Michigan Governor's Non-Profit Uses Inflated Job Numbers While Seeking Public Money
Kai Petainen, Contributor
In Michigan, there is a non-profit called SPARK and it was co-founded by Michigan’s Governor Snyder. SPARK’s annual report claims that they helped 13,024 new jobs, $1.5 billion in investment and 547 new companies; but, an official report provided to the Governor of Michigan from the ex-CEO of SPARK lists only 711 jobs, $229 million in investment and 149 companies.
The non-profit SPARK continues to seek public tax-payer money, as it provides data on inflated job numbers.
What Is SPARK And Why Is It An Issue?
Why is SPARK relevant on a national scale? Co-founded by Michigan’s Governor, it’s a non-profit venture capital organization that uses public money from state, county and local levels of government. It takes the money and then reportedly claims to create/help a lot of jobs, drive investment and help/create new companies. Other non-profits, venture capital firms and government entities should notice what SPARK does, in case they too want to participate in ‘economic development’ for their state.
As SPARK is a non-profit in Ann Arbor, Michigan then it takes tax-payer money to fund their operation. An Act was passed in Washtenaw County and the main beneficiary of that Act is SPARK. According to the Washtenaw County Check Book, from January to May of 2014, SPARK has taken 76% of the Act’s money. SPARK is a 501c3 and a 501c6 and it manages some venture capital funds – a micro-loan fund, a seed money fund and an angel fund. As they manage the venture capital funds, it’s an example of a non-profit venture capital operation. Although Michigan’s Governor Snyder is not listed as one of the current executives, it was co-founded by the Governor, and the Governor has referenced SPARK multiple times and Michigan tax-payers keep funding the operation. Some members of the Michigan Economic Development Corporation (MEDC) are former employees of SPARK and the MEDC reports to the Governor. The CEO of the MEDC happens to be the ex-CEO of SPARK.
According to SPARK’s annual report, they helped create 547 new companies, 13,024 new jobs and $1.5 billion in investments. But a different story is given in an official report to the Governor of Michigan, as that report shows 711 jobs, $229 million in investment and 149 companies. To bring matters to a local level, SPARK claims to have taken $75,000 from the City of Ann Arbor and to have converted that to a project success of 14 companies, 785 jobs and $21 million in investments.
SPARK previously caught the interest of the local public, as the non-profit wasn’t providing their audited financial statements to the public. SPARK’s 990 tax forms stated that they would release financial statements to the public upon request, but it wasn’t until I pushed the issue, that SPARK released their audited financial statements to the public. [I detailed this issue in this article]
To illustrate how SPARK uses the 13,024 job metric to promote their non-profit, a May 29th, 2014 news item at McKinley states:
Since 2006, SPARK has accelerated business growth in the Ann Arbor area resulting in $1.5 Billion in new investment and 13,024 jobs.
For another recent example of how job numbers are listed in the press, in a May 20th article at the Ann Arbor News (MLive) by Jeremy Allen titled “Ann Arbor SPARK highlights $148M in investments, addition of 1,500 jobs”, the article states:
Ann Arbor SPARK said that its 2013 work contributed to bringing $148 million in new investments and the creation and retention of more than 1,500 from 45 different projects throughout the year.
The work, SPARK CEO Paul Krutko said, included assisting 274 startups and incubating 83 new companies, as well as marketing the region, meeting with growing businesses, and providing business acceleration resources to startups.
He said he’s proud of the work that SPARK has been able to perform for the region since it began in 2006. According to SPARK’s records, the company has helped create 13,024 new jobs and add $1.5 billion in new investment commitments since it began.
It should be noted that a high-ranked member of MLive is at SPARK itself, Laurel Champion, MLive Media Group’s, General Manager for Southeast Michigan, is on the Ann Arbor SPARK board of directors.
About The Official Jobs Report
What report contradicts the numbers that SPARK provides? The numbers are coming straight from an official report that was required in MCL 125.2088n of the Michigan Strategic Fund Act and the 21st Century Jobs Trust Fund legislation. The report was given from Michael Finney, the ex-CEO of SPARK and the CEO of the MEDC, to the co-founder of SPARK (the Governor of Michigan). It is dated March 31, 2014, so it is a new report that covers the time period from September 2006 to September 2013. SPARK’s annual report also starts from 2006, so it is an apple to apple comparison with respect to time. This is a high level official report that was given from one high level person to another high-level person, and both of them were affiliated with SPARK in some manner. Also, according to members of City Council in Ann Arbor, the data given to the official report was provided by SPARK to the MEDC – SPARK gave the data to the official report and to their own annual report. Others can view the numbers that I see. It involves some adding, but people can verify my numbers. The link to the report is here:
http://www.michiganbusiness.org/cm/Files/Reports_to_MI_Legislature_Page_Docs/FY13-21st-Century-Jobs-Trust-Fund-Report.pdf
Highlights From The Official Report
SPARK’s annual report claims that they helped create 13,024 new jobs, $1.5 billion in investment and 547 new companies; however, the official report lists 711 jobs, $229 million in investment and 149 companies.
If we take the 711 jobs and compare them to the 13,024 job claim, then that represents a 5% success rate for job creation.
Of the 4,450 projected jobs in the Preseed II and Preseed III funds, only 304 jobs were created. This represents a success rate of only 7% for job creation.
Of the 4,450 projected jobs in the Preseed II and Preseed III funds, only 195 jobs were created in Michigan. This represents a success rate of only 4% in terms of new jobs for Michigan. It also shows, that of the jobs created, only 64% of those were in Michigan.
The report shows 88 licensing agreements, but it also indicates that only 1 of these is with a Michigan-based company. This represents a Michigan-based licensing success rate of only 1%.
Details From The Official Report
Ann Arbor SPARK got a grant on Oct. 16th, 2006 for $8,000,000 (Page 4). It was reportedly leveraged to $132,694,383 and it created 29 licensing agreements and 16 companies. However, it only created 130.6 net full-time jobs and none of the licensing agreements were with Michigan-based Companies. There is a ‘Projected new job growth’ of 645 employees, but that number is not confirmed and it is taken from the projected job numbers. The job numbers are taken from the:
Original proposals submitted to the Michigan Economic Development Corporation (MEDC) by the entities that received funds.
In other words, of the 645 projected jobs, only 20% were actually created and the proposed job numbers were inflated.
Ann Arbor SPARK’s Pre-Seed Capital Fund II got a grant on July 2nd, 2009 for $6,800,000 (Page 14). It was reportedly leveraged to $40,486,960 and it created 17 licensing agreements and 21 new companies. There was a ‘Projected new job growth’ of 2,162 employees. As mentioned earlier, keep in mind that this projected job growth was not confirmed, but was taken from the original proposal submitted to the MEDC. On pages 14 to 16, it shows how 121 current jobs were created and 72 of those were still in Michigan. Of the estimated projected jobs to be created; only 5.6% were actually created. And of the jobs that were created, 59.5% of them were still in Michigan. To put it in another perspective, of the jobs that were forecasted, only 3.3% were created and stayed in Michigan. None of the licensing agreements were with Michigan companies.
Ann Arbor SPARK’s Pre-Seed Capital Fund III got a grant on Oct. 7th, 2011 for $10,170,000 (Page 14). It was reportedly leveraged to $21,521,992 and it created 0 licensing agreements and 25 new companies. This had a ‘Projected new job growth’ of 2,288 employees. Also, this projected job growth was not confirmed, but was taken from the original proposal submitted to the MEDC. On pages 14 to 16, it shows how 183 current jobs were created, and 122.5 of those were in Michigan. That means that of the projected jobs to be created; only 8.0% were actually created. And of the jobs that were created, 66.9% of them stayed in Michigan. To put it in another perspective, of the jobs that were forecasted, only 5.4% were created and stayed in Michigan.
According to the official document, Ann Arbor SPARK helped 64 companies with $2,780,150 in microloans. But, to avoid double-counting the firms I removed those that received funding from SPARK via the Pre-Seed funds as well. So although 64 companies were helped by SPARK, only 54 companies would count. In total, 102 jobs were created. It should be noted that many of the microloans in the state report were placed with companies in Ann Arbor.
Ann Arbor SPARK’s, Michigan Angel Fund got a grant on July 27, 2011 for $600,000 (Page 17). It was reportedly leveraged to $820,000 and it created 33 licensing agreements, 11 new companies, 0 new jobs. Oddly, although 11 companies were created, no new jobs were created. Of the 33 licensing agreements, 0 were placed with Michigan-based companies and the report notes a projected new job growth of 0.
The Ann Arbor SPARK Accelerate Michigan Innovation Competition got a grant on July 27, 2011 for $1,050,000 (Page 17). It was reportedly leveraged to $30,380,000 and it created 9 licensing agreements, 2 new companies, and 94 new jobs. Of the 9 licensing agreements, only 1 license was in a Michigan-based company.
SPARK claims that they created 13,024 new jobs, $1.5 billion in investment and 547 companies, but the official state report shows 711 jobs, $229 million in investment and 149 companies.
SPARK Responds
I reached out to SPARK and the MEDC for a comment and neither one has responded directly. However on June 16th, Paul Krutko, the CEO of SPARK addressed this topic to City Council in Ann Arbor Michigan. Prior to his comments, I made a public comment at City Council and that comment can be viewed here.
Krutko responded to my investigation as, a member of the public who has made some assertions about a report
I should note that my assertions have been based on research and an official jobs report. I am a quant and I look at data and how it reflects public companies and public non-profits. If the official job report, a job report that is required by an Act is incorrect, then the appropriate officials should be notified. This investigation has been difficult as I’ve faced numerous ‘Hoffa’ comments and at least one job-threat. But, it’s an important issue, as non-profit-venture capital entities should be held accountable when they are seeking public money. And it is especially troubling if those non-profits are giving inflated numbers to tax-payers. To me, this is an issue about ethics and it’s about doing ‘what is right’.
In SPARK’s latest financial audit, they state that all investments at SPARK were located in Washtenaw County companies. It should also be noted that in the latest audit, a detailed breakdown of the micro-loans that SPARK provided is excluded. This particular breakdown in the micro-loans was provided in the audit from the previous year, so the exclusion of the micro-loan detail is troubling. The latest audit makes no mention as to why the micro-loan detail was excluded. The latest audit stated:
The Organization’s investments are all in start-up companies located in Washtenaw County.
At City Council, Krutko defended the audit, but he also confirmed that investments are located outside of Washtenaw County. His statement appeared to contradict the audit’s statement that all investments are within Washtenaw County.
Krutko stated to Ann Arbor City Council:
Two of my colleagues were up in Livingston County tonight, and Livingston County has approved an increase in funding to SPARK because of the activities that we do up there
The report reflects the activities what we do with the state of Michigan under a contract with the state of Michigan for activities throughout the entire state of Michigan
The audit covers all of the investments that we make with the state
If the assertion becomes that we are hiding something from you or misrepresenting information, we’re not. Our audit just came back, the highest opinion that you can get for an audit. It is clean.
With respect to the official report, Krutko stated that the official report to the Governor does not include the business development in Ann Arbor. However, his statement is puzzling to me, as the official state report covers micro-loans that were given to companies within Ann Arbor by SPARK. In reference to the official report and how it may exclude some jobs, Krutko stated:
There isn’t any data about our business development activities in Ann Arbor in there because that’s not germane to what the state was reporting.
With respect to the idea that SPARK is using projected job numbers instead of actual job numbers as it seeks public funding, Krutko confirmed this idea in his public comments to city council:
We provide to you what the company tells us they’re going to do in Ann Arbor on the basis of them moving forward with the project — that is their capital investment and what they say they’re going to do in terms of jobs
Comments From City Council Members
On Saturday, June 14th, Ann Arbor held a debate between 4 mayoral candidates in front of the local Democratic Party. Each candidate is currently a council member in Ann Arbor and they are all Democrats. With regard to this issue, I was able to get a question into the debate through a moderator. I should note that the Local Development Finance Authority (LDFA) will give a few million to SPARK each year (if a vote passes) and Council Member Petersen happens to sit not only city council, but on the LDFA as well. An audio form of the question and the responses is available on this link at the Ann Arbor Chronicle. Here is the question I asked (read by a moderator) and some key highlights from their responses.
Moderator (reading a question provided by Kai Petainen): “SPARK’s annual report claims it created 13,000 jobs, $1.5 billion in investment, and 547 companies. But the actual report shows a slightly different story where there are only 685 jobs, $229 million in investment and 149 companies. You’re all Democrats, but SPARK was co-founded by our current Governor, Snyder. Why do you continue to support it, when the data in the reports don’t match each other?” [Note, I had originally listed 685 jobs, but a recount indicated 711 jobs]
Council Member Sally Petersen: “I trust those numbers can be, and would be, and will be reconciled. City council questioned whether we should remove $75,000 contract with SPARK and I was very much against removing that contract. SPARK has grown jobs. No doubt, SPARK is doing their job. We actually asked them to be accountable for numbers they reported to us. Turns out, 752 jobs is what we got for the $75,000 that we spent last year and they were able to actually account for those with us.”
Council Member Petersen, who has an MBA from Harvard, states that 752 jobs were created in 2013. Petersen’s claim that 752 jobs were created is inaccurate, as those were projected jobs and not actual jobs that were created. This error is especially alarming as she is City Council’s representative at the LDFA/SPARK and one would assume that she would have seen the actual data. At the same debate, she stated that she had not read the official jobs report. A few days after the debate, Petersen requested a jobs audit of the SPARK/LDFA jobs. The report that Petersen cites is located here, but the report also indicates that it uses projected numbers and not actual job numbers. The report states:
The Ann Arbor SPARK Business Development team records a project success when a company publicly declares its intent to create jobs or make capital investments over a period of time. “Announced jobs and investment” are recorded as a one time success.
Council Member Taylor: “There is no question that the numbers that we receive from any of the entities with which we contract, ought to be held to a rigorous standard. I understand that some folks think that the numbers we’ve received are inaccurate. I would suspect that the folks who created the numbers have a counter argument. I would prefer myself be eager to hear a full articulation of both.”
Council Member Sabra Briere: “If the numbers don’t match reality, that becomes an issue for us and we need to check on that. But one of the challenges we face is the creation of jobs. Does a business settle in Ann Arbor and hire more people without SPARK? We don’t know. Does a business grow bigger because of SPARK? SPARK can’t prove it does. SPARK is not hiring people. And we can’t say “that’s it, we’ve done it”. We can prove this because SPARK did this and that happened. Everything is an incentive in a sense of training, in a sense to new businesses, and those new businesses tell us how much SPARK means to them, but it’s not a clear box where you can say so many jobs were created and we’re challenging them to do that.”
Council Member Stephen Kunselman: “This is one that I’ve really learned to start thinking otherwise from my support of SPARK and the LDFA. And the reason is, has nothing necessarily to do with Republican or Democratic policies; what it has to do a lot is the state educational fund is being raided to provide state funding to economic development. They say they put the money back, but then why is our public educational system in such dire straits? They’re using those monies. They [the public education system in Ann Arbor] just cut many millions out of their budget. We are cutting the custodians, yet they’re taking money from educational funds to fund LDFA and SPARK. I think SPARK is somewhat corporate welfare, we have these impressions of capitalist cronyism, and I think we need to start thinking otherwise.”
Council Member Kunselman touched upon the claim that SPARK is getting money, money that would normally be allocated to public schools, and how the public schools are experiencing cut-backs as they have less money. This issue is explored further in the article, “Treasury Officials Confirm Local Economic Development Entities Divert Public School Funding “, by P.D. Lesko at the Ann Arbor Independent. The topic is also covered at the Ann Arbor Chronicle by Dave Askins, in the article, “Ann Arbor LDFA Looks to Extend Its Life “.
What’s Next For SPARK?
At the last Ann Arbor City Council meeting, the topic of funding SPARK with tax-payer money was addressed. Instead of voting on it, or postponing the topic, the council members made a rare move by tabling the topic. Within Ann Arbor politics, tabling is not a common procedure. The council meeting was far from ordinary as SPARK was given the opportunity to speak at the end of the meeting – this too was unique, as organizations rarely try to defend themselves at the end of a meeting. City Council has asked SPARK to reconcile the job numbers and to report back to council members. Although the amount provided by the city to SPARK may not seem big, a loss of this particular money could provide a signal or a ‘red flag’ to other entities that support SPARK. Non-profits, venture capital firms and government agencies in other states may want to take notice.
Council Member Lumm has noted that the issue with SPARK deals with due diligence and respect to tax-payer money. Lumm stated:
I do share the concerns raised about SPARK’s reporting. It’s an important thing to be good stewards of public funds. As with any use of tax-payer money it is reasonable to expect in return solid metrics, reporting, accountability for results and that’s from anyone receiving public funds, including SPARK. This is about doing our due diligence on behalf of the taxpayers.
To make it even more blunt, and out of respect for public money, Council Member Kailasapathy, a CPA in Ann Arbor, has asked for an independent audit:
I would like to see an independent audit to verify these claims. I am tired of getting flashy marketing material with these kinds of claims. It is time to actually verify them.
Update. July 12, 2014
Council member Petersen has provided this explanation from SPARK on the discrepancy in the numbers.
There isn’t a discrepancy between the numbers. The 711 jobs are not included in the 13,024 jobs that SPARK reported in its annual report. The 711 jobs are those tied to SPARK BUSINESS ACCELERATOR PROGRAMS that are funded by MEDC’s 21st Century Jobs Fund. The 13,024 jobs are those tied to SPARK BUSINESS DEVELOPMENT PROGRAMS that are not funded by MEDC and are not included in this MEDC report.
Since SPARK has provided this explanation, it’s worth noting what the SPARK tax forms say with regard to the accelerator portion of the business. It forms the bulk of their business.
As per the tax forms, this entire section is listed under ‘Business Accelerator’. Business accelerator (as per tax forms), is the development, training, consulting, networking and investment of companies.
The SPARK Business Accelerator speeds up the development of start-ups in the region with a variety of valuable services designed to shorten the time required to attract capital, customers, or other resources. Ann Arbor SPARK offers entrepreneurial education and training, consulting services, incubator space, in addition to a variety of events designed to provide networking and learning opportunities. Ann Arbor SPARK also manages various investment and microloan funds which support innovative, start-up companies in the Ann Arbor region in order to accelerate company development. Investments and Microloans made in 2010 account for over $4 million of the $6.7 million of program service revenue.
This article is available online at: http://onforb.es/1rZdM2s
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| Black corporate agents Dave Bing and Kevyn Orr with their white overseer Rick Snyder. Their policies on behalf of the banks have further ruined Detroit and the state of Michigan. |
In Michigan, there is a non-profit called SPARK and it was co-founded by Michigan’s Governor Snyder. SPARK’s annual report claims that they helped 13,024 new jobs, $1.5 billion in investment and 547 new companies; but, an official report provided to the Governor of Michigan from the ex-CEO of SPARK lists only 711 jobs, $229 million in investment and 149 companies.
The non-profit SPARK continues to seek public tax-payer money, as it provides data on inflated job numbers.
What Is SPARK And Why Is It An Issue?
Why is SPARK relevant on a national scale? Co-founded by Michigan’s Governor, it’s a non-profit venture capital organization that uses public money from state, county and local levels of government. It takes the money and then reportedly claims to create/help a lot of jobs, drive investment and help/create new companies. Other non-profits, venture capital firms and government entities should notice what SPARK does, in case they too want to participate in ‘economic development’ for their state.
As SPARK is a non-profit in Ann Arbor, Michigan then it takes tax-payer money to fund their operation. An Act was passed in Washtenaw County and the main beneficiary of that Act is SPARK. According to the Washtenaw County Check Book, from January to May of 2014, SPARK has taken 76% of the Act’s money. SPARK is a 501c3 and a 501c6 and it manages some venture capital funds – a micro-loan fund, a seed money fund and an angel fund. As they manage the venture capital funds, it’s an example of a non-profit venture capital operation. Although Michigan’s Governor Snyder is not listed as one of the current executives, it was co-founded by the Governor, and the Governor has referenced SPARK multiple times and Michigan tax-payers keep funding the operation. Some members of the Michigan Economic Development Corporation (MEDC) are former employees of SPARK and the MEDC reports to the Governor. The CEO of the MEDC happens to be the ex-CEO of SPARK.
According to SPARK’s annual report, they helped create 547 new companies, 13,024 new jobs and $1.5 billion in investments. But a different story is given in an official report to the Governor of Michigan, as that report shows 711 jobs, $229 million in investment and 149 companies. To bring matters to a local level, SPARK claims to have taken $75,000 from the City of Ann Arbor and to have converted that to a project success of 14 companies, 785 jobs and $21 million in investments.
SPARK previously caught the interest of the local public, as the non-profit wasn’t providing their audited financial statements to the public. SPARK’s 990 tax forms stated that they would release financial statements to the public upon request, but it wasn’t until I pushed the issue, that SPARK released their audited financial statements to the public. [I detailed this issue in this article]
To illustrate how SPARK uses the 13,024 job metric to promote their non-profit, a May 29th, 2014 news item at McKinley states:
Since 2006, SPARK has accelerated business growth in the Ann Arbor area resulting in $1.5 Billion in new investment and 13,024 jobs.
For another recent example of how job numbers are listed in the press, in a May 20th article at the Ann Arbor News (MLive) by Jeremy Allen titled “Ann Arbor SPARK highlights $148M in investments, addition of 1,500 jobs”, the article states:
Ann Arbor SPARK said that its 2013 work contributed to bringing $148 million in new investments and the creation and retention of more than 1,500 from 45 different projects throughout the year.
The work, SPARK CEO Paul Krutko said, included assisting 274 startups and incubating 83 new companies, as well as marketing the region, meeting with growing businesses, and providing business acceleration resources to startups.
He said he’s proud of the work that SPARK has been able to perform for the region since it began in 2006. According to SPARK’s records, the company has helped create 13,024 new jobs and add $1.5 billion in new investment commitments since it began.
It should be noted that a high-ranked member of MLive is at SPARK itself, Laurel Champion, MLive Media Group’s, General Manager for Southeast Michigan, is on the Ann Arbor SPARK board of directors.
About The Official Jobs Report
What report contradicts the numbers that SPARK provides? The numbers are coming straight from an official report that was required in MCL 125.2088n of the Michigan Strategic Fund Act and the 21st Century Jobs Trust Fund legislation. The report was given from Michael Finney, the ex-CEO of SPARK and the CEO of the MEDC, to the co-founder of SPARK (the Governor of Michigan). It is dated March 31, 2014, so it is a new report that covers the time period from September 2006 to September 2013. SPARK’s annual report also starts from 2006, so it is an apple to apple comparison with respect to time. This is a high level official report that was given from one high level person to another high-level person, and both of them were affiliated with SPARK in some manner. Also, according to members of City Council in Ann Arbor, the data given to the official report was provided by SPARK to the MEDC – SPARK gave the data to the official report and to their own annual report. Others can view the numbers that I see. It involves some adding, but people can verify my numbers. The link to the report is here:
http://www.michiganbusiness.org/cm/Files/Reports_to_MI_Legislature_Page_Docs/FY13-21st-Century-Jobs-Trust-Fund-Report.pdf
Highlights From The Official Report
SPARK’s annual report claims that they helped create 13,024 new jobs, $1.5 billion in investment and 547 new companies; however, the official report lists 711 jobs, $229 million in investment and 149 companies.
If we take the 711 jobs and compare them to the 13,024 job claim, then that represents a 5% success rate for job creation.
Of the 4,450 projected jobs in the Preseed II and Preseed III funds, only 304 jobs were created. This represents a success rate of only 7% for job creation.
Of the 4,450 projected jobs in the Preseed II and Preseed III funds, only 195 jobs were created in Michigan. This represents a success rate of only 4% in terms of new jobs for Michigan. It also shows, that of the jobs created, only 64% of those were in Michigan.
The report shows 88 licensing agreements, but it also indicates that only 1 of these is with a Michigan-based company. This represents a Michigan-based licensing success rate of only 1%.
Details From The Official Report
Ann Arbor SPARK got a grant on Oct. 16th, 2006 for $8,000,000 (Page 4). It was reportedly leveraged to $132,694,383 and it created 29 licensing agreements and 16 companies. However, it only created 130.6 net full-time jobs and none of the licensing agreements were with Michigan-based Companies. There is a ‘Projected new job growth’ of 645 employees, but that number is not confirmed and it is taken from the projected job numbers. The job numbers are taken from the:
Original proposals submitted to the Michigan Economic Development Corporation (MEDC) by the entities that received funds.
In other words, of the 645 projected jobs, only 20% were actually created and the proposed job numbers were inflated.
Ann Arbor SPARK’s Pre-Seed Capital Fund II got a grant on July 2nd, 2009 for $6,800,000 (Page 14). It was reportedly leveraged to $40,486,960 and it created 17 licensing agreements and 21 new companies. There was a ‘Projected new job growth’ of 2,162 employees. As mentioned earlier, keep in mind that this projected job growth was not confirmed, but was taken from the original proposal submitted to the MEDC. On pages 14 to 16, it shows how 121 current jobs were created and 72 of those were still in Michigan. Of the estimated projected jobs to be created; only 5.6% were actually created. And of the jobs that were created, 59.5% of them were still in Michigan. To put it in another perspective, of the jobs that were forecasted, only 3.3% were created and stayed in Michigan. None of the licensing agreements were with Michigan companies.
Ann Arbor SPARK’s Pre-Seed Capital Fund III got a grant on Oct. 7th, 2011 for $10,170,000 (Page 14). It was reportedly leveraged to $21,521,992 and it created 0 licensing agreements and 25 new companies. This had a ‘Projected new job growth’ of 2,288 employees. Also, this projected job growth was not confirmed, but was taken from the original proposal submitted to the MEDC. On pages 14 to 16, it shows how 183 current jobs were created, and 122.5 of those were in Michigan. That means that of the projected jobs to be created; only 8.0% were actually created. And of the jobs that were created, 66.9% of them stayed in Michigan. To put it in another perspective, of the jobs that were forecasted, only 5.4% were created and stayed in Michigan.
According to the official document, Ann Arbor SPARK helped 64 companies with $2,780,150 in microloans. But, to avoid double-counting the firms I removed those that received funding from SPARK via the Pre-Seed funds as well. So although 64 companies were helped by SPARK, only 54 companies would count. In total, 102 jobs were created. It should be noted that many of the microloans in the state report were placed with companies in Ann Arbor.
Ann Arbor SPARK’s, Michigan Angel Fund got a grant on July 27, 2011 for $600,000 (Page 17). It was reportedly leveraged to $820,000 and it created 33 licensing agreements, 11 new companies, 0 new jobs. Oddly, although 11 companies were created, no new jobs were created. Of the 33 licensing agreements, 0 were placed with Michigan-based companies and the report notes a projected new job growth of 0.
The Ann Arbor SPARK Accelerate Michigan Innovation Competition got a grant on July 27, 2011 for $1,050,000 (Page 17). It was reportedly leveraged to $30,380,000 and it created 9 licensing agreements, 2 new companies, and 94 new jobs. Of the 9 licensing agreements, only 1 license was in a Michigan-based company.
SPARK claims that they created 13,024 new jobs, $1.5 billion in investment and 547 companies, but the official state report shows 711 jobs, $229 million in investment and 149 companies.
SPARK Responds
I reached out to SPARK and the MEDC for a comment and neither one has responded directly. However on June 16th, Paul Krutko, the CEO of SPARK addressed this topic to City Council in Ann Arbor Michigan. Prior to his comments, I made a public comment at City Council and that comment can be viewed here.
Krutko responded to my investigation as, a member of the public who has made some assertions about a report
I should note that my assertions have been based on research and an official jobs report. I am a quant and I look at data and how it reflects public companies and public non-profits. If the official job report, a job report that is required by an Act is incorrect, then the appropriate officials should be notified. This investigation has been difficult as I’ve faced numerous ‘Hoffa’ comments and at least one job-threat. But, it’s an important issue, as non-profit-venture capital entities should be held accountable when they are seeking public money. And it is especially troubling if those non-profits are giving inflated numbers to tax-payers. To me, this is an issue about ethics and it’s about doing ‘what is right’.
In SPARK’s latest financial audit, they state that all investments at SPARK were located in Washtenaw County companies. It should also be noted that in the latest audit, a detailed breakdown of the micro-loans that SPARK provided is excluded. This particular breakdown in the micro-loans was provided in the audit from the previous year, so the exclusion of the micro-loan detail is troubling. The latest audit makes no mention as to why the micro-loan detail was excluded. The latest audit stated:
The Organization’s investments are all in start-up companies located in Washtenaw County.
At City Council, Krutko defended the audit, but he also confirmed that investments are located outside of Washtenaw County. His statement appeared to contradict the audit’s statement that all investments are within Washtenaw County.
Krutko stated to Ann Arbor City Council:
Two of my colleagues were up in Livingston County tonight, and Livingston County has approved an increase in funding to SPARK because of the activities that we do up there
The report reflects the activities what we do with the state of Michigan under a contract with the state of Michigan for activities throughout the entire state of Michigan
The audit covers all of the investments that we make with the state
If the assertion becomes that we are hiding something from you or misrepresenting information, we’re not. Our audit just came back, the highest opinion that you can get for an audit. It is clean.
With respect to the official report, Krutko stated that the official report to the Governor does not include the business development in Ann Arbor. However, his statement is puzzling to me, as the official state report covers micro-loans that were given to companies within Ann Arbor by SPARK. In reference to the official report and how it may exclude some jobs, Krutko stated:
There isn’t any data about our business development activities in Ann Arbor in there because that’s not germane to what the state was reporting.
With respect to the idea that SPARK is using projected job numbers instead of actual job numbers as it seeks public funding, Krutko confirmed this idea in his public comments to city council:
We provide to you what the company tells us they’re going to do in Ann Arbor on the basis of them moving forward with the project — that is their capital investment and what they say they’re going to do in terms of jobs
Comments From City Council Members
On Saturday, June 14th, Ann Arbor held a debate between 4 mayoral candidates in front of the local Democratic Party. Each candidate is currently a council member in Ann Arbor and they are all Democrats. With regard to this issue, I was able to get a question into the debate through a moderator. I should note that the Local Development Finance Authority (LDFA) will give a few million to SPARK each year (if a vote passes) and Council Member Petersen happens to sit not only city council, but on the LDFA as well. An audio form of the question and the responses is available on this link at the Ann Arbor Chronicle. Here is the question I asked (read by a moderator) and some key highlights from their responses.
Moderator (reading a question provided by Kai Petainen): “SPARK’s annual report claims it created 13,000 jobs, $1.5 billion in investment, and 547 companies. But the actual report shows a slightly different story where there are only 685 jobs, $229 million in investment and 149 companies. You’re all Democrats, but SPARK was co-founded by our current Governor, Snyder. Why do you continue to support it, when the data in the reports don’t match each other?” [Note, I had originally listed 685 jobs, but a recount indicated 711 jobs]
Council Member Sally Petersen: “I trust those numbers can be, and would be, and will be reconciled. City council questioned whether we should remove $75,000 contract with SPARK and I was very much against removing that contract. SPARK has grown jobs. No doubt, SPARK is doing their job. We actually asked them to be accountable for numbers they reported to us. Turns out, 752 jobs is what we got for the $75,000 that we spent last year and they were able to actually account for those with us.”
Council Member Petersen, who has an MBA from Harvard, states that 752 jobs were created in 2013. Petersen’s claim that 752 jobs were created is inaccurate, as those were projected jobs and not actual jobs that were created. This error is especially alarming as she is City Council’s representative at the LDFA/SPARK and one would assume that she would have seen the actual data. At the same debate, she stated that she had not read the official jobs report. A few days after the debate, Petersen requested a jobs audit of the SPARK/LDFA jobs. The report that Petersen cites is located here, but the report also indicates that it uses projected numbers and not actual job numbers. The report states:
The Ann Arbor SPARK Business Development team records a project success when a company publicly declares its intent to create jobs or make capital investments over a period of time. “Announced jobs and investment” are recorded as a one time success.
Council Member Taylor: “There is no question that the numbers that we receive from any of the entities with which we contract, ought to be held to a rigorous standard. I understand that some folks think that the numbers we’ve received are inaccurate. I would suspect that the folks who created the numbers have a counter argument. I would prefer myself be eager to hear a full articulation of both.”
Council Member Sabra Briere: “If the numbers don’t match reality, that becomes an issue for us and we need to check on that. But one of the challenges we face is the creation of jobs. Does a business settle in Ann Arbor and hire more people without SPARK? We don’t know. Does a business grow bigger because of SPARK? SPARK can’t prove it does. SPARK is not hiring people. And we can’t say “that’s it, we’ve done it”. We can prove this because SPARK did this and that happened. Everything is an incentive in a sense of training, in a sense to new businesses, and those new businesses tell us how much SPARK means to them, but it’s not a clear box where you can say so many jobs were created and we’re challenging them to do that.”
Council Member Stephen Kunselman: “This is one that I’ve really learned to start thinking otherwise from my support of SPARK and the LDFA. And the reason is, has nothing necessarily to do with Republican or Democratic policies; what it has to do a lot is the state educational fund is being raided to provide state funding to economic development. They say they put the money back, but then why is our public educational system in such dire straits? They’re using those monies. They [the public education system in Ann Arbor] just cut many millions out of their budget. We are cutting the custodians, yet they’re taking money from educational funds to fund LDFA and SPARK. I think SPARK is somewhat corporate welfare, we have these impressions of capitalist cronyism, and I think we need to start thinking otherwise.”
Council Member Kunselman touched upon the claim that SPARK is getting money, money that would normally be allocated to public schools, and how the public schools are experiencing cut-backs as they have less money. This issue is explored further in the article, “Treasury Officials Confirm Local Economic Development Entities Divert Public School Funding “, by P.D. Lesko at the Ann Arbor Independent. The topic is also covered at the Ann Arbor Chronicle by Dave Askins, in the article, “Ann Arbor LDFA Looks to Extend Its Life “.
What’s Next For SPARK?
At the last Ann Arbor City Council meeting, the topic of funding SPARK with tax-payer money was addressed. Instead of voting on it, or postponing the topic, the council members made a rare move by tabling the topic. Within Ann Arbor politics, tabling is not a common procedure. The council meeting was far from ordinary as SPARK was given the opportunity to speak at the end of the meeting – this too was unique, as organizations rarely try to defend themselves at the end of a meeting. City Council has asked SPARK to reconcile the job numbers and to report back to council members. Although the amount provided by the city to SPARK may not seem big, a loss of this particular money could provide a signal or a ‘red flag’ to other entities that support SPARK. Non-profits, venture capital firms and government agencies in other states may want to take notice.
Council Member Lumm has noted that the issue with SPARK deals with due diligence and respect to tax-payer money. Lumm stated:
I do share the concerns raised about SPARK’s reporting. It’s an important thing to be good stewards of public funds. As with any use of tax-payer money it is reasonable to expect in return solid metrics, reporting, accountability for results and that’s from anyone receiving public funds, including SPARK. This is about doing our due diligence on behalf of the taxpayers.
To make it even more blunt, and out of respect for public money, Council Member Kailasapathy, a CPA in Ann Arbor, has asked for an independent audit:
I would like to see an independent audit to verify these claims. I am tired of getting flashy marketing material with these kinds of claims. It is time to actually verify them.
Update. July 12, 2014
Council member Petersen has provided this explanation from SPARK on the discrepancy in the numbers.
There isn’t a discrepancy between the numbers. The 711 jobs are not included in the 13,024 jobs that SPARK reported in its annual report. The 711 jobs are those tied to SPARK BUSINESS ACCELERATOR PROGRAMS that are funded by MEDC’s 21st Century Jobs Fund. The 13,024 jobs are those tied to SPARK BUSINESS DEVELOPMENT PROGRAMS that are not funded by MEDC and are not included in this MEDC report.
Since SPARK has provided this explanation, it’s worth noting what the SPARK tax forms say with regard to the accelerator portion of the business. It forms the bulk of their business.
As per the tax forms, this entire section is listed under ‘Business Accelerator’. Business accelerator (as per tax forms), is the development, training, consulting, networking and investment of companies.
The SPARK Business Accelerator speeds up the development of start-ups in the region with a variety of valuable services designed to shorten the time required to attract capital, customers, or other resources. Ann Arbor SPARK offers entrepreneurial education and training, consulting services, incubator space, in addition to a variety of events designed to provide networking and learning opportunities. Ann Arbor SPARK also manages various investment and microloan funds which support innovative, start-up companies in the Ann Arbor region in order to accelerate company development. Investments and Microloans made in 2010 account for over $4 million of the $6.7 million of program service revenue.
This article is available online at: http://onforb.es/1rZdM2s
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