by Loveland
made no substantial difference in the company's final location decision, then crediting all 390 jobs as the result of the city
subsidies makes for a specious argument but permissible. This is especially true when one considers the city placed no
requirement for job growth upon either company avoiding the potentially painful public conversation of which jobs were
already here or planned to be in the immediate vicinity before the city even offered the subsidy.
In the case of the retail store JAX which located in the former ShopCo building on Eisenhower Blvd. in Loveland, the
City of Loveland touts it added 50 additional jobs to the local economy. Given salary goals sought in the vNet
agreement was $75,000 per year, it is hard to believe more than a couple of the 50 jobs at JAX meet the city's own
criteria for what is called a "living-wage." This illustrates the problem that Hale fails to use a consistent criteria or
definition for what jobs are counted thus making the mixed number results meaningless.
In her report to council last Tuesday, Hale correctly stated the Agrium incentive was not linked to any certain number of
jobs but also failed to mention the 2009 city announcement that 450 jobs would be brought to the city by Agrium and
CPS. Instead, she reported the 390 jobs as of 2010 is a net increase above a new projection of zero jobs for the Agrium
and CPS cash subsidies. In other words, instead of showing the city missed its target by 60 jobs for those subsidies,
Hale reported the city exceeded its goal by 390 jobs relative to Agrium and CPS by simply lowering the city's baseline of
jobs to zero.
In the case of Lightening Hybrid (see letters in column right of this story) you find the city in an embarrassing position
of being asked to continue the subsidies even when a company fails to achieve modest living-wage salary objectives.
Especially troubling in the email from city planner Mike Scholl to the City Manager, is the request by the applicant to
wait for another positive story about his company's progress in the Loveland RH before bringing the proposed changes
in their agreement before the Loveland City Council. For years, the Loveland RH appears to have collaborated with city
staff in generating positive press around subsidies that later failed. Maybe this collaboration is what makes the
newspaper reluctant to publish negative news later when the earlier projects appear absurd in full hindsight.
Hale's report to council claims the total number of jobs attracted to Loveland as a result of the $2.2 million business
incentives distributed among 11 companies is 419 jobs between 2008 and 2010. If you subtract the 319 jobs Agrium
moved 7 miles or consolidated locally anyway (regardless of the city's incentives) and subtract the missed goal of 250
from vNet along with the disappointing results of Lightening Hydrids than all that is left are 50 retail jobs at JAX for the
over $2 million in city subsidies. Unfortunately, few if any of those positions meet the city's stated goal of the business
incentive program attracting primary jobs to Loveland that pay a "living-wage."
Loveland's Housing Authority is now seeking fee waivers and affordable housing subsidies to construct new low-income
apartments along Eisenhower for retail workers at Centerra and JAX who the Authority claim are unable to afford
non-subsidized housing in Loveland due to their low hourly wages working in retail.
vNet Debacle Also Misreported
Creative accounting allowed Hale to offset the embarrassing loss of nearly $1 million to Bill Beierwaltes' vNet LLC due to
a 2008 subsidy by council by only considering the amount of the subsidy Beierwaltes was expected to repay ($2,000 per
missed job up to $500,000)
Conveniently, Hale reported that staff never supported the vNet subsidy( just the elected council officials) while the
Loveland Reporter-Herald's recent article stated,
"And half that cash went to vNet.
That company and founder Bill Beierwaltes were riding high in 2008, with its line of audio, climate control and
other remote control systems for high-end homes finding a growing market.
Predictions that vNet's payroll would swell with as many as 250 new high-paying jobs led city councilors to award
$900,000 in cash to the company -- $400,000 for relocation and remodeling expenses and $500,000 for the projected
job growth.
But the banking and housing collapse of 2008 sunk vNet, and the company closed its doors."
The Reporter-Herald article quoted above implies Beierwaltes was simply the victim of a poor economy who lost his
company and therefore the vNet subsidy loss was an unforeseen event. In reality, Beierwaltes never lost his company to
a poor economy but instead sold it before the full impact of the 2008 Great Recession was realized. In addition,
Beierwaltes agreed in writing to reimburse the city using his own net-worth to personally guarantee the city's money.
This is significant as the subsidy was sold to tax payers as fail-safe because it didn't rely on the company's meager credit
history but instead a wealthy Beierwaltes' personal guarantee.
Now in litigation between the City of Loveland and Bill Beierwaltes, the dispute over the vNet subsidy (business
incentive) centers on Beierwaltes selling vNet (the company assets) in October 2008 to another firm while failing to
inform the City of Loveland or seeking the city's authorization. This is significant because the money Beierwaltes
collected when selling the company's assets (like equipment, furniture and lease-holder improvements) has not been
disclosed but arguably is due city tax payers whose money purchased those items.
For the record, the Loveland Reporter-Herald and Hale were in lock step agreement promoting the subsidy as a good
thing for Loveland's future. A RH Editorial published on February 5, 2008 speculated vNet would bring 900 jobs to
Loveland ending the commentary with the statement, "Let's go Loveland!"
The Editorial stated, "According to estimates, average earnings could exceed $75,000 a year and the number of
employees could be 400 or more by 2012. Additionally, there could be as many as 500 spinoff jobs in the area."
Hale, who was relatively new to the city at that time, also promoted the agreement as bringing over 400 jobs to the city
during a public council meeting.
Cara O'Brien reported the same day in a RH news story, "Bill Beierwaltes, CEO of vNet and longtime Loveland
business owner, also announced Tuesday night that the company plans to move into the former Water Pik building,
609 S.W. 14th St., for its expansion to as many as 450 jobs over the next five years."
Hale's recent report to Loveland's Council pretends a different forecast for vNet. A table on page 3 of Hale's report
under the title "jobs impact" shows vNet started with 78 jobs in 2008, was reduced to 25 employees by 2010 leaving a
net loss to the city of only 52 jobs. In other words, she is counting the employees who went to Resound two years
after Beierwaltes sold the company which contradicts the account above report that vNet closed its doors in 2008. She
also contradicts the city's legal position in court that Beierwaltes cannot count employees transferred in the sale of assets
to another company as meeting the agreed upon goal to employ over 250 people in Loveland by the end of 2012.
LovelandPolitics first reported lay-offs at vNet on November 1, 2008 (only a week after Beierwaltes was presented with
a business award by the NCEDC). The City of Loveland at first denied the LovelandPolitics report because the number
of employees reported to the city did not reflect the stories in LovelandPolitics or later the larger media. The subsidy
agreement in 2008 promised vNet would employ 250 people in Loveland by 2012. This could be counted as a net loss
of 250 jobs since the shell company retained by Beierwaltes, vNet LLC (involved in the litigation with the city), hasn't
employed anyone since 2008 and is the entity with which the City of Loveland signed the legal agreement now in
litigation.
Misapplication of ROI
Hale used common business terms like ROI (Return On Investment) in her presentation to council that she may not fully
understand. This is because a private sector company does not calculate "ROI" using what is called the "top line"
numbers as Hale is doing. Return means actual profit (sometimes called EBIT: Earnings Before Interest and Taxes) not
gross sales or total revenue. Hale's analysis presented to Loveland's Council ignores completely the costs associated
with the subsidy including all indirect costs (providing city services).
While Hale does acknowledge vNet as a failure, she curiously included a positive number for the vNet "ROI" through
some very strange accounting. Apparently the thousands of dollars in court costs (both staff time and outside counsel)
to litigate against vNet to recover the lost incentive is not factored into her analysis as a cost to the city of the
"investment." In addition, she appears to be reporting increased property taxes from the entire building (housing at least
three other tenants) that is unrelated to vNet to give the property tax returns a boost.
Please don't be shy and place your insights, comments or questions on our blog.
| Business Incentives Report Misleading 'Staff drinking its own bath water' |
| The False Numbers Subsidies to Agrium/CPS were reported as a net positive cash flow for the city by the Reporter-Herald, in part, because "plus steep rises in property taxes for the city, county and school district" While the increased value in the properties for both buildings in Centerra where they reside do represent an increase in property tax collections of $141,125.20 annually, none of that money goes to the city, county or schools. Instead, the bump in property tax revenue for the properties from 2005 to 2012 from $3,762 to $144,883 annually gets rebated to McWhinney's Centerra Metro District's URA instead of going to the city, county or schools as reported by the local newspaper. This is because the URA uses TIF (Tax Increment Financing) by diverting any increases in property tax collections over the land's agricultural value for the next 20 years. While Loveland Economic Development Director Betsey Hale did acknowledge in her report to council the properties are inside McWhinney's URA by including an asterisk, she also included the "extra" taxes in her "ROI" or Return on Investment calculations used to justify recent business incentives to the Council - thus falsely reporting revenue to the city and other local entities. This and other false data contributed to an overall positive "ROI" for the city in revenue from investments in "business incentive" subsidies. Agrium and its subsidiary, Crop Production Services, occupy over 100,000 sq. Feet in McWhinney's newest office buildings, Rangview 3 and Rangeview 4, in the Centerra master subsidised development. Hale's error on property tax collections accounts for more than $150,000 of the $192,751.7 she mistakenly reported to the city for all the companies. Centerra's URA keeps the increased property valuations for the buildings at Rangeview 3&4. |
| Lightening Hybrids From: Mike Scholl Sent: Monday, March 19, 2012 4:11 PM To: Bill Cahill; Annette Gilbert Cc: Judy Schmidt; Betsey Hale Subject: Lightning Hybrids - Amendment to the incentive agreement Importance: High Bill, I just got off the phone with Tim Reeser the COO of the Lightning Hybrids. Tim requested that we delay the consideration of the amendment until the next Council meeting scheduled for Tuesday, April 3. The request is based on a couple for factors: 1. Tim has been on vacation and hasn't been able to discuss the issue with the LH board of directors. He doesn't believe that there will be an issue and expects to have the agreement signed in time for the next meeting. He just needed some time to review the agreement with them. 2. Tim is working with Tom Hacker at the Reporter Herald on a follow up story detailing the recent growth in the company driven in part by the spike in gas prices. He expects the story to be very favorable and demonstrate that the company will be successful over time. me know if you need additional information. Thanks, Mike Scholl Economic Development Department City of Loveland (970)962-2607 (970)593-2965 (cell) March 20, 2012 Email by Loveland Resident to Council Councilors, Please don’t extend the agreement with the proposed changes because the City would really be backing down on the original requirements: #1 going from 24 months with 25 employees to 12 months #2 going from $65,000 /yr/employee to $44,000 is a massive drop in wages #3 $44,000/year wage goes below the requirements in the Economic Development plan: “Cash incentives are not available for jobs which do not pay 120% or more of Larimer County Average Annual Wage. As of September 2009 the minimum would be $48,000.” #4 It appears that the $44,000 can be extended to subcontractors, which, depending on the type of subcontractor they are, can be the equivalent of $25,000 - $30,000 /year wage. (My business has an extremely low overhead which I calculate out at approx. 29% - leaving the remaining 71% for wages and reinvestment. A business that requires more supplies/equipment or more driving than mine will easily drop into the $25k-$30k/year wage range). Two other concerns I could not find information on: #1 is the 50% “export” requirement getting met? #2 did the plant/equipment investment requirement get met? So the question is: Will you give a private company $50,000 cash for jobs that could potentially be well below the county’s average wage level and the City’s own incentive requirement? I hope not. I would love to see the agreement terminated now as the time period is well past, but if not, I ask you to make serious modifications from what staff has presented to you. The precedent has already been set to give private businesses cash for pipe dreams, please don’t lower the bar and start giving cash to private businesses for creating jobs that pay wages well below the county average. Thanks for your work, Neil Spooner 633 Harrison Avenue |