Baltimore City Paper

Your Tax Dollars At Shirk

An audit of the state agency that doles out loans and grants to corporations on the theory that they'll create lots of jobs has (again) found no confirmation of the jobs created.

As it did in 2001 and 2005, the state Department of Legislative Audits reports that the Department of Business and Economic Development (DBED) did not validate the job-creation claims made by companies that received more than $27 million in state funds.

2008 audit:

2005 audit:


2001 audit:

The corporate recipients of these loans promise to create a certain number of jobs in exchange for the loot, and if they succeed, the loans are forgiven. Basically, taxpayers are paying companies to create jobs--jobs that, presumably, will help increase the corporations' profitability.


DBED checks the job-creation figures by asking the companies how many jobs they created. Unsurprisingly, the companies answer that they've created lots and lots of jobs--way more than required under the terms of the loan. DBED then transmutes the loans into gifts.

The legislative auditor suggests that DBED should be less trusting. DBED thinks that would be silly. As the department writes in its answer to the audit finding:

In a footnote, the legislative auditor notes dryly:

Indeed, for the past 10 years, DBED has agreed--and failed--to verify much of anything, either by checking the companies it gives money to or checking the

it pays to run its minority business-loan program.

Meridian Management Group (MMG) collects $1.3 million annually to run a $7 million revolving fund that makes small loans and backs performance bonds for minority contractors. Theoretically, MMG funds companies that already have state or federal contracts in hand, but lack working capital to perform on those contracts. Yet even with the additional state backing, many of these minority contractors fail to repay the state money. Historically, the fund loses about $750,000 per year to bad loans.

To make sure all of Maryland's thousands of small, minority-owned businesses get a fair shot at funding, MMG is supposed to document "substantive contacts" with at least 600 different businesses each year.

Yet, according to the new audit:


This is just about the same thing auditors reported in 2005: "Consequently the Department was not aware of who the contractor contacted, nor was the Department in a position to verify, even on a test basis, the contacts reported."

Which was essentially the same thing they said in 2001: "Although the Department concluded that the contractor had met the established performance standards for fiscal year 1999, there was a lack of documentation to support . . . that conclusion."

The legislative auditors also recommended that DBED audit MMG periodically--something they had also recommended in their 1998 audit, citing similar record-keeping deficiencies. DBED agreed to do it.

Then it failed to do so.

In a draft of its latest audit, the legislative auditor suggested that DBED might want to check on a few of the "substantive contacts" MMG claims to have made. Just call the numbers and ask whoever picks up the phone how they've enjoyed MMG's services so far.

Bad idea, says DBED in its response to the audit: "This type of business practice may cause an undesirable perception of the Contractor and send a negative signal to a prospective client, possibly resulting in loss of business relationships."


Get that? The state agency pays MMG $1.3 million per year to lose about $750,000, and it refuses to check the performance of this contract for fear that it might make MMG look bad. The best part? The legislative auditor apparently agrees with DBED on this point. It dropped the suggestion from the final audit report.

To be fair, not everything MMG does gets past DBED. The new audit reports that one bankrupt recipient of a $1 million line of credit

The company, which is unnamed in the audit, reportedly stiffed DBED for about $167,000. "As of May 30, 2008, the bankruptcy claim remained outstanding and the referral was under investigation by the Criminal Division," according to the audit.

How many more cases like this are there? No way to know: since MMG is a private contractor, it's not subject to the Maryland Open Records law. So we only get to find out what DBED tells us.