Communities in Livingston County are being asked to contract out their economic development efforts to a single source, Ann Arbor Spark (Spark). Spark proponents are asking policymakers throughout Livingston County for taxpayer funds to support this effort.
For about six years Spark has received financial support from Livingston County taxpayers. According to figures published by Spark, Livingston County taxpayers provided Spark with about $1.3 million through 2015. Spark recently requested another $600,000 over the next three years from the Livingston County Board of Commissioners.
The Board rejected this request, opting to approve $175,000 for one year while requiring more transparency into the finances surrounding Spark’s economic development in Livingston County. The added reporting requirements will provide the Board additional information to assess the effectiveness of Spark’s efforts.
In the interest of providing policymakers with comprehensive information, The Gadsden Center, a non-profit public policy research organization publishes this report for county, township, and city officials. Based in Livingston County, The Gadsden Center is well suited to conduct this in-depth examination on behalf of Livingston County citizens and taxpayers. The analysis contained in this report is intended to provide policymakers with perspectives that they may not have gained from Spark or other sources.
Executive Summary
Our analysis of publicly available information uncovered several areas of concern that merit further investigation on the part of Livingston County policymakers. While discussed in the body of the report, these concerns are highlighted here in the executive summary. (For those desiring a detailed analysis please turn to page nine. For a listing of our source information please turn to page three.)
- Before committing further funds, policymakers should carefully evaluate Ann Arbor Spark’s past performance. Our research suggests they should seek a full and comprehensive disclosure of all available data regarding Spark’s business and investment performance. The Gadsden Center makes this recommendation based upon past media reports, both local and national, of Spark’s financial irregularities, and use of inflated job creation numbers to bolster their request for taxpayer funds.
- Spark’s efforts appear to be skewed toward Washtenaw County. Specifically, Spark claims credit for new investments in Washtenaw County of $1.679 billion, while claiming credit for just $0.197 billion in Livingston County. These figures show Spark claims to have generated 8.5 times (850%) more in new investments in Washtenaw than in Livingston. In fairness, it should be noted that Washtenaw jurisdictions contributed 36% more funds to Spark than Livingston jurisdictions.
- Paul Krutko, the current President of Ann Arbor Spark left his previous job under a financial cloud. One media report indicates Krutko left San Jose after an undisclosed “breach of city policy.” Another media account reported, “Last month, the city’s imploding redevelopment budget led to a suggestion that Krutko’s Office of Economic Development be folded into the agency.” This red flag suggests that policymakers should dig deeper, and not just accept, at face value, Spark’s self-assessment of their own economic performance.
- Both the State of Michigan, and the Ann Arbor-Ypsilanti Local Development Finance Authority have opted not to renew funding for Spark. While the reasons for defunding are not known, it is reasonable to surmise that these jurisdictions concluded there were better uses for their taxpayer dollars. Also, it has been reported that Marion Township has decided not to renew funding; however, The Gadsden Center has not yet received confirmation of this.
- Several potential conflicts of interest were described in in Spark’s 2016 Audited Financial Statement. Additionally, this same audited statement pointed out that Spark’s banking practices creates unwarranted financial risk for Spark and for taxpayers.
- As a taxpayer-funded venture capital entity, Spark invests in start-up companies in Michigan. One measure of Spark’s performance is the value of their investment portfolio. Over the last six years Spark’s investments have declined by 26%. In contrast, the small-cap market, as measured by the Russell 2000 index increased by 64%. Would policymakers be willing to accept this level of performance with their own personal funds? Would policymakers hire a consultant with this track record?
- During this same six-year period, Spark’s annual expenses have increase by 74%. This is another red flag suggesting Spark may not be as careful with taxpayer funds as a private individual would be with his/her own funds . It should be noted that a substantial portion of this increase is attributed to increases in salaries and compensation. Salary and compensation increases are highlighted below:
a. Spark’s tax returns indicate that the number of employees has doubled, going from 30 in 2011 to 61 in 2016.
b. Spark’s President has seen his total compensation increase by 42%, or 7% per year. In 2016 Spark’s President earned $320,743, an increase of nearly $100,000 over his $225,000 starting compensation (2011).
c. Handling economic development for two Michigan counties, Spark’s President earns more than the head of economic development for the entire state of Michigan (83 counties). The head of the Michigan Economic Development Corporation earns $240,000 per year, and is the highest paid leader of a state agency.
A PDF file containing the entire report can be obtained by clicking here. (Updated on 12/4/17)