News last month that Debert plastics company Composite Sea to Sky had filed for bankruptcy, owing the province $1.9 million and the federal Atlantic Canada Opportunities Agency $900,000, was met with a collective yawn: What's a few more million tax dollars dumped down a few more "economic development" drains? Still, the details of this particular scheme shed some light on exactly how our money is being managed.
Drain #1: The government gravy train
The Composite Sea to Sky story starts with a predecessor company, Bartlett Plastics and Precision Machining, established in 1993 by Barry Bartlett, who had earlier run an enterprise called Canadian Automotive Radiator. "I had that for 25 years," says Bartlett, who closed the business due to increased competition. "I borrowed a lot of money from the province [for the radiator business]. They got paid back everything, so did ACOA. It was millions of dollars."
As for Bartlett Plastics, between 1999 and 2008 the company received about $1.6 million in loans from ACOA to help buy equipment, and an additional $250,000 in provincial assistance in 2005.
Why did Bartlett need government assistance for his various ventures, instead of simply getting bank loans? "I had bank loans," replies Bartlett. "But I couldn't get any more money. It's just the way it worked out, that's all."
For whatever reason, however, in 2008 Bartlett Plastics was having difficulty repaying $750,000 worth of the ACOA loans, a situation a provincial economic development spokesperson describes as "default."
Drain #2: Revisiting the immigration scandal
Bartlett Plastics was also one of only a handful of lucky companies able to take advantage of the province's ill-fated immigration mentorship program, which was later the subject of a scathing report by auditor general Jacques Lapointe, and which erupted as one of the many scandals leading to the downfall of the MacDonald government.
It worked like this: A hapless potential immigrant paid $130,000 in hopes of fast-tracking his entry into our bountiful province. Of that, $30,000 went to Cornwallis Financial, which administered the program, and the remainder, $100,000, went to Bartlett Plastics. The company only had to agree to "mentor" the immigrant for six months, and pay him $20,000. Yep, that's $80,000 pure profit.
George Bates, who worked as a vice-president at Bartlett Plastics and later won a wrongful dismissal suit against Composite Sea to Sky, claims the mentoree showed up just one day a week for the six months. "I guess Mr. Bates knows more about the business than I do," says Bartlett, when asked about the mentoree.
Drain #3: Good money after bad
With Bartlett Plastics teetering---Bates says Bartlett was discussing going into receivership in 2008---Barry Bartlett managed to find a way out: The company would be subsumed into a new company, Composite Sea to Sky, which would manufacture airplane parts.
CS2S, as it's known, managed to get several million dollars in new investment from MIPNET, a French manufacturer, and Composites Atlantic, an unrelated Lunenburg firm. Barry Bartlett would remain majority owner, but the deal didn't work without a $2.9 million loan from the province's Industrial Expansion Fund. The IEF is the "economic development" slush fund that was shut down earlier this year after another Lapointe report castigated it for being a poorly managed tool of politicians looking to bestow favours.
But Bartlett Plastics still hadn't paid back the $750,000 to ACOA, so the new deal with the province was conditioned on "Confirmation of amendment of ACOA indebtedness of $750,000 on terms and conditions satisfactory to the minister." What were the new terms? Neither the provincial department of economic development nor ACOA will release those terms, but the bottom line is the two governments made a bad $750,000 loan go away by loaning the firm $2.9 million more.
Drain #4: Jobs! Jobs! Jobs!
A $2.9 million government loan might be a hard sell politically, but local economic development schemesters have learned to wrap such insider deals in the empty rhetoric of job creation.
In this instance, the $2.9 million was accompanied with a promise of another $1.6 million in potential "payroll rebates," and a provincial press release celebrated "up to 200 new jobs."
The release failed to mention that the average pay per job was to be just $30-36,000 annually, or that the rebate amounted to fully seven percent of payroll costs.
In any event, the jobs never materialized.
Drain #5: Local economic development agency
A bit player in this drama is the Colchester Regional Development Agency. Alongside the CS2S deal, CORDA agreed to sell an old aircraft hangar in the Debert Industrial Park so that CS2S could set up shop. But here's the thing: CORDA sold the building not to CS2S, but instead to Barry Bartlett Holdings, another of Bartlett's companies.
Ron Smith, CORDA's executive director, won't say how much the agency sold the building for, but admits that there was an offer on the same property for a greater amount. "We don't look at price," he explains. "We look at the economic development potential.
Drain #6: Label it high-tech
The CS2S deal fit under a federal-provincial initiative called the Industrial and Regional Benefits Program, which makes money available for (supposedly) high-tech and defence manufacturing, what the press release called a "technologically advanced industry."
It's true that CS2S wanted to sell parts for a new Airbus aircraft, but what parts, exactly? "You know those hydraulic lines that go the length of the plane?" explains Bates. "We built the clamps for those."
That was enough, however, for ACOA to loan the new company another half million dollars, on top of the $750,000 already in delinquency, to "design and manufacture aeronautic parts."
Drain #7: Subsidize with another subsidized company
One condition of the provincial funding was the minister receive a "Letter of comfort" from Composites Atlantic that it would purchase $2 million worth of product annually from CS2S. Which is all well and good, except that Composites Atlantic itself has received over $7 million in ACOA funding and almost $9 million in provincial funding. In effect, one government-subsidized company was being further subsidized by another government-subsidized company.
In the end, the new Airbus was never manufactured; there wasn't a need for plastic clamps for hydraulic lines, and so CS2S went belly-up.
While the CS2S bankruptcy leaves the taxpayer holding the bag for millions of dollars, Bartlett himself is doing OK. He's starting a new venture, called Debert Plastics, which will be housed in the hangar, which he now also owns. Seeing how the CS2S equipment, bought with taxpayer money, is still in the building, the bankruptcy trustee, Don Leet, has agreed to lease the equipment to Debert Plastics, at least until a sale is finalized.
Leet, incidentally, had a previous job as president of the Nova Scotia Business Development Corporation, the predecessor for the agency now known as Nova Scotia Business Inc., where he "administered a loan portfolio exceeding $400 million and evaluated funding requests from businesses," according to his resume. "My career is dealing with distressed companies," he tells The Coast.
Plumbing the muck:
Bartlett says he too has lost millions of dollars on the CS2S venture. He was named, personally, as a guarantor of the provincial loan, although not the ACOA loans. "I have every intention of paying the province back ---all of it," he says. Time will tell. But governmental funding agencies continue to drop millions into similarly questionable schemes, all too often with similar results.