Boldly Committed to Truth Telling in the False Face of Fakery
Washington City Council approves applying for $500,000 grant for Spinrite
By: Beaufort Observer Editorial Team ( More Entries )
Publisher's Note: This article originally appeared in the Beaufort Observer.
The Washington City Council voted unanimously Monday night (with Ed Moultrie absent) to apply for a half million dollar grant to renovate the old National Spinning building to accommodate an expansion of Spinrite, Inc. which is already operating out of part of that building. The grant would be from the N. C. Rural Center and would be in the nature of a loan/grant. That is, the arrangement would be a loan while Spinrite is creating an additional number of jobs, either including or in addition to those already created by another grant from the state, city and county for $360,000. Thus, if all goes as hoped, Spinrite would be the beneficiary of $860,000.
The exact terms and conditions of the deal would depend on what the Rural Center approves, if anything. It is a competitive grant and not all applications will likely be funded or funded in the amounts requested. Those details will await a spring board meeting of the Rural Center.
The original grant was designed to retain the yarn operations in Washington after National Spinning sold its Caron Division to Spinrite, a Canadian company. At the time, National Spinning CEO Jim Chesnutt told the Beaufort County Commission and City Council that the $360,000 would keep the yarn operations in Beaufort County and "save these jobs." He took considerable personal credit for the proposal. Based on that, the county and city each agreed to front $90,000 for the deal. A matching amount was received from the state's One N. C. fund. The number of jobs that Spinrite agreed to "retain/add" (usually reported as 90 jobs), which was essentially the workforce National Spinning employed in the local Caron operation. In addition to retaining 90 jobs, Spinrite was required to invest $975,000 in "new investment" in North Carolina.
The original grant provided that if Spinrite failed to retain the 90 jobs and invest $975,000 then the amount of funds disbursed under the grant would have to be repaid and if Spinrite did not pay the "clawback" the city and county would be liable for doing so.
The disbursements under the original One NC grant were to be made in increments as certain job/investment performance standards were met on an incremental basis. It is our understanding that Spinrite has not drawn down any of those funds yet because they did not meet the performance requirements to date.
In fact, we understand that when Spinrite took over the Caron operation it laid off all of National Spinning's employees and then offered to consider re-hiring them upon application. We were first told that they did indeed rehire most of the former National Spinning employees, but at reduced salaries and benefits. We have recently been told that indeed Spinrite does "not employ any former National Spinning employees" but that they entered into an agreement with a temp agency to use agency employees, some of who were former National Spinning employees. As of this date we have not been successful in obtaining documentation of the numbers involved in this complex arrangement, including the number of people who actually lost their jobs in the change in ownership.
The reason the issue of the 90 National Spinning employees becomes important is that a number of them have complained that Spinrite did not honor the agreement that was explained by Chesnutt when he pitched the original grant to the County Commissioners and City Council. One employee who "retired" told us: "I think we got the shaft. Spinrite got over $300,000 to save our jobs and many of us ended up with no job or lower paying jobs. And I think the city and county just turned their back on us."
But remember, Spinrite has to date not actually gotten any of that $360,000 so apparently it is not obligated to meet the job retention and investment performance criteria. But the question then becomes: Is this second grant going to require Spinrite to employ as many people as were employed by National Spinning (since saving those jobs was the original objective)?
No one seems to have straight answers for that. As you will hear in the video, City Manager Josh Kay seems to be saying that a combination of the two grants will result in about 100 jobs being retained in the county. But that depends on what Spinrite does.
We have been told by a knowledgeable source that Spinrite is now in the process of converting the status of the existing employees to the company payroll rather than the temp agency's payroll. This will presumably enable them to draw down parts of the original grant. How much they'll get will apparently depend on the number of employees and the amount of investments made.
It is unclear whether Spinrite can use the investments made with the second grant to renovate the National Spinning facility to meet the requirements of the first grant and whether employees can be counted against both grants or whether the "jobs" criteria will be separate for each grant. That is presumably to be determined depending on what the Rural Center ultimately ends up approving.
What we have learned is that neither the city nor the county has been monitoring Spinrite's performance. At least if either of them has they have been unable to provide us with access to the documentation of that monitoring. Thus, Spinrite is back at the table in less than a year asking for more money and the City apparently knows little or nothing about its financial standing.
City Manager Josh Kay did tell us that he expected the final agreement, if the Rural Center approves the second Spinrite proposal, to be very similar to the first agreement even though they are from two different state agencies. You can review the first Spinrite Agreement by clicking here. You will note on Page 2 how the Performance Criteria are set. Page 3 explains how the funds are released as jobs are created. Beginning on Page 4 you see what happens of the company does not meet the performance criteria. Section 7 makes it clear that if the performance criteria are not met and the company does not repay the state that the city and county (Guarantors) are liable for doing so.
The reason this liability becomes important is that it is the taxpayers who are on the hook if the deal goes sour. Thus, how viable the company receiving the grant is becomes important.
Spinrite has a track record that might cause some concern. Below are some links a simple Google search turned up:
This link reveals who owned and controlled Spinrite and how they operated.
Sentinel tries to weave magic with Spinrite takeover offer
Commentary
Lloyd May, we think, made some very pertinent commentary with his presentation. We asked him for any comments he might add. He said:
I am not sure why the topic of Spinrite's second grant request in less than a year needed to go into closed session. I am all for jobs in Washington and Beaufort County but the city has a fiduciary responsibility to at least receive full financial disclosure from the company receiving the grant, review the financials to verify the company is viable and has collateral to cover the loan.
We think that a very salient point.
What is most troubling to us are two things:
1. Why did the Washington City Council need to go into secret session to discuss this deal? What is it that needed to be shielded from the public? We will not know until after the deal is closed and the minutes of the closed session then become open--if the Council follows the law. But at this point it appears to us to be a serious violation of the law, and certainly of the public trust the Council has to the people. North Carolina's Open Meetings law provides that economic development matters may be discussed in closed session but that is intended to either preserve trade secrets/proprietary information or to keep competitors from knowing what the other competitors are offering or being offered. But there are no competitors in this instance. So why the secrecy?
2. We also agree with Mr. May that the City Council and staff have a fiduciary duty to the taxpayers (both city/county and state) to exercise due diligence in these sorts of deals. One aspect of due diligence is how solid the company getting public funds is. But we have requested to see the financials that the city used to assess Spinrite and learned that there are none. They don't even know if the company is viable or not and they are assuming the responsibility for guaranteeing nearly a million dollars going to a company they know hardly anything about. We find that troubling.
Two council members have said publically that they think this is a good deal because "no local funds are involved." But that's not true. Spinrite already has a commitment of $180,000 from the city and the county and apparently has not lived up to what those funds required of them. Now to ask the state to give them a half million dollars more seems like a stretch to us. The new grant may not involve "local funds" but the reason the Rural Center requires the local government to be a party to such deals is that they entrust the local government with the responsibility for oversight. Otherwise, why would the City of Washington even be talking about this deal?
We think Lloyd May raised some excellent questions in his comments which you can hear in the video. We fear that maybe even more questions should be raised.
We hope this works out in the long run. But we already know that a number of local citizens believe they got the shaft from National Spinning/Spinrite. Let us all hope, and work to see that this does not turn out as badly for all as it already has for some local folk.
Here's the video of Mr. May's comments and the Council's action after their secret session:
UPDATE:
After the article above was written, and while it was being reviewed by our editorial team, we learned that Weir Valve announced this afternoon (1-15-13) that it is closing. We also learned that apparently Weir never signed the Agreement (for similar funds as Spinrite is seeking) nor received any funds for the grant the City had agreed to sponsor for them. Apparently Weir's collapse came as a total surprise to city officials.
And while some may take some consolation that there will be no clawback on Weir, it is not that simple. We understand that the county had been negotiating with the state to be relieved of some/all of the clawback liability for Carver Machine Works' failure to fulfill their job performance requirements on a grant for a sewer line to Carver. The "word is" that the jobs at Weir were going to be used to meet the Carver performance requirements and now that is in doubt.
Given all of this, along with the dismal failures of other economic development projects in the county, one thing can be said for sure: Our government officials have not proven to be very good at picking companies to invest the taxpayers' dollars in.
Go Back
The Washington City Council voted unanimously Monday night (with Ed Moultrie absent) to apply for a half million dollar grant to renovate the old National Spinning building to accommodate an expansion of Spinrite, Inc. which is already operating out of part of that building. The grant would be from the N. C. Rural Center and would be in the nature of a loan/grant. That is, the arrangement would be a loan while Spinrite is creating an additional number of jobs, either including or in addition to those already created by another grant from the state, city and county for $360,000. Thus, if all goes as hoped, Spinrite would be the beneficiary of $860,000.
The exact terms and conditions of the deal would depend on what the Rural Center approves, if anything. It is a competitive grant and not all applications will likely be funded or funded in the amounts requested. Those details will await a spring board meeting of the Rural Center.
The original grant was designed to retain the yarn operations in Washington after National Spinning sold its Caron Division to Spinrite, a Canadian company. At the time, National Spinning CEO Jim Chesnutt told the Beaufort County Commission and City Council that the $360,000 would keep the yarn operations in Beaufort County and "save these jobs." He took considerable personal credit for the proposal. Based on that, the county and city each agreed to front $90,000 for the deal. A matching amount was received from the state's One N. C. fund. The number of jobs that Spinrite agreed to "retain/add" (usually reported as 90 jobs), which was essentially the workforce National Spinning employed in the local Caron operation. In addition to retaining 90 jobs, Spinrite was required to invest $975,000 in "new investment" in North Carolina.
The original grant provided that if Spinrite failed to retain the 90 jobs and invest $975,000 then the amount of funds disbursed under the grant would have to be repaid and if Spinrite did not pay the "clawback" the city and county would be liable for doing so.
The disbursements under the original One NC grant were to be made in increments as certain job/investment performance standards were met on an incremental basis. It is our understanding that Spinrite has not drawn down any of those funds yet because they did not meet the performance requirements to date.
In fact, we understand that when Spinrite took over the Caron operation it laid off all of National Spinning's employees and then offered to consider re-hiring them upon application. We were first told that they did indeed rehire most of the former National Spinning employees, but at reduced salaries and benefits. We have recently been told that indeed Spinrite does "not employ any former National Spinning employees" but that they entered into an agreement with a temp agency to use agency employees, some of who were former National Spinning employees. As of this date we have not been successful in obtaining documentation of the numbers involved in this complex arrangement, including the number of people who actually lost their jobs in the change in ownership.
The reason the issue of the 90 National Spinning employees becomes important is that a number of them have complained that Spinrite did not honor the agreement that was explained by Chesnutt when he pitched the original grant to the County Commissioners and City Council. One employee who "retired" told us: "I think we got the shaft. Spinrite got over $300,000 to save our jobs and many of us ended up with no job or lower paying jobs. And I think the city and county just turned their back on us."
But remember, Spinrite has to date not actually gotten any of that $360,000 so apparently it is not obligated to meet the job retention and investment performance criteria. But the question then becomes: Is this second grant going to require Spinrite to employ as many people as were employed by National Spinning (since saving those jobs was the original objective)?
No one seems to have straight answers for that. As you will hear in the video, City Manager Josh Kay seems to be saying that a combination of the two grants will result in about 100 jobs being retained in the county. But that depends on what Spinrite does.
We have been told by a knowledgeable source that Spinrite is now in the process of converting the status of the existing employees to the company payroll rather than the temp agency's payroll. This will presumably enable them to draw down parts of the original grant. How much they'll get will apparently depend on the number of employees and the amount of investments made.
It is unclear whether Spinrite can use the investments made with the second grant to renovate the National Spinning facility to meet the requirements of the first grant and whether employees can be counted against both grants or whether the "jobs" criteria will be separate for each grant. That is presumably to be determined depending on what the Rural Center ultimately ends up approving.
What we have learned is that neither the city nor the county has been monitoring Spinrite's performance. At least if either of them has they have been unable to provide us with access to the documentation of that monitoring. Thus, Spinrite is back at the table in less than a year asking for more money and the City apparently knows little or nothing about its financial standing.
City Manager Josh Kay did tell us that he expected the final agreement, if the Rural Center approves the second Spinrite proposal, to be very similar to the first agreement even though they are from two different state agencies. You can review the first Spinrite Agreement by clicking here. You will note on Page 2 how the Performance Criteria are set. Page 3 explains how the funds are released as jobs are created. Beginning on Page 4 you see what happens of the company does not meet the performance criteria. Section 7 makes it clear that if the performance criteria are not met and the company does not repay the state that the city and county (Guarantors) are liable for doing so.
The reason this liability becomes important is that it is the taxpayers who are on the hook if the deal goes sour. Thus, how viable the company receiving the grant is becomes important.
Spinrite has a track record that might cause some concern. Below are some links a simple Google search turned up:
This link reveals who owned and controlled Spinrite and how they operated.
Sentinel tries to weave magic with Spinrite takeover offer
Commentary
Lloyd May, we think, made some very pertinent commentary with his presentation. We asked him for any comments he might add. He said:
I am not sure why the topic of Spinrite's second grant request in less than a year needed to go into closed session. I am all for jobs in Washington and Beaufort County but the city has a fiduciary responsibility to at least receive full financial disclosure from the company receiving the grant, review the financials to verify the company is viable and has collateral to cover the loan.
We think that a very salient point.
What is most troubling to us are two things:
1. Why did the Washington City Council need to go into secret session to discuss this deal? What is it that needed to be shielded from the public? We will not know until after the deal is closed and the minutes of the closed session then become open--if the Council follows the law. But at this point it appears to us to be a serious violation of the law, and certainly of the public trust the Council has to the people. North Carolina's Open Meetings law provides that economic development matters may be discussed in closed session but that is intended to either preserve trade secrets/proprietary information or to keep competitors from knowing what the other competitors are offering or being offered. But there are no competitors in this instance. So why the secrecy?
2. We also agree with Mr. May that the City Council and staff have a fiduciary duty to the taxpayers (both city/county and state) to exercise due diligence in these sorts of deals. One aspect of due diligence is how solid the company getting public funds is. But we have requested to see the financials that the city used to assess Spinrite and learned that there are none. They don't even know if the company is viable or not and they are assuming the responsibility for guaranteeing nearly a million dollars going to a company they know hardly anything about. We find that troubling.
Two council members have said publically that they think this is a good deal because "no local funds are involved." But that's not true. Spinrite already has a commitment of $180,000 from the city and the county and apparently has not lived up to what those funds required of them. Now to ask the state to give them a half million dollars more seems like a stretch to us. The new grant may not involve "local funds" but the reason the Rural Center requires the local government to be a party to such deals is that they entrust the local government with the responsibility for oversight. Otherwise, why would the City of Washington even be talking about this deal?
We think Lloyd May raised some excellent questions in his comments which you can hear in the video. We fear that maybe even more questions should be raised.
We hope this works out in the long run. But we already know that a number of local citizens believe they got the shaft from National Spinning/Spinrite. Let us all hope, and work to see that this does not turn out as badly for all as it already has for some local folk.
Here's the video of Mr. May's comments and the Council's action after their secret session:
UPDATE:
After the article above was written, and while it was being reviewed by our editorial team, we learned that Weir Valve announced this afternoon (1-15-13) that it is closing. We also learned that apparently Weir never signed the Agreement (for similar funds as Spinrite is seeking) nor received any funds for the grant the City had agreed to sponsor for them. Apparently Weir's collapse came as a total surprise to city officials.
And while some may take some consolation that there will be no clawback on Weir, it is not that simple. We understand that the county had been negotiating with the state to be relieved of some/all of the clawback liability for Carver Machine Works' failure to fulfill their job performance requirements on a grant for a sewer line to Carver. The "word is" that the jobs at Weir were going to be used to meet the Carver performance requirements and now that is in doubt.
Given all of this, along with the dismal failures of other economic development projects in the county, one thing can be said for sure: Our government officials have not proven to be very good at picking companies to invest the taxpayers' dollars in.
Comments
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This is why I am voting against all economic development projects and all economic development infrastructure, as we now know it, with one caveat - I will vote some for some assistance, within tight tolerances, to decrease our holdings in both inustrial parks.
Once, we have divested away all of our property, I will not vote to spend another dime until we, and North Carolina, revolse to fundamentally overhaul the entrie structure of what government sponsored economic development shall be going forward. That is it. The Spinrite deal proves that no elected official can completely know all he needs to know to allocate funding properly. I have done this long enough to know, in the long run, it is truly a losing proposition for the public, and well promotes the moral hazard of government picking economic winners and losers. Moreover, this is government at its worst, yet, on the surface, appears to be a positive step to "do the right thing." Therein lies the irony of its fundamental hypocrisy of bad governing. |
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January 16, 2013 | 10:22 AM
Oh! The games we play. Could it be that the $500,000 funds requested from NC Rural Center might be used by Spinrite to satisfy/offset the $975,000 "NEW" investment required by the first grant - One NC funds.
"In addition to retaining 90 jobs, Spinrite was required to invest $975,000 in "new investment" in North Carolina."
This way Spinrite can reduce their required One NC grant ($975,000) $investment( to $475,000), hire the current "temp" employees, file disbursement papers for City, County and State matching funds ($360,000), and their final out-of-pocket expenses will be a whopping $115,000.
Now that is how to make someone else's money work for you.
The actual expansion will be to the property owned by National Spinning which should increase the taxbase. The unknown part of the deal is how the Rental Lease Agreement is worded.
Maybe Spinrite will be required to pay rent and taxes.
I reason I use the word "unknown" is most of these deals that originate through private companies, state/municipal grants and non-profits, such as Beaufort County Committee of 100 are not required to file a copy of the Lease with the County Register of Deeds. This is one way to keep taxpayers in the dark. Most, if not all, of these documents qualify as Public Records.
Unless the public begins to take more interest in the actions taken by our City/County officials in both open and "closed" meetings, we are only making the poor poorer and the rich richer.
I encourage the public to make an effort to attend board meetings (EDC, BC DSS, Vidant-Beaufort hospital, Shepard Cancer Center, etc.) and City/County Officials public meetings.
The Truth Squad