Tuesday, February 28, 2012

Editorial: Treasure Coast governments, businesses can learn a lot from American Energy Innovations' decision to return state, local incentives

By Editorial Board

An unexpected recent twist in a high-profile, economic-development story in Martin County percolates with lessons for governments and businesses throughout the Treasure Coast.

After all, it's not every day a company that had banked $825,000 in state and county incentives announces it is returning the money. But such is the case with American Energy Innovations, an affiliate of Stuart-based American Custom Yachts.

In April, AEI accepted $3.94 million in state and local incentives and planned to build a $7 million plant to build turbine components in Martin County. The project promised to generate a $28.4 million payroll and create 600 jobs, paying an average annual wage of $43,350. Martin County officials — on the recommendation of the county's Business Development Board — chipped in $435,000 worth of incentives (to be distributed over five years) to keep AEI in Martin County.

In September, the Business Development Board named American Energy Innovations its business of the year.

Fast forward to the present: AEI officials announced recently the company is changing its product line, has laid off 25 of its 40 new hires, is returning taxpayers' initial investment of $825,000 and is refusing the additional state and local incentives.

What caused the about-face? Glitches in product design frustrated AEI's efforts to build seamless blades for wind and water turbines.

"We wanted to be proactive and honest in our approach to returning the incentive moneys," said AEI controller Ed Kelley, in an email to Scripps Treasure Coast Newspapers. "We still believe that Martin County is the best location to develop our product and we intend to move forward in this community."

What can we learn from this story?

First, local governments may not have the expertise to conduct proper due diligence on highly technological startup ventures like American Energy Innovations. Public investments in companies of this nature increase the risk that taxpayers' money will be squandered.

Public officials have an obligation to know intimate details of a company's business plan, market share and related factors before risking any public funds. Recruiting businesses is one thing; investing public money in them is a different matter.

Second, when a company's business plan fails to materialize or misses projections, the proper course of action is for the company to return the incentives. Typically, this requirement is included in the contract negotiated between the company and the government entities that grant incentives. However, not all companies reimburse taxpayers when the former fail to achieve their goals.

For example, Piper Aircraft, which received almost $10.7 million in incentives from the state and Indian River County in 2008, failed to reach employment benchmarks in 2011. Piper was required to employ 948 workers by the end of the year. Actual employment reached 730 to 740. But instead of repaying $950,000 to the state and $571,000 to the county, plus interest, as required by contract, Piper officials sought to renegotiate the agreement and avoid repayment.

By contrast, the professionalism of AEI officials with respect to the repayment of incentives is refreshing. AEI has set the standard up and down the Treasure Coast.

Third, some critics of government-incentive programs will use the AEI story to ridicule the value of such programs. However, this story actually reinforces the value of these programs. There is less risk to taxpayers when businesses operate with integrity.

There remains a place for government-incentive programs in local economic-development projects. However, if we've learned anything from the new twist in the AEI story, it's that local governments must proceed with caution — and with eyes wide open.

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