MARTINSVILLE — For nearly five years, the building for sale in Martinsville’s Clearview Business Park stood as barren as the surrounding economic landscape.
A different company toured the empty building about every six weeks, tantalizing officials with the prospect of replacing jobs lost to the declining furniture and textile industries.
Then, on Nov. 3, 2003, defense contractor MZM Inc. announced plans for an information technology firm. One economic official said the promised 150 high-paying jobs were “like gold.”
Two years later, some of the shine has worn off.
n MZM was sold this summer amid allegations the company paid off a California congressman in exchange for defense contracts. Rep. Randy “Duke” Cunningham pleaded guilty last month in the bribery and fraud scandal.
n The lawmaker who played a key role in bringing MZM to Martinsville, U.S. Rep. Virgil Goode, is facing political heat for accepting nearly $90,000 in campaign contributions from the company. Goode, R-Rocky Mount, requested federal funding for the project at the same time he was taking MZM money.
n If business at the former MZM operation in Martinsville suffers from the scandal, the city could be responsible for $500,000 in taxpayer-funded incentives used to lure the company.
So far, the controversy has caused more ripples than waves in Southwest Virginia. The business continues to operate in Martinsville under new ownership, and no one has accused Goode of wrongdoing.
Still, Goode’s cozy relationship with MZM has led to questions about his role in bringing the company to Martinsville, a role detailed in e-mails, letters and other correspondence between local and state economic development officials obtained under the Virginia Freedom of Information Act.
According to the documents and interviews, Goode’s involvement — combined with a desire by everyone involved to help a job-starved area — led to a state incentives package that ventured “outside the normal procedures.”
The result was a sweet deal for MZM.
The company acquired the shell building at less than half its value. To make up the difference, Martinsville obtained $500,000 in state grants and agreed to pay back the money if the company did not deliver on its promises of jobs and site improvements.
“That’s not the way we do things,” said John Sternlicht, general counsel to the Virginia Economic Development Partnership, the state agency that drafted a performance agreement.
“The company is usually on the hook,” Sternlicht said. “But in this instance, based on [Martinsville’s] urgent request, this is what we did.”
Goode was the one who suggested the unusual agreement, which was reached at a time when negotiations between MZM and Martinsville appeared to be bogging down, according to e-mails.
While admitting it’s hard to fault a congressman for seeking jobs for his district, some say Goode’s acceptance of campaign contributions from MZM clouds the deal.
“He’s gotten caught up with the wrong crowd,” said Beth Daley, spokeswoman for the Project on Government Oversight, a nonpartisan group based in Washington, D.C.
As Goode’s largest donor, MZM’s political action committee or its employees gave $89,176 to his campaign in the past two elections, according to the Center for Responsive Politics, a nonpartisan group that monitors campaign finance.
Goode’s work in securing $3.6 million in defense funds that went to MZM and his involvement in an incentives package that favored the company “seems like going above and beyond the call of duty,” Daley said.
Goode dismissed suggestions of a quid pro quo arrangement.
“People can make an argument like that about anything,” he said. “I’ve gotten a whole lot more donations from tobacco quota holders.” Yet when he pushed for legislation that benefited those contributors, Goode said, no one complained.
Goode said he acted “to help the district.”
In Martinsville, where many residents depend on factory jobs now in short supply, MZM was offering $50,000 a year for security-cleared workers to conduct background checks on foreign suppliers of equipment to the U.S. military.
“We certainly needed some good-paying jobs there,” Goode said.
‘Project Goode’
From the first e-mail sent to the Virginia Economic Development Partnership on Oct. 1, 2003, it seemed clear who was behind the latest business prospect in Martinsville.
“Project Goode” was the subject line of a message from Tom Harned, who was then the city’s director of economic development. Harned said Goode had called him with a tip about a company that might be interested in the city’s vacant shell building.
A later memo from VEDP director Mark Kilduff to the state secretary of trade and commerce stated that Goode was inserting a $3.6 million line item in the federal defense budget for a Foreign Supplier Assessment Center that he wanted MZM to operate in his district.
The negotiations that followed between Martinsville and MZM were fast-moving and, at times, strained.
In more than 300 pages of correspondence released by VEDP under the state’s open records law, Goode’s name appears repeatedly.
One of the letters copied to Goode was a terse missive from MZM president Mitchell Wade, who told Harned he was not interested in applying for state incentives as the city had suggested.
Complicating the deal further, VEDP project manager Johnny Perez wrote in an e-mail, was the company’s “low-ball” offer on the shell building, which Martinsville had built and put on the market in 2000.
“The issue: MZM wants this to be a simple real estate deal, and is offering only $400,000 for the building. The city owes $1.027 million,” Perez wrote.
“Possible solution: Tom Harned is going to ask Congressman Goode to ask the company to offer a fairer price for the building.”
But MZM wouldn’t budge. So Goode made a suggestion to the city: It could seek two $250,000 grants from the Governor’s Opportunity Fund and the Tobacco Indemnification and Community Revitalization Commission to help retire the debt on the building.
The catch, however, was MZM’s refusal to participate. That meant the city would have to sign a performance agreement obligating it to repay the forgivable loans if the company did not meet its projections — 75 jobs and an investment of at least $4.4 million — within 30 months.
(Although the company actually projected 150 jobs, the performance agreement holds Martinsville responsible for just 75 because the positions pay twice the area’s normal wage.)
The agreement called for any payback to be proportional to the company’s performance. For example, if only half of the pledged capital investments were made, the city would be responsible for paying back 50 percent of the allocation.
Usually, it’s the company that makes such a commitment.
“The city understands that this is outside the normal procedures,” then-City Manager Earl Reynolds wrote in a letter to the state seeking the funds.
Of the 300-some economic development grants the state has issued, Sternlicht could recall just one other in which a locality agreed to be held responsible for what a company promised.
But given Martinsville’s dire economic conditions — unemployment in the area at the time was nearly four times the state jobless rate of 3.4 percent — Sternlicht said the state agreed to make an exception. “The company didn’t make any fans here at the state by acting this way,” Perez wrote in an e-mail to his colleagues at VEDP.
Scandal tarnishes image
During the courtship between Martinsville and MZM two years ago, leaders of the city of 15,000 seemed smitten by a company based in the nation’s capital that did national security work for clients such as the Pentagon and the U.S. Justice Department.
“MZM Inc. is a respected world leader for solving complex challenges in a changing environment,” Reynolds wrote in a letter to VEDP.
That reputation was later tarnished by allegations of bribery and graft.
On Nov. 28, Cunningham pleaded guilty to accepting $2.4 million in bribes — cash, antiques, Oriental rugs, expensive furniture, yacht privileges, vacations and other perks — in exchange for arranging lucrative contracts for two defense contractors. Although the contractors have not been charged, The Associated Press has identified one of them as MZM.
Within hours of Cunningham’s conviction, Goode found himself under a spotlight of association.
Like Cunningham, Goode is a member of the House Appropriations Committee. Like Cunningham, Goode has received generous campaign contributions from MZM.
A congressional watchdog group has called on Goode to return the $89,176 in contributions from MZM, which it called “tainted money.” Goode said a week ago that he is considering the request.
Critics see a troubling correlation between the money Goode got from MZM and the money MZM got from the government.
Goode said he didn’t personally write the $3.6 million line item appropriation for the Foreign Supplier Assessment Center. Nor could he control the actions of an appropriations subcommittee he doesn’t sit on, he said.
“I just put a request in for a program, and it’s up to the defense committee to decide whether to fund it,” he said. Goode said he often makes such requests if they will benefit his 5th Congressional District.
When Goode first heard several years ago that MZM was considering expanding in Washington, he urged the company to look further south to his district.
“I said: ‘If y’all come to Southside, I know they’ll roll out a red carpet for you, where in Northern Virginia you’ll just be another company.’ ”
30 new jobs so far
Over the summer, as MZM became embroiled in criminal investigations and negative publicity, Tom Harned took some comfort in watching from a faraway vantage point.
“What happens in Washington usually stays in Washington,” said Harned, now vice president of the Martinsville-Henry County Economic Development Corp.
So far, at least, that’s been the case. Once MZM was sold to a private equity firm over the summer and its operations and employees were transferred to Athena Innovative Solutions, it became apparent that the company’s troubles would not trickle down to Martinsville, Harned said.
A spokesman for Athena declined to answer any questions about the Martinsville location.
But according to Harned, the company has hired about 30 people since beginning operations in the summer of 2004. MZM promised 25 jobs in the first year, 50 more the second year and another 75 by the third year.
Close to half of the capital investments promised by MZM have been completed. Halfway through the 30 months covered by the performance agreement, Harned said he expects the projections will be met.
Some say it’s too soon to tell whether a new company will be able to hold on to defense contracts awarded to MZM under questionable circumstances. “I think that’s a huge question mark right now,” said Daley of the Project on Government Oversight.
But in Martinsville, officials remain hopeful the jobs are there to stay.
After becoming concerned about MZM’s travails earlier this year, Vice Mayor Kimble Reynolds asked a company executive about the situation.
The discussion that followed eased his fears, Reynolds said.
“MZM certainly has been a bright spot in our efforts” to jump-start the local economy, Reynolds said. So in light of what’s happened recently, he said, people can’t help but worry.
“But at the same time, you don’t want to hit the panic button,” he said.
News researcher Belinda Harris and The Associated Press contributed to this report.