Sometimes Betting Big Doesn’t Pay
Last week I wrote about a $25 million loan program managed by the West Virginia Economic Development Authority that lost more than $24 million over the last 19 years.
The Legislative Auditor’s report on the whole affair is quite damning, but not surprising. I’ve had a couple readers emailing me and asking what the next steps are. Who are the names of those responsible? Will there be a forensic audit? Will anyone be criminally charged?
Unfortunately, this is a common tale in West Virginia government. The current leadership of the EDA can be excused since almost all of this happened during the time of former governors Bob Wise, Joe Manchin and Earl Ray Tomblin, but we will likely never see anyone from prior EDA leadership brought up on any charges.
I’m unsure criminal charges are even warranted. To summarize, a 2002 law allowed the Board of Treasury Investments, controlled by the State Treasurer’s Office, to lend $25 million to the EDA for a loan program. The EDA then made loans to seven venture capital firms, who then invested money into West Virginia businesses.
The goal was simple: by investing in these businesses, they would be successful and retain or hire more workers. Their success would result in returns on investment for the venture capital firms, who would then repay their loans to the EDA, who would then repay the $25 million loan to the BTI.
That never happened. Not counting interest payments, the EDA was only able to pay BTI more than $600,000 on the principle of the loan, leaving more than $24 million outstanding. Four of the seven venture capital firms went into receivership. Two of the venture capital firms that received a combined $8 million never invested any of it in West Virginia businesses as required. And the EDA between 2002 and 2016 kept shoddy records and could never confirm if any of the venture capital investments resulted in economic development or jobs created or retained.
The whole point of venture capital is investing in businesses and ideas in the hopes that those investments bring in big returns when the business or idea takes off. It’s a risky venture and it doesn’t always pan out. That’s not the issue, unless you believe government shouldn’t be using taxpayer dollars to pick winners and losers.
The issue here is when the Wise administration and the Democratic-controlled Legislature passed the bill that created this loan program, they included no real benchmarks and reporting requirements and no real oversight. Hence why the loan program escaped scrutiny until 2019 when former State Treasurer John Perdue tried to close out the loan program and discovered the issues before asking the Legislative Auditor’s Office to investigate.
This begs another question: Why did the State Treasurer’s Office only discover these issues in 2019? Perdue was a six-term state treasurer who took office in 1997, five years before the EDA loan program was created. Why did it take 18 years to discover that $25 million loaned to the EDA in 2002 hadn’t been paid back?
The new state treasurer, Riley Moore, has only been on the job for two weeks, but he is digging into this issue, as well as looking at other programs funded by the BTI.
Derrick Evans — the former Republican member of the House of Delegates from Wayne County who is charged for participating in the sacking of the U.S. Capitol Building more than three weeks ago in an attempt to stop Congress from finding President Joe Biden as the winner of the 2020 election — was replaced last week. But that has become a controversy of its own.
Evans resigned Jan. 9, which triggered a 15-day window for the local political party executive committee to select the names of three qualified individuals to send to Gov. Jim Justice, who then had five days from the date he received the list to choose one out of the three nominees.
In this case, the Wayne County Republican Executive Committee submitted its letter with three names on Jan. 14. But the West Virginia Republican Party submitted its own letter on Jan. 22 with three names. The only different between the two letters is the state GOP letter switched out one of the names for Joshua Booth. Coincidentally, Booth was who Justice selected last Wednesday.
The Wayne County REC has filed suit with the West Virginia Supreme Court of Appeals to force Justice to choose from one of the names on their list. Justice and his advisers believe the second letter is valid and are comfortable with Booth’s appointment. I’m told the issue stems around whether the Wayne County REC followed state Republican Party bylaws when it met and selected names.
State law is pretty clear: Justice needed to pick one of the names submitted by the county committee as long as it’s within the 15-day window from when the delegate resigned. After 15 days, state code allows Justice to pick who he wants. But did the county committee follow the internal rules the state party requires? The Supreme Court will have to decide.
If there were issues with how the Wayne County REC selected names, Justice could have waited 15 days then made his choice. It’s likely a court case would happen regardless, but then Justice would have a good argument in court. Instead, to the layperson, it looks like the rules were changed to name an owner of a business who does work for the state as a lawmaker.