Saturday, April 03, 2010

Governor Perry's Texecutive Privilege

Texas Governor Rick Perry proudly announced a $35 million grant to Carlyle Group affiliate Vought Aircraft Industries in February 2004. His press release stated:

"Wiith this commitment in Texas Enterprise Fund money, we are doing our part to leverage a major economic expansion by a valuable Texas employer that will bring 3,000 new jobs to Texas, attract additional employers to our state, and provide the revenue we need to sustain important public investments in areas like education and health care.”

The $35 million check arrived in April 2004. Vought viewed that as a down payment, wanting a bigger deal with the Texas General Land Office. The reported $65 million deal never materialized.

In 2005 the company reneged on plans to shift jobs from Nashville and Stuart, Florida to Texas. The next year Vought laid off 600 Texas workers.

Rather than add 3,000 jobs by 2009, Vought cut 35 positions. That's $1 million in Texas taxpayer money per job lost.

Vought reclassified Texas grant money from "operating" to "financing" activities. Lone Star funds were used to add jobs in South Carolina, the Palmetto State. Vought's 2005 10-Q indicated state grants as a source of capital for 787 Dreamliner production, slated for Charleston.

Vought's major economic expansion happened elsewhere. Funds for important public investments in education and health care weren't generated, despite Perry's promise. The TEF contract obligated Vought to pay back $33 million of the original $35 million under an absolute failure scenario.

The clock ticked past judgment day. Vought's just released 10-K stated:

As of December 31, 2009, we employed approximately 5,900 people.

That's 400 short of its 2009 Texas commitment. Vought stood to refund Lone Star taxpayers $3.3 million plus interest.

Governor Perry rode to the rescue, using Texecutive privilege to lower the bar for 11 companies. Two are Carlyle Group affiliates, Vought and Authentix.

Vought returned $900,000 to the state, roughly 25% of principal at zero interest. It's also 9/10th of a laid off Vought worker. That leaves 34.1 to go. Texas public education and health care could use $35 million in a difficult funding environment.

Instead Vought will hold up to $35 million for 15 years, a sweet deal for a firm whose parent's track record is 30% annual returns. While Governor Perry rails against Washington, D.C., he enriched a D.C. based private equity underwriter (PEU) with public funds. The Carlyle Group's political connections shine once again. The privileged have each other's back. The public con continues.

Update: Rick Perry has competition from the Connecticut Governor, who cut his sweet deal with Carlyle without the legislature. It's Texecutive vs. Conectutive privilege.

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