HOW COB REWARDS INCOMPETENCE: MAKE HER CITY MANAGER

Special to El Rrun-Rrun

Just how did the perfect storm come together at the Greater Brownsville Incentives Corporation that resulted in the non-compliance of a company that on September 29, 2021 agreed with the city that for $1 million it would perform a number of tasks related to bringing space-related industries, including bringing in $10 million in taxable assets within the city limits of Brownsville?

On January 6, 2023, after the city attorney and the city auditor determined that the company was in non-compliance, they ordered that an audit be performed to discover what went wrong with the venture between  9Point8 Capital and the GBIC.

The audit was performed by City Auditor Keilah Folkerstma, Deputy City Auditor Jose Luis Silva, and Assistant City Auditor Daniela G. Gonzalez.  The compliance audit was completed on May 19, 2023.

But by then, the company had been paid two payments of $250,000, one in October 5, 2021 and the other April 21, 2022. 

The auditors reported that the agreement between 9Point8 Capital was signed by founder J. Brant Arseneau and then-GBIC Executive Director and CEO Helen Ramirez, currently the city manager for the city of Brownsville. In the agreement, the company claimed that 9Point8 Capital was a New York based corporation authorized to do business in the State of Texas.

The $1 million was to be paid in 4 increments of $250,000 with the first payment within 5 days of the effective (signature) date then one at 6 months, one at 12 months, and the final at 18 months of a 3-year agreement.

In other words, the GBIC and Ramirez agreed that the company was going to get full payment of the $1 million halfway through the length of the contract.

Under that agreement, the auditors reported that 9Point8 Capital, an advisory company, was supposed to create local employment (20 full time equivalent jobs – 15 back office and 5 hatchery jobs), create a business “hatchery” to help startups find funding, fund space program scholarships at University of Texas at Rio Grande Valley (UTRGV), and bring capital investment for space startups within the city limits of Brownsville.

The original terms for payment were to be $1,000,000 in incentives, paid $250,000 every 6 months for two years per the original term sheet. The agreement with 9Point8 Capital was signed September 29, 2021, just two months after the proposal was sent to the City and 10 months after the City’s 380 agreement with Spaced Ventures, Inc. Per information given to the GBIC board, the entity was also supposed to bring in taxable business personal property valued at $10 million to within the city limits of Brownsville.

On January 6, 2023, the city auditor informed the city's  Audit and Oversight Committee that the company failed to deliver the services it had promised and had been paid two payment of $250,000 each, and recommended that a compliance  audit be performed on the agreement. The committee agreed.

Auditors found that the rapid pace at which the agreement was proposed and approved was breathtaking. The proposal was made to the city on July 23, 2021, the term sheet signed on August 6, 2021, and the final agreement signed September 29. The first $250,000 payment was made five days later on October 5, 2021 before any work had been performed for the city.

But before the "claw back" process started to get back the city's money, the city gave 9Point8 Capital a six-month window of time to come into compliance with the agreement starting September 26, 2022, and ending March 26, 2023.

However, the audit report indicates that Point8 Capital did not become compliant during that time, and the GBIC board decided to enforce “claw back” per section 3.9 of the agreement. The City Attorney sent a “Notice of Default and Demand for Repayment” to the founder 9Point8 Capital on May 11, 2023.

But the findings of the audit indicate that many "red flags" should have alerted GBIC CEO Ramirez, the city and the GBIC board to the questionable nature of the company, its bona fides, its founder, and the services it had promised to deliver. The audit, among other things, found that:

* The founder of 9Point8 Capital acknowledged the legal entity is and was 9Point8 Inc. registered in Delaware, not New York as he claimed in the agreement.

*When interviewed, he said it was his mistake and that he used Capital because no one knew what 9Point8 Inc. was.

* He said it was also his mistake that the agreement referred to 9Point8 Capital as a New York Corporation rather than the legal entity 9Point8 Inc. registered in Delaware.

* He also did not confirm registration with the Texas Secretary of State, or Cameron County, Texas, as an assumed name or “doing business as” or “dba” name as required by the Texas Business and Commerce Code, Title 5, Subtitle A., Chapter 71.

*Additionally, the auditors reported that they found no confirmation of the registration during their search.

Although the auditors reviewed the hundreds of pages of documentation retrieved by GBIC, they reported that it was not clearly documented what the application and screening process looked like or how it should have looked at the time of occurrence Ramirez signed the 9Point8 Capital agreement.

Further, they reported that it was not clear who should have taken those steps and who should have documented that they were taken, or who should determine that sufficient evidence was gathered and reviewed.

In the compliance audit report, they state that: "We did find a note indicating accepting self-reporting from the grant recipient would be acceptable in determining compliance. We deem the internal controls were inadequate because of the lack of policies and procedures and reliance on grantee self-reporting."

Who else but Ramirez could have made that determination? Or was there a rush to overlook all the due diligence so she could make a media splash on what a fine job she was doing? The auditors continue:

"Based on the lack of files, prior GBIC management and personnel did not keep files and did not verify existence and registration of the entity called 9Point8 Capital, documented to be a New York Corporation, before signing the Performance Agreement September 29, 2021...Therefore, no one found that the company used an “assumed name”, also known as a “doing business as” or “dba”, and incorrectly recorded the company’s state of formation and legal status to do business in Texas in the agreement.

"No background check on the founder was done or documented and documentation was not kept in entity files. Files were empty, per our discussion with current GBIC staff who recreated the files. We tried to contact former GBIC staff to verify what procedures they had in place during the time of the signing of the 9Point8 agreement, but we were unsuccessful."

"We deem the internal controls were inadequate because of the lack of policies and procedures and reliance on grantee self-reporting. Based on the lack of files, prior GBIC management and personnel did not keep files and did not verify existence and registration of the entity called 9Point8 Capital (company), documented to be a New York Corporation, before signing the Performance Agreement September 29, 2021 (agreement).

Ramirez served as GBIC's CEO and Executive Director from February 13, 2021 until July 26, 2022, during which time 9Point8 Capital entered into the $1 million agreement and the company was paid $500,000 before it was deemed to be in non-compliance.

On January 2023 she was selected from more than 30 candidates that applied for the city manager position to replace former city manager Noel Bernal. At the time, former mayor Trey Mendez told the Guardian:

“The City conducted an extensive search for the right person to bring the right leadership and the right experience for the City of Brownsville,” Brownsville Mayor Trey Mendez said.

“Helen by far exceeds those expectations. She is an outstanding leader and brings an extraordinary approach to municipality management, economic development, and strategic leadership. I look forward to continuing working with her and seeing what great accomplishments she will bring next to the City.”

At the November 9, 2021, announcement where Ramirez crowed that she had snagged 9Point8 to manage the space-related efforts of the city, she said:

"9point8's arrival to the City of Brownsville reinforces one of our main pillars - Economic Development. We want to develop a sustainable economy through businesses like these, and 9point8 will not only create employment opportunities, but these 10 million dollars in Venture Capital will impact our community's access to education, as well as attract other businesses in this industry, allowing us to position ourselves as leaders in the space industry."

Based on her sterling performance at GBIC and Mendez's assessment – the city is out $500,000 and no jobs for local residents were created – the city commission gave her a two year contract and pays her a $216,985 annual salary.