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Policy: Environment & Energy

Another Obama-backed 'green' company, Smith Electric Vehicles, leaves trail of unpaid bills and broken promises

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Watchdog,Richard Pollock,Barack Obama,ARRA,Missouri,Accountability,Energy and Environment,Electric Vehicles,Kansas City

Four years have passed since President Obama visited Kansas City's main airport, rolled up his shirt sleeves and admonished the skeptics who said Smith Electric Vehicles was unlikely to make good on its promises to build 510 experimental electric-powered trucks and buses suitable for commercial use.

“Come see what’s going on at Smith Electric," the president said, inspecting a table full of bright green truck batteries in what was once a maintenance hangar for TWA. "I think they’re going to be hard-pressed to tell you that you’re not better off than you would be if we hadn’t made the investments in this plant.”

The skeptics turned out to be right.

Despite $32 million in federal stimulus funds and status as one of Obama's favorite "green" companies, the firm has halted production, having built just 439 of the promised 510 vehicles.

It has also left a trail of broken promises and unpaid bills.

Smith created just a quarter of the jobs it initially promised the state of Missouri it would create in return for $1.4 million in tax credits. Meanwhile, it has also stiffed the Missouri University of Science and Technology, the state government, and a local electrical supply company, as well as its landlord, the Kansas City city government, for hundreds of thousands of dollars, according to interviews and reviews of public records by the Washington Examiner.

As of today, the company still owes $36,000 to Missouri S&T for work the university performed as a subcontractor on a U.S. Army project.

“If you’re not going to pay your [subcontractors] for satisfactory work that was performed, then it does wave a red flag whether the company was a responsible company and whether it should even be doing business with the federal government," said Scott Amey, general counsel for the nonprofit Project on Government Oversight.

An American subsidiary of a British firm, Smith Electric stopped production at the end of last year, a fact that was made public only last month. Angela Strand, the firm's chief marketing officer and a company spokeswoman, declined to discuss its financial problems, telling the Washington Examiner in an email, “we do not comment on financial matters.” The company hopes to resume production this summer.

Smith failed to hire at least 100 workers over a two-year period in return for up to $1.4 million in state tax credits. At the end of two years, it had hired only 54 workers, records show.

The firm's original promise was for a minimum of 202 new jobs, but the Missouri Division of Workforce Development halved that goal — a change that division official Alicia Roling described in a 2011 internal email as an “unprecedented modification.”

The state has since extended Smith's timetable to five years to hit its job targets.

The Washington Examiner obtained that email and others regarding the state's relationship with Smith Electric under Missouri's Sunshine Law.

Meanwhile, the debt to Missouri S&T has frustrated and angered many university officials.

For nearly a year, the company failed to pay $132,000 it owed the school, and at one point it tried swap out its debt for a university purchase of its electric buses, records show.

Smith Electric hired Missouri S&T to analyze electric trucks for a contract it won with the Army, which paid Smith nearly $1.5 million. The company's first payment to the university was due in October 2011.

The month before, the company announced plans to go public. It also attempted to use its debt to sell buses to the university, a move that did not sit well with school officials.

"There is no way to use funding owed to us on the U.S. Army [electric truck] subcontract as down payment ... to purchase shuttle buses," Angela B. Rolufs, the university's head of sustainable energy and environmental engagement, wrote to Smith executive Dale Unglesbee in September 2011. "It does not make any sense that we have not been paid for any of the work we have done under this subcontract agreement," she said, later adding, "The fact that we have not been reimbursed for any of the work we have done since our first invoice was submitted almost a year ago is truly not acceptable."

Rolufs' missive also includes a bit of foreshadowing: Missouri S&T was in the market for shuttle buses, thanks to a federal grant, but Rolufs told Unglesbee she would not mention his proposed debt-for-down-payment scheme to her contact at the Federal Transit Administration "because he will question the financial viability of Smith EV" — and she didn't want to slow down the school's campus shuttle purchase "any more than it already has been."

The following summer, the university's deputy general counsel dinged Smith Electric in a letter for five delinquent invoices. “Your invoice(s),” wrote Phillip J. Hoskins wrote in July 2012, "has been referred to the legal department of the university because of your nonpayment of this obligation.”

At the same time, Kelly Bowen, a grants and contracts specialist at the university, wrote the project manager, “It looks like we have invoiced them six, after today seven times, and have yet to receive a payment. Are you aware of any reason why we would not be receiving payment from Smith? The first invoice was sent to them on October 2011.”

Roughly a year later, Smith Electric began monthly payments of $12,000, but stopped without explanation last October with $36,084 still due, according to Andrew Careaga, the university’s director of communications.

Smith abruptly cancelled its initial public offering two years ago even though the company reduced its capitalization goal from $125 million to $75 million. Promised plant expansions in Chicago and New York have not occurred.

In its pre-IPO filings to the federal Securities and Exchange Commission, the firm disclosed that it had never made a profit and conceded that it might never do so. It revealed that its losses were $17 million in 2009, $30 million in 2010, and $74 million in 2011.

The SEC filing also revealed that the federal Defense Contract Audit Agency had reviewed Smith Electric's books for the Energy Department in 2010 and had found the firm had “significant deficiencies that are considered to be material weaknesses in our accounting system.”

The company is privately held, with 49 percent of it being owned by the British firm Tanfield Group, which launched the American Smith Electric after its own electric vehicle program collapsed.

The state of Missouri also placed two liens on the company over tax issues, according to court records. Both were lifted when the company paid what it owed.

Smith has not made lease payments since last November on the 90,000 square feet it rents at Kansas City International Airport, according to David Long, deputy director of the city aviation department. Long declined to say how much Smith owes the city in back rent.

The company also is being sued by an electrical supply firm, Consolidated Electrical Distributors, that says Smith Electric owes it $192,000 for equipment and goods it bought on credit, court records show. The civil suit was filed last December and is pending in Platte County, Mo., Circuit Court.

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