Editor’s Note: The views expressed in MoCo Politics are the writer’s and do not reflect those of Bethesda Beat staff.
If you’re looking for scandal, Montgomery County government has generally not been a great place to find it. Incidents like the liquor monopoly problems of the 1980s, convicted lobbyist Jack Abramoff’s political contributions, conflict of interest allegations involving a former MCPS deputy superintendent, the dismissal of a Department of Economic Development director over a $25,000 grant to a company employing his son, tax liens against two County Council members, reported credit card and expense abuses by school board members and a former Montgomery College president and the bungled (but not criminally afflicted) construction of the Silver Spring Transit Center pale beside the scandals of other nearby jurisdictions. The 1998 murder trials of Planning Board Member Ruthann Aron were certainly sensational but did not relate to her duties in government. Compared to the above, the embezzlement by former MoCo economic development official Peter Bang of $6.7 million in county funds is easily the biggest scandal in modern county history.
The one positive thing that can come from scandals is the opportunity to scrutinize the processes that allowed them to occur and decide how to redesign them to prevent new problems from arising. The administration of County Executive Ike Leggett has proposed a series of useful reforms that the County Council will soon be reviewing. County Executive-elect Marc Elrich, who takes office next week, will have something to say about these problems, too. But what’s been missing so far is an acknowledgement of how critical Bang was to the county’s corporate welfare programs. In fact, Bang was arguably the single most important county employee in administering the county’s business incentives. Bang embezzled money from the county’s business incubator program, not the county’s Economic Development Fund (EDF) Grant and Loan Program, a continuous fund replenished annually by the council, but he had a critical role in administering the EDF. It’s not enough for county leaders to address the narrow aspects of Bang’s criminal activities. It’s time to reexamine how the county does corporate welfare.
Let’s begin with the process. Most business incentives are disbursed through the EDF. Business incentives begin through negotiations between recipient companies and the executive branch. When those parties develop a tentative offer of assistance worth more than $100,000, representatives of the executive branch bring it to the council to be considered in closed session along with data showing associated job creation and economic benefits. Once the council authorizes the offer, the executive may make the offer to the employer. The incentive funds are later allocated through the EDF as part of the council’s budget process. Most incentives are convertible loans that depend on the recipients meeting economic goals such as jobs created or retained, specified capital investment levels and sometimes other criteria. If the goals are met, the recipients keep the money. If the goals are not met, the incentive is regarded as a loan and the recipient must pay it back to the county.
There are numerous problems with this process. First, the executive branch has two conflicting roles: It advocates for the incentives before the council and also prepares data on the job creation and rate of return from the incentives that the council reviews. During my time working at the council, I don’t recall any review of this data by anyone outside county government. Council staffers commented on it in closed session, but they were largely limited to the data provided by the executive branch. Second, the council often has minimal time to consider the justifying data before authorizing the incentives. Third, the secrecy of this part of the process is absolute. Public scrutiny is impossible so long as nothing leaks from the council’s closed sessions. The council has to trust the executive branch’s data is accurate and that staffers are presenting it impartially while also simultaneously advocating for the incentive to be granted. Votes taken by the council to authorize the offers are also secret so county voters cannot hold their elected officials accountable for them. Such a process is virtually guaranteed to produce hasty, ill-informed and sometimes bad decisions.
One result of this process has been to dramatically increase spending on corporate welfare. From 1997 through 2002, the mean EDF incentive was $114,391. That amount more than doubled to $266,429 from 2003 through 2011. After that, the mean incentive rose to $1.8 million. Incentives of a million dollars or more were once rare but are now common. The four largest grants in the history of the EDF , all totaling $12 million or more and scheduled to be allocated over periods of 10 years or more, have been authorized over the last five years, according to county budget data.
Theoretically, the budget process—in which the incentive money is actually appropriated—could bring some transparency and public input. But in fact that almost never happens because the full justifying data seen by the council does not appear in the EDF budget, but is sometimes published in appropriation requests. By the time that EDF appropriations are requested by the executive branch, the offers have already been authorized by the council in secret and made to the recipients. It’s simply too late to undo them.
A rare example of public review of an EDF incentive occurred in 2010 when the Leggett administration proposed a $4 million grant to Westfield Wheaton mall to subsidize construction of a building for Costco. The story began when several sources leaked details about the incentive that were discussed in a council closed session. The incentive was controversial because it was under consideration at the worst point of the Great Recession, when the county was raising taxes, breaking collective bargaining agreements and furloughing county employees. Ultimately, five council members—George Leventhal, Nancy Floreen, Duchy Trachtenberg, Mike Knapp and Roger Berliner—voted to authorize the incentive in closed session while four others—Marc Elrich, Valerie Ervin, Nancy Navarro and Phil Andrews—voted against it. That tally would never have been made public except that it was leaked to me and I published it. Months later, Knapp and Trachtenberg left the council and were replaced by newly elected council members Craig Rice and Hans Riemer, both of whom expressed skepticism about the incentive. The executive branch then asked for the money to be appropriated despite the fact that there were now six public “no” votes. The case made by then-Director of Economic Development Steve Silverman was that since the prior council had authorized the incentive in closed session, the county would be breaking its word to Westfield if the new council refused to fund the money and thus would damage its image in the business community. Silverman told The Washington Post, “We do not believe that a majority of council members are willing to jeopardize future job creation in Montgomery County by voting against the Westfield agreement … . They’re risking the reputation of the county by going after this transaction.” That argument flipped Riemer, Rice and Ervin, all of whom voted in favor of the appropriation for Westfield. (Disclosure: I was Riemer’s chief of staff at the time of that vote.) A precedent was now established: The budget process could only rubber-stamp a closed door authorization already approved by the council. Unique among county spending programs, these decisions to spend millions of dollars on corporate welfare were to be immune from public input and any principles of transparency.
It was within this environment that Bang, a top county economic development official, operated. Bang not only oversaw the calculation of the economic data used to justify the incentives; he was also involved in collecting the data from incentive recipients that was used to decide whether the targets on job creation and investment were met. That gave him a lot of authority and the secrecy surrounding the entire process guaranteed that his activities were immune from public (and press) review. Bang also took advantage of the fact that EDF funds were exempt from the county’s procurement regulations. Bang’s conduct gives rise to lots of questions: Who made the decision to exempt Bang from procurement regulations and when? Were his supervisors monitoring him in any meaningful way? Were the incentives disbursed in line with Bang’s data ever justified? Were the incentives’ economic goal numbers collected by Bang ever accurate? Did taxpayers get their money’s worth from the $43 million in incentives they have so far paid out over the years? Will we ever know? Maybe not, but what’s clear now is that this process is not designed to protect tax dollars—it is designed to maximize the secrecy associated with corporate welfare.
Elrich, the incoming county executive, is a long-time skeptic of corporate welfare and is interested in restructuring parts of county government. He should start with this process. One obvious reform is to remove the calculation of incentive returns as well as the collection of recipient goal attainment data from county government and vest it in an impartial third party. The people whose job it is to advocate for incentives should not control the data on which those incentives are justified. More broadly, the secrecy around this process must be dismantled. There is no other program in county government that is allowed to spend millions of dollars, especially in funds that are disbursed to outside parties, without meaningful opportunities for public review. There is recent precedent for deciding corporate welfare in the open. The state’s financial incentive for Amazon to locate its proposed second headquarters in the county was contained in a bill from the governor’s office that was voted on by the General Assembly in open session and covered by the press. There is no reason why the county can’t authorize business incentives using a similar public process.
Secrecy is the enemy of accountability. Let’s use one of MoCo’s key values—open government—to craft a smarter strategy on business incentives and a better deal for taxpayers.
Editor’s note: This column was updated to clarify that Peter Bang embezzled from the county’s business incubator fund and not the Economic Development Fund (EDF) Grant and Loan Program and to clarify information about business incentives awarded by the county in recent years.
Adam Pagnucco is a writer, researcher and consultant who is a former chief of staff at the County Council. He has worked in the labor movement and has had clients in labor, business and politics.
