Bad economic deal could leave Florida on the hook for $20 million
A Port St. Lucie company that got $20 million from the state has filed for Chapter 11 bankruptcy, laying off hundreds of employees and likely leaving state taxpayers without a dime on their investment.
09/12/2012 4:35 PM
09/12/2012 4:37 PM
Promised their investment would help lure 500 high-paying jobs to Florida, lawmakers in 2009 sidestepped existing procedures to funnel $20 million to a well known movie production company that animated the scenes in Titanic and the Transformers movies.
But this story’s ending isn’t one for the movies.
The company, Digital Domain Media Group Inc., closed its Florida operations last week and on Tuesday filed for Chapter 11 bankruptcy, laying off 300-or-so Florida employees and likely leaving taxpayers without a return on its $20 million state investment. Local governments stand to lose around an additional $110 million.
The news of the bankruptcy and the potential loss of the economic incentives underscores concerns about governments doling out taxpayer dollars to politically connected private companies with little oversight and few guarantees. From 1995 to 2011, the state has paid $739 million in incentives to create 86,284 jobs, state officials say.
“Of course, 100 percent of all new businesses are not going to be successful. In fact the majority are going to fail,” said Sen. Nancy Detert, R-Venice, who helped pass a 2012 law to make the state’s economic incentive program more transparent. “There’s something worse than not having a job … that’s having one and losing one, and having the taxpayers chip in for that disaster.”
The failure of Digital Domain, in particular, shares some of the same traits of the failed solar-panel manufacturer Solyndra, which received $535 million in federal loans before closing its doors and filing for bankruptcy in 2011.
The Port St. Lucie animation company, created by acclaimed director James Cameron, has donated at least $70,000 to various politicians and committees.
Gov. Rick Scott this week ordered an investigation into how the company received state funding and if similar incentive deals could or should be prevented going forward.
“There are questions about the way those incentives were approved in 2009 through the governor’s office, and (Scott) wants to make sure there is now a process in place that would not allow them to be approved in the same manner,” said Melissa Sellers, a Scott spokeswoman.
At issue is the state’s practice of bypassing the traditional review process, and steering money to private companies through subtle, last-minute budget changes known as proviso.
State Rep. Kevin Ambler, R-Tampa, helped insert budget language, which then-Gov. Charlie Crist approved when he signed the spending plan into law.
Typically, the Legislature creates a generic pot of funds to be used for economic development projects — rather than identify individual recipients.
“When the Digital Domain funding was awarded, there already were processes in place to ensure a thorough review of a company’s proposal for job creation and if incentives were recommended, what would be the return on the state’s investment,” said Gray Swoope, the man who Scott selected to lead the state’s economic development organization, Enterprise Florida, in 2011.
“Unfortunately, in the case of Digital Domain incentive funding, the processes were circumvented,” he said.
Swoope pointed blame at former Gov. Charlie Crist. Crist in turn blamed the Legislature for inserting the last-minute language into the state’s massive budget.
“It was not a high-priority item for me or my administration, and if they’re making that accusation, they’re dead wrong,” Crist said.
Ambler, who helped steer the money to Digital Domain, received $2,000 in campaign contributions in 2009 from Digital Domain CEO John Textor, his wife and Textor-affiliated companies. Textor also donated $5,000 in 2009 to the Republican Party of Florida.
Ambler’s son, Jason, worked for Digital Domain as recently as this week, according to post’s on Jason’s Twitter account, and Digital Domain appointed Ambler himself to the company’s board, paying him $20,000. Ambler and representatives from Digital Domain did not return a call seeking comment.
More broadly, the episode also raises questions about the state’s “Quick Action Closing Fund,” Enterprise Florida’s growing practice of handing out cash up front to companies who make similar promises to create jobs.
The funding mechanism — whereby businesses get taxpayer money as an enticement to come to Florida — has boomed in recent years. Scott’s administration has significantly ramped up the use of the fund, approving hundreds of millions in up front cash grants.
Enterprise Florida, which leads the effort, has also come under scrutiny for dashing out incentive money to companies that are represented on its board of directors. Board members are scheduled to meet Thursday at the Don CeSar Hotel in St. Pete Beach
At least five of the companies that sit on Enterprise Florida’s board were awarded a total of $22,449,500 in business incentives in the last year, said Dan Krassner, of Integrity Florida, referencing state documents.
Swoope has defended the organization’s use of incentives money, saying there was no collusion between the board and the Department of Economic Opportunity, which has the final say over whether incentives are approved or denied.
Even companies that have gone through the traditional review process have still gone bankrupt, failing to create promised jobs after receiving millions of dollars in taxpayer money.
Last summer, the Tampa Bay Times reported, the state set aside $2.65 million for Tampa tech company Savtira Corp. to create 265 jobs in Hillsborough County, a project that went bankrupt.
Around the same time, Redpine Healthcare Technologies received $750,000 in state and local cash incentives after it promised to move its headquarters from Spokane, Wash. to Panama City. Within months of receiving the upfront cash and millions of dollars in other incentives, Redpine closed up shop.
Digital Domain’s downfall also impacts Florida State University’s film school, which has a $2 million partnership with the company. Frank Patterson, dean of FSU’s College of Motion Picture Arts, said, if the need arises, the school is poised to preserve its degree programs by hiring laid off Digital Domain faculty.
“Right now we’re in wait and see mode,” he said. “But we’re prepared for the worst.”
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