Tobacco commission grants can leave communities on the hook

The executive director of a Virginia economic development commission bent rules to forgive a six-figure grant to a politically connected developer whose planned biofuel project didn’t pan out, documents obtained by The Associated Press show.

The Tobacco Region Revitalization Commission's Evan Feinman did not recoup $210,000 Chuck Lessin owed the state, according to a report from the Office of the State Inspector General. Feinman instead allowed Lessin's unrelated work as a member of the Virginia Israel Advisory Board, which also promotes economic development, to count toward the money he owed when his Appalachian Biofuels project fell through.

In an interview, Feinman defended the decision, saying Lessin took an “adversarial approach” to repayment and, ultimately, beleaguered Russell County where the project was supposed to locate would have been on the hook or facing litigation if the grant wasn't forgiven.

Lessin, who runs a bingo hall in suburban Richmond and is a Republican political donor, did not respond to requests for comment.

The episode is the latest in a series of questionable business deals made by the commission created more than two decades ago to spend Virginia’s portion of the national tobacco settlement. Infrequent state reviews have found persistent problems with how money is spent and tracked. And AP s review of the program that funded Lessin’s venture found tangled repayment situations have played out time and again across the poorest parts of the state.

The commission gives performance-based grant or loan money to local governments through the Tobacco Region Opportunity Fund. The money then flows to developers at the beginning of a project. But if the project doesn’t meet its promised goals, localities can be left holding the bag if the private companies don't repay them.

Since the inception of the program, the commission has sought to recoup about $22.9 million through the places it's meant to help, with about $1.6 million currently outstanding from 14 localities, records provided to AP in September show. The commission does not track how much of that money was effectively repaid by the developers or the locality, likely with taxpayer money.

“Since our primary focus is supporting and growing the economies of the localities we serve, we work with them on a repayment plan when necessary and try to be as flexible as possible so that we don’t impact often tight local budgets,” commission spokesman Jordan Butler said.

Multiple state audits have found the commission's efforts to recover opportunity fund money have been inconsistent. An investigation published earlier this month by the legislature's watchdog agency also found the program has not met job creation and capital investment goals, and "a high percentage of projects did not materialize.”

Examples from across Virginia show the difficulty localities can face when a project falls through or fails to meet required goals.

In 2014, Danville had to sue two companies and their executives in an effort to recoup two grants. The city has been subject to clawbacks of nearly $7 million from 14 projects, according to records provided to AP.

In Martinsville, one clawback triggered a complicated fight after a medical school venture fell apart. In 2017, the commission ordered that the grant be repaid. When the developer said he didn’t have the money, it became the city’s problem, the Martinsville Bulletin reported.

The city conducted an investigation into the project and how the money was spent, and then asked authorities to consider legal charges.

Commonwealth’s Attorney Andrew Hall, who reviewed the city’s files, said he found no evidence of criminal intent. But he said it was clear the project was a stretch.

“I don’t see how this was ever going to work,” he said.

Martinsville still owes $312,000, according to commission records.

Tracy Gee, the administrator of rural Lunenburg County, said the board of supervisors had “learned some lessons” after having to repay at least one grant in the past and now requires strict performance agreements with developers.

The program’s money is often doled after discussion that takes place out of public view — as was recently the case with a $4 million grant and $4 million loan approved for a code-named Project Red in Pittsylvania County — and AP's reporting also raised questions about the commission's bookkeeping.

Documents initially showed that the biggest single outstanding recall was $1.4 million for a call center in Wise County. When AP asked for details, the commission backtracked, saying the project had met its goals and no repayment was due after all. The commission also lists $341,000 due from the Grayson County Economic Development Authority for two projects approved in 2015, but Deputy County Administrator Mitch Smith said he's never heard from the commission about it.

In the case of Lessin’s project, documents show the commission was notified in 2016 that the project wasn’t advancing, but negotiations over repayment dragged on for years.

Appalachian Biofuels spent $210,000 on project-related costs but stopped using the grant money after a drop in oil prices, according to commission documents and the watchdog report. The company provided a list of expenses to the tobacco commission that show significant spending on travel or lack much detail.

The inspector general's report said there were valid business reasons for not taking legal action to pursue repayment from Lessin. But it said Feinman's compromise agreement lacked the required approvals.

Previous activities of the commission, which has doled out more than $1 billion on a wide range of projects since its inception, have attracted law enforcement attention, including the arrest of a former commissioner who stole millions. At least one grantee is currently under criminal investigation, according to the inspector general’s office.

Democrats, in charge of the legislature this year for the first time in a generation, recently replaced many longtime Republican commission members and have pledged to institute changes in how it operates. One proposal: more loans instead of grants.