Exterran Subject to ‘Clawback’ on $300K Grant
YOUNGSTOWN, Ohio – The Ohio attorney general’s review of companies receiving state incentives during 2015 found nearly 85% “substantially complied” with their agreements, but those that did not may have to reimburse the state.
Just one Mahoning Valley company – Exterran Energy Solutions Inc., a victim of the downturn in the oil and gas market – failed to meet its objectives and had the terms of its agreement altered, officials say. Exterran also may have to pay back a portion of a $300,000 state grant under the incentive’s “clawback” requirements.
The review looked at companies receiving state incentives with terms ending in the 2015 closeout year, meaning the calendar year in which an entity that receives the economic development benefit “must comply with a performance metric specified” in the agreement.
In all, 279 of the recipients substantially complied with their agreements and 50 did not, for an overall compliance rate of 84.4%. As defined by the report, “substantially compliant” means attainment of 90% of the performance metrics set forth in an agreement.
Types of incentives included workforce training and other grants, tax credits and loans.
The report cites “failure to create new payroll” as the reason Exterran was not in compliance.
Under a provision of the Ohio Revised Code enacted in 2008 and amended in 2015, the state attorney general’s office is responsible for “reporting on the compliance of economic development award recipients with awards given by the Ohio Development Services Agency, according to an introductory letter by Ohio Attorney General Mike DeWine.
“While the state encourages growth in business, capital investments, and workforce retention and enhancement through incentives and training, it is imperative that these taxpayer dollars are used wisely,” the attorney general wrote.
Exterran opened a plant in spring 2013 at Salt Springs Road Industrial Park, where it fabricated compressor stations and other equipment for companies exploring the Marcellus and Utica shale plays.
The state awarded a seven-year, 55% job creation tax credit to Exterran, which promised to create 103 jobs and generate a payroll of $4.9 million, according to the report. It created 99 jobs for a payroll of just under $4.2 million.
Though falling short on the payroll projection, Exterran was found to be substantially compliant for its new jobs commitment, Tolan said.
After the plant began operations, in late 2014, oil prices declined sharply because of robust production in U.S. plays and the refusal of the OPEC member nations to cut production, prompting a pullback in domestic production.
Exterran notified Mayor John McNally last December that it would cease operations at the plant by March 31 of this year.
Sarah Boyarko, senior vice president of economic development for the Youngstown Warren Regional Chamber, said the company characterized the closing as a “temporary closure due to industry challenges.”
The closing “was not because they didn’t feel like being here any longer. It was all industry-driven,” she said.
In each incentive agreement the state enters into with a company, it monitors performance throughout the year, said Lyn Tolan, director of policy and communication for the Ohio Development Services Agency.
“Companies have to report to us every year and we do spot checks,” she noted.
Because Exterran didn’t fulfill the agreed-to terms, the state reduced the term of its tax credit to three years ending Jan. 1, 2016.
Agreements typically contain provisions for market conditions, Tolan said.
“Something might happen they did not have control over,” she remarked.
In such cases, the state enters into what she calls “remedial action” with the company.
Any changes in incentives are based proportionally on the company’s performance, Tolan said. “Based on the proportion you reduce the benefit,” she said.
In addition, Exterran received a Rapid Outreach Grant for $300,000 that has a 2016 closeout year.
“We anticipate that will be noncompliant, based on current indicators,” Tolan said. “The company will be subject to clawback of all or part of the grant. That amount will be determined based on the company’s annual report, due in 2017.”
The city received a $250,000 Roadwork Grant related to the Exterran project that partially funded construction of a connector from the industrial park to Interstate 680. “When the roadwork is completed, we consider the municipality compliant and not subject to clawback,” Tolan said.
Copyright 2019 The Business Journal, Youngstown, Ohio.
Published by The Business Journal, Youngstown, Ohio.
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