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The mixed record of McAuliffe 'deal-closing' grants

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When Democrat Terry McAuliffe took office, the “dealmaker-in-chief” made enthusiastic use of a deal-closing fund at the disposal of Virginia governors to woo companies to bring their jobs and business to the state.

After dozens of announcements and groundbreaking ceremonies, companies lured with cash incentives delivered only about half of the jobs that were promised, a Richmond Times-Dispatch analysis of the projects executed during McAuliffe’s term shows. McAuliffe, who held the office from 2014 to 2018, is in a tight race against Republican Glenn Youngkin to become Virginia’s next governor.

As the state works toward recovering from the COVID-19 pandemic, both men have pitched themselves as business-friendly candidates with big plans for economic growth.

Youngkin has highlighted his decadeslong career in private equity, which he left recently amid a mixed record of success.

McAuliffe has described himself as a savvy dealmaker who can hail companies and jobs to Virginia with a phone call.

Less than three weeks until Election Day, the question of which candidate would be the best steward of Virginia’s economy looms as a key issue. In a recent CBS News poll on the contest, 71% of respondents said the economy is “a major factor” in their choice for governor.

Youngkin has often said Virginia’s economy is “in the ditch” and that the state is not living up to its promise, citing the cost of living and the cost of doing business.

McAuliffe says he and Gov. Ralph Northam worked to build an economy that has led to Virginia’s back-to-back rankings as CNBC’s best state for business.

“I had the most trade missions of any governor — 35 trade missions in five continents — recruiting all these businesses back to Virginia,” McAuliffe said in a September campaign speech.

Job gains under the incentive program don’t reflect the full scope of new jobs created in Virginia during McAuliffe’s administration — an estimated 200,000 in total — which came in the recovery period following the Great Recession. But the bucket does represent a key pot of money at the discretion of the governor that is designated specifically for closing deals.

Of the 79 economic development deals McAuliffe executed that have reached their deadlines, 31 delivered as many or more jobs than were promised. An additional 48 projects didn’t perform as well or deliver jobs as quickly as promised; of those, 32 didn’t produce a single new job in Virginia. Seven other projects that account for 926 jobs received extensions that are ongoing.

All told, deals between the state and private companies promised Virginians 14,000 new jobs. Only 7,000 jobs came from these deals.

The incentive program, known as the Commonwealth’s Opportunity Fund, was plagued with oversight issues before McAuliffe took office. Those came to light when a high-profile deal two years into his term went awry — costing the state $1.4 million.

McAuliffe’s supporters credit the former governor with backing a bipartisan effort to bring more oversight to the program, leading to significant reforms that are expected to make the program more successful for future chiefs.

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Some of the projects executed under McAuliffe deflated without much attention. The jobs simply didn’t materialize.

In 2014, Virginia competed against California to attract a China-based pharmaceutical company that planned to create 376 jobs in Petersburg. Tenry Pharmaceutical, which manufactures active ingredients, had come as a boon for the area, which had just lost over 200 jobs after the closure of a chemical company at the same site Tenry had planned to redevelop.

The Tenry deal, the McAuliffe administration said at the time, was the product of a recent trade mission to Asia; McAuliffe said he closed the deal in person in Shanghai.

“This project will have a tremendous impact in the city of Petersburg and the surrounding region,” McAuliffe said in a news release at the time of the deal.

State records show Tenry never created a single job in Petersburg or spent the promised $15 million in capital investments. A little less than a year later, it paid back the $1 million grant it received from the state.

Another closed deal the McAuliffe administration announced with much fanfare in 2015 was expected to deliver 113 jobs at an average pay of $36,000, and an $11 million investment to Greensville, a county of 12,000 people that borders North Carolina.

510nano, which develops commercial and utility-scale renewable energy projects, had planned to relocate its headquarters and open a 100,000-square-foot facility for the production of solar panels in the Southside county, according to an agreement between the company and the state.

A little over a year after the announcement ceremony, which included McAuliffe and a few lawmakers from the area, the deal fizzled. The state recouped its $200,000 incentive grant. But disappointments weren’t always the case.

McAuliffe’s campaign highlighted that amid some failed projects are successes for Virginia delivered through the grants. Of the 31 projects that performed successfully, many exceeded hiring and investment goals.

Ernst & Young, a consultancy firm, hired twice as many workers as promised — 943 of the expected 462 — at a higher average wage, according to data from the Virginia Economic Development Partnership.

“These were good, high-paying jobs that exceeded the wage targets set out for the projects Terry brought to Virginia,” said McAuliffe spokesman Jake Rubenstein.

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One of the ambitious deals closed using the Commonwealth’s Opportunity Fund was supposed to bring nearly 350 new jobs to the small town of Appomattox, about 20 miles east of Lynchburg.

Unlike smaller projects that pop and fizzle without much fuss, the fall of the Appomattox deal was dramatic: Lindenburg, a Chinese company, got $1.4 million up front to close the deal, but never delivered a single job or $113 million in capital investment. The state still hasn’t gotten its money back, despite ongoing collection efforts, including legal action.

Poor vetting contributed to things going awry, according to reporting by The Roanoke Times in 2015. State officials relied on false information posted to the company’s website to vet the company, the paper found.

The scrutiny that the Appomattox deal brought to the grant program led to administrative and statutory reforms of the program spearheaded by Republicans in the legislature and the McAuliffe administration.

Stephen Moret, who took the helm of the VEDP when reforms began, said structural issues had plagued the agency for years; Moret said poor success rates during the McAuliffe administration were largely a reflection of an agency that wasn’t operating as it should.

“All of these projects are private sector companies competing in a dynamic marketplace. Projects that are ceremoniously announced usually end up different than what was announced,” Moret said in an interview. “I do think that record was probably low in what would be typical in other states, but that was really because of the lack of due diligence in place at the time.”

Three years into McAuliffe’s term, the VEDP rolled out key reforms at the direction of the legislature and administration: The agency significantly boosted scrutiny and risk assessment of proposed projects, and deals with companies now rarely involve payment before projects deliver what was promised.

“We’re still in the performance period for projects executed since 2017, but I’d expect a far better success rate,” Moret said.

Most of the deals executed under the Northam administration are still pending, VEDP data shows. Northam, who leaves office in January, has already awarded about $70 million in incentive grants, about the same as McAuliffe during his time in office.

More importantly for the dozens of projects executed under McAuliffe, the agency strengthened its enforcement practices by scrutinizing projects more strictly, and seeking clawbacks more aggressively, including with the help of the attorney general.

The reform was tested in a big way with the fall of the 2015 deal with Tranlin Inc., another Chinese company that promised to bring 2,000 jobs to the Richmond area with a $2 billion paper plant in Chesterfield County.

McAuliffe celebrated the deal by sticking a shovel in the ground alongside company officials, hailing the deal as “the largest greenfield project ever done by a Chinese company in the United States of America.”

“Every state wanted this project,” McAuliffe said at the groundbreaking ceremony.

When Tranlin didn’t deliver, the state was left without the $5 million grant it had issued the company.

Thanks in part to program reforms, the state took control of a 58-acre plot near Interstate 95 that the company had purchased with grant funds worth about $3 million. Since clawback efforts started, Tranlin has paid back $188,000 of its debt. The state is still working to recover the rest and to sell the plot, according to Moret and records provided by the economic development partnership.

“Terry also spearheaded historic, long overdue reforms of the Virginia Economic Development Partnership to ensure the protection of taxpayer funds as they pertain to economic development projects,” said Rubenstein, the McAuliffe spokesman.

An analysis of VEDP records shows that the state has been able to successfully recoup $17.9 million from failed projects executed by the McAuliffe administration, the vast majority of funds owed. Through legal action, the state is still working to claw back an additional $3.9 million.

That includes $500,000 from Qore Solutions, which promised to bring its hand sanitizer business from Arizona to Washington County at a time when the county’s business park was working to rebuild from a tornado, according to news reports from the ceremony to award the grant.

According to the VEDP, the company went bankrupt, and ongoing efforts to recoup the money have not been successful.

The 140 jobs and $12.8 million in investments in the state’s far Southwest never materialized.

mleonor@timesdispatch.com

(804) 649-6254

Twitter: @MelLeonor_

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