Waiting for more indictments?

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Published: February 6,2006

Now that Richard N. Hall Jr. is headed to prison for his part in the beef processing plant failure, some folks in Yalobusha County think other indictments will come in the economic development failure that cost state taxpayers $55 million.

“I think everybody was shocked it was as corrupt as it was,” Water Valley Realtor Rex Howell said. “Most people feel like others will be indicted, too. It’s like waiting for the other shoe to drop. There were people who had doubts it would work and a bunch are saying ‘I told you so.’”

A former member of the Yalobusha County Economic Development Foundation, Howell feels it’s a shame the ill-fated plant didn’t work out. “The word we got was that everything was running smoothly,” he said. “We didn’t expect it to fail.”

For its part, the county, which purchased the 160-acre site, was covered by earning taxes on the non-exempt land. The county did no analysis of the plant, which was built using a state-backed loan, and depended on the state for documentation. He says the Oakland facility, near Interstate 55, is still ideally located and a good place to set up some type of plant.

“I heard the same type of plant might go in there, and I hope someone will come along and take it,” Howell said. “The unemployment rate in Yalobusha County is right at the state average, but this plant is centrally located and would draw workers from the Delta where unemployment is higher.”

According to State Auditor Phil Bryant, the next plant to open with a state-backed loan won’t get a free pass. Safeguards are in place to prevent another such failure. “The state absolutely learned a lesson,” he said. “It was an expensive lesson. The only advantage we have now is to never let it happen again.”

That doesn’t mean Bryant and lawmakers want to eliminate funding economic development projects. Bryant thinks that would be one of the worst things the state could do although he understands the position of those who argue the state should not give funds to private business.

“In today’s market we must do it,” he said. “Louisiana and Arkansas are offering incentives, and we’ve got to be aggressive but careful when offering public funds to assure safeguards are in place.”

Dr. Bill Gunther, a professor of economics at the University of Southern Mississippi with 38 years of experience, says the first question is “why the state should be involved at all?” He bluntly states, “It’s not economics. It’s politics.”

“Why should public funds be used to help private business?” he asks. “We must ask if we have good incentives that result in social benefits. Just saying a project will create jobs does not necessarily mean it will give social benefits. It might employ people from outside the area or go to an area that doesn’t have a high unemployment rate.”

However, Gunther says creating jobs could mean legitimate social gains that may result in improved revenue, more funds to spend on education and less crime. “We must first identify why we’re doing this. Very few states do this right, meaning they do not allocate incentives in such a way that maximizes returns to the state,” he said. “We’ve never really identified why government should be doing this. Just creating jobs is not the answer.”

The professor says the beef processing plant was a bad idea from the start and would have been a bad investment for the state even if it had not closed. “Let’s assume the state invested $55 million to create 400 jobs and supposed the plant had succeeded,” he said. “If the average wage was $40,000, the state would never get back its money. The investment was not equal to the revenues.”

Furthermore, Gunther says if a private business can not get funding from banks and comes to the state for backing, the state should question it intently. The state auditor agrees. That’s why he sent a letter to the Legislature in January 2005 outlining measures that body should take before doling out state funds for economic development.

Those measures require a detailed business plan, credit review and market analysis by an independent firm, financial records and matching funds. Referring to the failed beef processing plant, Bryant wrote to lawmakers, “We must do all in our power to prevent a similar outcome from ever occurring in the state’s economic development efforts. We must set a higher standard of review prior to funding speculative projects for any individual or corporation.”

Bryant says these recommendations were put in the SeverCorr bill that passed in the 2005 session. The Mississippi Development Authority gathered the information as set out in the bill authorizing payment of SeverCorr bonds and Bryant’s office audited those controls.

“I think a measure of that project’s success will come from these controls,” Bryant said.

State Attorney General Jim Hood also wants legislators to look carefully at these projects, according to his spokesman Jacob Graham. “I know he’s urging legislators to set up a committee made up of representatives from different entities to have oversight once these projects are put forward because there is a lot of money involved,” Graham said. “A good example is the money coming in from the federal government for Hurricane Katrina relief. A bill has been passed to have oversight for these funds.”

Contact MBJ contributing Lynn Lofton at llofton656@aol.com.

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