While Texas Governor Rick Perry rails about the evils of Washington, D.C., he used the Lone Star treasury to enrich The Carlyle Group, a D.C. based private equity underwriter (PEU). Texas gave Carlyle affiliate Vought Aircraft Industries $35 million in grant money to add 3,000 jobs. The Texas General Land Office mulled purchasing Vought's facilities for $65 million, leasing the facilities back to the company.
After two years of heavy courting, Vought's 2006 10-K (annual report) showed the company backsliding on Texas promises:
On February 26, 2004, we announced plans to consolidate portions of our manufacturing operations to Dallas and Grand Prairie, Texas. We received a $35 million grant from the Texas Enterprise Fund in April 2004.
The consolidation plan, as originally designed, would renovate and modernize the Dallas facilities and would close the Nashville and Stuart sites and reduce the size of the Hawthorne site In December 2005, the Company announced its intention to keep the Nashville and Stuart facilities open to support certain programs whose future deliveries did not justify the costs to move the programs to Dallas.
A note in the 2006 report refers to the TEF grant:
Amounts previously disclosed for 2004 have been updated to reflect a reclassification of $35 million in grants received from the State of Texas from operating activities to financing activities.One year after Texas infused millions into Vought, the company reneged on its promises. Yet, the state could do nothing until 2010, according to the Texas Enterprise Fund agreement.
2010 arrived and Vought ponied up a refund to Texas. Their latest 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.Vought doesn't employ company-wide its Texas commitment of 6,300 workers. Page 10 of the 10-K states:
As of December 31, 2009, we employed approximately 5,900 people.
State Rep. Drew Darby said this about the commitment:
Vought Aircraft is required to add 3,300 jobs through 2009. I have questioned the Governor's office about the contract between the State and Vought for clarification of the contract. Vought Aircraft's first official reporting requirement under their contract will be in the Spring of 2010. If Vought does not meet this objective, the TEF grant will fall into default. The company will have two options in repaying the state, clawback or repayment plus interest. The clawback is calculated on a financial model which takes into account the amount granted and the number of jobs not met plus interest.
How did they not have to pay back $3.5 million plus interest? Why did clawback or repayment plus interest garner such a pittance when Vought completely abdicated on its promises, as stated in annual reports?
Governor Rick Perry changed the agreement after the fact, making terms "more favorable for the firms." So favorable that Vought paid back $900,000, roughly 2.5% of the principal at zero interest.
The Carlyle affiliate had $35 million for six years. Its owner brags of a 30% annual returns. Did the Carlyle Group work their magic on TEF funds? If so, Vought's repayment looks even measlier. Note: Vought's pension fund is badly in need of Carlyle like returns, currently underfunded by $650 million. Retired employee health and life insurance plans are unfunded.
The Carlyle Group is selling Vought to Triumph, which will assume the Texas obligation. Getting back $35 million plus interest would be a triumph for Texas taxpayers. Quality leaders are sorely missing.
"Executed in truly horrific style" sums it up.
Update 6-1-11: HB 2457 purports to fix the problems with Perry's Texas Enterprise Fund, only Vought's agreement had all the elements required in the new legislation. The bill is silent on Perry's ability to renegotiate deals, which he did with Vought in Spring 2010.
