State seeks to recover $1 million Economic agency sues steel plant, alleging it broke vow for jobs

December 24, 1997|By Jay Hancock | Jay Hancock,SUN STAFF

Maryland's economic development department is seeking to recover $1.1 million in court from Avesta Sheffield East Inc., alleging that the company's Baltimore County steel plant failed to meet employment targets promised when it accepted a state grant two years ago.

Instead of boosting employment to 350 from 179, as promised, Avesta moved a major production line from Maryland to Indiana a year ago and cut local jobs to about 100.

In a lawsuit filed yesterday in Baltimore County Circuit Court, Maryland's Department of Business and Economic Development alleged that Avesta has refused "to perform the promises to maintain and increase employment and other promises which were the consideration for the grant."

In the economic development world, where government agencies would generally rather be collegial than aggressive with their company clients, the suit is unusual, one analyst said.

"I haven't heard much of this," said Arthur Rolnick, director of research for the Federal Reserve Bank of Minneapolis and an economic incentive expert. "I've heard a lot from the economic development community about how we've gotten smarter" about crafting business-incentive contracts, he said. "I haven't heard much about going after companies after the fact."

Avesta's plant is closed for the holidays, and company officials could not be reached yesterday for comment.

Maryland economic development officials declined to comment on the Avesta case's specifics. But they portrayed the suit as part of a broader effort by the agency to make sure that development grants are doing the most good for Maryland's economy and that companies receiving them are living up to their commitments.

"The legislature felt that companies should have their feet held to the fire on these things," said James T. Brady, secretary of business and economic development. "We have to make sure that when everything is done, these deals are really going to have endurance for the state."

Avesta's $1.1 million Maryland grant is part of a huge bloom of government money being made available to factories and other facilities that can pick up stakes and move to another state or country. By investing in such employers, state development agencies across the country hope they can help cut costs and keep businesses from hopping the border.

Maryland disburses tens of millions in development loans, grants and stock investments each year, and its "Sunny Day" fund for big projects has grown from $5 million annually a few years ago to more than $25 million today.

Increasing controversy

The practice has sparked increasing controversy nationally in recent years, as state bids for employers have escalated.

Rolnick, for one, wants the federal government to ban most state financing of business, saying it provides a windfall for companies, shuffles jobs from spot to spot and generates no net benefit for the country.

A corporate practice fetching some of the harshest criticism is the alleged misdeed by Avesta: taking the money and running to another state.

To help it refurbish its Maryland plant, Avesta got $1.45 million in state financing in late 1995 -- $1.1 million as a grant and $350,000 as a loan. In return, the company was supposed to retain 179 jobs in Maryland and add another 171, according to the economic development department's lawsuit.

But instead of adding employment at its Essex facility in Baltimore County, Avesta slashed it, moving a steel plate mill and about 100 jobs to New Castle, Ind., early this year.

"At the present, there are about 82 jobs down there," said Joe Duncan, president of two plant union locals represented by the United Steelworkers of America.

Avesta, whose parent company, Avesta Sheffield AB, is based in Sweden, has repaid the $350,000 loan. The company also has reimbursed Baltimore County for a smaller incentive package, Duncan said.

But the state's $1.1 million grant is still outstanding, according to the complaint.


In claiming that Avesta owes the money, the lawsuit contradicts earlier statements by agency officials.

Chuck Porcari, at the time an economic development department spokesman, told The Sun a year ago when Avesta sent the jobs to Indiana that Maryland had no legal right to recover the grant. "The deal was done at the tail end of the previous administration," Porcari said then, and it didn't include "clawback" language now standard in development-incentive deals.

In the complaint filed yesterday, however, the economic development department argues that Avesta agreed to "an exchange of mutual promises" when it accepted the money and must now pay it back, with interest.

Pub Date: 12/24/97

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