My Take on MedHab

We are surprised and concerned by some of the developments at last Tuesday's City Council meeting. An executive session item about possible economic development incentives to a “medical devices” corporation has frequently been on both Council and Development Corporation agendas for months. Last Tuesday we finally got a name: MedHab, and a presentation. Now that we have the name and have had time to do basic research, there are lots of things to be concerned about on this whole deal. On this issue another local blog, State of the Divison, beat us to the punch. They have covered the basic issues very well so far. We will be covering this in more detail but you need to start by reading them and the initial story in the Standard Times. Our initial impression from the research we've done so far is that this deal is not a good one for our city.

One of the biggest issues that gives us pause here is potential conflicts of interest. Right before the vote on MedHab came up, the council voted to change the rules on a companies eligibility for incentives and what constitutes a conflict of interest. They voted to eliminate the following rules

1. No member of the San Angelo City Council, or person related to a council member within the second degree by consanguinity or affinity, shall be eligible for assistance from the COSADC during his/her tenure or for six months thereafter.

2. No member of the San Angelo Economic Development Corporation Board of Directors, or person related to a board member within the second degree by consanguinity or affinity, shall be eligible for assistance from the COSADC during his/her tenure or for six months thereafter.

3. No employee of the San Angelo Economic Development Corporation, or person related to an employee or supervisor of the Department within the second degree by consanguinity or affinity, shall be eligible for assistance from the COSADC during his/her employment or for six months thereafter.

After the changes, state and federal laws are all that governs. It probably wouldn't affect the current project because this aid is to an LLC, not to individuals. Still, there is some major confusion because both Mayor New and Randy Brooks, who sits on the board, seem to have substantial interest. They do if MedHab's SEC filings are correct. According to state law anyone with an investment over $15,000 has a substantial interest in a company. Doesn't matter how small a percentage that is of the total companies worth, that dollar amount makes it substantial. According to MedHab's SEC filings, the smallest investment they would accept is $25,000. If the reports that Both Mayor New and Mr. Brooks have individually invested in Medhab are correct, that means both have invested at least $25,000 which make their investments a substantial interest by state law. It does appear that they have recused themselves from all votes so we may have dodged that bullet.

I am concerned by two quotes in the paper. First  “Although New and Brooks do not have substantial interest in the company, each having invested less than 1 percent of its overall value, City Attorney Lysia Bowling advised changing the COSADC eligibility guidelines because they contained provisions that "opened it to misinterpretation."” which is clearly not what state law says. The percentage might be below the limit but the dollar amount is not. The second quote “City staff said New and Brooks have chosen voluntarily to recuse themselves from all votes and discussion on the MedHab deal, even though they do not have substantial interest in the company, defined as owning 10 percent or more of the company's voting stock or shares or $15,000 or more of its fair market value.” gets the values right but makes me think that there is a problem with accurate disclosure. Either MedHab's SEC filings or the financial disclosures provided by New and Brooks are wrong.

To bring this to a close, I don't like the way this project smells. There was a lot left out of the presentation on this project and I don't feel comfortable when there is an apparent substantial conflict of interest that City Staff seems unable to recognize. I am not comfortable they have actually applied all the diligence that is really due. It just doesn't smell right.