State Senator VINCENT J. FUMO 1st Senatorial District Democratic Appropriations Committee Chairman Room 545 Main Capitol, Harrisburg PA 17120 Internet Website: www.fumo.com

FUMO CALLS FOR STUDY OF GRANT PROCESS IN WAKE OF KVAERNER AUDIT

HARRISBURG, August 9, 2000 -- Auditor General Robert Casey Jr.'s investigation of the Kvaerner Shipyard deal raises serious questions about the Ridge Administration's handling of economic development money, and the grant process should come under close scrutiny by the General Assembly, state Senator Vincent J. Fumo (D-Philadelphia) said today.

Fumo, the Democratic chairman of the Senate Appropriations Committee, recalled that the commonwealth's contract with Kvaerner was negotiated in deep secrecy, with the Legislature being given little opportunity to review the details before being asked to vote upon the $400-plus million package.

Casey's audit, released today, revealed that Pennsylvania taxpayers have paid for wasteful and extravagant spending at the former Naval Shipyard, while receiving virtually no guarantee of long-term economic or job-creation benefits.

"Had the General Assembly been able to thoroughly review this deal, to ask questions and to offer suggestions, many of these problems could have been avoided," Fumo said. "Given the obvious weakness of this administration's decision's making process on economic development projects, there must be greater Legislative oversight of any future deal.

"The administration's lack of 'due diligence' to determine the likelihood of  Kvaerner's success is especially troubling on a project of this magnitude," he added.

Another aspect of Casey's audit that particularly disturbed Fumo was the lack of cooperation from the Philadelphia Shipyard Development Corporation, the group of Ridge appointees overseeing shipyard funding. Casey's auditors had difficulty obtaining documents, while PSDC frequently took the position that taxpayers were not entitled to information about expenditures.

"Secrecy contributed to the problems with this deal from the beginning, and they are still trying to withhold information," Fumo said. "Of course, that's no surprise, considering the weak return on the public's investment and the nature of some of the outrageous expenditures by Kvaerner executives. I can see why they would not want this to become public, and I commend the auditor general for uncovering the truth."

Fumo, in whose district the Shipyard is located, voted for the economic development appropriation, but raised concerns at the time about the lack of information provided to lawmakers. On Oct. 22, 1997 when the Kvaerner deal was first announced, Fumo told the Philadelphia Daily News: "It's nice to have any jobs in Philadelphia, and it's in my district. But I remain cautiously optimistic that it will produce what they say it will produce."

Fumo went on to explain the cause of his caution to the newspaper, pointing out that no public hearings had been held to discuss the grant proposal. He also noted discrepancies between various reports about the number of jobs to be created and the size of Kvaerner's financial stake in the project. As discussed in the auditor general's report, Kvaerner was required to make almost no commitment of capital in return for extremely generous public subsidies.

The public dollars now amount to $429 million, while Kvaerner, under the amendments  agreed to in 1999, is able to defer any expenditure until after shipyard construction is complete.

A"It has to raise eyebrows when the taxpayers are assuming all of the risk for a business venture and the company is assuming none of it," Fumo said.

The administration simply negotiated a very bad deal, he said.

AI call upon the Republican majorities running the House and Senate to vow that from now on, thorough and deliberative Legislative hearings will be held before we vote on any major economic development expenditure proposed by the Ridge Administration," Fumo said. "We can't just run these projects through routine committee meetings and rubber stamp this administration's deals.

AI think the Legislature has to study the entire grant process to make sure that taxpayers are getting a good return on their investment."

Fumo also expressed continued concern over the uncertain future of Kvaerner's shipbuilding operation, in light of the commonwealth having to assume additional responsibility of $62 million for cost overruns beyond those in the original agreement.