I have posted previously about the Destiny USA debacle, wherein the IRS is auditing a "green" shopping center project that failed to meet its sustainability obligations that qualified it for tax exempt bonds.
Now, according to the Boston Globe, a solar manufacturing plant in Massachusetts that received $4.5 million in property tax abatements will have to pay back a portion of the money.
On Thursday, the Economic Assistance Coordinating Council, the state board charged with overseeing the tax breaks, unanimously voted to cut short Evergreen’s 20-year property tax break, originally estimated to be worth $15 million, and voided another $7.5 million in state tax credits after the company eliminated the hundreds of jobs it promised to create and retain in Devens.
Out of the $4.5 million in property tax breaks they have received to date, Evergreen will only have to repay the current year’s value, about $1.5 million, and in addition to the property tax breaks, the now almost defunct solar manufacturer also received over $21 million in other grants, the fate of which is uncertain.
A question which occurs to me is why didn’t the government pull the plug sooner? At this point, it may be all but impossible to recoup the public investment. To the extent that the public is taking a position in green companies (or any companies, for that matter), someone should be watching to guard the public’s investment. As early as 2009, the writing was on the wall for Evergreen. According to their 2009 Annual Report:
We cannot assure you that our business will generate sufficient cash flows from operations, or that future borrowings will be available to us in amounts sufficient and on terms reasonable to us to support our liquidity needs. If we are not able to generate sufficient cash flow to service our debt obligations, we may need to refinance or restructure our debt, including our senior convertible notes, sell assets, reduce or delay capital investments, or seek to raise additional capital. We may incur additional indebtedness. If we do so, our increased debt service requirements may adversely affect our ability to meet our payment obligations on our currently outstanding senior convertible notes and otherwise successfully grow and operate our business.
Moreover, Massachusetts rescinded Evergreen’s property tax breaks for failure to create jobs, not failure to achieve environmental goals. The state should have known about this situation well before mid-2011. As early as 2009, Evergreen announced it was moving its manufacturing operations to China. According to its 2009 Annual Report:
In addition to our direct expansion into China, we also announced plans to begin shifting panel fabrication from our Devens facility to China using wafers and cells produced at the Devens facility.
[As a side note, Destiny USA had both obligations–to create 1000 construction and 1500 permanent jobs, as well as install its green features. The IRS may follow suit and rescind the tax exempt status of the Destiny bonds for jobs reasons, thus avoiding the controversy over whether the green aspects were met]
According to the company’s website, Vanguard Group, Inc., BlackRock Institutional Trust Company, and Brigade Capital Management, LLC are the top holders of Evergreen stock. To the extent that Evergreen issued tax exempt paper, it will be interesting to see if these entities enter the fray if the tax exempt status of their investments is rescinded.
Moreover, if Evergreen declares bankruptcy, it will be fascinating to watch whether the public agencies which granted the incentives will be able to recoup any of their investment, particularly where they are competing with private creditors.