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.

Sorry State of Turbo Spin

I understand the need for political and business leaders to frame things in the most positive light, but c'mon guys! On the political side, Iraq's Prime Minister Nouri al-Maliki described his military operation in Basra as a success. A military convoy rode into town as a show of force. His fight with followers of Muqtada al-Sadr was a tie until the renegade cleric ordered his fighters off the street. Without an opponent, P.M. Maliki's victory route is but a parade.

What's worse is Iraqi politicians went to Iran, the axis of evil, to broker the peace deal. Throughout the "bold act", American and British soldiers supported al-Maliki's stamping out his rival, at least enough to carry out and win those planned elections. The U.S. ended up looking heavy handed as usual, but who would've thought those crazy Persians could mediate an end to the fighting. I wonder if Nouri al-Maliki considered a large "Mission Accomplished" banner for the ride into Basra?

Things can be just as shameless in the business world. Boeing Corporation announced it would buy out Vought Aircraft Industries' stake in a joint venture to get production from that key supplier to the 787 back in line. Vought's major holder, 90% of the company, is The Carlyle Group, the politically connected private equity firm with a Pennsylvania Avenue address.

Carlye prides itself on its high level of managerial expertise and access to capital. Who better to own a key supplier to Boeing? Despite Vought's paying Carlyle $2.1 million a year for management services, their new joint venture had serious management problems, such that it became the bottleneck for Boeing's new Dreamliner. The 787's first delivery will come with at least an eight month delay. So what happened? Vought's CEO spoke to problems in the past.

Last October, CEO Elmer Doty acknowledged that Vought was the highest-risk supplier on the 787 industry team. At the time, Doty attributed Vought's struggles to an internal liquidity crisis in 2006 that prevented the company from ramping up investment in the 787 programme at a sufficient rate. Boeing had previously appointed vice-president Scott Strode to take over management responsibility for Vought's role in the 787 programme.

So the Carlyle sub had trouble accessing funds to ramp up production? Does that means they promised something to Boeing that they couldn't deliver? That doesn't sound like Carlyle's street cred, that of incredible operators. The private equity underwriter (PEU) failed to deliver and Boeing acted by taking control away from Vought and not the other partner, Alenia. How embarrassing! That's like taking your laundry back from the dry cleaners because they couldn't get your clothes clean. But Carlyle and Vought ran their spin cycle:

Vought spokeswoman Lynne Warne said “This was purely a financial transaction.”

Ms. Warne was virtually alone in this perspective. Industry experts attributed the purchase as a crisis intervention to revamp problems and not lengthen already concerning production delays.

CEO Elmer Doty spun through his Maxwell Smart Shoe Phone:

"This seamless transition of joint venture ownership will build upon the strong foundation already established within Global Aeronautica," he said. "Selling our interest has no impact on our adjacent facility, where the Vought 787 team remains focused on manufacturing composite fuselage sections for this incredible airplane.”

Would you believe "we're sorry we screwed up"? Nah, that's not Carlyle's style. Just ask those New Orleans LifeCare patients.

Governor Perry's Vought Employment: Margin of Error

Texas Governor Rick Perry awarded Vought Aircraft Industries $35 million in 2004 for a promised 3,000 new jobs, on top of the existing 3,300 positions in the Dallas/Grand Prairie area.  By 2007 Vought knew those new jobs would go elsewhere, according to Vought CEO Elmer Doty.

To his disappointment, Doty added in an April 17 interview with the Dallas Business Journal, expanding in Dallas is unlikely, as are plans to buy the old Naval Air Station from the U.S. Navy. So a $35 million cash grant in 2004 from Gov. Rick Perry's Texas Enterprise Fund most likely will be repaid. 

How many jobs did Governor Perry's office claim Vought created?  Over 29,000, when in reality Vought cut 35 positions, a grant award of $1 million per job lost.  In the Governor's latest report, he claims Triumph/Vought employs 2,000 in Texas.  That's a 27,000 job margin of error.  It's also a 1,300 job loss from the 3,300 base.

Given Vought CEO Elmer Doty's confession that Texas jobs weren't coming, How much did Vought repay in 2008?  Zero. It went up marginally from there.

The Carlyle Group's Vought had $35 million for five years before paying a pittance back to Texas taxpayers.  The obligation for payback shifted to Triumph, not Carlyle's co-founders.

Rick Perry's PEU sweetness is clearly on display...

Update 6-7-12:  The Carlyle Group will sell the remainder of its stake in Triumph/Vought. Texas taxpayers should demand their $35 million plus interest from Carlyle. 

Rep. Drew Darby to Provide No Oversight

Texas State Representative Drew Darby sits on the Business and Industry Committee, serving as its Chairman of Budget and Oversight. One might expect oversight for promises made by companies getting millions in Texas taxpayer dollars, via the Texas Enterprise Fund.

For $35 million dollars, Vought Aircraft Industries promised to add 3,000 jobs by 2009. During the time of their commitment, Vought employed 3,300 in the Dallas-Fort Worth metroplex. That makes their job total 6,300. They don't employ that company wide.

New jobs were to come from shutting down Nashville operations and locating Boeing 787 Dreamliner production in Texas. Neither happened. Vought took $52 million in South Carolina taxpayer money for a factory building Dreamliner fusilages. They manufactured badly enough, that Boeing blamed a Vought JV for production backlogs.

Vought's CEO blamed an internal liquidity crisis for slow plant operations start up. Lack of capital? Hardly, Vought is owned by The Carlyle Group. Not long ago the private equity underwriter bragged of $40 billion in dry powder.

Which leads us back to original $35 million in Texas taxpayer funding. One might expect a Texas legislator charged with "industry oversight" to have Vought's promise high on his agenda. He stated in his correspondence:

"While I understand and support your concern for the inappropriate use of the state's Texas Enterprise Fund, at this time the 81st Legislature is not addressing this particular issue."

But they might in 2011, when Vought's goal is two years in the rear view mirror? Sorry, Rep. Darby. The time is now. Texans could use the promised 3,000 additional jobs or a $35 million refund. That is, if he really serves the people? Can one reach Chairman of Oversight for Business and Industry these days without kow towing to American branded multinationals?

(Note: Rep. Darby later provided information as to how the State plans to hold Vought accountable for job promises)

Vought's $35 Million Agreement Complied with HB 2457

The Houston Chronicle reported:

State lawmakers moved to make two economic-development funds — the Texas Emerging Technology Fund and the Texas Enterprise Fund - more transparent in the wake of a recent audit that was critical of the tech fund's oversight.

The bill says any grant agreements must contain provisions requiring the creation of a minimum number of jobs and deadline for the job creation. Recipients who fail to meet the job creation performance targets will have to repay all or a pro-rated portion of the grant.

The bill awaits the governor's signature. Separately, both programs received all of their unexpected balances and interest earnings for 2012 and 2013. For the Texas Enterprise Fund, about $148.5 million was appropriated for 2012 and $1.5 million for 2013. For the Texas Emerging Technology Fund, about $139.5 million was appropriated for 2012 and $1 million for 2013.

House Bill 2457 purports to fix longstanding holes in Governor Perry's Texas Enterprise Fund.  Only it doesn't address one of Rick Perry's most egregious cases.

The Carlyle Group's Vought Aircraft Industries promised Texans 3,000 new jobs in 2004 in return for $35 million from the Texas Enterprise Fund.  Vought shelved plans to move operations from Nashville and Florida to Dallas.  Then they located Boeing 787 Dreamliner production in South Carolina.  They failed to meet their promises by December 31, 2009.  Over the five year period Vought cut 35 Dallas jobs, a $1 million incentive per job lost. The agreement had a clawback or repayment plus interest provision

Vought refunded Texas $900,000 per their SEC filing, while the Governor's report credited Vought with a $970,000 repayment.  That's far short of $3.5 million plus interest owed to Texas taxpayers.

What happened?  Governor Perry renegotiated the agreement in secret as Carlyle put Vought up for sale.  Perry fabricated results by claiming Vought's 3,000 existing jobs were new jobs and adding an economic impact column using a job multiplier. Vought's CEO admitted an internal liquidity crisis  in ramping up 787 production, so Texas' $35 million in financing came in handy.  TEF is pubic money incentivizing jobs.  It's not intended to carry an employer through tight cash flow periods.  That's what Rick Perry did for at least one Carlyle affiliate.

HB 2457 is silent on the Governor's ability to renegotiate TEF contracts in secret and contains no punishment for fictional results.  Problems with Perry's pet funds remain.

(click on the image above to make it larger)

Rick Perry Knows Accounting Gimmicks

Texas Governor Rick Perry knows accounting tricks, despite his call to forego financial manipulations.  The Texas Tribune reported:

Gov. Rick Perry sent out a press release that stated he is against using any kind of "accounting gimmicks" to balance the budget. 

Perry used funny numbers to justify Vought Aircraft Industries receipt of $35 million from his Texas Enterprise Fund.

State of Texas grant monies

$35.0 million

Vought promised 3,000 new jobs for Texans by 2010.  When that date arrived, Vought hadn't added any jobs.  It cut 35 positions, $1 million in Texas taxpayer subsidy per job eliminated.

Using economic impact gimmicks, Perry claims Vought provided 29,377 jobs for Texans, when Vought reported 3,315 Texas jobs.  His office overstated reality by 25,992 jobs.  When in trouble change the metric or lie like hell.  Rick Perry did both.

Gov. Perry secretly renegotiated the Vought deal, while under the ownership of The Carlyle Group, a politically connected private equity underwriter (PEU).  Vought booked a refund of $2.1 million liability relative to the grant.  It paid $900,000, courtesy of the Governor's largess.

Triumph's financial statements are opaque on the Texas grant.  However, two items likely refer to the TEF grant:

Repayment of governmental grant

-----($1,695,000)

)

Deferred grant income

--------$31,417,000

Carlyle/Vought had $35 million in Texas taxpayer money for six years and added not one job. Triumph/Vought purchased the liability from Carlyle, which aims to cash in via a 2.5 million share public offering at $92.75 a share. Carlyle's $232 million in proceeds is more than enough to make Texas taxpayers whole. Yet, they'll pay up when Rick Perry gives an honest accounting. Likely, never.

Update 6-1-11: The Legislature tightened Perry's two corporate slush funds. They gave him nearly $300 million to work with in 2012, Perry's likely Presidential year. 

Gov. Perry to "Fully Fund Business Capital"

Governor Rick Perry and the Texas Legislature plan to fully fund business capital via the Texas Enterprise Fund and Emerging Technology Fund.

Gov. Perry's multimillion-dollar economic development funds are not cut in the budget

Perry won't lead by example.  Public education and health care face budget cuts of 25 to 33%.  Apparently education and health expenditures aren't investments in Texas' future.  The Governor's website states:

To date, the TEF has invested more than $430 million and closed the deal on projects generating 57,305 new jobs and more than $14.7 billion in capital investment in the state.

Almost 10% of the $430 million went to one company, Vought Aricraft Industries in April 2004.  It promised to provide 6,300 jobs by 2010 for $35 million in TEF funding.  Instead of providing the promised 3,000 new positions, it cut 35.  Governor Perry gave Vought $1 million per job eliminated.

Vought committed to invest $558 million in its Dallas-Fort Worth, where it planned to consolidate operations and build portions of the fuselage for the Boeing 787 Dreamliner. Vought's 2004 SEC filing shows:

On February 26, 2004, we announced plans to consolidate much of our manufacturing operations in Dallas, Texas. To help us accomplish this major restructuring, we will receive a $35 million grant from the Texas Enterprise Fund and will work with the Texas General Land Office and several other state and local agencies. Although plans are not fully finalized, we intend to renovate and modernize the Dallas facilities, close the Nashville and Stuart sites, and reduce the size of the Hawthorne site over the next 18 to 36 months.

No consolidation occurred.  Dreamliner production went to South Carolina, partially financed by Texas taxpayers..  The 3,000 "new jobs" Perry claims came from Vought were already in place in 2004.  The $558 million in capital on Perry's report never happened.  It's complete fiction, something the AP missed.

As Vought walked up to its 2010 Texas commitment, the firm sought bidders.  Carlyle courted Triumph in late 2009 and early 2010.  Were any calls made to the Governor's office?  Dealmakers like clarity.  The Carlyle Group announced it would sell Vought to Triumph Group in March 2010.
 
For the privilege of holding $35 million for six years, Vought returned $900,000 to Texas taxpayers, under a Perry renegotiated deal.  That's TexExecutive privilege.  Make no mistake, Carlyle Group principals have the chops to refund Texans the full $35 million plus interest.  The Legislature is fully funding the Governor's corporate slush pile, while not conducting oversight.

Yet, draconian cuts must be made elsewhere, due to a structural tax deficit Perry wishes to to make permanent:

The governor is committed to keeping taxes low in order to help small businesses continue to succeed and create jobs, and reiterated the need to make permanent the small business tax cut that was passed last session. This measure cut taxes for 40,000 small businesses, and allowed them to focus on job creation and growing their businesses.

Governor Perry is a man ahead of his time.  It took the City of San Angelo until 2011 to give millions in tax breaks for job retention.  While Perry's TEF Fund stays full throttle, citizens struggle mightily. TEF is anything but "wide open," transparency wise.  It's a black hole.

Update 4-4-11:  While children in wheelchairs testified on the harm of proposed cuts, Perry's personal Texas Enterprise Fund handed out  $2.45 million to a Cisco-EMC joint venture and $2.1 million to GGNSC Holdings.  Both grants are to fund corporate headquarters.

Update 5-2-11:  The Senate budget does not fund the Texas Enterprise Fund or the Emerging Technology Fund.  Watch for reconciliation.

Texas Gubernatorial Campaign Might Reveal Stench of Corporate Welfare

Dear President Bush,

The San Angelo Standard Times ran an editorial this morning on the sweetheart deals between the State of Texas and Vought Aircraft Industries. The editor focused on a $35 million incentive for jobs creation and the questionable performance by Vought in meeting their promised obligation. He noted their plans to cut 600 jobs, primarily in Dallas.

Mr. Meighan's story reveals only the tip of the iceberg. What remains below the surface?

1) Since the original deal, the State has entered into a $65 million land deal with Vought that reduces the companies cost for land as well as their state property tax bill. In November 2005, the City of Dallas agreed to a 10 year 75% tax abatement totaling $5.6 million for Vought's expansion

2) During the land negotiation period, Vought located its new, up to 600 employee assembly plant in Charleston, South Carolina. Their CEO gave this reason for selecting South Carolina. Vought wants to locate the plant "where we think we can get assistance on the Hill for our military programs”. What can Senator Lindsey Graham deliver that Senators Cornyn and Hutcheson cannot? Is it an extra vote on the Senate Armed Services and Budget Committees?

3) The CEO understands the political game all too well as Vought is owned by The Carlyle Group, famous for it’s “A list” of insiders with strong connections to the Bush administration.

4) During the time Vought needed $100 million of state assistance, the Carlyle Group returned $2.1 billion to its investors due to the “stellar performance of its investments”. Does this sound like a group in need of corporate welfare?

5) The Carlyle Group also owns LifeCare Hospitals where 24 patients died post Hurricane Katrina. That your White House Lessons Learned report omits any mention of the company and the patient deaths is most puzzling as it mentions a nursing home where 6 or 7 patients expired. Does it benefit LifeCare and the Carlyle Group to have the federal government silent on their actions as cases enter civil court?

Those are the highlights of what might be included in future articles. Who knows how deep the iceberg goes? Do you have an idea of what lies beneath?

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. 

Rick Perry "Say No to Washington"

Texas Governor Rick Perry delivered a firebrand speech as the Southern Republican Leadership Conference in New Orleans. He said:

"It's going to take principled leadership. It's going to take men and women going to Washington, D.C. and saying no."

Funny, Perry can't say no to 1001 Pennsylvania Avenue, corporate offices of The Carlyle Group. The Governor adjusted Texas Enterprise Fund contracts with two Carlyle affiliates, Vought Aircraft and Authentix, after both failed miserably on their employment promises.

Vought's failure to provide the promised 3,000 jobs to Texas was compounded by their abysmal record in delivering quality 787 fuselages to Boeing. That was a multi-year failure.

In 2009 Vought estimated it would owe Texas $2.1 million. Their annual report stated:

We reclassified $2.1 million related to the Texas grant to the Accrued and Other Liabilities caption in our Consolidated Balance Sheet due to a potential repayment of grant funds in 2010 based on the agreement.

After Rick Perry rewrote the agreement, Vought paid back a mere $900,000. That's 25% of the original principal at zero interest over 6 years. Perry said we needed to "take care of the job creators," only he's taken care of employment ghost providers. What principle is that?

Perry spoke of a 2003 budget crisis in Texas, one he solved with principles. The state balanced the budget on the back of 200,000 kids who left CHIP. When he granted the $35 million to Vought in March 2004, over 100,000 kids no longer had children's health insurance coverage. Whatever principle this is, it should haunt the cocksure Governor.

Perry spoke about the RSLC host city, a city with ghosts of its own.

"It's been five years since the one two punch of Hurricanes Katrina and Rita."

Hurricane Katrina was the impetus for Carlyle's other abdication, this one by affiliate LifeCare Hospitals. Their New Orleans facility lost 25 patients in the storm's toxic aftermath, the highest death toll of any hospital. This fact was omitted from the White House Lessons Learned report.

LifeCare's corporate offices are in Dallas, as are Vought's. Parent Carlyle charges the two millions in annual management fees. Thus, they have a role in corporate strategy and decision making.

The irony comes from LifeCare's defense in wrongful death lawsuits. They claim patients became wards of the federal government as soon as FEMA evacuation teams set up in New Orleans. This means "say yes to Washington when it means a transfer of losses or liability."

Governor Perry's theatrics are for public consumption. Behind closed doors, he serves his landed friends well. That includes the Carlyle Group brand of Washington, D.C.

Calling Rick Perry

Two things are clear regarding Texas Governor Rick Perry.  First, the 2011 Texas Legislative session seemed orchestrated to give Perry his conservative bonafides for a Presidential run.  Second, consultants wrapped him in the Savior's cloth, turning his campaign into a calling.

Many a scallywag has been called to heroic tasks.  The call wipes out past transgressions, such as Perry being a Democrat at one point in his political career.  Does it wipe out Perry's bearing false witness on his Texas Enterprise Fund claims that Vought Aircraft Industries employed over 29,000 people in Texas, when the company's website said it had 3,315.  

Perry is courting establishment Republicans, economic conservatives and business leaders.

Will economic conservatives count Vought's jobs without a 26,000 person margin of error?  How many business leaders would love a share of President Perry's largess, given the U.S. budget dwarfs that of Texas?

Will the Red Team hero stick to his job creation lies regarding Vought?  Will he beg forgiveness for bearing false witness?  Will he make public the changes to the Texas Enterprise Fund deal, renegotiated during The Carlyle Group's selling of Vought to Triumph?  Does a calling really wipe out malfeasance in a current core competency?

Nevertheless, Mitt Romney has a challenger. Perry vs. Romney, it'll be quite a race, the Boring Mormon vs. Gov. Rickly Pear.  Who can pander to America's billionaires better?  Given those billionaires own the media, don't expect a challenge to Perry's job numbers, however absurd they seem on their face.

Update 8-15-11:  The Daily Beast ran a story on Perry's savior status within the Dominionism movement. An ex-staffer and Perry consultant served as event coordinator for Perry's revival meeting, The Response.

Update 8-16-11:  Rick Perry said he is "pro-business" and called jobs created by Obama's stimulus plans "a joke."  Perry's Vought claims fall into the same joke category.  Only a lucky SOB could get away with Perry's record.

Carlyle Group's Vought Aircraft Refunds Texas $900,000

Governor Rick Perry proudly announced a grant of $35 million to Carlyle affiliate Vought Aircraft Industries in 2004. Vought's 2009 10-K states:

As a result of our failure to maintain the required employment levels, we repaid $0.9 million to the Texas Enterprise Fund in 2010. Our failure to satisfy these commitments in the future could result in the requirement to repay some or all of the remaining portion of $35 million grant over the next nine years.

For details on the agreement's history and Vought's abysmal record under TEF, go to PEU Report.

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.

Rick's Strange Veto Follows His Odd Executive Order

Two West Texas legends, Elmer Kelton and Jerry Lackey took digs at government actions that hurt the little man. Acclaimed Western writer Elmer Kelton wrote of the distortions of farm programs on the rancher in The Time it Never Rained. Protagonist Charley Flagg saw where corporate farmers would benefit at the expense of the small producer.

San Angelo Standard Times agricultural writer Jerry Lackey noted the same slant in Texas Governor Rick Perry's recent veto of eminent domain legislation. The bill would have provided fairness and compensation when private property is taken for public use. The bill passed both Republican dominated houses in overwhelming fashion. So why did Rick Perry veto it?

The governor claimed it would enrich condemnation attorneys by causing more litigation and increasing their fees. How could all but 25 Texas legislators miss such an obvious flaw? Maybe because it wasn't there. A legislative director of the Texas Farm Bureau stated the bill would do the opposite by "reducing the need for attorneys". Taking a Charley Flagg like stance, given the Governor's veto what benefits might enure to corporations wanting more welfare?

Governor Perry already gave $35 million in state funds to a subsidiary of The Carlyle Group while he waved goodbye to a Goodyear plant in Tyler. Did those Vought Aircraft PAC donations of $8,576 and $3,130 in 2004 help the governor make his decision? Eventually Vought's government assistance reached some $100 million from federal, state and local sources.

Somehow even with all this help, the Carlyle sub couldn't fund its pension obligations or its retired employees health and life insurance benefits as of December 2006 despite receiving $17.4 million in government grants in 2006, $52.2 million in 2005 and $35 million in 2004. The same annual report highlights Vought's selection of South Carolina for its new manufacturing plant and a reduction of 1,000 jobs in contrast to its promises to grow Texas employment by 3,000. Carlyle seems to leave a number of broken promises in its wake. Will they live up to their commitments to South Carolina for $67 million in assistance?

Rick's recent Executive Order requiring school girls to get the HPV vaccine came after a donation from the pharmaceutical company manufacturing the shot. Given his track record of acting on behalf of large, politically connected corporations, who might want to get public land at lower cost?

The Carlyle Group started a public infrastructive division last year. It's Australian counterpart, The Macquarie Group, is already a partner with lead Trans-Texas Corridor developer Cintas on an Indiana toll road. Last year Macquarie purchased a chain of Texas newspapers whose ciculation area strongly overlaps the route of the corridor. I did a piece on Macquarie's connection to Bush's Transportation Department in January of this year. It appears more of Elmer's "government" is headed our way and Jerry Lackey has the foresight to see it coming.

Obama & Rick Perry's $1 Million Jobs

News reports show the Afghan war costing $1 million per soldier. That's the budget request submitted by President Barack Obama. Texas Governor Rick Perry has something in common with the President.

Gov. Perry gave Vought Aircraft, a Carlyle Group affiliate, $35 million to add 3,300 jobs by 2009. Current data shows Vought employing 35 fewer people than their 2004 numbers. Texas gave Vought $1 million for every job eliminated. The Reds and Blues have much in common.

Rick Perry's $35 Million Fix

Texas Governor Rick Perry showed his preference for corporate vs. individual welfare. He proudly gave $35 million to Vought Aircraft Industries, an affiliate of The Carlyle Group. They promised to add 3,000 jobs in Dallas/Ft. Worth. That was on top of the 3,300 they already employed. Carlyle fell far short. Vought doesn''t even employ 6,000 company wide.

"This is exactly how addicts get hooked on drugs."

Is Vought hooked on interest payments from Texas taxpayers' $35 million? They have a decade or so to pay it back. That sounds like serious dependency. Failure to perform and failure to pay. That sounds like a corporate cash addict. The public is sick of American corporatocracy, whether state or federal sponsored.

At Reunion Governor Good Hair Introduces Sneering Bush while Carlyle Affiliates Cheer

Texas Governor Rick Perry introduced crookedly smiling President Bush at a Republican campaign rally at Reunion Arena in Dallas. Watching from their skyboxes were executives from two Carlyle Group affiliates amply supported by state and federal funds or preferential government action. Next to the oversized replay screen stood the Vought Aircraft Industries luxury suite. Vought pulled down over $100 million in local, state and federal subsidies.

Across the way, another Carlyle affiliate toasted their good luck at receiving not a mention in the White House Lessons Learned report despite having the largest number of hospital patient deaths post Hurricane Katrina. LifeCare thanked their lucky stars to have been acquired by Carlyle just weeks before Katrina made landfall. While their corporate parent’s Pennsylvania Avenue address didn’t get patients saved any quicker, it did get them a free pass from mention in the President’s thorough investigation.

During the time the Carlyle Group soaked Dallas, Texas and the federal government for $100 million, the famously connected investment house returned $2.1 billion to its investors. While Bush has been in office Carlyle grew from a $13 billion firm to over $44 billion. Their corporate affiliates cheered extra loudly from their Reunion skyboxes, thankful for all the good work Rick and George have done on their company’s behalf. So what if the citizens of Texas and Louisiana don’t benefit a lick…

P.S. While Vought has a plant in Dallas and LifeCare Hospitals headquarters is in Big D, the author has no information that either company actually has skyboxes in Reunion Arena. Should that actually be true, it would simply be serendipity.

Which Companies Are Buying U.S. Roads & Bridges?

The Associated Press ran a story on the growing practice of foreign companies purchasing U.S. toll roads and bridges. They exposed problems with this approach, one of which is states selling infrastructure for money. It’s poor financial planning to sell a capital asset to fund operating expenses. How many people regularly sell their house to pay for food, electricity, and cable? They don’t unless they are in a real bind.

What the story missed is domestic companies’ interest in owning government infrastructure. Zachary Construction in San Antonio is partnering with a Spanish company on Texas toll roads. The famously politically connected investment, the Carlyle Group announced their intention of entering the infrastructure business just months ago. Might they want some of that $16 billion in the federal highway fund?

My guess is President Bush will find a way for his friends at Carlyle to make a healthy, low risk profit off Uncle Sam. Texas Governor Rick Perry already opened the state pocketbook for a Carlyle subsidiary, Vought Aircraft Industries. After giving the company $35 million in state and $5.5 million in local subsidies, Vought announced its newest plant would be in South Carolina, not Texas. The latest analysis reveals Vought may be off the hook for paying back any of the job incentive grant.

Why shouldn’t the ex.-Governor, now serving as President of the United States open his pocketbook for another Carlyle sub? After all Bush’s father and numerous Republican friends have been on the payroll. Watch to see what federal work goes their way, roads, bridges, managed care agreements for people on Medicare and Medicaid…..

Republican Corporate Welfare Handouts Continue

Dear President Bush,

It appears Mississippi wants to outdo Texas’ corporate giveaway largesse in one fell swoop using the wallet of the U.S. Treasury. The Mississippi delegation snuck in some $200 million of corporate welfare in an emergency appropriations bill for military operations in Iraq and Afghanistan and hurricane relief. The Senate voted to keep funds for Northrop Grumman in the bill to pay for hurricane losses their insurers are unwilling to pick up.

It appears two of your closest friends, Texas Gov. Rick Perry and Mississippi Sen. Trent Lott, love giving the taxpayer's money to big politically connected corporations. It just happens both are in the defense industry. Texas funds military aircraft manufacturing while Mississippi subsidizes shipbuilding.

Gov. Perry may feel upstaged by this budget proposal. Texas only mobilized $140 million in support for Vought Aerospace Industries between state and federal funds. The state had to pony up $100 million in two different packages to buy Vought’s goodwill and promises of job growth. As you are well aware, Vought is owned by The Carlyle Group, the famously politically connected investment house just down the street from the White House. During the Texas subsidy negotiation period Carlyle returned over $2 billion to its investors citing “stellar investment performance”. Did your father do any work for The Carlyle Group during this time?

How needy is Northrop Grumman currently? For a smaller state to beat Texas in corporate subsidy, the company must be truly hurting. However, research reveals otherwise. In 2005 the company had a gross profit of $5.1 billion and a net income of $1.4 billion. It had positive cash flow the last two years of over $1.3 billion. Capital expenditures the last 3 years ranged from $635 million to $824 million.

The balance sheet shows something quirky. Cash on hand dropped precipitously the last quarter. They used some of the money to pay down some short/current long term debt and to reduce their accounts payable. However the majority of what previously was cash turned into higher inventories and accounts receivable. As the federal government is one of their big payers, what role did it play in the almost $500 million growth in AR? Is somebody playing games here, trying to make the company look cash strapped?

Would the check signers hold up payment per requests from U.S. Senators or White House staffers? Would federal buyers hold up orders to the company for the same reason? Has someone engineered the appearance of need to make the Mississippi Senators sales job easier? Northrop Grumman’s financial performance for the last two years reveals a company easily capable of handling a $200 million hit courtesy of their insurers. Yet, something changed the first 3 months of the year to make them appear more vulnerable. Is it real or engineered? Write me back, I want to know.

Military Industrial Complex Morphs into Government Industrial Monstrosity

If President Dwight D. Eisenhower were still alive, he would find his great fear of the military industrial complex had been realized. The military general would see his modern day counterpart, General Montgomery C. Meigs updating President Bush on the Pentagon’s strategy to address roadside bombs. Retired General Montgomery C. Meigs is heading the Joint Improvised Explosive Device Defeat Task Force. In his radio address the President quickly glossed over the general’s retired status. Not mentioned by the White House, the General’s corporate connections. Convera Corporation appointed Gen. Meigs to their Board of Directors on August 4th of last year. Less than two weeks later the company announced a $2.2 million Pentagon contract.

President Bush said after the meeting “And the General has spent a lot of time thinking about the enemy's tactics and techniques, and how our military can adjust to them.” It happens the General’s Joint Improvised Explosive Device Defeat Task Force has a $3.3 billion budget. The retired General is in a position to steer a lot of military business to willing and capable contractors.

Several companies have submitted prototypes of directed energy weapons, also known as DEW, to the Pentagon. Some address the IED directly while others address crowd dispersion. To date the buzz has been over a product that sends out an electronic pulse similar to lightning. Within range the pulse fries the roadside bomb’s electronics, disabling it. Ionatron Inc.’s laser pulse equipment has been mentioned most prominently, even though the company is a relative newcomer. Two of their founding scientists served in Raytheon’s directed energy weapons systems unit until 2003. As I read, I wondered about Raytheon’s position. How do Raytheon executives feel about two key ex-employees starting their own company to develop an energy based weapon? Are they angry that Ionatron is the lead company to date in the IED disabling evaluation process?

Mixed emotions followed the puzzling question as I read further. I found it oddly disturbing that Ionatron markets their products as either lethal or non lethal energy weapons systems. They seemed to say both were a plus. If you need to kill people a directed energy weapon can do it very effectively. Or if you need to disable them or break up a crowd DEW’s are the ticket. My mind put it more crudely, “Need to kill or harm? Ianotron can DEW it for you!”

When the President met with General Meigs,. Defense Secretary Donald Rumsfeld was by their side. His spokesman seemed to go out of his way to speak to the state of technology in this area by saying “there are no new technological breakthroughs to report to the president at this time.” It was almost as if Donald’s mouthpiece said, “Hold on everyone, the Pentagon has everything under control. General Meigs is here to help us work out this issue. He is aware of the technology and there are no advancements to report.”

Whether there have been new advancements or not, these weapons seem creepy to me. They bring to mind movies like Robocop, the Terminator and the Matrixx series where evil, oppressive societies use high tech weapons to subjugate and exterminate the masses.

After processing my personal reactions, my business sense kicked in, raising even more questions. President Bush was spotlighting this issue via his meeting with General Meigs. Why this and why now? Two companies have been mentioned directly with the IED disabler, Ionatron and Extreme Alternative Defense Systems.

A closer look at both companies revealed interesting characters. Ionatron has its own retired admiral on its Board of Directors. Ret. Admiral Thomas W. Steffens was elected to board March 2004. He currently serves as Technical Director for Homeland Security and special operations for Anteon Corporation. The admiral’s employer just inked a deal to be acquired by another large defense contractor, General Dynamics.

Extreme Alternative Defense Systems is a smaller outfit. It’s CEO, Peter Bitar is of Arab descent and a Christian. In a Washington Post interview he said, "I can think the way a Middle Eastern mind thinks. I understand where they're coming from. So, we can design tactical solutions that deal with that." The Pentagon gave his company $700,000 in 2003. The Marine Corp, Navy, and economic development funds from the state of Indiana provided another $1 million through the fall of 2005.

Yet, at a military futuristic weapons trade show the Post reported Mr. Bitar looked bitterly across the field of vendors at his rivals, Raytheon and Ionatron. Extreme’s government contracts have been through competitive bidding, while Ionatron’s biggest order came via a congressional line item, which typically requires high level and high dollar lobbying.

I was struck by the number of retired generals and admirals on defense company board of directors. I hadn’t searched far, but it seemed every board had one. I also noted there appears to be a behind the scenes controversy regarding this issue. General Meigs was not the original chair of this task force. Reports of successful tests of Ionatron’s equipment were followed by the Pentagon’s removal of the results on the Naval Surface Warfare Center Crane Division’s website. The January 6, 2006 military press release is no longer available online.

The example thus far drives home President Eisenhower’s concern about the military industrial complex, yet much more is occurring. Last week, the Internal Revenue Service announced it is contracting out collections to 3 firms. It is symbolic of a much larger shift occurring on President Bush’s watch. The new Medicare Prescription Plan is an example of such contracting, as private insurers are providing this new insurance to senior citizens.

Controlling healthcare costs is a high priority for the Bush administration and he plans to accentuate “market forces”. Several politically connected investment houses, The Carlyle Group and Welsh, Carson, Anderson, & Stowe are ramping up their health care investments. They are positioning for the opportunities ahead. The Carlyle Group just announced their plans to acquire Multiplan, the largest independent preferred provider organization in the U.S. Through its clients it serves over 70 million Americans. As Medicare and Medicaid are “modernized” how much will the federal government contract out to private sector insurance companies?

Just days ago, the Carlyle Group announced another project specializing in public/private partnerships. Their press release stated “Global private equity firm The Carlyle Group today announced it has established a team to conduct investments in the infrastructure sector, including investments in transportation and water facilities, airports, bridges, ports, stadiums and other public infrastructure.”

Other noteworthy comments include ““The proven use of public-private partnerships and concessions in the U.K. and on continental Europe is now emerging as a means of financing U.S. infrastructure. There is a dire need to bring private capital to the development and maintenance of public infrastructure throughout the U.S. and we believe this effort will be well received.”

Did the word concessions jump out at you? Translated this means the government forks over both funds for the infrastructure, while throwing in tax breaks. The State of Texas announced last year a land deal with a Carlyle affiliate, Vought Aircraft Industries. The bottom line is Texas would pay the company $65 million for land which reduces Vought’s local and state property taxes. This is in addition to the $75 million in economic development incentives given to Vought by the state and federal government since 2000. During the land deal negotiation period, Carlyle announced it distributed $2.1 billion to its investors due to the “stellar performance” of its investments.

Another telling comment was in the Carlyle Group news release “As a U.S. firm with exceptional experience in government contracting, Carlyle is now well positioned to invest in U.S. and other infrastructure either alone or as part of a consortium.” If that didn’t make you shudder, you know little about this investment house’s political contacts to the current and past administrations. Yes, they have exceptional experience in government contracting and they are rapidly building their already comprehensive portfolio.

In addition to exceptional government experience, it appears Carlyle might have exceptional government influence. The Carlyle Group closed the deal on a long term acute care hospital company, LifeCare Inc. last August. LifeCare had three facilities in New Orleans. Twenty four of their patients died after Hurricane Katrina. That LifeCare long term acute care unit was inside the flooded and powerless Memorial hospital. Memorial happens to be owned by another for profit company, Tenet Healthcare.

When the White House released their Lessons Learned report it failed to mention who is responsible for the evacuation of hospital and nursing home patients. The report’s cover letter mentions homes, schools and places of worship, but not hospitals. Deeper in the analysis it speaks to specific evacuation stories and some of the consequences. It did not analyze who was accountable nor did it assess their performance. It does represent the plight of nursing home and hospital patients that resulted in many patient deaths, often in the small print footnotes near the back of the report.

At several points it mentions the names of nursing home facilities where patients expired. Yet there was not one mention of LifeCare, Tenet or Memorial Medical Center in the 217 page report. I found it odd that a nursing home where 6 or 7 patients expired would be noted but a facility where 40 patients succumbed in the aftermath would not receive one mention. I found all of this puzzling, having helped evacuate a Texas Gulf Coast hospital prior to Hurricane Gilbert and having endured the flooding of a 725 bed hospital in southwest Virginia. A rapidly rising river left that teaching hospital in a post Katrina like state.

I found the failure to directly address this issue in the Lessons Learned report even more bizarre when the tapes and transcripts of President Bush and Mike Brown’s discussions were made publicly available. The FEMA director mentioned hospitals not evacuating the day before landfall. Two days after landfall, the President inquired as the status of hospital patients. What caused them to skirt the issue in their vaunted report? It certainly is advantageous to Carlyle and LifeCare to not have any definitive judgments from the federal government as to their actions after the storm. On September 15th The Dallas Morning News did a story on likely lawsuits for hospital and nursing home patient deaths. It would behoove the defense to have the federal government silent on the issue, should they have to go to court for any wrongful death lawsuits.

I wondered if the federal government itself messed up in some way with evacuations of hospital and nursing home patients. Testimony at an early October Congressional hearing by a representative of the state nursing home association revealed that buses chartered to evacuate nursing home patients post Katrina had been appropriated by FEMA for other purposes. Did this action contribute to unnecessary patient suffering or even premature death? That could be another reason to be silent on this issue. Does the federal government have the right to silence to not incriminate itself? I found it interesting they included some other testimony from Congressional hearings but not this bit of information.

Whether it is “exceptional” experience or influence, the Carlyle Group is prepared to serve. With investments in high tech, aerospace, defense, health care, education, telecom, media, energy, electrical power, automotive, transportation, industrial, business services, real estate, consumer and retail, the Carlyle Group can help the U.S. government which is undertaking a transformation of its own. The federal government is becoming a general contractor as it shifts previous government operations, functions, and even asset ownership to the private sector.

The belief is that companies are more efficient and effective than government. President Bush’s inept leadership and inattention to operational performance has helped anchor this assumption in the minds of many Americans. What’s lacking in government is leadership. Without it, even the best business model is empty. With leadership some of the worst organizational models can do exceptional things.

My hope is the federal government remains more than just a general contractor. Having seen that trend in hospitals in the 1980’s I was not impressed. Early on it seemed lazy administrators contracted out services like housekeeping, food services and laundry. Later, many hospital managers contracted out clinical services to brother and sister for-profit entities. They turned over part of their facility to inpatient rehabilitation, mental health and long term acute care units who were well positioned to profit given the mix of patient need and financial reimbursement.

The boards of these seemingly independent entrepreneurial companies were cross pollinated by big investment house representatives and heavyweights from their larger for profit relatives. The investment houses had a pattern. They would take the firm private or acquire a smaller closely held company. Later they would conduct an independent public offering with a portion of the available stock. Finally they would cash in their investment via an outright sale to another investment house or industry leader. It continues today, and even appears to be ratcheting up again.

As I researched several new health care companies, old and familiar names kept appearing. At one point I found myself thinking, it almost feels like inbreeding. What is being birthed is much bigger than the military industrial complex. It is the government industrial monstrosity. It is happening every day, likely another deal closed while you were reading this story. Hopefully another story that can help the American people is not being hidden.


About the author

Lantern Sodden’s 25 year background in health care administration and leadership development makes him uniquely qualified to comment on this topic. For eight months Mr. Sodden wrote an independent political blog titled “Letters to Nowhere”. He generated over 878 letters to the President on various topics. Hurricane Katrina struck during this 8 month period and Lantern devoted many pieces to the plight of the suffering, especially hospital and nursing home patients. The author had great empathy for the patients and staff as he has conducted pre-storm hospital evacuations prior to a powerful hurricane’s landfall and endured in a river flooded teaching hospital with no power.