Roughly a year ago, I decided for my birthday that I would go before the Ohio House Finance Committee to testify against the initial bill to create JobsOhio (a.k.a. “RobsOhio.)

My opponent testimony featured these points:

  1. History and objective studies show that a private company running a State’s economic development efforts works no better than public ones.
  2. These entities have a documented history of ethical problems that require strict, robust, and comprehensive ethical requirements that trump the right to secrecy.
  3. The plan to have JobsOhio acquire an equitable stake in the companies it assists is unethical (as it creates conflicts of interests when its competitors seeks assistance) and unconstitutional.
  4. The notion that the private sector would self-fund JobsOhio is really, really, naive.

(Don’t get me wrong, I was not alone in making these points.)

As HB 1 was railroaded through the legislative process, the constant refrain from the GOP was that yeah JobsOhio probably was kind of, sort of, a tad bit, okay, maybe, possibly totally unconstitutional.  And yes, we agree with the Democrats that this new system is going to need more transparency and accountability than the Governor proposed.  But the reason they tabled every attempt to bring JobsOhio into a model of accountability and ethical regulations is that they cited HB 1’s provisions creating R.C. 187.05, which required the Administration to issue a report within six months of enactment of HB 1 to the General Assembly outlining what functions of the Ohio Department of Development would be transferred to JobsOhio.  We’ll revisit these issues when we take up JobsOhio Pt. II since the legislature will need to approve the transfer of such programs.

And let’s remember, Marc Kvamme was supposed to be here only until August, too.  He was supposedly only here to get JobsOhio set up, given it was his brainchild as a maxed out donor to the Kasich campaign.

Quick of all the jobs announcements Kasich made last year, how many were the result of JobsOhio?  Before you answer that question, consider that it was until July (some five months after JobsOhio Pt. I was signed into law) that Kasich even named the appointments to the corporation’s Board of Directors, which means the corporation lacked any ability to do anything, like hire key personnel until then.  It took Kasich 143 days since signing JobsOhio legislation into law to putting anyone into the company to run it.  In other words, JobsOhio as a corporation had no actual life to it, no “brain” until then.

Keep in mind, before you answer, that the private sector consultants that the Ohio Department of Development retained to create this report did not issue it until the last possible day to still meet the deadline.  160 days later, and the Ohio General Assembly still does not have any actual JobsOhio II legislation introduced.

Since Jobs Ohio I became law, Kasich then quickly announced that the new corporate entity would be funded in the State’s budget by securitization of the State’s liquor profits over the next 25 years (which bind the next three to six future Ohio Governor’s to Kasich’s gamble today.)  How much has JobsOhio reportedly received in private sector contributions/investments?  ZERO

Kasich also abandoned in the budget the plan for JobsOhio to retain an equitable stake in the companies it helps, but only because ProgressOhio was suing the State because of that blatantly unconstitutional provision (as well as other changes made to response to ProgressOhio’s suit.)

Yet that hasn’t prevented Kasich from having Marc Kvamme appear at every job announcement crediting JobsOhio for every economic development package the State issued last year, even though JobsOhio has no actual legal authority over any economic development program to call its own.

How do they justify including JobsOhio into these announcements?

Based on the collaborative effort of JobsOhio, the JobsOhio Network, and the Ohio Department of Development

Yes, they basically say JobsOhio was in the room and deserves the credit.  “They” being the press operations of both JobsOhio and the Ohio Department of Development, which is filled with loyal Kasich political appointees.  That’s like saying Ringo Starr was responsible for the “white album” (he quit the group temporarily during recording.)

Or to put JobsOhio’s role in these announcements in a visual way:

Pictured left: Marc Kvamme

Now, that same Administration, the same one that has fundamentally failed to predict both the structure and the timeline of a corporation they are creating accurately, want the people of Ohio to know that they are prepared to offer to the Wall Street bond market the deal they’ve constructed to securitize the State’s liquor profits for the next 25 years… at the price equal to two years’ worth of that revenue stream.

And that’s not a partisan criticism of the plan.  It’s their actual plan.

Ohio budget director Tim Keen said that unlike other Kasich administration efforts at privatizing state entities, the point of the JobsOhio deal was not to draw the highest payment possible.

“This thing was not about maximizing resources to the state,” Keen said. “That’s what we’ve been doing for years. We take these liquor profits, we put a little bit aside for economic development and then the rest we put in the general revenue fund and spend it wherever.”

Instead, Keen said, the state’s reward should come later in the form of more jobs. Asking JobsOhio to raise more capital up front to write a bigger check to the state would only cut into the private agency’s operating costs and efforts at finding jobs, Keen said.

Somewhere a former accountant for Enron is reading this and thinking, “hey, why does this sound familiar?”

Let me try to explain.  In a financing deal that is so complex it’s the financial equivalent of a plot scheme worthy of an Oceans 11 movie, JobsOhio gets $100 million is by intentionally buying the liquor profits at a discounted rate, or in what Wall Street bankers would call a “sucker” price.

What could go wrong?  After all Ohio’s liquor profits have a proven track record of growth with no end in sight.  If perchance, you have already mentally in your mind substituted “liquor profits” with “housing market” and “JobsOhio” with “Lehman Brothers,” then congratulations you are more astute than John Kasich—a guy who actually was at Lehman Brothers when it collapsed.

If the liquor profits fail to meet predictions, then Ohio has less money than anticipated to devote to economic development.  Or worse, if it drops too much JobsOhio implodes leaving the State scrambling to minimize its impact while also quickly trying to find a new funding mechanism for economic development.

JobsOhio is based on the premise that only good things will occur when political appointees can work in secret with well-heeled financial interests to control how millions ($100 million to be exact) can be spent.  The only thing that stops this from being another Coingate is the legally created veil of secrecy, the lack of any meaningful ethical safeguards that is ultimately left to a loyal partisan lackey currently serving as the State’s Inspector General.

They’re gambling that their private entity will work better than any other private economic development entity to have ever existed.  It’s not called a gamble because of the unknown risks, but because the risks are so well known.  And the crazy thing is that it may still work since the likely response of any sane, objective Ohioan is to want a drink.

This is the amount of alcohol it took to get me to forget these are the same people who thought giving $400 million to Sears was a "great" investment, too.

Seriously, if JobsOhio hasn’t turned out as they planned just a year later (to the point that they can’t even get legislation through the General Assembly they control as planned), then how in the heck can we trust that this liquor gamble will work out?  Especially when these are the same folks who think it’s an achievement to attract Sears, a company most analysts believe will likely file bankruptcy this year, with $400 million in promised incentives (only to fail for a bid that was just a little more than half that amount?)

I need a drink.

Evangelize!
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  • stryx

    What I think is the most under-reported aspect of this whole fiasco is the role of Western Reserve Partners LLC. They specialize in handling this type of transaction and they have been pushing this for some time now- download this pdf from PennslvaniaSenateGOP.com tilted Privatization of Ohio’s Liquor Distribution Business (06 January 2011): http://www.pasenategop.com/committees/law/2011/021411/OH-WesternReservePartnersPrivatizationProp.pdf

    I have yet to see any other source cited for how much the liquor stream (sorry) is worth. Western Reserve Partners touts the Dispatch article that names them as the source: http://wesrespartners.com/the-columbus-dispatch-reports-western-reserve-partners-llc%E2%80%99s-study-of-state-privatization-opportunities/

    But of course you knew this because Joseph wrote about Western Reserve Partners’ interest in privatizing the Liquor money back in January 2011: http://www.plunderbund.com/2011/01/14/liquor-privatization-could-net-kasich-donors-huge-payday/

    We’ve finally come to the part where action occurs. Will Western Reserve Partners get the contract to handle the privatization? Will the contributions pay off? Or will reason and logic prevail and a disinterested third party evaluate the value of the revenue stream and another third party handle the action. Who else has valued the transaction?

    I just made myself laugh.

    Curtin and Marrison and the rest- this is the story you should be working on. Plunderbund can’t be expected to do all your work. Special no-bid contracts worth millions given to campaign contibutors is what this sounds like. Step up.

  • Dmoore2222

    Good work staying on this, Modern. This is the biggest boondoggle since the S&L crisis. What makes it even more scarey is that there’s no way Kasich, who can’t put two intelligent sentences together, has the intellectual capacity to understand all of this and its implications much less control it. Like SB5, this is a monster of his own making that eventually will swallow him whole. Let’s hope it happens sooner than later. 

  • Modern Esquire

    Stryx– Good point.  I think we, or at least I, had forgotten Western Reserve’s role in this earlier.

  • Sage

    Glad to see Plunderbund keep the spot light on the role of public money in our society. We are starting a meetup in Columbus to analyse the proper balance between private/public enterprises so that fraud and abuse can be prevented. Good work! 

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