Gov. Deval Patrick is taking a lot of heat for his administration’s bet on Evergreen Solar, but the state’s financial partnership with the Marlborough company began under former Gov. Mitt Romney.
Romney, who made his name as a venture capitalist at Bain Capital, invested $2.5 million in Evergreen in 2003 through an obscure state agency called the Renewable Energy Trust. In return for the money, the trust received 2.4 million shares of Evergreen stock, which it sold over the course of several months in late 2004 and early 2005 at a profit of $8 million.
You’d think a stellar return like that would be well publicized, but it’s not even mentioned on the trust’s website. The first hint of the state’s Evergreen bonanza surfaced at a legislative hearing on tax breaks last week when Evergreen CEO Michael El-Hillow said he thought the state’s profit on the stock was more than $20 million. He was basing that estimate on a vague – and inaccurate – reference on the trust’s website that it exited its Evergreen investment in December 2005, when Evergreen shares were trading at a much higher price.
Given the earlier profit, it’s not surprising Gov. Patrick decided to double-down on Evergreen after he came into office in 2007. Patrick took a far more traditional approach. Instead of buying stock in the company, he invested a total of $21 million in cash ($10 million from the same Renewable Energy Trust that profited from Evergreen stock earlier and $10 million from another state authority) and offered another $10 million in tax and lease incentives. In return, Evergreen promised to build a $400 million solar panel manufacturing plant at Devens, retain 310 existing jobs, and add 350 new positions over the next six years.
Everybody knows what happened next. The economy tanked, the solar panel business migrated to low-cost China, and Evergreen shut down its plant at Devens, laying off 800 people. Now officials from the Patrick administration are negotiating with Evergreen to determine how much money the company owes the state for failing to fulfill its job promises.
State officials are conducting audits of the company’s books, but say they will collect at least $3 million to $4 million in clawback payments from Evergreen. They may also seek compensation for lost tax revenue and, under terms of the Devens lease, could seize the factory.
These negotiations are taking place in the midst of a much broader discussion about whether the state should be making bets on individual companies. The story now emerging is that Massachusetts bet on Evergreen twice. The first bet paid off handsomely. The second didn’t do as well, in part because the market for solar panels shifted dramatically in a short amount of time.
Patrick administration officials and Evergreen’s top executives say the second Evergreen bet was good strategically and not too bad financially. They say the state offered Evergreen a combination of cash and tax incentives worth $31 million, but the company tapped only $23 million of the package because it never turned a profit that could be offset with tendered tax credits. The cost may not even be that high, when you consider that $8 million of the package is essentially reinvested profit from Romney’s earlier Evergreen purchase.
On the plus side, the Evergreen deal netted the state roughly $4.3 million in state withholding taxes, $1.3 million in unemployment insurance taxes, and $1.5 million in property tax payments. Evergreen officials say the state probably collected several million dollars more in payroll and sales taxes while the factory was being constructed. Toss in a multiplier impact from all this spending and $3 million to $5 million in clawback payments and you can see why Evergreen and Patrick administration officials make the case that the state will come out even or maybe slightly ahead.
As the Evergreen saga illustrates, picking corporate winners isn’t easy. Critics of the Patrick administration say the state doesn’t have the expertise to make such investments, but Massachusetts wasn’t the only Evergreen investor to get burned. It’s difficult to pinpoint who lost money betting on the Evergreen stock, but filings indicate companies with plenty of high-priced expertise, including Legg Mason, Fidelity Investments, and Wellington Management, had losses. So Massachusetts wasn’t alone. The question for policymakers is whether it should have been betting on the company at all.
