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2016-11-23 / Featured / Front Page

How will damning VEDP report affect Tranlin’s Chesterfield plant?

By Peter Galuszka
CONTRIBUTING WRITER


Gov. Terry McAuliffe (center) leads the groundbreaking of Tranlin’s $2 billion paper mill in Chesterfield in October 2015. The project, however, has yet to get off the ground; Tranlin has already missed early capital investment and job-creation targets. 
James Haskins/Chesterfield Observer Gov. Terry McAuliffe (center) leads the groundbreaking of Tranlin’s $2 billion paper mill in Chesterfield in October 2015. The project, however, has yet to get off the ground; Tranlin has already missed early capital investment and job-creation targets. James Haskins/Chesterfield Observer A state authority that has millions in public funds at its disposal to recruit new business to Virginia has been lambasted by the General Assembly’s watchdog auditing group for mismanagement, inefficiencies and poor oversight of economic development projects.

One question is how that might affect Tranlin Inc., the Chinese-owned company that plans a $2 billion pulp mill in eastern Chesterfield and is slated to receive nearly $60 million in state grants, tax deferrals and other economic incentives.

On Nov. 14, the Joint Legislative Audit and Review Commission (JLARC) released a long-awaited report that found administrative controls at the Virginia Economic Development Partnership (VEDP) were so lax that the semi-independent state authority has been open to corruption and abuse for the past 20 years.

Founded in 1995 during the administration of former Republican Gov. George Allen, VEDP has given out hundreds of millions of dollars to lure companies – and jobs – to Virginia.

Many of the state grants and incentives are tied to the companies achieving capital investment and hiring targets over a set period of time.

JLARC reported that many of the economic development projects “did not meet their performance requirements” and that VEDP didn’t have proper administrative protocols in place to efficiently monitor distribution of state funds. The problems came to a head earlier this year after a Roanoke Times investigation into Lindenburg Industry LLC, a Chinese company, which received $1.4 million in grants from VEDP to build a new factory in Appomattox County that would create hundreds of jobs.

Lindenburg, however, did not create the jobs or open the plant – and kept the funds. It is now the subject of a Virginia State Police probe.

The General Assembly directed JLARC to investigate VEDP earlier this year, and Martin J. Briley, VEDP’s former president and chief executive officer, left the agency in March. VEDP has been undergoing a major reorganization and is expected to face fire from legislators when the General Assembly convenes in January.

One of the biggest grants that Tranlin is slated to receive, a $20 million performance grant administered by VEDP, is expected to be distributed over a period of seven years – from fiscal years 2017 to 2023 – in exchange for creating 2,000 jobs and investing a total of $2 billion.

So far, Tranlin hasn’t received any of the $20 million performance grant, even though the first $2 million payment was scheduled for 2016 (the 2017 fiscal year began July 1). Earlier this year, Tranlin declined to apply for the $2 million because the paper manufacturer was running behind on construction of its 650-acre plant site near the end of Willis Road.

According to a Memorandum of Understanding with VEDP, Tranlin is supposed to have invested $555 million and created a total of 565 jobs by the end of this year. But there has been little activity at the site to date, and it appears unlikely the company will reach those goals. According to the JLARC report, Tranlin also failed to meet performance targets for 2015. “Tranlin created 10 of the 25 anticipated jobs for 2015 and only invested $6.6M of the expected $20M in capital,” the report found.

Asked about the investments and the numbers of jobs created, John Stacey, Tranlin senior vice president, said in an email that there are no changes planned. “The manufacturing facility is on schedule for operation in 2020. We will request grants as we achieve the corresponding milestones.”

Suzanne M. Clark, a spokesperson for VEDP, said in an email that according to their agreement with Tranlin, the company may take a reduced incentive in later years, “after the performance targets have been achieved.”

Its progress for the year 2016 will be reviewed in a report that Tranlin is required to submit on April 1, 2017.

Del. M. Kirkland Cox (R-Colonial Heights) said that one advantage with the Tranlin project is that most of the state payouts are based on more rigid performance goals. “The JLARC reports says that Tranlin is very much the way things need to be done,” Cox said, adding that he doesn’t foresee funds earmarked for Tranlin being cut.

To date, Clark said, Tranlin has received $5 million in state funds from another grant program that was formerly called the Governor’s Development Opportunity Fund.

Although there is no evidence of any wrongdoing in the Tranlin case, JLARC investigators found that the Governor’s Development Opportunity Fund, now called the Commonwealth’s Development Opportunity Fund, had the worst track record of any incentive program that VEDP oversaw.

According to JLARC, of the 133 economic development projects completed between fiscal years 2006 and 2015, nearly half (46 percent) didn’t meet contractual requirements for capital investment, job creation and average wages after receiving grants from the Commonwealth’s Development Opportunity Fund. “VEDP’s approach to administering state incentive grants has been highly unstructured and has left the state exposed to avoidable risk of fraud and poor use of limited resources,” the JLARC report stated.

VEDP was created to be a semi-independent state authority answerable only to its board of directors, who are nominated by governors. Their six-year terms are staggered to avoid giving any gubernatorial administration or political party undue influence.

VEDP workers also are paid higher salaries than other state workers, and JLARC investigators found insufficient oversight of staff, leading to some employees not working the hours “prescribed in agency policy.”

State Republican politicians were quick to blame Democratic Gov. Terry McAuliffe for VEDP’s problems. McAuliffe has made a point of taking high-profile trips overseas to recruit foreign business investment. On the day the JLARC report was released, Nov. 14, McAuliffe was in Japan on a marketing trip with VEDP officials.

Brian Coy, McAuliffe’s communications director, said that the governor has no power over VEDP’s day-to-day operations, but acknowledges the need for reform.

“That will only happen through bipartisan cooperation for the good of Virginia, not counterproductive partisan finger pointing,” Coy said in an emailed statement, adding that the VEDP’s problems existed long before McAuliffe took office.

Cox agreed that VEDP has needed change, but what makes the McAuliffe administration different is that “you have a governor who … consistently takes credit for jobs creation but once the data comes out, it’s not exactly what happened.”

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