State does little to track jobs from loans

Officials largely rely on companies to self-report data on finances, employees

Ohio development officials were unaware that Willard & Kelsey Solar Group, a Perrysburg solar-panel manufacturer that received $10 million in state loads, laid off its staff in January, 2012.

The state of Ohio has little idea whether the loans and grants it awards to businesses actually spur job growth, a Blade investigation shows.

And sometimes, the state doesn’t know how its investments are spent.

The Ohio Development Services Agency, which monitors the progress of state-funded businesses, tracks job creation by reviewing data that companies self-report via the Internet. The agency also monitors the financial health of businesses through privately audited statements and annual reports, which again are sent to the state by the firms receiving taxpayer-funded incentives.

“There is contact with each company at the inception of the relationship. Ongoing contact is annually through the annual report. There may be additional emails, phone calls, or in-person visit[s],” Lyn Tolan, deputy director of policy and communications for the Development Services Agency, told The Blade.

The state relies on the honesty of companies to assess whether jobs are being created and firms are financially afloat. Employees of the Development Services Agency rarely, if ever, visit businesses funded with taxpayer money.

If a company fails to check in with the Development Services Agency, state employees will send an email and make a phone call before they consider sending someone to make a visit, Ms. Tolan said.

A state-mandated visit — even if a company has not responded to requests for information — is not always on the table.

Eileen Granata, a regional economic development administrator under former Gov. Ted Strickland’s administration, said state development officials are too busy to make in-person visits to companies. Ms. Granata, who now works as a senior attorney for the city of Toledo, said the state’s development arm now has fewer people and more responsibilities.

Republican Gov. John Kasich and the General Assembly eliminated the Ohio Department of Development and created the downsized Development Services Agency in September, 2012. Some of the work that was performed by the former Department of Development is now conducted in private by JobsOhio, a nonprofit agency created by legislators to drive economic development.

“You really didn’t do much dropping in. You would try to do phone calls. I used to call and say, ‘How’s things going?’ You’d try to get an update,” Ms. Granata said. “You couldn’t do that over a huge portfolio, either, because you had more coming in the door every day and so, if you said, ‘I’ve got to check on everybody I did for the last four years,’ you don’t have enough hours.”

In the case of Willard & Kelsey Solar Group, a defunct Perrysburg solar-panel manufacturer that received $10 million in state loans, the state was unaware the firm laid off its staff in January, 2012. Willard & Kelsey’s 2011 annual report, which was filed with the state in May, 2012, stated the firm had 59 employees as of December, 2010.

The firm told state officials it expected to hire more than 400 people to staff its solar-panel line.

A Blade reporter determined Willard & Kelsey was struggling in January, 2012, by simply dropping by in the middle of the afternoon and counting the 15 cars parked outside the plant.

The Development Services Agency created a quality-control team in early 2012 to ensure accuracy in the reports companies file, Ms. Tolan said. That team, however, was in place when Willard & Kelsey’s annual report was received by state officials.

Even then, the information on Willard & Kelsey’s progress report was so outdated, it wouldn’t have shown there was an issue at the company.

“The job creation number is verified in a number of ways,” Ms. Tolan said. “A desk audit is conducted for reasonableness. Any gaps, missing information, etc., will begin with a telephone call for an explanation. More information can be required at any point.”

In addition to the layoffs, The Blade found that the state was unaware that Willard & Kelsey’s executives paid themselves more than $5 million from company coffers. Those payments included $3 million in disbursements — later converted to loans at the request of an accountant — and $2.2 million in salaries during the past five years. Earlier this year, The Blade reported the company’s executives had $2.15 million outstanding in company loans.

The executives also spent more than $20,000 for tickets to the Detroit Tigers and Pittsburgh Steelers, airline tickets for family members, and a birthday party.

The Blade discovered the executive loans and other questionable spending after it obtained confidential financial records kept by a former company executive. The documents included communications that stated the firm misused its state loan funds.

Ohio development officials only began examining Willard & Kelsey’s financial records after articles detailing the layoffs and corporate spending began appearing in The Blade in January, 2012.

A state audit released in July found that the business could not provide a detailed account of how it spent $1.3 million of its state loan funds. The money was recorded in a ledger as being paid to two unrelated companies owned by Willard & Kelsey President Jim Appold. The company could not produce invoices for the transaction, the audit stated.

Ohio Attorney General Mike DeWine filed two lawsuits against Willard & Kelsey in August. The suits were filed on behalf of the Development Services Agency and the state air authority, which each lent the company $5 million.

The suits list 16 causes of action that include two counts of fraudulent and unlawful transfers, two counts of civil conspiracy, and two counts of civil aiding and abetting.

“Obviously, we’re working on the lawsuit and working on the legal proceedings,” said Richard Kerger, a Toledo attorney who represents Mr. Appold and spoke on behalf of the company. “We’re also trying to pursue a couple of business opportunities to get the company restarted or find a way to pay out the state obligation.”

Willard & Kelsey’s executives have said they are innocent of any wrongdoing, and the Development Services Agency would not comment on the company because of the pending court cases.

The state now reviews executive compensation of loan candidates, Ms. Tolan said. That marks a change from April, 2012, when The Blade was told the state didn’t ask about executive pay.

When state officials grew concerned about issues at Buckeye Silicon, a polysilicon manufacturer headquartered in South Toledo, they sent someone to investigate. Ms. Tolan credited the state’s procedures with bringing production problems at Buckeye Silicon to light.

The Development Services Agency uses regional partners to visit companies, she said. These partners are economic development officials or loan experts.

“These regional partners are located in the geographic area. They have a full understanding of the local challenges,” Ms. Tolan said.

The system, though, is problematic. State officials are sometimes unaware whom they are sending to check on firms. The state also is in the dark about whether these individuals possess the knowledge to assess whether highly complex or scientific projects are properly functioning.

Laurie Cantrell, financing programs manager at the Toledo-Lucas County Port Authority, said she visited Buckeye Silicon in April, 2012, for the state, but the trip wasn’t official.

She called the visit a “courtesy.”

Emails of Ohio development officials state they viewed Ms. Cantrell’s visit as an official inspection, but she said she simply did them a favor.

Ms. Cantrell said she doesn’t possess any scientific or mechanical knowledge related to polysilicon production.

She said she studied finance in college but declined to say where she attended school.

“There was some machinery in there, but I wasn’t in there. I didn’t go for a tour,” Ms. Cantrell said. “Was it all there? I couldn’t tell you. It looked like a line and it looked like a lot of equipment at the time.”

Kris Turner can be reached at: kturner@theblade.com or 419-724-6103.