Transparency Needed in Public/Private DealsPosted: December 29, 2013
By Emma Pulaski and Dave Duncan
In recent months the corporate printed media in this area, the Press &Sun-Bulletin has printed a number of articles that present a fairly detailed description of the bankruptcy proceedings of the local EI Corporation. Through these articles the readers have learned some of the ins and outs of how the well-connected capitalists operate. Many of the sordid financial details of this privately owned company have been laid out. But the picture put forth by the Press is very limited. Nowhere is there a full picture of how much public and private money has been invested in this scheme and just who benefitted. A heavily subsidized public plan that began in 2002 to save jobs and maintain the tax base crumbled in 2013 when a majority of the original owners bailed and the company declared bankruptcy. The financial details of the EI/Huron deal are very complicated and serves to limit the understanding of such a deal to a very few insiders. To whose advantage is it to keep the full details from the public
We Need A Full, Public Exposure
We have put together what facts we think we understand. We are very willing to accept additions and corrections. But what is necessary is for the public and the politicians who represent the public to demand a full, detailed explanation of all the money that went in to this project, what money went out and to whom. If our County Executive can track down welfare fraud then maybe she can get into tracking these millions and give the public a full and clear explanation.
In 2002 the IBM Corporation wanted to move operations out of its original home in Endicott. Beside the fact that IBM has outsourced much of its work off shore, the company has also benefitted from millions of NYS taxpayer dollars in building new facilities down the Hudson. With a squeeze from then Governor Pataki and State Senator Libous, IBM agreed to maintain 2000 IBM technology jobs in Endicott and lease space back for ten years after selling its campus and a part of its manufacturing operation to a local politically connected group (See owner box). These owners set up two corporations, EI and Huron. EI was to take over a manufacturing operation from IBM and Huron took over the campus as landlords to their own operation EI and to IBM
Money Spent on the EI/Huron Scheme
The project was designed to “save” 1900 high tech jobs for the workers in the community while providing a profit for the investors. According to the Press & Sun-Bulletin, the purchase arrangement consisted of two parts: $65 million for the purchase of the campus and $35 million in “improvements” paid for by the investors. The campus was purchased without money changing hands. IBM sold the campus, in part, for a $51.5 million renter’s credit which amounted to ten years of rent for IBM. When IBM paid rent, they paid approximately $5 million a year. The other $13.5 million consisted of an $8.5 million dollar loan and a $5 million sellers’ note from IBM. The $35 million in “improvements” has not been explained.
Property Tax Break Of More Than $35 Million
Immediately upon purchase of the Huron campus the property was deeded to the Broome County Industrial Development Agency. The BCIDA then awarded EI/Huron a ten year, 50% property tax reduction and a full exemption from the mortgage recording fees and sales taxes. According to state records Huron saved over $30 million from 2002-2007 from the BCIDA arrangement. (The BCIDA is not a county organization that answers to the public. The board that doles out these millions in property and sales tax breaks is not elected. It answers to no one but big capital.) County Exec. Preston sits on this board-as a private person, we guess.
Jobs– Why the Politicians Tapped the Public Funds
For all of the public dollars contributed, EI was to maintain or create more than 2,150 local jobs. Currently less than 550 are employed at EI. Have any of our politicians demanded that the public get paid back? NO! They have not even demanded to see EI or Huron’s books.
EIT Goes Bankrupt
Right before EI declared bankruptcy the Matthews family, led by James Matthews Jr. began a complicated series of financial transactions and investor buy outs, all while Matthews was the CEO of EI. The result: $18 million flowed out of EI in “insider arrangements” EI went under, an LLC owned by James Matthews owned $16 million in EI debt, and the Matthews family owned EI almost outright. In what the Justice Department called a “sweet heart deal”, the Matthews family ended up using the bankruptcy process to buy what was EI for pennies on the dollar, getting rid of even more employees, and shedding former obligations for taxpayers.
Our Politicians Choose to Ignore the Financial History of a Leading Bidder for EI/Huron
To those who know the Matthews this should not come as a surprise. Back in 2001 Matco Electronics Group, a company based in the Raleigh research triangle but with operations throughout the country including in Endicott, was in a similar situation to EIT. It was owned by a Matthews, James Matthews Sr. and it was going under. Matthews quickly formed a new company, American Manufacturing Services, and began buying Matco debt and equipment/inventory in another complicated series of deals which would cost several million in lawyer fees to puzzle out. Matco’s creditors called Matthews out for giving himself a deal, with the court agreeing. A protracted legal battle ensued with the creditors prevailing. The Matthews’ are not new to bankruptcy law! For many years accounts of Matco’s financial problems were printed in court documents and financial publications.
What this means is: at the same time the State and IBM were giving the Huron campus and the IBM high tech manufacturing division to Matthews and company (the Matthews were minority owners at the time), he was going through bankruptcy for a failed electronics manufacturing firm. Ten years later we see the same thing happening again. Once again, the NYS Empire State Development Corp. has decided to honor “anyone who will buy EIT” with a $2.5 million grant for saving 575 jobs. We expect to be writing a story about Matthews, Integrain, multi-million dollar state grants, bankruptcy, and saving 12 ¾ jobs (one of which is James Matthews Jr’s. of course) in 7-10 years’ time. Don’t say we didn’t warn you!
EIT: Cash Cow for Huron
Why did Matthews, Orband, the Maines brothers, and all the rest get Huron and EIT in the first place? One would assume because they had money to buy it, but from what we have seen the amount of private money “invested” seems to be extremely limited. One might also assume it was because they were good at business. There may be some truth to that, but why would the State hand over such an important company to a man whose former company just declared bankruptcy? Plus these are not the only business minds in the community. One plausible answer is that they were wealthy and well-connected; well-connected because they were wealthy and wealthy because they were well-connected. Was this was a political arrangement through which State Senators, and the Governor could launder money to their pals: from the state, through EIT, into Huron, and into deep pockets of the already rich, all the while allowing jobs, benefits, and wages to be cut and then slashed? We got sold out!
From 2002-2005 EI/Huron received $23 million in property tax credits from the NYS Empire Development Corporation.
Other public funds received:
Broome County provided a $1 million Small Cities Grant to EI/Huron. This grant was based on EI creating an additional 150 jobs.
NYS provided $15 million in wage and tax credits.
EI also received a $5 million grant from the Empire State Development Corporation.
An estimated $12 million in research and development cred its from the Federal government.
A NYS State subsidy cut the EI electric bill from $12,000 per year to $4,000.
In 2009 an additional $4.8 million was secured for EI by then Congressman Hinchey so that EI could expand its work in Broome County. No job number or performance standards were mentioned. It was just a gift to EI.