Job-growth audit shows more smoke than fire

September 14, 2005|By JAY HANCOCK

THE STATE Department of Business and Economic Development wishes to assure you that, contrary to suggestions in a recent state audit, it is not allowing Maryland corporations getting corporate welfare to cheat on job-growth promises.

DBED's procedures for making sure companies keep their employment commitments "were not effective" in the four years ending in 2004, the Office of Legislative Audits reported last week.

Auditors found huge differences between employment claims made by the businesses and what was found by a contractor hired to check the claims. DBED "was unable to specifically reconcile the differences," the audit said, and "in some cases, the differences in employment data could have been significant enough" to affect whether a company was eligible for state aid.

Nearly $20 million in state grants to businesses was at stake during the period.

"It's always nice to have someone outside looking at your stuff," responded Christopher Foster, deputy DBED secretary, as my eyes rolled backward. "This is taxpayer money, and we have to be diligent about what we do with it."

But, he says, the audit was mostly about "playing with semantics."

Then he launched into a detailed defense, which I found to be - convincing!

As the self-appointed scourge of DBED and economic incentives generally, I am pained to stick up for the department. But in this case, auditors seem to be the nitpickers so often portrayed by the objects of their attention. Their report shows more smoke than fire.

Many of the "discrepancies" at DBED found by the auditors sound alarming at first.

Companies moving to Maryland or expanding in the state often get "Sunny Day Fund" financing or other taxpayer assistance tied to employment levels. Lately, many of the packages have been loans that convert to grants if job targets are met.

In several cases, auditors found that the total Maryland employment reported by companies receiving state financial assistance varied by more than 1,000 jobs from what was found by the University of Baltimore, which was hired to verify job claims with the Department of Labor, Licensing and Regulation. In other instances, there was a reporting gap of more than 100 jobs. And in others the University of Baltimore delivered no job data at all.

But in six out of 13 job gaps, fact checkers found that companies were underreporting their employment to DBED. Not only did they have enough jobs to meet their DBED promises, they apparently had even more jobs than they claimed - something the auditors left unmentioned.

In other cases, there appeared to be incomplete reporting by the University of Baltimore or unavailable information from Labor, Licensing and Regulation. But that was rectified by further checks from DBED, Foster said. And in no case, he insisted, did companies get money to which they were not entitled.

"I think we do a darn good job of verifying the number no matter who we get it from," he said.

Said legislative auditor Bruce Myers: "Maybe the companies did what they were supposed to do and DBED just didn't provide the documentation." That seems to be the case for most of them.

Six companies over the 2001-2004 period, Foster said, did not hit their job targets and were required to pay back $1.4 million to the state. The employers included the National Association of Securities Dealers, John Harland Co. and Advertising.com, he said.

As for the University of Baltimore, its employment verification "was always intended to be a flag" for further DBED checking, "not the actual review," said Richard Clinch, director of economic research at the university's Jacob France Institute.

Stock analysts are losing patience with Martek Biosciences, the fast-growing, Columbia-based company that makes nutritional additives from algae.

After Martek's latest stumble, another revenue disappointment disclosed Friday, First Albany's David Webber knocked his rating on the stock down to "neutral" from "buy," wire services reported. D.A. Davidson's Timothy S. Ramey went even further, demoting Martek from "buy" to "underperform." (That's analyst code for "sell!")

Martek has been saying that its previously inadequate manufacturing capacity for its supplements caused customers worried about getting shipments to buy more than they needed, which led to a glut and subsequent sales lag. Martek shares plunged from $60 to less than $33 when the problem was initially reported in April.

Company executives say the production problem has been fixed. But analysts and Wall Street seem to be waiting for proof not only of factory prowess but renewed buying.

"This is a quarter problem," Martek CEO Henry "Pete" Linsert Jr. told analysts in a conference call in April, when the inventory issues were revealed. "We're sharing this with you, and then it will get this behind us, and then off we run."

Not yet. Martek closed at $42.95 yesterday, down 17 percent from $51.81 last week.

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