Martifer Out of Hirschfeld Joint Venture

San Angelo's City Council will consider a $230,000 budget amendment for Martifer-Hirschfeld in tomorrow's meeting, only the Martifer-Hirschfeld of today bears little resemblance to the one garnering $3.5 million in tax credits from President Obama's White House in 2010.

After hearing a rumor and inquiring, a city official informed me:

Hirschfeld bought out Martifer’s stake in the Martifer Hirschfeld joint venture several months ago. There are two production lines that are still running three shifts at the Hirschfeld Wind Energy plant (formerly Martifer Hirschfeld), and one of the lines is still producing wind towers for Siemens. However, there are very few, if any, new orders for towers coming in. Lucky for San Angelo, oil is booming, and Hirschfeld Wind Energy can easily switch their second production line to oil tanks which are in high demand. 

While Martifer is out of the joint venture, its name remained in City Council documents.

As for Martifer's exit, my guess is capital got scarce for a Portuguese company in the European Debt Crisis and they sold out their interest for cheap.  Here's Martifer's stock chart:

The stock traded at 0.6 Euros, roughly 74 cents a share.  The debt crisis could've impacted Martifer's interest expense and exchange rates in a negative manner.

The end result is Hirschfeld Wind/Oil Tank continues to employ West Texans.  I do wonder what commitments came with the $3.5 million federal tax credit and how producing oil tanks might factor into any terms.  It seems the City's tax rebate for Hirschfeld is safe, given no council members proposed reducing such in last week's budget workshop.

Other funds were expended to get Martifer-Hirschfeld up and running:

For the Texas Pacifico Railroad rehabilitation project going east from San Angelo, including the bridge at Ballinger, to facilitate movement of wind energy components produced by Martifer-Hirschfeld Energy Systems, $14.1 million in stimulus funds were committed.

There were training dollars, as well

Texas Workforce Commission Skills Development Fund Grant is enabling Howard College to provide training to 133 employees at Martifer-Hirschfeld Energy Systems this year.

The grant, totaling nearly $600,000, will give employees the skills to perform several jobs, including logistics operators, production helpers and repair welding operators.

Additionally, Howard College, through a grant from the American Recovery and Reinvestment Act of 2009 stimulus package, will purchase hydraulic and electrical training systems this year.

This equipment will allow students to obtain the initial hands-on training and experience necessary to enter certification and/or degree programs that specialize in preparing graduates to work in the wind energy, wind turbine and associated renewable energy industries.

Martifer-Hirschfeld moves may be news for less than 24 hours, should City leaders update Council and the public on developments.  It will be interesting to see.

Update 7-17-12:  The Standard Times report doesn't indicate city leaders updated Council on Martifer's moves and the changing work at Hirschfeld Wind/Oil Tank.   It seems Council approved the budget amendment and moved on.

Update 7-18-12:  The Standard Times picked up the story

Update 7-20-12:  Nearly $100 million was paid out to Hirschfeld's PEU and family owners from 2006-2009  

Hirschfeld Energy Settles with City: Adds Rail Spur Incentive

The City of San Angelo sued Hirschfeld Energy for $2.7 million for failure to invest $40 million in the local plant and provide 225 jobs for ten years.  It settled for $1.4 million or 52 cents on the original public dollar.

During the contentious negotiation Hirschfeld added more than 30 jobs in Abilene and said it planned to increase that in the future.  The City's settlement provides a reward for Hirschfeld adding 28 jobs locally to the 47 employees working in the steel bridge fabrication plant. 

Hirschfeld may increase its workforce to 75 employees during the five-year period. If it does so, the company will earn property tax rebates for that given year of 75 percent in years one through three and 50 percent in years four and five. The rebate will be lost for any year during which 75 employees are not maintained.

Hirschfeld's 2015 property taxes are estimated at $481,226 by the Tom Green County Appraisal District.   This is down from a 2013 property tax bill of $518,524.

Seventy five percent of $481,226 is roughly $360,000.  Three years of that is nearly $1.1 million.  Add two more years at fifty percent, $240,000 times two, and Hirschfeld would have nearly $1.6 million.  That roughly a wash with the $1.4 million refund.

The settlement was aided by City Councilwoman Elizabeth Grindstaff, who helped the parties negotiate.  It seems she helped her employer Texas Pacifico Railroad in the process

The company will also make commercially reasonable efforts to build a railroad spur to its plant within 12 months, at an estimated cost of about $1 million. If Hirschfeld does not complete the rail spur within 24 months, it loses all rights to property tax rebates.

For Hirschfeld to get back its $1.4 million settlement money from the city it must build the railroad spur within two years.

To sum up, 225 additional jobs for ten years became 27 jobs for five years.  That's 12% of the original commitment for half the time.  A $40 million plant investment became $1 million  That's 2.5% of the 2009-2010 promise.  And the deal is contingent upon Hirschfeld adding a railroad spur that will benefit the employer of the negotiator that helped the parties reach a settlement.  Interesting and just a bit unsettling.

It feels like practical politics, i.e what are you planning to do the next few years at Hirschfeld Energy and how can we rebate your money?  OK, you're planning to add jobs for the new Atlanta Braves stadium.  Add 27 of them here.  You're planning on building a railroad spur.  Good we'll make your rebate contingent upon what you've got in the works.  Stamp it, seal it.

My gut may be off base on the negotiation process, but Hirschfeld's owner Insight Partners must be delighted about the settlement.  It removes a barrier to Insight monetizing, i.e. selling Hirschfeld.  I hope it's an IPO.  It'd be interesting to see how many millions in dividends Insight pulled from Hirschfeld while it held off repaying local taxpayers. 

Update 10-6-16:  The settlement has a few remaining details to be ironed out before it is signed.

Economic Development Enters Tumultuous Year

Economic Development Director Roland Pena resigned two days after presenting the 2017 Development Corporation Annual Report to City Council.  His resignation will become effective at the end of the month.

It was interesting to hear him comply with COSADC bylaws by giving the annual report in the specified time frame, something Pena avoided for years while the City of San Angelo sued Hirschfeld Industries for nonperformance on the Martifer economic development agreement.

Director Pena seemed excited about two items in his report, ACT Work Ready program and the AEP development in the city's Industrial Park.  Might either of these organizations become his future employer?  Pena worked for AEP in the past.

Not mentioned were two potential challenges facing the Development Corporation in 2018.  MedHab's economic development agreement ends in August and Hirschfeld's obligation to construct a rail spur must occur this year.

Hirschfeld Industries new owner is Alleghany Capital, which bought the company from Insight Equity.  Alleghany merged Hirschfeld into another steel making affiliate, WWSC Holdings based in Oklahoma City.  Alleghany Capital acquired WWSC in April 2017 for $164.5 million. 

WWSC Holdings is "one of the largest structural steel fabrication and erection companies in North America.  Headquartered in Oklahoma City, Oklahoma, W&W|AFCO provides fabricated steel through six state-of-the-art facilities for use in large construction projects primarily in North America."

A SanAngeloLive story on the Hirschfeld-WWSC buyout  referenced the failed joint venture with Martifer

Not building wind energy towers, or hiring as many employees as promised, didn’t sit well with the City of San Angelo Development Corporation. The City wanted a refund from Hirschfeld for Martifer’s incentives.

Soon, the City hired a Dallas law firm and filed a lawsuit against Hirschfeld. Dennis said he felt blindsided by the lawsuit and the bad press his company was receiving from the City of San Angelo.

The recent COSADC board strategic planning session was not recorded for the public to view but  notes from the session show Mr. Pena saying:

Hirschfeld’s rail spur has to be built this year. They have to submit their fulfillment every year. They have until March to submit this. This year is the year for MedHab’s contract to expire as well.

It's not clear what impact Insight Equity's flipping of Hirschfeld Industries might have on their rail spur commitment and employment levels.  Companies merge in part for cost saving synergies.  WWSC does not need two corporate offices, one in Oklahoma City and another in San Angelo.

The addition of Hirschfeld places Alleghany Capital in position to profit from massive infrastructure projects envisioned by President Trump.  Alleghany Capital is a wholly owned subsidiary of Alleghany Corporation.  It oversees investments on behalf of its publicly traded parent.

It will be interesting to hear about Roland Pena's next move.  I bet it won't be with Hirschfeld or Alleghany Capital.  However, Texas Pacifico might need someone with Roland's connections.  That said, I've been wrong before and will be again.

Update 3-31-18:  New COSADC board member Elizabeth Grindstaff brokered the settlement with Hirschfeld that required construction of the rail spur.  Grindstaff is an executive with Texas Pacifico railroad.  It will be interesting to watch her role relative to Hirschfled's commitment, especially if they once again fail to meet their promise to the city.  Grindstaff is yet to make the Development Corporation website.

Update 6-14-18:  City Council discussed Hirschfeld's agreement in its June5, 2018 meeting, doing so in executive session.

Hirschfeld Goes on Lawsuit Offense

The Standard Times ran Hirschfeld's stance in the economic development agreement dispute with the City of San Angelo: 

“Our partnership with Martifer to build wind towers failed due to factors outside of Hirschfeld’s control.”

If the partnership truly failed the joint venture would've declared bankruptcy and the city would've joined the line of creditors seeking funds.  That didn't happen.  Hirschfeld bought out Martifer, likely for pennies on the dollar. 

This decision had the approval of Hirschfeld's private equity owner, Insight Equity.  Private equity firms love buying distressed assets.  It doesn't get more distressed than a wind tower market with no customers.  That happened in 2010.  Hirschfeld took over Martifer's stake in 2012.

Hirschfeld and the City couldn't agree on the company's performance under the contract for the last two years.  Without agreement on performance measures Hirschfeld hasn't had to live up to their end of the contract.  That ended two days ago when the Development Corporation board and City Council approved suing Hirschfeld to compel performance under the contract. 

Hirschfeld's owners refunded $473,242 of a $500,000 Texas Enterprise Fund grant from 2008.  This 95% refund shows the project has not come close to fulfilling its promise.  Local taxpayers are just as important as state taxpayers.  Refunds or contract performance are in order for a firm providing 93 jobs (TEF report) instead of 225.

Companies are happy to take public money but considerable effort seems necessary to get them to repay.  Take Vought Aircraft Industries, a Carlyle Group subsidiary when the state awarded the company $35 million in Texas Enterprise Funds in 2004. 

Carlyle promised 3,000 new jobs, but instead cut 35 by 2010.  The state gave Vought $1 million per job lost.  Carlyle sold Vought to Triumph Group.  Vought has repaid $10.1 million of Texas taxpayer money, a mere 29% for contract nonperformance.     

I hope Hirschfeld does better by San Angelo taxpayers.

Hirshfeld Wind's PEU Owners can Siphon Cash

Martifer withdrew from its wind tower joint venture with Hirschfeld Industries, giving Hirschfeld 100% ownership.  This news is the latest in a series of setbacks from their original vision.  The plant opened a year late and failed to deliver the number of jobs anticipated.  Consider this Standard Times 2011 report:

Richard Phillips, President of Hirschfeld Industries, said the plant maintained about 25 employees during 2010 and has hired about 20 people so far this year with plans to hire up to 125 more in the next half year. That's more than 50 people short of what the plant said it would hire in the coming years, but Phillips said the plant could end up hiring up to a few dozen more employees.

That totals 170 employees by the end of 2011.  Sean Lewis, Director of Community and Economic Development for the City of San Angelo stated:

"Our goal with the project has been to create jobs and that is the development corporation's ultimate priority, so while we would've loved to have seen these jobs created last year with the federal tax implications with the wind industry and with a slow economy, we do feel very good that production has started on the towers and that they are ramping up employment, even if it a year later than we were hoping."

Hoping or planned?  Fast forward to today.  Hirshfeld Wind is virtually gone, renamed Hirschfeld Energy Systems.  The only products it promotes on its website are oil and gas related.  However, it still makes wind towers under contract to other firms, including Siemens.   The plant employs 125 people, 45 fewer than their revised estimate, 100 fewer than their original representation.

City, county, state and federal governments threw $22 million in tax incentives/abatements at Martifer-Hirschfeld.

In 2010 the City of San Angelo budgeted $2.64 million in incentives, paid nearly $1.3 million with the expectation the complete amount would be paid.   In July 2012 San Angelo City Council approved a budget amendment for $230,000 to be paid to Hirschfeld Martifer based on their agreement.  The City has three more years to write checks for $6,000 per job.  Should employment remain at 100, that would amount to $600,000 per year, for a total of $1.8 million.

Hirschfeld's private equity owner, Insight Equity, has a history of taking cash out of the operation via partnership distributions.  From 2006-2009 Hirschfeld paid out nearly $100 million to owners via partner distributions.  In 2009 they floated debt, part of which funded partner payouts.  City economic development money could end up in many places, including partner pockets.  It's a PEU world. 

Update 7-22-12:  San Angelo City Councilman Kendall Hirschfeld recused himself from the budget amendment item, which granted an additional $230,000 to Martifer-Hirschfeld.  City staff remained silent on Hirschfeld's buyout of Martifer's interest in the JV.

Council & Development Corp. to Hold Called Meetings on Hirschfeld Energy

San Angelo's City Council called a meeting for Wednesday, March 11 at 9:00 am to deal with the city's development agreement with Martife-Hirrschfeld Energy Systems.  This comes thirty minutes after the Development Corporation meets in the same room on the same topic.  Both the COSADC Board and City Council will address the city's agreement with Hirschfeld Energy in Executive Session.

The City's contract with Hirschfeld has been the subject of numerous executive sessions since October 2013.  The City stated at that tine:

COSADC and Legal staff are currently working with the company to determine the long range employment goals for the company and a schedule for repayment of any funds due.

Sixteen months later the city is still working with the company to resolve the matter.  A tag team Executive Session indicates closure may be near.  It could also portend a sale of Hirschfeld Energy by the company or its private equity owners, Insight Equity.

Insight Equity acquired a controlling interest in Hirschfeld Holdings LP on April 27, 2006.

The public may wonder why Hirschfeld's owners need local taxpayer subsidies:

From 2006-2009 Hirschfeld paid out nearly $100 million to owners via partner distributions.  In 2009 they floated debt, part of which funded partner payouts.

Should Insight Equity be ready to cash in on Hirschfeld any buyer would want clarity on the company's economic development obligations.

Council and the COSADC board have been quiet on this issue for some time.  The Development Corporation is yet to produce a 2013 Annual Report, even as the due date nears for giving the 2014 Annual Report.  COSADC bylaws state:

The Board shall make an annual report to the City Council outlining the following:

1.  A review of the programs and accomplishments of the Board in implementing the Development Projects 
2.  The activities of the board for the budget year addressed.in the annual report together with any proposed change in the activity.

The annual required report shall be made to the City Council by May 1st of each year.

There is no record on the city's website of a 2013 COSADC Annual Report to City Council, which was due by May 1, 2014.  This language is not in any City Council agendas or minutes, nor does the search show a specific presentation on this topic.  However, I did find  where Council accepted the Annual Report of the Records Management Program on February 4, 2014..

COSADC's website links to the 2012 Annual Report.  Did the City and the Development Corporation hold up all updates nearly two years because of one poor performer?

Hopefully the Hirschfeld story will become clear to those puzzled by the city's failure to communicate with the public on all economic development agreements.

Update 3-11-15:  The City of San Angelo is suing Hirschfeld Energy for failure to fulfill their economic development agreement.

Update 2-1-17:  Lo and behold the Development Corporation produced three annual reports for the board to approved in their January 2017 meeting.  With no discussion the board approved reports for 2013, 2014 and 2015.  They're waiting on a picture for the 2016 report.

Update 2-11-18:  Economic Development Director Roland Pena made a 2017 year end report to City Council on 2-6-17.   The City announced his resignation on 2-8-18.

Hirschfeld Energy to Reseek Economic Development?

San Angelo's City Council agenda for December 3rd had the  the following item under Executive Session:

Section 551.087 to discuss an offer of financial or other incentive to Hirschfeld Energy Systems, LLC with whom the City of San Angelo is conducting economic development negotiations and which the City of San Angelo seeks to have, locate, stay or expand in San Angelo.

It does not say to discuss performance regarding an existing economic development agreement.  The language implies this a new agreement and earlier this year economic development staff suggested the city was in negotiation with existing employers hit hard by oil field wage increases.

Hirschfeld Energy Systems is part of Hirschfeld Industries, which includes Hirschfeld Steel Group.  If this is a new economic development package for Hirschfeld what number will it be? At least the second.

In December 2010 The City executed a $2.6 million package for Marifer-Hirschfeld, which became Hirschfeld Energy Systems.

I recall Hirschfeld Steel playing Abilene, San Angelo and Lynchburg, Virginia off one another, but don't know how economic development funds played into any moves.

It will be interesting to hear a report from City Council's executive session.  That they've named the company in the agenda, any new deal could be close.  If it's an update on the old deal the item is poorly worded. 

The Hirschfeld name is synonymous with San Angelo, but loyalty means little to those seeking maximum profits.  Public subsidy money is a non-debt, non-equity capital injection.  It may be habit forming. 

Texas Enterprise Fund to Get Audit

Governor Rick Perry's Texas Enterprise Fund report to the Legislature is full of the same lies and misrepresentations regarding a $35 million TEF award to Vought Aircraft Aviation in 2004, then owned by The Carlyle Group.

How would you like to have $35 million in Texas taxpayer money for over six years and not have to provide a single new job, much less the 3,000 promised?  That's what Vought did under Carlyle Group ownership years.  In 2010 Carlyle monetized Vought via a sale to Triumph, just as their first TEF report to the state came due.

I wrote Representative Drew Darby with my concerns in 2009, believing he had influence via his legislative subcommittee assignments.  After Darby wrote me back about oversight provisions (or lack thereof), Governor Perry renegotiated the deal in secrecy as Carlyle worked behind the scenes to sell Vought.

Vought, Carlyle Group, the City of Dallas weren't the only ones over-promising and under-delivering.  The Standard Times reported on local TEF recipient Hirschfeld Steel

Hirschfeld Industries received $500,000 from the Texas Enterprise Fund in 2008. The San Angelo-based company was set to produce 225 full-time jobs by 2013 with an annual payroll of $8 million and to invest $40 million in a new plant and expansion.

That was when Hirschfeld Industries had partnered with Martifer to make wind towers, but since then Martifer, a Portuguese company, left Hirschfeld and its plant in West Texas.

According to the latest compliance report Hirschfeld submitted at the beginning of the year, the company had produced 37 of the 225 jobs promised, with an average salary of $35,000 to $39,000.

The latest version of the contract states that Hirschfeld must pay back $861 in damages per job that it is short. It can also roll over credits from years when the company creates more jobs than the contract specifies.

Hirschfeld Industries has paid $264,000 in damages, according to a governor’s office report.

When asked about working with the state, Hirschfeld deferred comment to the state.

Latest version of the contract?  Does that mean Rick Perry renegotiated this deal as well in 2010?

In 2008 Hirschfeld's private equity investors and owners pulled $28.2 million from the firm in partner distributions.  Since money is fungible, did TEF's $500,000 go straight out as partner distributions?

Both Vought and Hirschfeld have deep pocket private equity owners.  Both sought public subsidy for their operations.  Neither wants to speak to their failures to provide the promised jobs or how they profited from TEF grants.

The Texas Legislature repeatedly allowed the Governor's office to persist in its lies and misrepresentations.  A hapless media couldn't find Perry's bald faced untruths during his Presidential run.  Let's hope an auditor offers more in accountability than the Legislature or the media.  Both have been sorely lacking.

Update 4-4-15:  The audit found Governor Rick Perry to be both hapless and unethical.   Vought Aircraft Industries never applied for their $35 million Texas Enterprise Fund grant. 

Creation of Primary Jobs: Hirschfeld Energy & MedHab

San Angelo's City Council approved a $5.6 million economic incentive package for up to 225 jobs at Martifer-Hirschfeld Energy Systems and a $3.6 million deal for up to 227 jobs at MedHab, which planned to locate its production site in San Angelo.  The deals came from the COSADC, the city's development corporation.

Hirschfeld (minus Martifer) Energy received funds for employing 181 people through December 31, 2011.  However, they backslid in 2012 dropping to 155 employees in Q4.  That meant Hirschfeld owed the city for 26 jobs, as they didn't last the required three years.   Here's how the COSADC 2012 Annual Report described the situation:

COSADC and Legal staff are currently working with the company to determine the long range employment goals for the company and a schedule for repayment of any funds due.

City Council considered this subject in April 2014, moving it from the public agenda to executive session.  Neither Council nor COSADC have publicly addressed this issue since this executive session discussion.

Hirschfeld's 2013 performance should be in by now.  How did they do last year with their focus on oil and gas tanks/vessels?  The public has a right to know how that potential $5.6 million in public subsidy turned into actual jobs. 

COSADC board member Tommy Hiebert spent considerable time emphasizing the development corporation's legal obligation to fund primary job creation with half cent sales tax money in last month's meeting.  Coincidentally, MedHab founder and CEO Johnny Ross gave an update that very meeting.

Hiebert heard Ross explain how MedHab moved their high tech shoe insert production from Athens, Texas to Watertown, South Dakota.  Ross seemed unmoved by Hiebert's request to move his company's primary manufacturing site to San Angelo, however he did dangle MedHab's charger assembly as a good fit for production here.  Ross stated they'd make the charger and sell it to themselves.  Reading between the lines, it sounded like the charger business might be a separate company.  We'll see if a separate economic incentive arises for MedHab's charger assembly.

MedHab has six employees as of last week.  That's nearly 70 short of their stated commitment of 75.  Hirschfeld was 70 short of their commitment, but that data is twenty months old.  MedHab CEO Johnny Ross finally showed up.  Maybe Hirschfeld will do likewise.

Look for a report from someone soon.  It's their primary job to create primary jobs and report how deals have worked out.

Update 3-11-15:  The City of San Angelo is suing Hirschfeld Energy for failure to fulfill its economic development agreement.  

Hirschfeld Energy: San Angelo's Public Subsidy

City of San Angelo documents revealed details of the public's subsidy of Hirschfeld Energy Systems, LLC.  Texas Attorney General Greg Abbott eventually compelled the city to release the above information.  Here's the chain of events:

4-18-14:  I asked the city to provide a copy of any documents the City Council considered regarding Martifer-Hirschfeld's performance on their economic development agreement.  This item was on the public agenda for 4-15-14 before being moved to Executive Session.

4-25-14:  City Attorney Lysia Bowling asks the Texas Attorney General to withhold such information from requestor

6-20-14:  The Attorney General wrote "the city has not established any of the submitted information consists of a certified agenda or tape recording of a closed meeting.  Thus, the city may not withhold the remaining information under Government code.  As you raise no further exceptions to disclosure, the city must release the remaining information."

The City sent a printout of their spreadsheet, which lacked Hirschfeld's 2013 performance data.    The City's Hirschfeld investment can be seen below:

If the city paid the 2013 grant estimate the amount would grow to $674,063.  Between COSADC and the City of San Angelo that's $2.8 to $3 million in public subsidies.

Hirschfeld's performance for 2013 and 2014 remains a mystery despite numerous attempts to get such information.  One can only hope the Attorney General compels the city to release the COSADC compliance audit to the public.  San Angelo officials are yet to do so willingly.

The back-to-back COSADC board and City Council meetings on Wednesday produced news reports that city would file a lawsuit against Hirschfeld for nonperformance.  

Update 3-13-15:  The Standard Times ran Hirschfeld's defense.  

Hirschfeld Industries Up for Sale?

The City Council background packet for December 17 directly expressed the heretofore subtle economic development theme of helping local employers hit hard by competition for workers and rising wages.

The City is "currently working with four local companies to assist their needs in restructuring, expansion and transfer of ownership." 

City Council discussed an offer to Hirschfeld Industries in their December 3rd Executive Session. Insight Equity has owned a controlling interest in Hirschfeld since April 2006.

Insight targets a 6-8+ year investment horizon.  Hirschfeld is months away from 8 years of Insight ownership.  Insight Equity is a private equity underwriter (PEU).  Hirschfeld paid nearly $100 million in partner distributions from 2006-2009 with sponsor Insight getting the lion's share.  It's not clear how much they paid to their PEU owners from 2010-2013.

Texas Governor Rick Perry renegotiated a Texas Enterprise Fund agreement with Vought Aircraft Industries right before The Carlyle Group sold Vought to Triumph Group.  Buyers don't want to be saddled with failure to perform job incentive obligations, especially one requiring repayment of $35 million for cutting 35 jobs over a six year period.  That's right Perry gave the Carlyle affiliate $1 million per job lost.

Hirschfeld may or may not be the local company for sale mentioned in the City Council packet.  If it's not now, Hirschfeld's turn on the auction block will come.  Insight expects exceptional returns from Hirschfeld Industries.  I imagine they're happy for San Angelo taxpayers to add to their bounty.

Hirschfeld Wants Out of Economic Development Deal

Hirschfeld Energy informed the City of San Angelo Development Corporation it wanted out of the economic development deal reached in 2009.  Hirschfeld officials requested termination of the agreement and negotiation of a settlement via e-mail on September 30, 2014. 

City Council met a number of times on this subject.  On March 11, 2015 the City announced it would take legal action against Hirschfeld regarding the agreement.  It hired Cowles & Thompson, a Dallas law firm with an initial retainer of $5,000.  City leaders signed the contract with the law firm on February 2, 2015.

Internal documents show the City and Development Corporation asked for

1.  Job creation and retention repayment for failing to grow jobs and retain them for three years.  Hirschfeld Energy lost jobs in 2011 and 2012.  The City seeks roughly $365,000.

2.  Repayment of tax rebates provided by the City of San Angelo in the approximate amount of $266,000.

3. Both the City and the Development Corporation provided Hirschfeld funds for land, buildings and infrastructure.  COSADC seeks $1.5 million, while the City of San Angelo requests roughly $280,000.

These requests total $2.4 million.  A contract is as good as someone's word.

Hirschfeld's website states:

We stand behind our work and what we do.

 We shall see.

Hirschfeld Energy Topic of Two Executive Sessions

For two years the City of San Angelo has not released information on Hirschfeld Energy's maintaining its employment targets under a $5.6 million economic development agreement.  The original deal was with Martifer-Hirschfeld but Hirschfeld bought out Martifer's 50% share in July 2012.

Hirschfeld Energy's 2013 and 2014 performance under the terms of the agreement should be clear by now.  The 2012 COSADC Annual Report stated:

COSADC and Legal staff are currently working with the company to determine the long range employment goals for the company and a schedule for repayment of any funds due.

From city documents it appears Hirschfeld paid back the city $140,000.  The question is what happens moving forward.  Governor Rick Perry renegotiated numerous economic development agreements outside the light of day.

COSADC Director Roland Pena requested board members not reveal information about companies to the public.  If a company is requesting public money sunshine should apply.   That information should be openly and freely shared with the public.

COSADC's executive session did not report any changes to the city's agreement with Hirschfeld Energy.  City Council will entertain their unstated action.  I expect a public accounting in the future, if not at this meeting. 

Update 3-7-15:  Add two more Executive Sessions for City Council, their regularly scheduled meeting on 3-3 and a called meeting on 3-11.  The Mayor recused himself and will not be at the called meeting.

Hirschfeld Industries' Tax Situation

Prior to being bought out by Insight Equity Hirschfeld Industries paid federal taxes at a 36% rate.  Post buyout the rate is 1% or less.

How did this occur?  Insight Equity fashioned Hirschfeld into its private equity underwriter (PEU) image.  As a Texas Limited Partnership Hirschfeld spins profits out to partners via distributions, which are taxed as investment income at a preferred rate of 15%.  In the PEU world this is known as "carried interest." 

While PEU Hirschfeld hates paying taxes, it benefited from government spending.

This is the picture available on Hirschfeld Industries, thanks to their 2009 effort to go public.  Had that not occurred, the public would be blind to Hirschfeld's operations.  Such cases require a whistleblower or leaker.

I chronicled the private equity explosion on PEU Report and am sad to find an example of greed so close to home.

Click on any image to make it larger.

City Council Minutes Hapless on Ethics Change

How far can the bar fall in San Angelo City Government? Below are the minutes from the January 3rd City Council meeting relative to MedHab LLC's $3.6 million in economic development incentives.

16. Page 234 Minutes Vol. 103 January 3, 2012 RECESS At 11:41 A.M., Mayor New called a recess.EXECUTIVE/CLOSED SESSION At 12:17 P.M.,

Mayor Pro Tempore Charlotte Farmer chaired the meeting as Mayor New was in Australia.

The minutes have Mayor New calling a closed session to discuss economic incentives.

Council convened in Executive Session under the provision of Government Code, Title 5. Open Government; Ethics, Subtitle A. Open Government, Chapter 551. Open Meetings, Sub-chapter D. Exceptions to Requirement that Meetings be Open, Section 551.087 to discuss an offer of financial or other incentive to accompany or companies with whom the City of San Angelo is conducting economic development negotiations and which the City of San Angelo seeks to have, locate, stay or expand in San Angelo.

The absent Mayor New "concluded the Executive/Closed Session" on MedHab, then reconvened the Open Session at 1:01 pm.

Council reconvened, and the following business was transacted: CONSIDERATION OF MATTERS DISCUSSED IN EXECUTIVE/CLOSED SESSION APPROVAL OF A RECOMMENDATION BY THE CITY OF SAN ANGELO DEVELOPMENT CORPORATION (COSADC) BOARD TO AMEND THE CITY OF SAN ANGELO DEVELOPMENT CORPORATION GUIDELINES FOR JOB CREATION ASSISTANCE SECTION ENTITLED ELIGIBILITY OF APPLICANTS AND REVISING OUTDATED CONTACT INFORMATION.

The proposal related to elected officials and city leaders holding an economic interest in a venture.  Such holdings made the venture ineligible for economic assistance.

Development Coordinator Robert Schneeman presented background information. A copy of the presentation is part of the Permanent Supplemental Minute record. Council member Morrison expressed his concern regarding the amendments to the application eligibility criteria noting that the current criteria rules have been styled to prevent elected and appointed officials from receiving funds from the City of San Angelo Development Corporation. He expressly spoke in opposition of the amendment.

Council members Alexander, Hirschfeld, and Adams spoke in favor of the amendment and proposed MedHab incentive (item immediately following this item). Motion, to approve the amendment to the Guidelines, as presented, was made by Council member Hirschfeld and seconded by Council member Alexander. AYE: Alexander, Adams, Hirschfeld, and Farmer. NAY: Morrison and Silvas. Motion carried 4-2.

With Mayor New's impediment removed, Council moved on to the $3.6 million incentive for MedHab referred to in the minutes as "background information.".

APPROVAL OF AN OFFER OF ECONOMIC INCENTIVES TO MEDHAB, L LC, A MEDICAL DEVICE COMPANY CONSIDERING LOCATING IN SAN ANGELO INCLUDING, BUT NOT LIMITED TO, A TAX REBATE, JOB CREATION GRANT, BUILDING RENOVATION GRANT, AND LEASE ASSISTANCE

Community and Economic Development Director Shawn Lewis and Economic Development Coordinator Donna Osborne presented background information. A copy of the presentation is part of the Permanent Supplemental Minute record.

17. Minutes Page 235 January 3, 2012 Vol. 103 Council members Hirschfeld, Alexander, Silvas, and Mayor Pro Tempore Farmer spoke in favor of the incentive.Motion, to authorize the incentive, as presented, was made by Council member Adams and seconded by Council member Hirschfeld. AYE: Alexander, Silvas, Adams, Hirschfeld, and Farmer. NAY: Morrison. Motion carried.

Here's how the minutes ended:

ADJOURNMENT Motion, to adjourn, was made by Council member Adams and seconded by Council member Morrison. Motion carried unanimously.The meeting adjourned at 2:01 P.M. THE CITY OF SAN ANGELO

___________________________________ Alvin New, Mayor (conflicted and absent)

ATTEST:_______________________________Alicia Ramirez, City Clerk Annexes A-G In accordance with Chapter 2, Article 2.300, of the Official Code of the City of San Angelo, the minutes of this meeting consist of the preceding Minute Record and the Supplemental Minute Record.

Following these minutes, I might believe Alvin New directed things in abstentia.

Update 2-9-12:  The City cleaned up the minutes for final approval.

Minutes Miss COSA's MedHab Elephant

Consider San Angelo City Council's January 3rd minutes, where Council eliminated a ban on city officials receiving economic development funds until six months after they leave office.  The minutes of that decision reflect:

APPROVAL OF A RECOMMENDATION BY THE CITY OF SAN ANGELO DEVELOPMENT CORPORATION (COSADC) BOARD TO AMEND THE CITY OF SAN ANGELO DEVELOPMENT CORPORATION GUIDELINES FOR JOB CREATION ASSISTANCE SECTION ENTITLED ELIGIBILITY OF APPLICANTS AND REVISING OUTDATED CONTACT INFORMATION

How did Council amend guidelines for job creation assistance?

Development Coordinator Robert Schneeman presented background information. A copy of the presentation is part of the Permanent Supplemental Minute record.

Council member Morrison expressed his concern regarding the amendments to the application eligibility criteria noting that the current criteria rules have been styled to prevent elected and appointed officials from receiving funds from the City of San Angelo Development Corporation. He expressly spoke in opposition of the amendment. Council members Alexander, Hirschfeld, and Adams spoke in favor of the amendment and proposed MedHab incentive (item immediately following this item).

Motion, to approve the amendment to the Guidelines, as presented, was made by Council member Hirschfeld and seconded by Council member Alexander. AYE: Alexander, Adams, Hirschfeld, and Farmer. NAY: Morrison and Silvas. Motion carried 4-2.

Minutes usually show the old language vs. the new.  That omission aside, why don't the minutes state Mayor Alvin New's substantial conflict of interest in MedHab, via a more than $15,000 equity interest in the company?

Council member Morrison explicitly stated the change was proposed to make Mayor New compliant.  Otherwise, he'd have to sell his MedHab stake or resign as Mayor and the company wait six months for development aid.  MedHab doesn't have six months, given its June 2012 Australian product launch.

City Attorney Lisa Bowling holds two affidavits from Alvin New regarding his conflict of interest in MedHab.  An open and transparent administration would've produced these documents. 

Council approved lowering the ethics bar on city officials garnering economic development funds.  Next, it tackled the $3.6 million package for MedHab.

APPROVAL OF AN OFFER OF ECONOMIC INCENTIVES TO MEDHAB, LLC, A MEDICAL DEVICE COMPANY CONSIDERING LOCATING IN SAN ANGELO INCLUDING, BUT NOT LIMITED TO, A TAX REBATE, JOB CREATION GRANT, BUILDING RENOVATION GRANT, AND LEASE ASSISTANCE

Once again, City leaders did not come clean on the Mayor's MedHab holdings, much less his position on MedHab's Board of Directors.  Here's their summation:

Community and Economic Development Director Shawn Lewis and Economic Development Coordinator Donna Osborne presented background information. A copy of the presentation is part of the Permanent Supplemental Minute record.

Councilmembers Hirschfeld, Alexander, Silvas, and Mayor Pro Tempore Farmer spoke in favor of the incentive.

Motion, to authorize the incentive, as presented, was made by Councilmember Adams and seconded by Councilmember Hirschfeld. AYE: Alexander, Silvas, Adams, Hirschfeld, and Farmer. NAY: Morrison. Motion carried 5-1.

The minutes fail to indicate the total incentive approved for MedHab.  Once again, there's no mention of Mayor New's stated conflict of interest from filed affidavits.

While Mayor New visited Australia, possibly on MedHab's behalf, an elephant wandered freely in Council chambers.  Few would talk, much less write, about it.

I shouldn't be surprised the City Clerk scooped up it's offal.  Otherwise, how could Council minutes be so pristine?

I've seen sparser sets of minutes, but none on such a weighty decision, ethically and financially.  Surely, San Angelo's leaders can do better.

City Staff to Bring New Water Conservation Incentives to Council

San Angelo's City Council held existing water conservation credits in place until staff can bring new water conservation incentive program(s) to Council.  I wasn't sure the program was ill conceived and researched City Council history on the credits.  The City's Slideshare repository produced the following.

In April 2011 City Council heard a presentation on the impact of the 2006 Water Conservation Credits.

The City had two water rate increases, one in 2007 and another in 2011, during the evaluation period below.

Citizens conserved greatly between 2011 and 2015, reducing daily water usage by 37%.  The 10% conservation credit was in place during this period of significant conservation.

Two thoughts entered my mind as the 10-2-2018 discussion ensued.  First, hadn't prior City Council's asked staff to bring updated water conservation incentives for consideration?  The Alvin New, Kendall Hirschfeld and Paul Alexander era had leaders high on water conservation and pursuing new options.  A number of faces changed since Councilman Kendall Hirschfeld asked staff to do this very thing.  In May 2013 Hirschfeld called for advancing:

 "user conservation efforts via incentives for improvements such as rainwater collection, drought-tolerant landscaping, and high-flow toilet replacement, as examples".

Kendall Hirschfeld served on a private citizen group that proposed water conservation strategies to City Council in June 2014.  Hirshfeld was appointed to a re-constituted Water Advisory Board in 2016 where he echoed his call for a comprehensive water conservation program with incentives for citizens.  Despite the calls for new, updated conservation incentives city staff never delivered.

It's 2018 and staff, albeit different due to turnover, are still working on a water conservation incentive package. City staff's recommendation to cut the 10% conservation credit for low water use until they had time to bring back a more comprehensive updated program looked lazy in light of this history of waiting.

My second thought centered on the increase in water rebates from $150,000 in 2006 to $400,000 for 2018.  As water rates have gone through the roof since 2006, most of the huge increase in conservation credits occurred solely because of city induced water rate increases.

The City enacted water rate increases in 2007, 2011, 2016, 2017 and 2018.  Another water increase is coming January 1, 2019.

2007 - Average increase of $13.22 per month
2011 - Average increase of $14.75 per month
2011-2016 - Additional fees of $5.42 per month added.
2016 - Average increase of $5.88 per month
2017 - Average increase of $6.56 per month.
2018 -Average increase of $7.32 per month

Two more rate increases are planned for 2019 and 2020.  Combined they total $7.96 per month.

Math shows rate increases to be the sole cause of increased conservation credits since 2011 for the 3,000 gallon a month user.  It's not fair for the city to act like conservation credits rose rapidly outside their repeated jacking up of rates.

It looked like another $400,000 grab from citizen pocketbooks, but fortunately City Council put that on hold.  We'll see how the proposed conservation incentives compare to the current program.  That is if staff present cost projections in a regular agenda item.   

Update:  The City adopted the 2019 Water Conservation Plan.  The document is dated September 3, 2019.

Town & Country's PEU Stripes

Susser Holdings purchased Town & Country Food Stores in 2007, then re-branded the stores as Stripes.  Susser Holdings is an affiliate of Wellspring Capital Management LLC, a New York City based private equity underwriter (PEU).

Town & County sold out a year after Hirschfeld Steel became an affiliate of Insight Equity, another private equity firm.  Blog readers may have noticed comments made regarding Hirschfeld Steel's dramatic tax reduction after being acquired by Insight Equity.  Insight turned Hirschfeld into a limited partnership, where the tax obligation is passed on to partners.

Susser plans to do the same with their petroleum division, slated for a $200 million independent public offering (IPO).  Predecessor Susser Petroleum LLC will become Susser Petroleum Partners.  The new company should experience dramatic federal tax reductions, along the lines of Hirschfeld Steel.

Yet, there 's a potential local impact.  Stripes gas prices could go up to ensure profitability at both Susser (parent) and Susser Petroleum (which formerly delivered gas at cost to Stripes convenience stores).

SHC's existing stores will ... be supplied by us at cost plus a fixed profit margin of three cents per gallon

Also, Susser Petroleum profits will grow at any of the 75 stores Susser plans to sell to Susser Petroleum and lease back.  These will bring "incremental income from motor fuel sales."  Sales/leasebacks are one of many PEU ways to monetize a company's physical assets.

Financial engineering exists at a local level.  It could hit area citizens in the wallet at the gas pump. Consider it PEU stripes.

West Texas Oilfield Developments: China Stake & Permian Tank Redux

Two recent developments in the West Texas oil sector may be instructive.  One, a Chinese company purchased a significant chunk of Pioneer Natural Resources stake in the Wolfcamp Shale for $1.7 billion.  It seems domestic sources could fuel China's energy needs.

Two, a new tank manufacturer will locate in Harriet, between San Angelo and Miles.

Kelly Womack, owner of the company, bought 51 acres of farmland and will build the facility on 6 acres, leaving room for expansion. The plant will first manufacture steel and fiberglass storage tanks and later produce additional equipment used in the oil and gas industry, such as separators, heater treaters and gunbarrels.

Womack’s late father, Glen, started Permian Tank & Manufacturing in Odessa in 1975 and sold the company in 2007. Now Kelly and Curtis feel like it’s time to get back into the business. 

“We’ve got good connections and friends in the industry and we know a lot of people,” Pittman said. “This factory has a lot of possibilities to grow.”

The Carlyle Group and joint venture energy partner bought Permian Tank for $50 million.  They also own Three Rivers Energy.  Carlyle withdrew its registration seeking to take the company public. 

I wonder how Hirschfeld Steel will take the competition from Womack Tank & Manufacturing, given both aim to be steel manufacturing facilities for the oil and gas industry  Like Permian Tank, Hirschfeld has private equity ties.  Hirschfeld's owners see major growth in tanks.  Might Womack garner Insight funding or an eventual buyout?

Water Balances Grow for City of San Angelo

San Angelo is much richer in water resources and water fund holdings.  Twin Buttes Reservoir doubled in the last month from recent rains.  The Water Enterprise Fund balance rose to over $9.3 million, nearly double the level city staff said was required to offer citizen water rebates in a November 2017 City Council meeting.

The Water Advisory Board heard a report on future development of water supplies.  Former City Councilman Kendall Hirschfeld missed the meeting.  He would have been disappointed in the analysis which included an ongoing contribution from Lake Ivie.  Hirschfeld was on City Council when San Angelo faced the prospect of a dry Lake O. H. Ivie along with our three local lakes, Nasworthy, O. C. Fisher and Twin Buttes Reservoir.  The city's pipeline to Lake E. V. Spence has not worked for decades.  Hirschfeld wanted the city to plan from a scorched lake perspective. 

During dry times City Council decided in Executive Session to put treated wastewater into the Concho River and pull it back out further downstream.  The Water Board learned six days later of Council's decision.  Staff informed the Water Board that farmers would no longer get the city's treated effluent for irrigation during extended droughts.  I don't know how farmers would've known to attend City Council on 9-18-18 or the Water Advisory Board on 9-24-18 to make public comment. 

There is an agreement with the Tom Green County Irrigation Control District that would need to be reworked.  That should happen in conjunction with City Council's strategic water decisions which clearly have begun.  San Angelo has significant funds in the Water Enterprise account and been blessed with a huge increase at Twin Buttes Reservoir, which no longer needs expensive pumping to move water around.