JobsOhio: Unethical, Unaccountable, Ineffective

JobsOhio: Unethical, Unaccountable, Ineffective

As the Buckeye State struggled to rebound from the Great Recession, Ohio's new governor, John Kasich, scrapped the state's public economic development agency for a largely private one, insisting that a nimble, fast-paced replacement could better respond to business needs and trends. He called the new agency JobsOhio.

Although nearly all of its funding comes from state liquor profits, Kasich convinced legislative allies to exempt JobsOhio from public records and state ethics laws. Its annual disclosures to the Ohio Ethics Commission are confidential, too.

To head the new agency, Kasich tapped Mark Kvamme, a charismatic Silicon Valley venture capitalist and long-time political donor who also worked for Kasich's short-lived presidential campaign.

The secrecy engulfing JobsOhio makes it impossible to do a comprehensive analysis of the agency's performance. Still, government records, news reports, business filings and audits show it exaggerated its impact, funneled state money to companies that did not create or retain the promised jobs, and has a pattern of helping companies with ties to its politically potent governing board.

The bottom line: After 3 ? years of JobsOhio, Ohio's economic rebound remains anemic and lags the nation as a whole in both employment gains and in reducing the ranks of the unemployed.

From its inception in 2011, critics have insisted that JobsOhio's true mission is to help Kasich and his political allies ? at the expense of everyday Ohioans.

Fueling that criticism is its board of directors, hand-picked by the governor, which includes large donors to Kasich's campaigns and Republican Party accounts.

The Ohio Ethics Commission found potential conflicts for nine of the 22 JobsOhio officials required to file financial-disclosure statements for 2011 or 2012. The Dayton Daily News documented this but some highlights are worth repeating:

 Worthington Industries' subsidiaries were granted $619,000 in state tax breaks brokered by JobsOhio. For years, Gov. Kasich has had professional, financial and political ties to the company. He served on its Board of Directors from 2001 until he was elected governor in 2010 and continued to receive deferred compensation from Worthington through 2012.

Steven Davis joined the JobsOhio board in 2011 and served as CEO and Chairman of the Board of Bob Evans Farms beginning in 2006, receiving over $6 million in compensation and accumulating over $2 million in stock by 2012. In what the Kasich Administration billed as a "major announcement," JobsOhio agreed to give Bob Evans $8 Million to move its headquarters about 20 miles from Columbus to New Albany ? the tony Columbus suburb where Davis lives. Kasich insisted that Bob Evans was giving serious consideration to moving out-of-state, an assertion disputed by officials in Columbus Mayor Michael Coleman's office who had been in discussions with Bob Evans.

James Boland served as the Chairman of JobsOhio's board beginning in July 2011, while also sitting on Sherwin William's board of directors. Sherwin Williams paid Boland $201,761 in stock and cash in the same year that JobsOhio provided Sherwin Williams with a special $5,841,535.00 tax credit. In addition, Boland owned over $2.5 million in Sherwin Williams stock. Due to lack of disclosure, it is not known whether Boland personally benefitted from the tax credit.

Board member Gary Heminger, chief executive of Marathon Petroleum Co., also serves on the JobsOhio board. In 2011, Ohio awarded Marathon job tax credits worth $78 million -- one of the largest incentive packages put together by the Kasich administration.

Kasich responded to the findings by boasting that JobsOhio has tougher ethics requirement than its predecessor and dismissing calls for an investigation as "smoke and politics."

Still, some members of his own party have been among the louder voices for reform.

As lawmakers began work on the legislation that created JobsOhio, the head of the Ohio Ethics Commission, former GOP legislator Ben Rose, made a series of recommendations he said would "increase public support and confidence for JobsOhio.'' They included subjecting board members and employees to Ohio's ethics laws, and banning them from "having interests in contracts of their agencies and authorizing contracts for themselves, or their family members and business associates." Those recommendations were largely ignored.

When his fellow Republican, Ohio Auditor David Yost, demanded financial records from JobsOhio needed for a proper audit, Kasich lead efforts to change the law and limit the auditor's scope. Kasich and business lobbies say such audits would jeopardize proprietary data from companies that work with the agency -- a claim they routinely assert but have never demonstrated.

Even without the benefit of all the requested financial record, Yost's audit reached this conclusion: "JobsOhio had no clear formal procedure to screen for senior management and employee conflicts of interest or any mechanism for managing these situations" and that "safeguards for detecting, managing, and avoiding conflicts of interest at the staff level were missing." Auditors also found no evidence that even informal actions were taken to screen for possible conflicts.

Worthless Ethics Pledges

Facing constant questions about potential conflicts, JobsOhio used its newly released 2013 annual report to boast that it "promotes a culture of integrity and dedication to ethical principles that apply to every officer, employee, and director.'' Listed among the examples of these policies is "annual ethical conduct pledges that are signed by all JobsOhio employees, officers, and Board members.''

Board members signed the pledge. So did Kvamme.

By signing, Kvamme agreed that he would not "obtain, or seek to obtain, a personal advantage or benefit due to relationships established by my position with JobsOhio...." Yet in 2012, while still working as Ohio's jobs czar, Kvamme began work on DriveCapital, his new venture capital firm that would net him millions of dollars. Among his main allies in getting the firm off the ground: then-Ohio State University President E. Gordon Gee ? a relationship Kvamme nurtured when Gee served with him on the JobsOhio board.

Gee helped send $50 million from OSU's investment portfolio to DriveCapital, despite strong reservations from OSU's top investment experts.

While it appears that Kvamme did seek "a personal advantage or benefit'' from a relationship established by his position at JobsOhio, the maximum penalty for violating the ethics pledge is losing your job. Kvamme quit first.

Kasich has yet to comment on Kvamme's apparent violation of his ethics pledge.

In 2013, after leaving JobsOhio, Kvamme bought a 57,000-square-foot home in central Ohio built by Tami Longaberger, president of the Longaberger Company. Longaberger has refused to say who bought the house but two Kvamme-controlled LLCs -- SPG87 and Awesome87 ? are listed as the buyers. The home sold for $6 million ? $9 million less than the original $15 million asking price.

The previous year, JobsOhio helped Longaberger sell a 550,000-square-foot distribution center on the family compound. News reports said the property sold for $9.6 million and the buyer was Fanatics, an online retailer of officially licensed sports merchandise. JobsOhio recommended that Fanatics receive a $460,000 Job Creation Tax Credit; local incentives sweetened the deal.

Once again, the shroud of secrecy makes it difficult to know whether there is any link between Longaberger's decision to lower the home price by $9 million and Kvamme's help finding a $9.6 million buyer for the distribution center.

In news reports, Kvamme explained how the warehouse deal came together: "Because of strong business connections, JobsOhio had the opportunity to share with Fanatics the value of locating to Ohio ? from logistical advantages and robust business climate to a well-trained work force.''

The company committed to create 270 jobs in Ohio with a payroll of $6.7 million, which works out to $24,814 per job. The average annual salary in Ohio is $43,170, according to the US Bureau of Labor Statistics.

Billions Spent To Grow the Economy

Ohio spends at least $3.24 billion annually on incentive programs designed to promote job growth, according to United States of Subsidies, a ground breaking New York Times study of business incentives and their impact on jobs and economies. The total includes incentives from local governments, direct payments, tax breaks, worker-training money and other inducements.

JobsOhio does not report salary ranges for the jobs it creates or retains but stresses that it focuses on targeted industries "that generally support jobs that pay above-average salaries.''

With help from JobsOhio, some targeted industries received help to create or retain family-sustaining jobs.

In Columbus, Cellco Partnership received assistance to add 500 jobs in the financial services and software sector projected to pay about $42,000. OMNOVA in Cuyahoga County won support to add jobs in the polymer and chemical industries that pay $67,500. Nestle USA in Greater Cleveland pledged 250 jobs that $87,000 per year.

Other deals are projected to create lower-paying jobs.

JobsOhio records show the agency helped to secure clean-up funds for the Flats East Development project in Cleveland. It is projected to add 350 jobs, with an average salary of $20,000. In central Ohio, NEX Transport received state help to add 45 jobs that pay an average of $22,600 annually. In northwest Ohio, T.R. Plastics added 25 jobs that pay $24,000.

Among the higher-paying jobs created courtesy of JobsOhio are those working for JobsOhio.

JobsOhio reported spending $4.9 million from July 1, 2013, through December 31, 2013. Of that 92 percent went to salaries and other administrative costs, with just 8 percent going to economic development programs.

Kvamme promised a legislative panel he would disclose the names and compensation of all JobsOhio staffers, according his written testimony. Instead, the agency has omitted employee names and only provides a salary list with generic job titles.

Exaggerating its Results

In its annual reports, JobsOhio takes credit for 21,099 new jobs in 2012 and 17,857 new jobs last year. Those numbers are suspect. According to the Dayton Daily News, JobsOhio modified its method of tallying job growth to boost its numbers. A whopping 24 percent of the job commitments it claimed in 2012 involved no incentives. The accounting switch does not affect the number of jobs added or retained in Ohio, but does change how the state's leading economic development organization reports its performance in helping to grow the economy. In 2013, the pattern is starker. According to records generated by JobsOhio, 38 percent of its 2013 projects, 22 of the new jobs created and 56 percent of capital investment came from projects in which JobsOhio

offered no incentives at all. Does this trend show the level of incentives is not needed ? or is there another explanation?

A separate investigation by the Toledo Blade revealed that job creation numbers released by the Kasich administration have been greatly exaggerated. The Blade's main findings:

Reports from businesses that have open grants -- meaning they still are using state grant money -- inflated job figures by 59 percent. The 294 reports that were reviewed stated firms created 27,815 jobs, but state officials said they created 16,458 jobs -- a difference of 11,357 fewer jobs.

Reports from businesses that finished spending state grant money show they failed to create 83 percent of the jobs they promised to the state. The 240 reports reviewed stated those firms promised to create 10,173 jobs, but said they created only 1,775 positions. Officials at Ohio Development Services Agency, however, claim those companies created 15,006 jobs.

Of the 534 grant records reviewed, 195 contained errors, including incorrect job-creation numbers.

The state is dependent on the word of companies to assess whether they actually create jobs. Firms selfreport their employment numbers via the Internet. Although the Development Services Agency, formerly the Ohio Department of Development, is responsible for keeping track of job-related data, its employees almost never visit businesses that receive state incentives, the Blade discovered.

The Blade's analysis followed a string of high-profile cases in which companies that received money from JobsOhio failed to produce the promised jobs. They include Diebold, American Greetings and even JPMorgan, which received two rounds of tax credits for in exchange for creating jobs, then announced two rounds of mass layoffs in 2013 as part of a companywide cost-cutting effort.

Conclusion:

The venerable New York Times reported that state and local governments in Ohio spent an astonishing $3.24 billion on job-creation efforts in 2012. JobsOhio claims credit for creating 21,099 that same year. That is what we do know. The list of unknowns is much longer.

Since 1851, the Ohio Constitution has outlawed direct state investment in private companies ? a prohibition added after Ohio almost bankrupted itself by investing in canals and railroads. JobsOhio attempts to

circumvent this prohibition and justify it in the name of jobs, but do with no formal oversight, limited accountability and leaders who dismiss even the gentlest criticism.

Ohio deserves better.

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