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Editorial: Don’t risk public money in attracting businesses

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Elona Biotechnologies facility under construction in Precedent South Business is funded through the tax district.
Elona Biotechnologies facility under construction in Precedent South Business is funded through the tax district. PHOTO BY SCOTT ROBERSON

Issues involving Greenwood’s involvement with a biotechnology company’s expansion raise serious questions about how the city’s money should be used. Specifically, what is the appropriate use and limits of incentives?

And where do we draw the line between attracting new companies and, in effect, investing in them?

Greenwood-based Elona Biotechnologies developed a new way to make insulin that it said was faster and less expensive. The company hoped to make the drug that diabetics need to regulate their blood sugar more accessible worldwide.

Elona’s owners eyed a multibillion-dollar global market and talked of making diabetes care affordable in Mexico and developing countries.

The family-run business had big plans: $25.7 million in investment in a new production facility, 70 jobs, and an anchor that would attract other pharmaceutical firms to Greenwood and make it a small hub in the biotechnology industry.

A consultant estimated the company could have a $516 million economic impact on Johnson County.

The city of Greenwood saw this potential and backed the company in a major way, offering far more than the 10-year tax breaks that growing businesses usually get.

Three years ago, Greenwood agreed to invest in a product that still needed U.S. Food and Drug Administration approval and gave the company $8.4 million in incentives, including a $6.4 million loan for the new plant, a $1.5 million zero-interest loan to help with the costs of the FDA approval process and $500,000 in cash to buy manufacturing equipment.

Now Greenwood has declared Elona in default of repaying the incentives after the company came to city officials and told them about serious financial difficulties.

The city is looking at whether it will have to sell the new building, manufacturing equipment and patents Elona filed for. Greenwood could foreclose on the building and lay claim to the equipment and patents under an agreement it made with the company when the incentives were approved.

The plant is mostly built. But Elona has no FDA approval and no product on pharmacy shelves. Elona filed preliminary paperwork with the FDA in 2010 and had planned to start clinical trials in San Francisco.

But the company no longer is actively pursuing approval because it doesn’t have the money for costs such as paying patients for their participation and making large batches of the drug for testing, Greenwood Mayor Mark Myers said.

Now the city must figure out how to get back what money it can.

But the more important question remains: What is the extent of city enticements to new companies or endeavors.

Greenwood wasn’t the only local community that wanted to try unusual and unprecedented incentives to attract a new business. In 2010, TailGate Beer LLC proposed opening a brewery in Franklin, which then-Mayor Fred Paris saw as a potential tourist attraction.

The city had pledged to spend more than $3 million to bring the company and 150 jobs, including having the taxpayer-funded Franklin Development Corp. buy a vacant building for $2 million and lease the building to the company and the city, providing up to $900,000 in lease payments, a $300,000 loan for startup costs and a $200,000 grant for environmentally friendly building and production processes.

TailGate Beer, which at the time operated in San Diego with fewer than 20 employees, would have moved all operations to Franklin and eventually opened a restaurant with a space for outdoor festivals.

The deal went sour after the company refused to give the city certain information about its finances, including a detailed breakdown of the company’s assets, debts, expenses and revenue.

In this case, the deal was broken off before the city committed significant financial resources to the project.

Nonetheless, cities shouldn’t be in the investment business. Tax breaks and similar incentives are one thing, but significant investment is another.

Both episodes offer a painful lesson — and a potentially expensive one for Greenwood — and a warning for other communities thinking about similar offers to companies.

When a community acts as a venture capitalist, it assumes the risk that the effort won’t pan out. This is not the way taxpayer money should be spent.

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