- - Sunday, October 26, 2014

More than $5.2 million in “tobacco” grants to Virginia communities has disappeared, leaving some of the state’s most depressed areas deeper in the red.

From July 2007 until October 2014, 22 localities defaulted on Tobacco Region Opportunity Fund (TROF) grants or owe the Virginia Indemnification and Community Revitalization Commission money, said Ned Stephenson, the commission’s deputy director.

Fifteen of those localities — which are given the money from the state fund to use as economic development grants in order to lure new businesses to the state’s tobacco-producing region — owe a total of $5.2 million, according to documents obtained through a Freedom of Information Act request. Since the grants are performance-based, they must be repaid if benchmarks such as new investment or job creation are not met, and of the 22 localities that defaulted, 15 still owe money.

“I do not have or maintain a list,” Mr. Stephenson said in an email. “We work these one at a time as they mature.”

Some of the poorest counties in Virginia owe the most. The city of Danville owes the commission $3.4 million, and the Lee County Industrial Development Authority (IDA) owes $600,000.

Lee County defaulted on two different grants, and the county’s IDA director acknowledged the probability of collecting a full reimbursement is quite low.

“The contracts are three-party contracts,” IDA Director Michael James said. “The commission administers the grant to us, and we then administer the grant” to private companies that come to town with promises of jobs.

In the event of default, he said, the process works in reverse: The company owes the IDA and, in turn, the IDA owes the commission.

“We owe the commission regardless of whether we collect from the company,” James said.

Others owing money include Charlotte County, the town of Marion, Lunenburg County, the Patrick County Economic Development Authority, the Tazewell County IDA and the Washington County IDA. Each has received a notice of default and a demand for refund, or is subjected to a repayment agreement.

Virginia was given some $4.1 billion in reparations after 46 state attorneys general sued large tobacco companies in 1998. The tobacco commission received half that amount, and so far has awarded 1,807 grants totaling more than $1 billion, according to its website.

The commission, as of August, had nearly $564 million in cash and investments.

To keep track of created jobs, the commission relies on Virginia Employment Commission data to verify companies are keeping their promises and creating jobs, according to Tim Pfohl, the commission’s interim executive director.

“That provides us an independently verified source that’s also used by the state for calculating business and income taxes,” he said in an email.

If a county defaults on a loan, the tobacco commission freezes any money going into that county. Mr. Stephenson said some localities have paid their debt while others are negotiating repayment plans or have executed a repayment plan.

The Virginia Indemnification and Community Revitalization Commission, a 31-member body, was created in 1999 by the General Assembly to use the proceeds of the 1998 national tobacco settlement in the “promotion of economic growth and development in tobacco-dependent communities.”

In 2011 the Joint Legislative Audit and Review Commission (JLARC) published a report recommending tighter accountability by the commission.

The commission’s “process for evaluating funding requests does not effectively screen out weak proposals,” the report states.

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