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State's incentives less successful than advertised

By Michael Sasso
Published: March 31, 2013 Updated: April 1, 2013 at 04:39 PM

Gov. Rick Scott wants the Florida Legislature to more than double the pot of money he can use to lure companies to Florida.

But as legislators this spring consider Scott's request, they're getting misleading information from the state's own report card on economic incentives.

That's because the state's new 2012 Annual Incentives Report doesn't include the failures from Florida's riskiest incentive program, the Quick Action Closing Fund that gives upfront grants to companies.

For example, 13 companies that signed up for the grant program but failed to create the required number of jobs are not included in the official results. They were on the hook for a few thousand jobs. Meantime, at least two other companies listed as hitting their job targets are 1,300 jobs behind schedule.

Evidence shows that rather than beating expectations, as the state suggests, the upfront grant program is thousands of jobs behind schedule.

Across the state, a few legislators are trying to get a better accounting of Florida's incentive programs before awarding the governor a bigger pot of money. State Sen. Dorothy Hukill, R-Port Orange, is targeting the Quick Action Closing Fund and a similar fund to reduce Florida's financial risk.

“This is an upfront sum of money,” she said of the grant program, “and I'm looking to provide security for the taxpayer investment.”

Florida has used incentives to lure companies to the state for years, but traditionally the state required companies to create jobs before getting paid. Many of Florida's corporate subsidies still work that way.

But as the competition for jobs among states got fiercer, Florida's Legislature created the closing fund in 1999 to keep up. Suddenly, companies could get six- or seven-figure checks on the front end of an incentive deal.

And companies jumped at the chance. Over the past dozen years, the state cut checks for a combined $131 million to 71 companies, state data show.

To be sure, the program has had significant successes. Depository Trust & Clearing Corp., a financial firm in New Tampa, got $4.4 million and made good on its pledge of 500 jobs by creating 552.

In Pensacola, Navy Federal Credit Union far exceeded its pledge of 650 jobs by creating more than 1,000, state records show.

However, even supporters admit that cutting checks upfront is riskier than waiting for performance, particularly before and during a recession.

Last summer, the Tribune published two articles showing how nearly half of the companies in the Quick Action Closing Fund program had failed to hit the state's timetables for jobs, capital investment or both.

The most embarrassing recent failure was last summer's collapse of Digital Domain. In 2009, an entrepreneur promised to build a high-tech, digital film studio in St. Lucie County and hire more than 500 people at high wages. The state cut his company a check for $20 million upfront.

State leaders were shocked when Digital Domain shut its doors and filed for bankruptcy three years later.

All told, 18 companies that won grants have had to return more than $14 million after failing to create the required jobs, Department of Economic Opportunity figures show. A few other companies that failed to create jobs never collected their money, such as St. Petersburg-based manufacturer Jabil Circuit. The $12.4 million Jabil won sat in a state escrow account for at least two years, earning interest at a rate of 0.3 percent a year.

As Florida's legislators debate the state's budget this spring, Gov. Scott is asking for up to $278 million to help him lure businesses to the state and encourage Florida companies to grow. That's more than double the $111 million legislators awarded last year.

In support of the state's incentive programs, Enterprise Florida presented legislators with a 2012 Annual Incentives Report showing results for the economic incentives going back years. The report uses figures from a sister agency, the Department of Economic Opportunity.

It suggests the Quick Action Closing Fund has been a success. For example, the report says companies that signed contracts with the state have created 9,776 jobs to date, exceeding the requirement to create 9,192 by nearly 600 jobs.

However, to arrive at those results, the state had to back out certain stalled or terminated projects, the report's backup materials show.

For example, companies that are hitting their performance targets, labeled “active” projects, are included. However, 13 companies labeled “inactive,” “pending inactive” or “terminated” are listed as having no jobs due.

In fact, the contracts required those 13 companies to create about 4,500 jobs. Their contracts suggest at least 2,000 are due.

When asked why the state left off troubled projects, Department of Economic Opportunity spokeswoman Monica Russell said, “There are no future measurement requirements or payments scheduled for inactive, pending inactive and terminated projects, so no jobs would be due.”

Even among the projects considered active and in good standing, the figures being reported to the public and legislators seem questionable.

For example, Palm Coast Data, a magazine subscription company, created 150 jobs, according to state data, when only 50 were required. However, its contract called for 700 new jobs by December 2011.

And WellDyneRx of Polk County is listed as creating 25 jobs, although 35 were required. Its contract called for 673 by December 2010.

The database has so many errors and omissions that it's hard to pinpoint how many jobs the Quick Action Closing Fund is behind schedule. But counting the 13 failed projects left out of the report and the two companies above, it could be at least 5,000 jobs short rather than 600 jobs ahead of schedule, as the report suggests.

Hukill and state Sen. Jeff Brandes, R-St. Petersburg, are among the senators reviewing Florida's economic incentives, prompted by some high-profile failures across the state.

Hukill said she cautiously supports awarding upfront grants to companies, as long as the state has more protection when a company goes bust. Her Senate bill would require companies to put up some form of security, such as a surety bond, that could make the state whole.

Brandes supports Hukill's bill, but argues that Florida has little choice but to cut checks to companies upfront because other states are doing it.

“As long as this kind of warfare persists, it's probably appropriate to have a fund like this,” he said.