Standing firm as a testament to the ability of local economic development experts to judge actual demand for something (as oppose to, say, expressed interest or significant support), Midland Development Corporation brain child project Entrada Business Park Building 'A' stands as empty now as when it first became available....four years ago today.....without a single occupant or buyer having been found to-date.

Someone refresh my memory here. Didn't they almost build a second one also?

The last highlighted paragraph here illustrates the whole problem with the mindset of a committed "economic developer", i.e. the market isn't doing what we want so the market must be wrong.

Plus, it is a false choice. "Doing nothing" in this case should more properly be described as not getting in the way of "supply and demand" or, as some would call it, the free market. This is the default choice of 90% of those pushing the ED Sales Tax as long as we are talking about anything other than the ED Sales Tax. "Doing something" in this case means initiating an increase in taxes and creating at least two new layers of bureaucracy all so six unelected officials can...um...correct the mistakes of market participants by re-routing your tax dollars into private companies in sufficient levels for them to see the error of their ways.

"The economic development plan and sales tax is a 'stabilization plan', designed to attract businesses from other industries to relocate here, help diversify the economy and reduce our dependence on the oil and gas sector."

I guess the 'Stabilization Plan' was Plan A and resides squarely under the bus with Plans B and C. We are now at Plan D (MDC Image Rehab) which is why we are subsidizing parking garages for oil industry service company giant Basic Energy Services and slipping Apache Corporation some money to buy something pretty for themselves. If you think that perhaps Plan D might represent a clear re-purposing of the of ED Sales Tax funds as originally stated then you lack...you know..."vision".

".....and spending in the community like construction, materials, supplies, services, etc."

Remember: Washington Stimulus Package: Bad! Midland Stimulus Package: Good!

"All investments will be based on performance-based criteria."

[Snip]

"These investments will be paid back should the company not meet its obligations."

Again, the City Council has before it several decisions that will tell us whether that is indeed the case.

"In all cases, Midland will receive more than we will invest in any company."

Let us pretend that it is still 2001 and we don't have access to piles of evidence to the contrary that we have now. The campaign for an ED Sales Tax is still essentially a prospectus for an investment, is it not? Now can you imagine what your reaction would be if you saw this statement contained in any other prospectus? In the world of real investments they actually have laws against saying this kind of stuff. In the Land of ED, Unicorns, and Magic Fairy Dust? No problem. Zero risk in any and all ventures you say? Why, only an Aginner could be against that. Or a Midland hater.

• Part I: If we don't pass this tax, then the Terrorists will have won!
• Part II: This economic development stuff is easy!
• Part III: We will use this money to diversify the economy. Except when we don't.
• Part IV: Government bailouts? No problem!
• Part V: Naysayers! They have no vision!"
• Part VI: That Free Market thing? That's like sooooo Reagan. We're smarter than that now.

It seems like I have heard something recently involving Chrysler and taxpayer assistance...although I am sure I don't what it was.

Now, while the author of this letter apparently has no problem with even serial government bailouts, the fact of the matter is that most Midland voters probably do. And anyway, these are not bailouts, right? Or even subsidies. They are forgivable loans. Forgivable loans with hard-wired, iron-clad, taxpayer-protecting, "Clawback Provisions" that sometimes make the more traditional loan agreements with professional private lenders look tame by comparison. In fact, in many of these agreements the Shilocks at the MDC/City are even harder on the "Lendee" than would be any private sector lender. I know this because I read it in the paper:

Ten years later, reality has asserted itself. Currently, several of the MDC's "clients" are attempting to renegotiate their agreements; presumably to make them less stringent, not more. We shall soon see what the actual level of enforcement on these agreements is going to be. It is a tough one. On the one hand, these companies are probably hurting. On the other, we certainly don't want to be written down as patsies to future "incentees". Well, as much as one can have an economic development fund at all and not be seen as a patsy, anyway.

We have asked these questions (and others) before, but the opportunity presents itself again:

• Philosophically, what is the difference between the MDC taking money from the taxpayers and giving it to [Insert MDC Client Name Here] and the Obama administration taking money from the taxpayers and giving it to Chrysler or GM?
• Should the MDC/City Council decide not to actually enforce these contracts (or should they renegotiate them down) isn't that the exact same thing as a taxpayer bailout?

An interesting paragraph from above:

"The economic development agreement is sometimes more stringent than normal business agreements because public funds are involved, and the city has an interest in seeing that these dollars are protected and not wasted."

Really? Then given an actual choice, why would any company choose the more stringent agreement? They wouldn't ever.....unless they were betting that the provisions in the agreement, however stringently written, won't be enforced.

The dice are rolling on that as we speak.

And, yes, everything that is happening nationally applies here. Directly. Every reason there is on why the Obama Administration and the U.S. Congress shouldn't try to direct an economy at the national level applies in every way to the Midland Development Corporation and the City Council at the local level.

• Part I: If we don't pass this tax, then the Terrorists will have won!


• Part II: This economic development stuff is easy!


• Part III: We will use this money to diversify the economy. Except when we don't.


• Part IV: Government bailouts? No problem!


• Part V: Naysayers! They have no vision!"


• Part VI: That Free Market thing? That's like sooooo Reagan. We're smarter than that now.

In the archives are many, many letters just like this one. Too many to count. All with the same drumbeat: Midland is too tied to an oil-based economy and we need this money from the taxpayer so that we can go out and recruit businesses for Midland who are not part of the oil-based economy. That way we are protected from the downside of business cycles that inevitably come and go.

Actually, it goes a much further than that. The business cycles are usually a result of the market demand (and therefore price) of oil. When the price of oil is high, Midland thrives. When the price of oil is low, Midland suffers a bit. But these cycles are just that. Cycles.

There were also many letters like this one:

One of the biggest arguments offered by the campaign for an Economic Development Sales Tax and its supporters was not simply that we needed to protect ourselves from these business cycles but that the oil reserves on which our economy was based were simply going away. The author of one letter compared Midland to a mining town and stated that he was not aware of a town based solely on mining that survived.

But over the life of the MDC, it has given a lot of money away to companies that 1) are already here, 2) are already coming here without any MDC-driven public subsidies, 3) operate in the oil-based economy, 4) are currently in default (or about to be) on the terms of their agreement with the MDC, or 5) are all of the above. (In fact, here is a challenge: List the companies that the MDC has "incented" that don't fit into one of the above categories.)

Every dollar that the Midland Development Corporation extracts from the economy and turns over to these companies in the oil business like Basic Energy and now the global multi-billion dollar Apache Corporation reveals fully half of the reasoning behind the need for an ED sales tax to be an outright falsehood. I'd call it an outright lie but for the fact that it is a Sunday morning so I feel the need to be more civil. And also because, at the time, the authors of these letters probably really believed what they wrote about what the purpose of this tax money was and how it was to be used.

We have said before that the local economic development establishment behaves and operates as though economic development is whatever the hell they say it is on any given day. Ten years ago the oil patch was going away. Apache Corporation quite apparently disagrees and has decided (with zero artificial incentives needed) to set up a regional office here to handle the acquisitions they have made in the area over the past several years. Still, the local development corporation finds it necessary to hand over a quarter of a million dollars of public money to Apache Corporation to....to do what, exactly? Just spend it locally somewhere?

That kind of sounds like...um..."Stimulus Money"...if you know what I mean.

Go back and read the campaign literature...or wait for it to show up here. It doesn't take much reading to realize that the Midland Development Corporation, along with the City Council, has essentially re-purposed the money that they asked the public for back on November 6, 2001. Yes, I know that "The Law" allows the MDC to spend the money on these things, just as the law allows a panhandler on the street to buy a bottle of vodka with the money he asked you for just so he could get a hot meal.

I would like to think that there is at least one member of the City Council...or even more than one member who would take an honest look at the money that has been taken out of the economy in the last ten years and, taking into consideration the original claims of what the money was for and to whom it would go, and then compare that to what is obviously now a manifest change in philosophy (not to mention the spectacular lack of any success) and then wonder if, just perhaps, the voters should be consulted again.

But then, that's just crazy talk. Because what has happened to this money is what happens to almost all government-run "Investment in our Future!" programs. At the beginning, it was money that was to be used for a specific purpose from which specific results would be achieved.

Ten years on, the money has been re-purposed; there are no discernable results, and what was once asked for from the public is now seen as an entitlement by local public officials both elected and unelected. Among the incenteratti, immediately upon the failure of Plan A there will always be a Plan B (or C or D...), or the need for "improved communications", or the hiring of more consultants to point out Airpark on a map and call it an "Opportunity Zone" or some damned thing to justify the money they take and to help explain away their lack of (positive) impact.

The idea that this money is better left in the hands of the taxpayers never survives. Because, you see, in the eyes of Official Midland, it's their money now. Not yours.

• Part I: If we don't pass this tax, then the Terrorists will have won!
• Part II: This economic development stuff is easy!
• Part III: We will use this money to diversify the economy. Except when we don't.
• Part IV: Government bailouts? No problem!
• Part V: Naysayers! They have no vision!"
• Part VI: That Free Market thing? That's like sooooo Reagan. We're smarter than that now.

See? All it takes to make a multi-billion dollar global corporation do something it had previously thought was not in its interest is to throw just around $300,000 per year at them. And Cingular is big! They will always be here!

What a deal, indeed!

This economic development stuff is easy! We should do more of it!

(Note: In keeping with standard Well practice of not using anyone's names unless we just have to we will be blanking out the names of the authors of these letters. We do this for several reasons. One, Google is forever and while the issues at hand will always resurface from time to time there is no need to have anyone's actual name bubbling up through search engine results from now until forever. Two, we have a "No Hounding" rule here at The Well which states that once someone is out of the news for a period of time they are to be left alone. These letters were written almost ten years ago and none of the authors envisioned them re-surfacing stamped with their names. Further, we don't want this to be a personal gotcha to the authors. The content of the letters is what is important and this is why: 50% of all of these kinds of Letters to the Editors are written by the campaign itself and then a signatory is found for them. 40% are actually written by the signatory but depend heavily on direct information from the campaign. So reading these letters is the best way to get a feel for what the "official" proponents believed (or at least told others) the economic development sales tax would achieve.)

• Part I: If we don't pass this tax, then the Terrorists will have won!
• Part II: This economic development stuff is easy!
• Part III: We will use this money to diversify the economy. Except when we don't.
• Part IV: Government bailouts? No problem!
• Part V: Naysayers! They have no vision!"
• Part VI: That Free Market thing? That's like sooooo Reagan. We're smarter than that now.

Microfiche is a wonderful thing. Okay, I take that back. Microfiche is a total pain now that we have all gotten used to internet based archives.

Nevertheless, we have taken the time to go through some of the microfiched copies of issues of the Midland Reporter-Telegram around the time the Economic Development Sales Tax was passed on November 6, 2001......on it's third try I should mention...the voters obviously having gotten it wrong the first two times it was brought forth. Enlightened (and almost certainly outside-the-box) thinking finally won out and the voters decided the issue...(some say for all time)...with a vote in the affirmative. Midland would have its Economic Development Sales tax and thereby guarantee its future.

We found campaign ads, Letters to the Editor, a couple of "Speaking Out" columns, and some Editorial Opinions. Over the next few days (or until we run out) we will be posting some of the better ones.

The Economic Development Sales Tax has been with us for nearly a decade. In that time, the pseudo-governmental agency known as the Midland Development Corporation has pulled over $25 million out of the local economy. It has banked most of that both denying the taxpayers of Midland the use of their own money and also precluding the much vaunted "multiplication factor" used by the High Priests of the Church of ED when artificially inflating the impact of every dollar they re-direct from the free market.

Of the money that has been spent, no real success can be shown in regard to Midland's economic development nor its diversification. Companies are lining up to "renegotiate" the terms of their "forgivable loans" from the MDC. Indeed, the Mother of All Economic Development Success Stories, the original Cingular arrangement, has essentially collapsed as far as any promise to alter or diversify the local economy.

Now, almost ten years later, in light of all that we now know regarding the performance of our local economic development initiatives, have a look at these archived items and see how well the promises have matched up with the performance.

More tomorrow.

• Part I: If we don't pass this tax, then the Terrorists will have won!
• Part II: This economic development stuff is easy!
• Part III: We will use this money to diversify the economy. Except when we don't.
• Part IV: Government bailouts? No problem!
• Part V: Naysayers! They have no vision!"
• Part VI: That Free Market thing? That's like sooooo Reagan. We're smarter than that now.

From Newsroom Stew:

The point here is to say that at some point the MDC needs to tell us in their words why those who write for Jessica's Well are wrong (if they are wrong). For a while now, Jessica's Well has been the most prominent voice talking about economic development, specifically the MDC. And while the development corporation has spent hundreds of thousands of dollars on marketing, it is hard to hear their responses. They might say why do we need to respond to these people?

One reason that they could respond is because while we may be bloggers we are also actual taxpayers.

A point of clarification: Walsingham actually does live in his Mom's basement.

Question: What is an "incentive" for a company other than an opportunity to reduce its risk in any given venture?

And if there is any sort of meaningful "clawback" provision contained in an agreement with the MDC, how can there then be reduced risk for the "incentee" company?

And doesn't it then follow that the only way a company can look at any agreement with the MDC that contains a "clawback" clause as an actual reduction of their risk is if that company believes that the clawback provision won't actually be enforced if push comes to shove?

I guess we are about to see how seriously the MDC and the City Council take these Clawback provisions that have been trumpeted as having been set in place to protect the taxpayer's interest.

Or if these companies have guessed correctly on how willing the MDC and the City Council are to actually enforce the contracts.

If we are to believe MDC Board member Robert Rendall (and we very much should, I fear), the Midland Development Corporation has provided a low cost (zero interest, actually) loan to a company (several companies maybe) who either wouldn't warrant traditional bank lending (or at least didn't pursue it) and now said company would probably fail should it be required to make good on the terms of it's "loan" leaving the taxpayers to foot the loss.

Gee, that's sound kind of familiar.......

Save in terms of size and scope, is there a whit of difference between the operational philosophy of the MDC in this case and that of Fannie Mae?

Earlier/Related: "So...those so-called "Clawback" provisions are really pretty worthless then, huh?".

From MyWesttexas.com's article on yesterday's Council meeting:

[Midland Development Corporation Board member Robert] Rendall came to the podium and said the company might fail if the council required it to pay back the money. "We are really encouraging them to try to make it," he said.

So the money that Trace was to pay back to the taxpayers of Midland should this venture not work out as was planned can't be paid back because...well..um...this venture hasn't worked out as was planned.

Yes, I know that in some cases that money has in fact been "clawed back" from some companies who did not make good on their employment numbers. But judging from the published council agenda regarding several ongoing MDC agreements the only clawing back of anything is being done by these rent-seeking companies trying to reduce their commitment to "create" jobs.

But the question still remains of these "claw-back" provisions: If these companies have the wherewithal to return these taxpayer funded subsidies after the projects that were funded turn out to be non-performing then why do they need the subsidy in the first place? In short, if they have the money to be "clawed-back" on the back end of a failure, why don't they use that money to self-finance up front? Answer: Because it isn't about financing, it is about free money for the favored.

And although we have asked these questions many times before, back when economic mistakes in one area can be papered over by economic growth in others, I shall ask them again in the hope that our finding ourselves in the midst of a real recession and ham-fisted Obamaian attempts at "re-forming" this country's economy will provide a bit more focus and clarity.

1. Does the Federal, State, or local government have any business provding these kinds of subsidies to privately held firms?
2. Philosophically, what is the difference between the MDC taking money from the taxpayers and giving it to Trace Engines and the Obama administration taking money from the taxpayers and giving it to General Motors?
3. Should the MDC/City Council decide not to actually enforce these contracts (or should they renegotiate them down) isn't that the exact same thing as a taxpayer bailout?
4. Can six political appointees actually ever at once:
   • Be knowledgeable enough about each specfic company's operations and product line as to ascertain the viability of it's business model, and
   • Possess adequate knowledge of the sometimes world-wide industries that these subsidy-seeking companies compete in in order to make any sort of educated guess as to their long-term viability in the marketplace?
   • At least use Google every now and again?
5. Given that the whole philosophy of development corporations is to force the flow of capital into areas that the free market has already decided against funding, how is the Midland Development Corporation's/City Council's arbitrary decisions on which companies are to be subsized and which companies are not anything but a corruption of the marketplace? Even if they get one right?
6. How soon will it be before the MDC moves from referring to "jobs created" to "jobs saved"?

The article mentions that one of the members of the City Council is an investor in one of the companies in the MDC troughdom. He will probably recuse himself from any vote on the proposed renegotiations.

Although, he could always vote against a renegotiation and to actually enforce the current agreement. Such a move would have the twin virtues of being a blow struck on behalf of true free enterprise and one that would also match up with his campaign literature.

But serial claims of fiscal conservativism and a faith in the free market notwithstanding, the "dead hand" of government intervention in the marketplace always seems to mean other people in some other governmental body somewhere else.

They spend. We invest!

(Hat tip to Ospurt for doing yeoman's work on this stuff.)

If it was reported I didn't see it, but on the agenda for the February 19th, meeting of the MDC were four amendments to four different economic development contracts:

10. Consider a resolution authorizing the execution of an amendment to the economic development agreement between the Midland Development Corporation and Trace Engines, L.P.
11. Consider a resolution authorizing the execution of an amendment to the economic development agreement between the Midland Development Corporation and Natural Gas Services Group, Inc.
12. Consider a resolution authorizing the execution of an amendment to the economic development agreement between the Midland Development Corporation and Sentry Pumping Units International, Inc.
13. Consider a resolution authorizing the execution of an amendment to the economic development agreement between the Midland Development Corporation and Midland College.

Sentry is interesting. The MDC pledged $250,000 for 50 total jobs over some non-reported time period. They got $150,000 for sealing the deal and then they got $50,000 for meeting the 25 job plateau. The March 2009 MDC Newsletter had this to say upon meeting the 25 employee goal:

"Not only did Sentry meet the expectations of full-time-employees, they hit the ball out of the park," said Mike Hatley, vice president of the MDC. "They certified 42 full-time-employees by year end. We're impressed with their internal performance as it relates to their contract, to say the least."

So, we had to move the fence in to keep "the ball out of the park" for a company that was 8 jobs shy of meeting their goal last year?

Then there is Midland College, They are teaching wind courses, per the requirements of their grant, maybe we're giving them more money?

Personally, four development contract amendments on one meeting agenda is a big deal in my book. It is obvious that these companies aren't meeting their original development commitments (as I've speculated about repeatedly using publicly available sources) and their promises to invest in property tax generating capital improvements and jobs is the only thing that masks the illusion that these economic development payments aren't anything more than a lump sum to the bottom line.

I'd just like to see the MDC spin all these amendments after they made it a point to say that the Accutel/Semperian deal was "successful" a couple of weeks ago in the wake of the Cingular "Clawback."

I'm not sure riding out the development contract terms and then immediately starting to wind down operations, is a success. Add to that, Semperian Closed their Knoxville Office last week and didn't list Midland as one of the core centers where they were going to transfer employees. Given Semperian's investment in a huge facility in Lewisville in mid-2008 and their recent pattern of closing call centers I wouldn't be surprised to see the Midland office fold by the end of summer.

If that happens, just how much of a success was that fulfilled MDC contract? I think it is embarrassing to have your "First Big Win" closed down within a decade.

UPDATETexans for Public Justice recently posted an update to their "Watch Your Assets" series which looks at the status of the Texas Enterprise Fund grants in this recession. Check out their synopsis of Trace Engines and Huntsman in Odessa.

Tax Abatements and other Economic Development "tools" used by states, cities and counties have been a favorite topic here at Jessica's Well. We have been told over and over and over again that these "tools" are necessary to create or retain jobs.

Basically, we are led to believe that "incentive" payments offset some of the risk of locating in a community, or that the "incentive" is the "final push to get over the hump." Then deals are struck, everybody smiles, money changes hands, people are hired, and those incentives go straight to the bottom line of the recipient company. Nobody has really worried about the clawbacks, that was until the nation entered into this pitiful economy of the last year and local budgets started shrinking.

According to this AP Story on MSN, things are changing:

As the economy sputters along, municipalities struggling to fix roads, fund schools and pay bills increasingly are rescinding tax abatements to companies that don't hire enough workers, that lay them off or that close up shop. At the same time, they're sharpening new incentive deals, leaving no doubt what is expected of companies and what will happen if they don't deliver.

Even in Texas, where the economic climate is better than many other parts of the Country, the State is getting tough:

In Texas, where companies can get money from the Texas Enterprise Fund if they promise to create a specific number of jobs, the number of clawbacks rose to nine in 2008, compared to a total of seven for the previous three years combined, the governor's office said.

You know the City of Midland is looking at a shortfall this year (look at the sales tax numbers), I wonder if they are having the MDC do the due diligence on all their employment deals, or if they have looked into to the status of their own deal with Cingular? Looking at the parking lot I'm not so sure there are 562.5 full time employees out there.

UPDATE: The MSN Story borrows heavily from a blog posting on December 15 over at clawback.org. In looking at their link regarding the Texas Clawbacks, as of October 31, 2009, TRACE Engines has received $250,000 of a $465,000 grant, and has repaid the State of Texas $17,930 in clawbacks. The MDC just amended the financing agreement.

The Odessa City Council has been working on this type of arrangement for months. A couple of weeks ago they approved the guidelines, and this week, they pulled the trigger on a $5.1 million dollar deal with the developer.

The Odessa City Council is using what is known as a Chapter 380 economic development program to incent retail development. From the stories, this seems to be a reverse sales tax agreement. Basically, the the developer does all the infrastructure work and then their share of the local sales tax collections, and maybe even other sales tax funds are then refunded to the developer on some schedule until the grant amount is reached. I doubt the City of Odessa will make the entire agreement available on the internet (leaving us to rely on media reports), however, this agreement will eventually become available through the Comptroller's Office, so eventually everyone can learn the small details the media leaves out (like Midland's Cingular deal).

I hope the City had the Comptroller's Office run a Sales Tax Area Report on a similar development in Midland to track the sales tax revenue of that development. If they did, I wonder if they trimmed the figures from Midland to account for duplicate stores now opening in Odessa? I also wonder if they considered lost revenue from existing Odessa businesses?

I guess the next question is when does the 100 new jobs kick in and how do they track that? Are those positions full-time with benefits and a minimum salary, or can the multitude of minimum wage part time workers meet that requirement?

I wonder if folks contemplating a run for City Council are printing "Incented a Strip Mall with Taxpayer Money" fliers to describe their opponents?

Dell proves high cost of tax giveaways.

Remember Winston-Salem.

That should be the new rallying cry every time a politician starts talking about the need for tax breaks or other incentives to lure jobs.

This month, Round Rock-based Dell announced plans to close its factory in the North Carolina city by January, less than five years after it opened. In the process, it's eliminating about 900 jobs as it cuts costs by shifting manufacturing overseas.

In wooing the plant, North Carolina officials offered Dell more than $240 million in tax breaks over 15 years, touting the possibility that the plant could someday employ 8,000.

Instead, the soon-to-be-shuttered factory stands as a monument to the dangers of overzealous economic development, when local governments give away revenue in exchange for the long-term promises of jobs that can't be kept.

"This is just another example of the risk that a state and local government is taking when it gives a tax break," said Bernard Weinstein, an economist at Southern Methodist University and a longtime critic of such tax abatement programs. "It makes no sense in economics, but I do understand the politics. Politicians want to be seen as delivering jobs to their communities."

I guess we can place Professor Weinstein's name on the list of folks never to be brought in by the ED poobahs to "educate" us all on local economic development issues and philosophy in lieu of scheduling Ray Perryman for 2,341st time.

It has been a little over 8 years since Cingular Wireless (now AT&T) rolled into Midland with a new call center. With an economic development package cobbled together from Tax Abatements, a "loan" from the Water and Sewer Fund, a grant from the Abel-Hanger Foundation, and Workforce Development Grants, the City of Midland pulled off it's largest Win. In the eyes of most pundits, this success provided the positive spin to get the ED tax over the hump in November of that same year. (It worked for me, it is why *I* voted for the ED Tax the 3rd time around - *Ain't that a Shocka*)

To begin, let's see what the available, online-published reports said the deal entailed.

Using the "Internet WayBack Machine" at www.archive.org, it is possible to resurrect the online newsletters of the Midland Chamber of Commerce, Midland Development Corporation, City of Midland and others. It is a little difficult to link to these files, given the nature of the archive, but they can be produced.

According to the Midland Chamber of Commerce Newsletters, the Comptroller of Public Accounts Tax Abatement Registry, and media reports the deal involved the following:

• $1,000,000 from Water and Sewer Funds.
• $250,000 from the Abell-Hanger Foundation (Through MC and City of Midland Grants)
• 10-year property tax abatement from the City, County, Hospital and College (MISD couldn't participate by law). Five years at 100% abatement and Five years graduated.

• hire a minimum of 300 employees by October 1, 2001
• hire a minimum of 750 full-time employees by April 1, 2003
• spend a minimum of $4 million in capital improvements

Though not contractual goals, the ED Boosters had these long term goals for the project:

• recover lost property tax revenue on increased valuation of a long vacant building
• diversify the Midland economy with stable jobs (ie not tied to the oil industry)

With Cingular meeting almost all of the Economic Development Goals set out for them within six-months of opening, by November 2001 the Chamber was touting the success in its effort to get the ED tax passed:

Cingular is a prime example of how economic diversification works, the success that the economic development plan can bring and the impact that new, diversified jobs, can have on Midland's economy. However, Midland cannot stop with Cingular. Midland must continue to diversify our petroleum-based economy. With the Economic Development Plan and Sales Tax on the ballot on November 6th, Midland will have the necessary resources to continue to implement the economic development plan for diversification.

So how did Cingular do?

Within a year of opening, Cingular reportedly had 1,100 employees and the chamber estimates that between building improvements, furniture and equipment Cingular had made over $15 million in improvements. Well above the levels required by the agreement.

By all measures, Cingular had been a big win. From zero to 1,100 jobs and a measly $5,302,500 property (the base level of the abatement) to a $20M+ property by 2002.

Fast forward 4 years, in 2006, Cingular is still trucking along with about 1,100 employees and the building owner (who leases to Cingular) sells the property for about $17M. This mother of all economic deals in Midland is still the only delivery on the promise of large scale economic development.

The Story is Legend, but where is it now? I don't think anybody has bothered to look in a while, because when I did, I found this:

• Employment in 2007: 800 (Source COM 07-08 Budget)


• Employment in 2008: 600 (Source COM 2008 CAFR)

Abatements don't freeze valuations or taxes, they just forgive taxes due on valuations in excess of the base, so in 2006, this amounted to $7,437,620 which was not taxed. In 2007, the abatement is only 80%, then 60%, 40%, 20%, 10% until it goes away after 2011.

First off, I always wonder how the appraisal district comes up with valuations, $12,740,120 seems a little light, considering the ED folks said improvements in 2001 amounted to $15M and the building itself sells for a reported $17M in 2006.

Now, come 2009, when the taxpayers are supposed to see Cingular receive a 40% abatement, whereby their property evaluations help offset residential property, the building and furnishings combined now total $13,016,570, a mere 2.17% increase in value in 3 years.

For comparison, the Sam's Club building, inventory and furnishings had a value of $9,950,260 in 2006 and a value of $10,619,070 in 2009. A 6.72% increase. My home, increased in value 33.1%. (Could I have their appraiser, please)

So, as this mother of all economic development successes turns eight, Cingular has cut close to 500 jobs, and those property tax increases meant to ease the burden of residential taxpayers aren't materializing because valuations of the property aren't at advertised levels of improvements in 2001 or the 2006 advertised sales price, nor are they keeping up with increased valuations of surrounding properties or residences for some odd reason.

So, is this "Cingular Success" being lost?

*Note, the City is a good source for Cingular employment levels, because as a part of the abatement contract, Cingular must report their employment levels to the City at regular intervals to check compliance with the agreement.

A Publicly Traded, Major Midland Employer and Downtown Tenant has moved its Headquarters and nobody seems to have noticed, for almost a YEAR. At least I can't find any stories in the MRT Archives, nor is there any indication the Economic Development Folks tried to step in and retain those jobs.

So which Company am I talking about, and when did they move?

I'm talking about United Fuel & Energy (previously know as Eddins Walcher), which used to have its headquarters at 405 N. Marienfeld 3rd Floor. From the best I can gather the move of their headquarters took place around the first of September of 2008. I say this because on the Company site an investors news release from August 14, 2008 is datelined Midland, Texas, and an investors news release dated September 17, 2008 is datelined Orange, California.

In the only story I could find in the MRT Archives, Jeff Haas, VP of marketing had this is say in June 2007.

The aforementioned growth not only is moving United toward economies of scale in product purchase, it is pushing them toward being one of the larger area employers. Across its operating area United employs 310 people, with 50 of them in its headquarters building on Marienfeld. Haas said, "Our other goal, in addition to being like Fed-Ex, is to become a premier employer in this area -- a preferred destination. We have lots of opportunities here, lots of new jobs," especially as the company continues acquisitions.

That reads like a Economic Developer's Dream.

However, shortly after that glowing report on company and employee growth, centered in Midland, United Fuel & Energy got a new partner who bought a 52% majority share of the company. In June 2008 he was installed as CEO, and in today's June 1, 2009 edition of the Orange County Business Journal, (which tipped me to this story) the new owner had this to say:

Since making the move, Greinke says he's found a suitable chief financial officer and controller, which he struggled to do in Texas. Greinke, who had been United Fuel's chairman and majority owner, became chief executive in June.

Since moving United Fuel, Greinke's hired about 20 at its headquarters. The company counts about 100 workers locally and about 250 company wide.

Ouch. I guess Midland doesn't grow CFO's anymore.

I highly doubt the MDC could have helped retain United Fuel & Energy, since the new owner is a California Native, with family running parts of the business, so why wouldn't he move the company close to home? I guess the MDC is going to have to modify their Major Midland Employers listing, I doubt they have 100 Midland employees and 175 Permian Basin Employees now.

Isn't it about time to "sunset" the economic development sales tax?

The so-called "economic development" sales tax has taken roughy $4,000,000 per year out of the local economy for years now and has paid out more in administrative costs to the MDC staff and the local chamber (but I repeat myself) more than it has managed to pay out in "incentives". A lot of the "incentives' that have been paid out were essentially buy-ins to photo ops like the one delivered to Trace Engines.

Truly, was Trace Engines ever going to end up anywhere besides Midland given its ownership?

So I was wondering.....

Given that whatever "multiplication factor" applied to development dollars spent by the ED Grandees must also apply to those same dollars if retained and spent by the taxpayers, and

Given that had those dollars not been taxed away from the taxpayer they would have actually been spent thereby generating the much touted "multiplication factor", and

Given that the Midland Development Corporation has essentially banked most of the money they have harvested thereby negating any "multiplication factor", and

Given that anyone familiar with the Time Value of Money knows that the most critical years in figuring return is the first few years. And now that the Midland Development Corporation has been around roughly seven years without showing any real positive results, then

One has to wonder if the combination of all of these things creates some sort of point out there where the MDC can't produce a positive return on the money turned over to it no matter what they do.

By taking money out of the economy and essentially banking it and keeping it from circulating for all of these years will the MDC, return on investment-wise, finally reach a point of mathematical elimination?

I only ask because I want to push Old Otto's buttons some more.

Following up on ospurt's post on the most recent fiscal year reporting on the Midland Development Corporation, I went all of the way back to the beginning and have built a spreadsheet to be used to better illustrate the utter futility of our local Chamber's attempts to direct a portion of the local economy. When time permits I will begin posting the numbers and associated graphs, but the most striking thing is that since its creation in 2001 the Midland Development Corporation has soaked up roughly $31 million of your tax dollars.

And they have paid out in "Direct Incentives" just over $2.7 million dollars.

While paying themselves $3.2 million to do it.

Meanwhile, over $18,000,000 sits in the bank ready and waiting to go to the next Dean Baldwin Painting (Who knows? Google could always stop working.)

Curiously, the "multiplication factor" used in standard ChamberMath (TM) that takes any dollar that they spend and turns it (roughly) into the GDP of South Dakota is never applied to the $18,000,000 taken out of the economy and stuck in their bank account.

In the MRT story relating the latest unemployment figures for the City and State, Willie Taylor, executive director of Workforce Solutions Permian Basin (a regional adjunct of the Workforce Commission) made the following statement:

"When you have the two lowest unemployment rates in the state, even if we see 4.5 or 5 percent, we're still doing better than the rest of the nation. We're still in great shape and we can thank the economic development group. They've done a great job diversifying the economy."

I'm sorry, but that is a perception of many in leadership around here, and the Bureau of Labor Statics data paints a different picture of the diversification efforts in Midland.

Since the December 2002 nadir of 9,800 employees, the Mining and Minerals Sector has added some 5,500 jobs. The MDC, with investments in NGSG, FloCO2, and FiberRod, would like to take some of the credit for that rise in employment diversity. Is this the Diversity we were promised and that everyone seems to think we've gained?

Total Non-Farm Employment has risen from 45,800 to 59,900 in the same time period, or about 14,100 jobs. Mining and Minerals make up a staggering 39% of that job increase.

The next biggest gainer is Business and Professional Services. That sector tacked on 2,900 jobs in that time frame. Though, I'm sure most of this is related to oil and gas with the resurgence of Lawyers, Landmen, Petroleum Engineers, and CPA's.

Manufacturing accounts for 1,100 of those jobs, but there has been no increase in manufacturing jobs in 16 months, so that isn't growing, and what we have is most likely Oil and Gas related.

Retail Trade accounts for about 1,100 jobs in that time too, but we don't target retail as a diversifying industry.

Speaking of target industries, Information Technology has experienced a 200 employee contraction in the last couple of years locally and Health care and Education has added a shade under 1,000 jobs.

For comparison, Odessa's non-farm employment increases in the Mining sector account for 57.4% of all employment growth in Odessa from December 2002 to October 2008.

So tell me again, just how good of a job has our Economic Development Group done diversifying the economy?

Nobody says giving away public money for economic development is easy. For what it is worth, the MDC has been fairly fortunate that, so far, their blunders and bad bets on incentees (don't get me started on their real estate ventures) haven't amounted to large financial losses.

Yeah Dean Baldwin, Countrywide and others became PR nightmares, but those deals either didn't happen, or most of the funds were returned in what is commonly called a "clawback."

One of the early MDC incentees, W Power and Light, a retail electric service provider, was promised $210,000 over three years for agreeing to create 23 jobs, back in 2004. Shortly after receiving their first $70,000 installment, they defaulted on their ED contract. W Power and Light gave back $35,000 of the original payment.

Now, according to multiple business wire sources, W Power and Light is no more:

Amen Properties (NASDAQ:AMEN) today announced that its Board of Directors has approved a plan to discontinue operations of the company's retail electricity provider, W Power and Light. Management recommended the shut-down of W Power to the Board based on the unfavorable conditions in the Texas electricity market which have been exacerbated by heightened volatility in recent months.

W Power and Light we hardly knew thee.