The subject of economic development incentives is receiving lots of publicity these days. The Amazon relocation debacle revealed what can happen when the entire community is not on board with major business recruitment. When incentives are properly used, the community wins and the company receiving the incentives wins. However, because some communities are so desperate for jobs they are easy marks for economic development scams. This is a warning to local elected officials and community leaders. There are phony developers of all types out there who will take advantage of your community.
Because most communities will do just about anything for more jobs, you are especially vulnerable to unscrupulous real estate developers who will promise shopping centers, office buildings, distribution centers and all manner of development in return for your giving them some type of incentive for their investment in your community. I’ve seen some scams that were almost admirable in their complexity and others that were so simple it was laughable.
In this column I’m going to profile one case that happened a few years ago in a medium-sized city in Mississippi. A scam artist, whom we will call Mr. Insurance, contacted a local city council president and said that he could bring in “as many jobs as you want” to the community. His story was that he was the owner of an insurance company that was ready to move south to a state where business conditions were more favorable. His tale was that his company operated a nationwide call center for several insurance companies. The jobs would be above average in pay and benefits, and the company was known for being involved in the community.
After a tour of the community in the council president’s car, Mr. Insurance got down to business. In return for bringing jobs to the town he wanted a fully furnished building and training for the future employees. Interestingly, this “prospect” never contacted anybody with the state or even the local chamber of commerce. The city council president had the item placed on the agenda for the upcoming council meeting.
Two days before the city council meeting, Mr. Insurance called the council president and asked for an immediate meeting. He requested that the council president meet him at the local airport at 4:30 P.M. “I’ll be arriving in my plane.” The council president went to the town’s general aviation airport and watched as a Lear Jet landed and taxied over to him. Off the plane came Mr. Insurance. He got in the council president’s car and with a sense of urgency said that another city in another state had agreed to screen the workers and to send them to the company’s existing training center instead of training them locally. Mr. Insurance said that this was much more efficient because their trainers were already in place. The city council president got nervous, afraid he was about to lose the deal.
“Let’s get to the bottom line,” said the council president. “What do we have to do to get your company to relocate here?”
“As I said,” replied the prospect. “If we could have that training expense paid, we could come here.”
“If we trained a hundred people for a week, our expenses would run about three thousand per person, so that would be …”
The council president did the math and immediately said, “Three hundred thousand. Let me see what I can do. I’ll let you know by tonight after I poll the other council members and the mayor.”
And then away flew the jet, leaving the council president a bit nervous. He knew that this could be the biggest thing for his town or a big disaster.
He called the state attorney general’s office immediately and told an investigator what was happening. The state investigator first checked on the private jet and learned that it was registered to an aircraft brokerage company. A few more phone calls and it was discovered that a man fitting the description of the prospect had taken the jet on a test flight after telling the aircraft company that he was interested in buying a plane. Further investigation revealed that the prospect was an insurance broker in another state, and that his license was on suspension. In short, he was not who he said he was.
Fortunately, this was a case that ended without the city closing any money. It also brings up the need to do basic research on any individual who shows up wanting to help a city by bringing in jobs or revitalization projects. Here are some things that city officials can do to check out such individuals:
1. Perform an Internet search of the individual’s name and any others mentioned;
2. Personally contact someone in the building permit or planning office of the prospect’s hometown;
3. Ask for financial statements of the company and previous projects (note – a pro forma is not a financial statement in these cases);
4. Ask for, and contact references;
5. Contact the Better Business Bureau; and
6. Contact the business editor of the prospect’s hometown.
I’ll stop there because it is obvious that these are very basic things that should be done when doing business with anyone. Nevertheless, it is amazing to look back on scams and see how few times such things are not done.
» PHIL HARDWICK is a regular columnist for the Mississippi Business Journal. His email address is email@example.com.
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