DECD granted $ 39 million in excess loans and inappropriate loan cancellations to businesses

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The Ministry of Economic and Community Development was cited by state auditors for forgiving or modifying state loans to businesses totaling $ 23.6 million and providing additional aid of $ 16 million. million dollars under the First Five Plus program, according to a new state audit.

The audit comes as DECD commissioner David Lehman strives to change the way Connecticut handles trade incentives. Lehman said the department will no longer offer grants to businesses and will offer piecemeal loans and tax breaks based on the company’s hiring goals being met.

The audit, which covered the years 2015 and 2016, revealed that the ministry “modified or modified the aid agreement for 3 companies, which resulted in the companies receiving $ 21,550,000 in cancellation of loans to which they would not have been entitled under the original aid agreements. ”

“In addition, two of the companies would have owed a total of $ 2,282,144 in penalties under their original aid agreements,” the report said.

The report also revealed that the DECD had changed assistance programs for two companies that had effectively lost employees and failed to notify the State Bonds Commission of the changes.

In one case, a $ 20 million loan was amended so that the company could reduce the number of employees from 2,000 to 1,000 while receiving a partial loan forgiveness. The company reduced its number of jobs by 1,326 between 2012 and 2018, but still received $ 11.4 million in loan cancellations, according to the audit.

In one case, a $ 20 million loan was amended so that the company could reduce the number of employees from 2,000 to 1,000 while receiving a partial loan forgiveness. The company reduced its number of jobs by 1,326 between 2012 and 2018, but still received $ 11.4 million in loan cancellations, according to the audit.

DECD replied that it had modified the loans to prevent at least one company from moving and thus losing all jobs and that the ministry had acted under legal authority to modify the agreements.

Auditors argued that if the company left the state, it would be required to repay the entire loan, plus a penalty.

According to the audit, DECD awarded a company $ 16 million under the First Five Plus program to create 200 jobs in five years. However, auditors say the company should have invested $ 25 million, rather than $ 9.1 million.

The ministry also gave a company $ 20 million in aid to create 100 jobs even if it did not meet the requirements for a top five company.

In either case, auditors argue, the companies should not have received more than $ 10 million based on state law and should not have been included in the First Five Plus program. This resulted in excess aid of $ 16 million granted by the state through the Manufacturing Assistance Act.

DECD partially disagreed with the finding because the company’s total investment, including state aid of $ 16 million, was over $ 25 million. The auditors argued that the $ 25 million investment should not include public funds and recommended that a formal attorney general opinion be sought or that the law be amended through legislation.

“We would like to note that the first report of the top five of DECD indicated that a company should invest $ 25 million, and not that the total investment should be $ 25 million,” the audit said. “The DECD should either seek a formal opinion from the Attorney General on this matter or ask the General Assembly to clarify the statute. “

Auditors also found that the ministry had granted $ 900,000 in secondary loans to three companies that were already behind in repaying their first loans by up to 2.5 years. “Financial reviews for these companies have raised concerns about their ability to complete new projects or repay loans,” the auditors wrote.

DECD has granted multiple loans to 50 companies, according to the report. DECD agreed with this conclusion and noted that it is adjusting its audit requirements and database system.

In addition, the auditors found multiple loan deferrals, inadequate financial reviews of businesses, incorrect calculation of loan interest, inadequate monitoring of lending partners who handle small business loans, excessive sponsorship from the department of a particular company and inadequate work audit controls when measuring whether or not a company has met its recruiting goals.

DECD has been at the forefront of the economic debate in Connecticut as it mobilizes bond funds to help businesses in the form of loans, grants and tax credits in return for business investment and growth. employment.

Despite the investments, Connecticut’s economy over the past decade has lagged much of the country and is only showing signs of life now during a prolonged recovery in the national economy.

Perhaps the most controversial is the First Five Plus program instituted by Governor Dannel Malloy, which offers assistance to large companies. According to the audit, the DECD does not require financial reviews for companies in the First Five Plus program.

Despite the economic aid offered to some of these large companies, some left the state, like Alexion Pharmaceuticals, and others, like ESPN, received aid but laid off employees.

In other cases, businesses that received economic assistance under the Small Business Express Program received secondary loans, loan modifications, and a forgiveness even though they had not paid off their original loan. A Alert launcher within DECD forwarded the information to auditors in a 2018 complaint.

In one case, a non-existent company received $ 400,000 from the state. The owner of Amoun Pita was finally arrested after fleeing to Canada.

In 2015 and 2016, DECD provided $ 112.1 million in grants and $ 324.5 million in loans under the Manufacturing Assistance Act – which includes the First Five program – the Small Business Express program and projects Brownfield, according to the audit.

Governor Ned Lamont has tried to limit government borrowing as part of his “debt regime” project and DECD is adjusting its methods of helping businesses.

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