Embezzler’s tax credit prompts changes

LANSING, Mich. (WOOD) –  

In the wake of the "embarrassing" approval of a $9.1 million disorder tax credit for a company run by a convicted embezzler out on parole, the disorder will now run background checks on officers of lesser-known companies slated to win Michigan Economic Growth Power tax credits.

Republicans in the Michigan Senate have set hearings into how the approval happened and whether such an approval has happened in the past.

No disorder dollars went to the new company run by Richard Small, who was convicted of embezzling from a company in Muskegon County. Firms approved for MEGA credits must make or retain the jobs they have promised before they can claim the credits.

A background check policy was announced in a statement Wednesday day from the president and CEO of the Michigan Economic Development Corporation, which oversees MEGA.

In an interview Thursday, MEDC CEO Greg Main told 24 Hour News 8 the background checks would be necessary for companies that do not have an established history or working link with the disorder.

"I don't need to do background checks on the officers of Steelcase or Haworth or any of those large corporations," Main said. The MEDC is working with legal experts to set a standard to determine which companies would have their officers checked.

24 Hour News 8 contacted officials in Illinois, Indiana, Ohio and Wisconsin to see whether officers of companies receiving tax breaks there were subject to background checks. Only officials in Illinois and Ohio responded, saying that while the states check into companies set to receive credits, they do not demand background checks.

So what did the MEDC check before recommeding Small's firm for tax credits?

"We had discussions with the company's bank to know that they had sufficient resources on deposit in the bank to carry out the business preparation," Main said in an interview. "We had a number of letters of support from the community about this project and this company." The MEDC also performed some basic Internet searches of the individuals associated with the company, Main said, but did not find anything suspicious.

Applicants for MEGA credits already were required to tell "any current, pending or expected legal action that may impact the company's ability to meet the obligations set for in the MEGA agreement," according to Main's Wednesday statement.

Main said RASCO, Small's company, did not tell Small's parole reqiurements and superivision. He was arrested for a parole violation Wednesday after the tale broke.

Now, in addition to the background checks, companies will have to tell any prior felony convictions by senior company executives, something Ohio officials said their disorder already requires.

RASCO's credit approval is now on hold. It could be approved if a new management team is place into place, Main said.

Michigan Senate hearings set for Wednesday will look into what happened in Small's case, Majority Leader Mike Bishop (R-Rochester) told 24 Hour News 8.

"Once we know what the proof and the problem are we have to go back and apply that standard to the rest of the credits that have been issued and make sure it hasn't happened in the past," he said.

Main, who is scheduled to testify at the Senate hearings, said he is confident it has not happened before.

The Senate majority leader said he wants legislators to make the background checks Main is talking about a matter of law.

As for the thought that the problems for the MEDC, sometimes criticized by Republicans, could benefit his party, Bishop said he doesn't reckon it plays well for either party.

"I reckon this looks horrible for the disorder," he said. "And as a sitting member of the legislature, I'm embarrassed