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The Mississippi beef plant has a lesson for us

Writing from Jackson, Miss.

Jackson, Mississippi has a lively talk radio station, WJNT, featuring both local shows and national shows. The hot topic of discussion on my trip to this city was what to do with the MCI settlement money, as the state had just negotiated a settlement with MCI of $100 million, for taxes MCI owed.

Some callers (and perhaps the host) suggested that the state use this money to pay for the “beef plant.” I was curious as to what this meant. Why, I wondered, would Mississippi be paying for a beef packing plant? After a little research I learned that Mississippi had guaranteed loans to develop a beef processing plant, in the name of economic development. The plant operated for just a few months before closing, leaving the taxpayers of Mississippi liable for the loans. The cost to the taxpayers was given as $54 million.

I am writing about this because I feel we need to be more watchful of economic development efforts that the state and local governments undertake using taxpayer money. It is easy to develop grandiose plans for endeavors that will employ many people and generate all sorts of economic benefits. But business is risky. Things don’t — strike that — rarely follow even the best plans. Often, it is the public treasury that bears the risk for a project, not the owners or direct stakeholders. If these people have the risk of the business underwritten by the public, rather than having their own funds at risk, they behave differently. We have ample evidence from recent news reports in Wichita that public officials don’t monitor the progress of both public and public/private projects as they should.

Proponents of issuing bonds, often in the form of industrial revenue bonds or IRBs make the point that the government is not giving the business the money. That’s true, and also a great relief, as Onex has asked for one billion dollars in bonds. But the government is guaranteeing the bonds, so that if the business fails, the government, meaning the taxpayers, have to pay.

How often does the government have to step in and pay for the bonds issued to a failing or underperforming business? We learn of the spectacular failures like the Mississippi beef plant. How many small failures does the government pay for that don’t make the news?

Following is an article from the Jackson Clarion-Ledger from May 1, 2005.

Is there still a beef plant in our future?
Legislature can easily fall back into its old ways

By Charlie Mitchell
Special to The Clarion-Ledger

VICKSBURG — Three questions regarding Mississippi Beef Processors:

How did Mississippi officials risk blowing $54 million in taxpayer money in this boondoggle?

Will anyone be going to jail?

Can it happen again?

Three answers:

Too few, intentionally or otherwise, knew anything about it.

That remains to be seen.

Yes, but not until the (heifer) dust settles.

The basics are clear. A few years ago, under the guise of industrial development, also known as “job creation,” state executive agencies, including the Mississippi Land, Water and Timber Board, partnered with legislative leaders to underwrite startup costs of the beef plant near Oakland in north central Mississippi.

Studies (ignored) showed there was little demand for such a plant and, sure enough, it shut down in November 2004, having operated only a short time for few customers. Officially, a need for $5 million more of the people’s dollars for “equipment repairs” was cited. That wasn’t provided, and the plant is now defunct, in default and the state of Mississippi has to sell it, perhaps for pennies on the dollar, or pay up in full.

Here’s a point to remember: Mississippi Beef Processors was not an abnormal act of the Legislature. It was, in fact, business as usual.

When such proposals show up, usually in the form of bond bills, they are, by coincidence, like cattle, run through the line. Few lawmakers ever ask the purpose for hundreds of millions of dollars being allocated in the public’s name — perhaps because they don’t want projects in their own communities questioned.

Anyway, now that the Oakland project is officially in the dumper, attention turns to who, if anyone, will be held accountable.

Recently, State Auditor Phil Bryant chose his words carefully in updating the state’s press about the work of an investigative task force composed of members of his staff, the attorney general’s staff and a few representatives of the FBI.

Bryant termed the investigation “very active,” but added there is no timetable, no deadline for completion of the review.

But then Bryant turned his remarks to something that could be more important — residual effects of the fiasco.

A specific example, he said, is that during the regular session after a bond bill proposing $500,000 for something called M-Quality was passed well below the radar of the state press, nine House members did ask Bryant for a background check.

M-Quality made headlines for a few days. Day One was a story about the House approval. Day Two was a report that M-Quality existed only on paper, and in very sketchy terms. Details didn’t matter, as it turned out, because on Day Three incorporators of M-Quality withdrew their request. The issue went away.

Bryant indicated respect for the Legislature in this matter, especially since nine (of 174 lawmakers) at least made an inquiry.

More significantly, in the one major initiative to which public funds were pledged this year — a SteelCorr plant near Columbus — extensive background reports were made conditional to the planned allocation of $25 million in state dollars plus up to $85 million more in years to come.

To get the money, SteelCorr had to agree to submit a business plan, officers have had to undergo background checks and credit checks, company financials had to be submitted and a market analysis for its product must be performed under the auspices of the state Institutions of Higher Learning.

Bryant says that’s the way it should be, and was pleased to report that portions of the allocation will also be reserved to pay for state audits of the company’s ongoing performance. Clearly a step in the right direction.

But is any of this law? Must all future gifts be vetted? Nope. Nothing official has been changed in how lawmakers operate, meaning there could easily be another Mississippi Beef Processors fiasco. Officials may feel spanked for now — but the sting will fade.

http://www.clarionledger.com/apps/pbcs.dll/article?AID=/20050501/OPINION/505010476/1200/OPINION02

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