Did C.P. invest in "buyer beware" venture?
PLASMATRONICS -- Critics: City, state invested without background checks
CROWN POINT | State and former city officials have been gambling with taxpayer dollars, critics of an ongoing economic development deal in Crown Point contend.
A Times investigation revealed Crown Point and the Indiana Economic Development Corp. promised New York-based Plasmatronics more than $1.8 million in incentives last year to move to Indiana -- without doing a background check and despite warnings about the riskiness of the venture.
Company owners acknowledge they have had challenges in the past, including financial losses, disagreements with executives and associations with a parent company that declared bankruptcy in 2005.
But they say they are ready to move forward in Crown Point with their newest product and bring 220 jobs to the region within the next three years.
Plasmatronics plans to manufacture its Plasma Drive Ignition system in the city, a product owners say will increase gas mileage and reduce air pollution on automobiles, trucks and motorcycles.
But one Crown Point Development Corp. official who abstained from voting on the city's incentive deal now says he would have voted against approving a $500,000 loan with taxpayers' money had he known about the company owners' past at the time of the vote.
"It appears, though hard to believe at the time, that they did minimal due diligence," corporation member Allan Katz said.
What they didn't know
What state and local officials admit they didn't know at the time they brokered a deal to bring Plasmatronics to Crown Point was that owners Lonnie Lenarduzzi and Linda Decker have struggled financially under various company names in the past 19 years and in several states.
U.S. Securities and Exchange Commission and bankruptcy records show portions of the owners' past.
"We spent more time focusing on the current opportunity," former president of the Crown Point Redevelopment Commission Rob Gardiner said of his decision to back an incentives deal with Plasmatronics. "We were trying to set up Crown Point as a place that nurtures along businesses that have high opportunity."
But Plasmatronics' high opportunity is a roll of the dice with the public's money, some critics assert.
Decker and Lenarduzzi's first ignition system company, Perma Tune Electronics, recorded net losses in the late 1990s, according to forms filed with the U.S. Securities and Exchange Commission.
Perma Tune had 10 to 15 employees during its 10-year stay in Texas, Wylie Economic Development Director Sam Satterwhite said. Wylie's Economic Development Corp. offered the company $20,000 to relocate from California to Texas.
Lenarduzzi and Decker apparently decided to bolster their fledging operations in 2003 by letting Perma Tune be absorbed into another company, Trans Max Technologies, in return for capital and expansion.
But the two left the new company about 18 months before Trans Max filed for bankruptcy on Sept. 8, 2005, according to Nevada U.S. Bankruptcy Court records. Decker said she and Lenarduzzi brought a case against Trans Max for breach of contract and pulled Perma Tune out of the failing company. The pair are listed as creditors in the bankruptcy case.
The couple then started remanufacturing the Perma Tune product line in 2005 in New York under the name Plasmatronics LLC.
"The thunderstorm is over, the clouds have cleared," Decker said of the direction in which the company now is heading.
Risky venture?
Financial consultant Greg Guerrettaz said he warned Crown Point officials that investing in the company would be risky. He was paid by the city to review Plasmatronics' current finances and business plan before the deal, but not its past.
"I told them there would be great rewards if it happens, but substantial risk if it doesn't happen," Guerrettaz said.
He said he destroyed the financial documents after his analysis, per an agreement between Plasmatronics and Crown Point.
The state also reviewed the company's finances, business plan and information from Crown Point -- but did not do a comprehensive background check of its own, said Mitch Frazier, spokesman for the Indiana Economic Development Corp.
He said the state plans to do a background check after Plasmatronics files its paperwork to get tax credits.
But the state doesn't stand to lose if Plasmatronics fails because the $1.23 million in tax credits and $95,000 in training grants it promised are based on the company's performance.
Crown Point's Redevelopment Commission and Development Corp. offered Plasmatronics a $500,000 loan up front and already have doled out nearly $380,000, city records show.
Decker said she provided information officials asked for before the incentives deal was offered.
"Hush, Hush"
Former Mayor Dan Klein and the previous Redevelopment Commission's behind-the-scenes negotiation of the Plasmatronics deal impacted testing of a Plasma Drive ignition system on one of the city vehicles, according to a memo dated Jan. 14.
In the memo, Public Works Director Jay Olson told new Mayor David Uran that he can't render an opinion on the effectiveness of the Plasmatronics device because data was "too inconsistent."
The ignition system was placed on a vehicle poorly suited for testing and was done without his knowledge or input, Olson wrote.
"The previous administration was very hush hush regarding the Plasmatronics issue," he wrote in the memo.
Klein did not respond to several attempts by The Times seeking an interview.
Katz, who abstained from voting on the loan and has been a vocal critic of the lack of public disclosure, said he would have voted against the incentive deal if he had known what he knows now.
The $500,000 loan passed the city Redevelopment Commission in June.
But on July 11, the Crown Point Development Corp.'s attempt to solidify the loan in a vote behind closed doors ignited protest from city officials and The Times. The state's public access counselor ruled the corporation violated the Indiana Open Door Law by denying public access to the meeting.
The Development Corp. recast its favorable vote in public July 25.
Gardiner, who was on both the Redevelopment Commission and Development Corp., said he did not know Lenarduzzi and Decker's history but is "comfortable" with his approval of the $500,000 incentive.
"If it was a slam dunk and there was no risk to it, then there was no role for the city to play," he said.
City Councilman Bob Corbin, who is a member of the Redevelopment Commission but was not at the meeting when it approved the loan, said he would not second-guess the decisions made.
"If the economic development is successful, then the community and the corporation benefits by increased jobs and taxes," Corbin said. "I have every reason to believe that it will succeed."
The future
Decker said the re-emergence of Perma Tune "was like a phoenix" rising from the ashes of its troubled past.
Plasmatronics is run out of the couple's single-family residence on Long Island. The Perma Tune line is geared toward high-end European sports and racing cars, she said.
Decker and Lenarduzzi said they decided to branch out and create Plasmatronics Inc. -- a completely separate Indiana-based company geared toward ignition systems for fleet operations and everyday vehicles, rather than high-performance vehicles.
In April, Plasmatronics announced it would open its research and manufacturing center for the Plasma Drive Ignition system in Crown Point.
The couple said its technology is backed by testing from a laboratory certified by the Environmental Protection Agency and built according to Society of Automobile Engineers' standards.
State and local officials have said they estimate Plasmatronics will represent a $2.1 million capital investment and provide up to 220 new jobs in the next three years if all goes well.
Decker said 90 percent of the $380,000 Plasmatronics has received from the city went into infrastructure at the company's facility in Millennium Park off Summit Street.
"If people want to see where that money is, here it is," she said. "Every last bit of that taxpayer money has gone into local business in order to gear up and hire local people."
BY MARISA KWIATKOWSKI
mkwiatkowski@nwitimes.com
219.662.5333
Date posted online: Sunday, January 27, 2008