Nevada's Catalyst Fund: Millions pledged without signed contracts

What gives? Corporate subsidy program rife with confusion, lack of procedures

By Karen Gray
  • Friday, January 31, 2014

LAS VEGAS — With much ado and fanfare, Nevada public officials have aggressively touted subsidies from the state’s $10 million Catalyst Fund incentive program to numerous companies that say they will expand in or relocate to Nevada.

Despite the publicity, however, signed agreements for nearly $7.1 million in committed Catalyst Fund monies do not yet exist and exactly how the Catalyst Fund money flows remains hidden from public view.

The 2011 Nevada Legislature created the Fund as a discretionary grant program to subsidize private businesses that expand in or relocate to Nevada. It is administered by the Governor’s Office of Economic Development, known as “GOED.”

From March to September 2013, the GOED board — chaired by Gov. Brian Sandoval, with members including Lt. Gov. Brian Krolicki, Secretary of State Ross Miller and others —designated nine private companies to receive nearly $5.7 million in state Catalyst Fund grants. Through Jan. 28, 2014, officials insisted to Nevada Journal that signed agreements for those nine awards did not exist. Only when faced with this publication’s deadline did GOED produce one signed agreement for $200,000.

Late in 2013, GOED approved two more subsidy packages totaling more than $1.6 million. Again, no signed agreements exist.

Officials tout subsidies

The absence of signed contracts, however, has not prevented elected officials from publicly promoting the deals and taking credit for government-subsidized job creation in high-profile press events.

At an Aug. 14 ribbon cutting in Las Vegas for a new office of Catalyst Fund recipient SolarCity, Gov. Sandoval was flanked by U.S. Senate Majority Leader Harry Reid, U.S. Representative Joe Heck, Clark County Commissioner Steve Sisolak and five state legislators.

Reid, according to Las Vegas CBS KXNT, said Nevada had “spared the company the ‘bureaucratic garbage’ it might have encountered in the other states.” SolarCity, which received a $1.2 million GOED award, is also a major recipient of federal largesse.

Previously, in June, Nevada Journal — in accord with Nevada’s Public Records Act — had requested copies of all signed agreements, which would have included SolarCity’s $1.2 million GOED subsidy.

On July 8, according to GOED Executive Director Steve Hill, no agreements yet existed for the three applicants approved by the GOED board in March. The reason, he said, was because “they [had] not been approved by the three municipalities.”

Three days later, the GOED board approved subsidies for Ardagh Metal Packaging U.S.A. and three additional companies.

A week after the August photo-op with SolarCity, Gov. Sandoval welcomed Ardagh Metal Packaging U.S.A. to Northern Nevada at a press conference at the Atlantis Casino Resort & Spa in Reno. Also present were Storey County Commissioner Marshall McBride, officials from the Economic Development Authority of Western Nevada (EDAWN), local residents, and other business owners.

But while officials were posing for those August photo-ops, GOED officials continued to tell Nevada Journal that binding executed contracts — with the final signatures needed from the local governments — had yet to be received.

GOED defends delays

The state legal counsel for GOED, Ann Pongracz, told Nevada Journal that long delays for the public to see such contracts and learn how its money is being spent should not be a concern.

Citing her experience as an in-house lawyer for Sprint for 25 years before joining the Nevada Attorney General’s Office, Pongracz said she was “a little troubled by these assumptions that it’s unusual to take a year to get a contract executed.

“For any major customer deal,” she continued, “the customer deals, routinely, could take one, two, sometimes five years to get done. That didn’t mean anything was wrong. It just meant that there was a lot of moving parts.

“So, it’s not a simple process. There are a lot of different people, different organizations involved. I really don’t think it means there’s anything wrong.”

Pongracz is correct when she describes what GOED is doing as “not a simple process.”

Confusion characterizes process

While many specifics remain unknown — GOED insists that no written procedures regarding the Catalyst Fund application or workflow processes exist — what Nevada Journal has uncovered after seven months of interviews, inquiries and public-records requests is a yo-yo-like process in which Catalyst Fund applications bounce around between regional development authorities, local municipalities and GOED — and maybe back again.

Officially, at least, once a business selects a site for its relocation or expansion, it submits an application, typically assisted by a Regional Development Authority, to the local municipality, identifying its project on a state form provided by GOED.

The municipality then, for its part, submits this application, along with the municipality’s own application, to GOED for board approval.

This process is both confirmed and contradicted in the “Catalyst Fund Overview” document on GOED’s own website. According to page one, Regional Development Authorities take Catalyst Fund applications to the local municipality, which then takes them to GOED.

First, the business that desires the incentive will apply, with assistance from the pertinent designated Regional Development Authority, to the local government in which the business is or will be located…

The second step is an application from the local government, again in collaboration with the pertinent designated Regional Development Authority, to GOED.

Page two, however — “Procedures for Applying for Catalyst Funds” — states that the RDA itself submits the application to GOED:

To apply for a grant or loan from the Catalyst Fund, a Regional Development Authority (as defined in NRS 231.1571) must submit an application to GOED on the application form prescribed by the [GOED executive director]…

Moreover, page two cites for its authority NRS 231.1571 — a statute, the content of which, even the Legislative Counsel Bureau could not locate.

This contradiction notwithstanding, according to Clark County’s former economic development manager Lesa Coder and the City of Henderson’s public information officer Kathleen Richards, local governing bodies are not required to approve this application prior to its submission to GOED.

Applications, say Coder and Richards, were — in their experience — routinely compiled and submitted through local agency staff, without local governing board approval, on the understanding that these applications were non-binding.

GOED: Our approval is — and is not —the final step

Nevertheless, say GOED officials, if that application is then approved by the GOED board, GOED’s grant contract with the municipality is then triggered  and the relevant sum of Catalyst Fund money is considered encumbered — placed in “reserve.”

However, GOED agendas never state that a grant agreement is being approved or offered. Instead, they always state that an “application” is up “for possible action.” This could present a legal problem, since Nevada’s open-meeting laws mandate that all actions of a public body, such as the GOED board, must be clearly agendized in advance.

So does a GOED board approval of a municipality’s application actually constitute a legal agreement for the disbursement of money — as it is represented in GOED’s press releases and numerous media stories?

State law — NRS 231.1577 (3) — says, in relevant part, “If the applicant is requesting more than $100,000, the board may approve the application and make a grant or loan of money from the Catalyst Account to the applicant.”

Because of that language, the board appears to face a choice at this point. Either it can approve the actual grant agreement in an additional, separate board action, or it must consider its approval of the application to constitute approval of the grant contract — despite local governments’ understanding that the applications are non-binding.

The latter is the case, according to Wendy Pope, project manager for GOED. It is the approval of the application that “produces the contract,” she told Nevada Journal.

No further approval by the board is required, says board counsel Pongracz, and the contract, once signed by the municipality, does not go back to the board.

The reason for that, according to Pongracz, is because GOED uses a pre-determined form contract. Although that contract form may be revised over time, she says, only one version is in use until a newer version is adopted.

“Everybody whose application is approved by the board in a specific period of time will get the same form contract,” Pongracz explained in a December meeting with Nevada Journal.

While GOED’s press releases announcing the approval of the nine catalyst applications indicate that the deals are final, GOED officials insist that “approved” contracts remain unsigned pending the support of local governments.

Adding to the confusion are the different accounts given by GOED officials as to what happens after the board approves a local government’s application. In some accounts, the municipality is then essentially finished with GOED and then turns to negotiate locally with the prospective grant-receiving business. In other accounts, the municipality continues to negotiate with GOED — the reason for which is unclear.

Inconsistency and confusion abound

At the level of Nevada’s local governments, similar confusion exists. Municipalities sometimes characterize their role as essentially passive — to “act as a pass-through for the funds offered by the state,” in the words of Henderson spokeswoman Kathleen Richards. But they present themselves as actively working out terms with the recipient businesses.

As with the GOED board, all actions of a county commission or city council must take place in a public meeting, in accord with Nevada’s open-meeting law. However, with the exception of first-grant-recipient Take-Two Interactive Solutions approved in GOED’s December 2012 meeting, not until December 2013 did any other Catalyst Fund agreement ever appear on any local government agenda. And even in that case, the City of Henderson has still not executed any written agreement with GOED.

Representatives at both the municipality level and the state level say — despite GOED’s press releases — that is because the municipalities and GOED are still negotiating their agreements.

When asked for comment, GOED spokeswoman Jennifer Cooper wrote to Nevada Journal that three “contracts are complete and most, if not all, of the remaining contracts will be completed within the next 30 days — well in advance of necessary deadlines.”

When Nevada Journal asked Cooper to send it the three completed contracts, Cooper only sent one new contract, dated Jan. 6, 2014, and the signed Take-Two contract already received.

Another point of inconsistency has to do with whether GOED’s executive director, or the municipality, is first to sign the local government agreement with GOED. 

GOED officials assert that once the application is approved, GOED sends the form agreement to the municipalities for signature. Municipalities then go through their approval process, sign the agreement — as first signatory — and then send it back to GOED for Executive Director Hill’s signature.

However, in the first instance of a GOED-municipality fully executed agreement — the Take-Two software deal — it was Hill who was the first signatory.

RDAs fight transparency

Some municipalities have simply refused to get involved at all, while others have made a point of remaining at arm’s length, leaving the entire business in the hands of the local regional development authorities, which are under contract with GOED.

Reno, which submitted a Catalyst Fund application, keeps no records, referring reporters to EDAWN. And in Northeastern Nevada, Pam Borda of the Northeastern Nevada Regional Development Authority told Nevada Journal that area local governments "indicated absolutely no desire" to use the Catalyst Fund.

Frequently, RDAs pose a final obstacle to public transparency and accountability. Though defined by the state as local governments — and thus, as such, subject to Nevada’s Public Records Act — some RDAs have flatly denied Nevada Journal access to public records.

Mike Kazmierski, president and CEO of EDAWN, answered one request by asserting “that EDAWN has no obligations under the Nevada’s [sic] public records law.”

He stated that EDAWN was a “private, non-profit” which was not in any way a government entity…”

The Nye County Regional Economic Development Authority responded similarly: "Because NCREDA is a private nonprofit corporation under NRS 82.016 and not a governmental entity," wrote Pam Webster, NCREDA president, "it is not subject to the public records act and therefore your request for the NCREDA documents is denied." (Emphasis added.)

However, a 2012 opinion from the office of Nevada Attorney General Catherine Cortez Masto that sought to characterize the Catalyst Fund as constitutional stated that “by definition,” a regional development authority “must be a local government.”

The Las Vegas Global Economic Development Alliance (LVGEA), too, has failed to honor the state public-records law. A month after Nevada Journal’s public-records request to LVGEA, the organization’s president and CEO, Tom Skancke, sent a letter saying LVGEA would respond to the request within ten business days, “or, not later than the end of business, December 3, 2013.”

Nevada Journal did not receive any response from LVGEA until January 30, 2014, when the publication was advised by the Greenberg-Traurig law firm that, "the Alliance is not subject to the requirements of NRS 239"—Nevada's public records chapter.

EDAWN currently has a $1.2 million two-year contract with the state. LVGEA, the largest regional development authority in the state, currently has a $2.9 million two-year contract with the state.

Since the Governor’s Office of Economic Development was established in 2011, it has earmarked $8.2 million for contracts to fund regional development authorities.

Given the historical tendency of government-subsidy programs to be beset by political cronyism, the need for transparency and public accountability regarding the Catalyst Fund would seem acute. Yet the people of Nevada remain in the dark.

A senior writer with the Franklin Center for Government and Public Integrity, Kevin Palmer, in an article published by the Las Vegas Sun, noted the classic temptation that the Catalyst Fund law has placed before elected officials:

By placing such great power in the hands of the Board of Economic Development, the fund allows the politicians and unelected bureaucrats who comprise the board to stack the deck in favor of businesses that have donated to their campaigns. Each of the nine members of the board — ranging from elected officials to six bureaucrats appointed by Carson City politicians — have deep ties to the corporate community, and can now use the powers of the fund to steer money to their preferred businesses.

Karen Gray is a reporter/researcher with Nevada Journal. For more in-depth reporting, visit http://nevadajournal.com/ and http://npri.org/.

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Update: After this article’s deadline and on January 31, GOED supplied the third, completed contract it promised Nevada Journal on January 28. The $125,000 contract between GOED and the City of Reno is for Lincoln Cutting Systems, Inc.