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From the town of Moberly in north-central Missouri has emerged an issue of far-reaching impact for all Missourians that likely will be a major question for the 2012 legislative session beginning in Jaunary.
It involves the collapse of an economic development project with a China-based company called Mamtek that has left an unsettled $39 million debt in Moberly.
For those who have not been following the Mamtek controversy, let me provide some background.
The company, Mamtek, was soliciting economic incentives from both state and local government to establish a plant in Missouri that would produce an artificial sweetener. Several communities competed for the factory, and in early summer of 2010, Mamtek selected Moberly.
As part of the inducements to Mamtek, Moberly agreed to authorize a $39 million bond issue to build the company's plant. Problems arose several months ago when Mamtek failed to make the first payment that was due to the bond holders. The company abandoned the factory, which now sits unused. A lawsuit has been filed over the assets.
At the request of the local prosecutor, Missouri's attorney general has begun both a criminal and civil investigation. The state House of Representatives and Senate also have launched investigations.
One issue before the legislature is whether the state's Department of Economic Development should have taken or be required to take a stronger, more effective role investigating applicants for government financial support.
With Mamtek, there were some indications of potential problems. For example, an agent for the Department of Economic Development working in China reported that contrary to the company's claim, Mamtek had failed to open a factory in China. Like the Moberly project, construction of that Chinese factory was financed by a local government.
That specific report, however, never was relayed to Moberly. The Department of Economic Development director, David Kerr, told a House committee that the information from their Chinese agent had not been verified. But he said his agency had communicated more general concerns to Moberly.
Mamtek is not the only recent failure of an economic development project. In Kirksville, a company called Wi-Fi Sensors failed. In Cape Girardeau, state financial incentives for construction of a medical facility were withdrawn just a week after being announced by the governor when the Department of Economic Development learned the lead developer had lied about his criminal background.
The department's director, however, argues against requiring more extensive investigations into business applications, including criminal background checks. He warns that it could send the wrong message that businesses are not welcome in Missouri.
One of the more complicated questions arising from Mamtek involves whether state or local government should have a legal obligation to cover the bonds. Or are the bondholders left with nothing more than the right to divide up whatever assets remain?
Moberly says it is not responsible because of the way in which it issued the bonds. But Moberly's credit rating has been downgraded because of the Mamtek bond problems. And there have been some concerns voiced that a Mamtek bond issue failure ultimately hurt the bond ratings for local governments throughout Missouri, leading to higher bond payments to sell the bonds.
The method by which Moberly was able to issue bonds without voter approval and deny financial responsibility has already come under legislative attack.
Traditionally, there are two types of bond issues.
General obligation bonds are backed by the taxing authority of the government issuing the bonds. These kind of bond issues, like those by school districts to build facilities, require voter approval.
The other traditional bond approach is revenue bonds, which are backed by the revenue-generating potential of the project being financed. A number of college dormitories in Missouri were built with revenue bonds. Housing charges for students living in the dormitory provide the revenue stream that assures payment to the bondholders.
Moberly, however, used an entirely different approach to finance the Mamtek factory -- appropriation bonds. With these kind of bonds, there is no legal guarantee of government backing, only a promise that government will appropriate funds if necessary to meet the bond payments. Without the guarantee of tax backing for the bonds, there is no requirement for voter approval.
Legislators are learning that a number of communities have adopted this appropriation bond issue approach to avoid getting voter approval. But the extent of the practice is not yet clear. The senior Democrat in Missouri's House, Columbia's Chris Kelly, calls this type of bond issue a "scam" that should be prohibited.
Other legislators have suggested there be a legal requirement for insurance to assure payment of bond issues. Although providing more protection for people purchasing bonds, it might also raise the cost to issue the bonds.
Mamtek, of course, raises the broader question as to whether the there is a net gain from all the tax breaks, government-backed bonds and other financial incentives offered to businesses. Does the state gain more than it gives up in revenue?
A recent study by a couple University of Missouri researchers concluded that it was difficult to determine whether the business tax breaks are worth the loss of revenue. They suggested stronger requirements by business for reporting the benefits from the government financial incentives.
Supporters of these various tax breaks argue that for most of these programs, there is little risk to the state because they require that new jobs actually be created before a business can get the tax breaks. Missouri's economic development director argues that because other states are offering tax breaks to business, Missouri would lose out if it did not compete.
But as we saw during the legislature's special session, there is a growing sentiment in Missouri's Senate that the state should not be picking winners and losers in business tax breaks -- that if a tax break or other financial incentive will be offered for business expansion, it should be available to all businesses in the state, not just a firm like Mamtek.
Effectively, critics charge that offering lower taxes for a company to come to Missouri penalizes the businesses already located in the state.
As always, let me know (at
[email protected]) if you have any comments. If you would like your comments, or a portion of them, included in a future column, let me know and be sure to include your full name in your email.
[Phill Brooks has been a Missouri statehouse reporter since 1970, making him dean of the statehouse press corps. He is the statehouse correspondent for KMOX Radio, director of MDN and an emeritus faculty member of the Missouri School of Journalism. He has covered every governor since the late Warren Hearnes.]
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