The Strange Case of JobsOhio and Public Auditing of Private Firms

When the state auditor tried to subpoena records from a private firm using public money, the governor and legislature moved to stop him.
by | June 10, 2013 AT 1:00 PM

An Ohio law signed by Gov. John Kasich last week would block public oversight of state liquor store revenues that are now being funneled to a private economic development entity. But a bipartisan effort is already underway to prevent the measure from taking effect.

The new law forbids Ohio Auditor Dave Yost from auditing $100 million in wholesale liquor profits, which used to go into the state’s general fund but are now being funneled to JobsOhio, a non-profit economic development firm created by the state legislature and approved by Kasich in 2011. The legislation creating JobsOhio, which is led by a governor-appointed board and charged with attracting business to the state, allowed the entity to effectively take over the state’s liquor operations and use the $100 million in resulting profits as a major source of funding. The law does allow for an annual audit, but by a private auditor, to track the use of what was previously public money.

But when Yost said it was under his authority to audit the liquor money and subpoenaed the company’s records this March, Kasich and the legislature rushed to stop him from doing so. The bill specifically stipulated that the liquor money is legally considered private money and therefore not subject to a public audit. It sped through the legislature in less than a week with no public debate, and the governor signed it into law in a private ceremony last Tuesday.

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Outside experts say the amount of effort taken by Kasich and Republican legislative leaders to block the JobsOhio funds from being audited is “unusual.”

“I can't think of any good reasons why the state government would want to reduce audit scrutiny,” says David Cotton, chairman of Cotton and Company, a Virginia auditing and advisory firm with a focus on government finances. “The thing that's puzzling is: What's the motivation? There's definitely something weird about it.”

Walter Kucharski, who served as Virginia's state auditor for nearly 30 years, notes that in states where the state auditor is independently elected (as Yost is), these kinds of conflicts sometimes arise. The central question is whether JobsOhio is actually a private corporation with its governor-appointed board and influx of formely public money, he says. That issue is being debated in court.

"It sounds like a state agency and it acts like a state agency," Kucharski says, "so I'm not sure why it's not a state agency."

When approached for an interview, Yost referred to his March 19 letter to the legislature, sent as the first rumors of a bill blocking JobsOhio’s auditing began to circulate.

“I urge you to tread cautiously,” Yost wrote. “While there have been no indications of misdealing, the potential for self-dealing or other mischief exists sometime in the future. This office’s audit will help protect against the real possibility of human failings."

In an interview with a local TV station last Friday, Yost said he would not have supported the original JobsOhio legislation because of how it recategorizes public money as private. "My view has always been JobsOhio isn't a government agency, but it's not really like Chrysler corporation or some other private company either," he told WBNS.

Kasich and legislative leaders have declined to speak publicly about the matter, beyond asserting that JobsOhio is a private enterprise and criticizing Yost for undermining its work. Governing’s calls to Kasich’s office were not returned. When advocating for JobsOhio’s creation in 2011, Kasich claimed that the state’s public development agency was inefficient and that economic development would be better housed outside the state government’s bureaucracy. JobsOhio doesn’t actually award tax credits or other economic incentives, but it can make recommendations to the state department that does. According to the firm’s 2012 annual report, its work helped create nearly 21,000 jobs last year.

The auditing bill’s passage isn’t the end of the story, though: A bipartisan group of Democratic legislators, progressive activists and conservative lawyers is suing to make sure the JobsOhio money is publicly vetted. The latest litigation is being folded into a two-year battle over JobsOhio’s constitutionality. The plaintiffs charge, among other things, that not allowing the liquor money to be audited violates the Ohio Constitution, which they say prohibits public money from being invested in private enterprises without public oversight.

The case is currently before the Ohio Supreme Court, which is considering whether the plaintiffs have standing to sue over the issue at all. The Kasich administration argues that they do not. The state is expected to file its brief in late June, after which the plaintiffs will have an opportunity to respond. If the Ohio Supreme Court decides the plaintiffs do have standing, then the lawsuit will go to trial and the plaintiffs say they are confident that the legislation passed in the last month would be overturned.

“The real question in all of this,” says Brian Rothenberg, executive director of ProgressOhio, one of the plaintiffs, “is if it is public money and you give somebody money to create a job, shouldn't the public have a right to know that the job was created and the money was well spent?”