SPACE-RELATED TAX-FUNDED INCENTIVES WERE PIE-IN-THE-SKY: CITY SAYS $100,000s SPENT, BUT WHERE ARE THE JOBS?

Special to El Rrun-Rrun

An internal city compliance audit performed on  companies that were provided millions in incentives to generate and attract space-related industries to Brownsville funded through grants by the Greater Brownsville Incentives Corporation and the Brownsville Community Improvement Corporation indicates that lack of due diligence and failed scrutiny of its agreements have resulted in no jobs and the city trying to get its money back.

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

The auditors also reviewed the city's agreement with a company that promised to bring $10 million in taxable property to within the city limits of Brownsville. The audit found that the companies – Spaced Ventures and 9Point8 Capital – were part of  a larger group of companies called 9.8 Financial Group and had the same founder, listed as J. Brant Arseneau. The CEO of Spaced Ventures was listed as Aaron Burnett. 

Burnett signed the contract for Spaced Ventures on November 16, 2020 with former city manager Noel Bernal signing for the city. Then GBIC board chair and now Brownsville mayor John Cowen signed off for the economic development entity. The agreement with 9Point8 Capital was signed by then-GBIC CEO and now city manager Helen Ramirez.

Auditors found that Arseneau was first introduced to the city as the founder of Spaced Ventures, Inc., and the audit found that he was also the founder of 9Point8 Capital, and said it would take him 6 to 8 years to build completely, but several operating companies already existed including Spaced Ventures as a public funding platform, Gravity Capital Partners (GCP) a venture fund and private credit, and 9Point8 Capital, an advisory firm.

The audit states that Spaced Ventures, Inc., incorporated in Delaware, is a beta test crowdfunding platform for individuals interested in investing in space related startup companies and the company has a notice on spacedventures.com that “Equity Crowdfunding involves risk” which when hovered over further expands to “Investing in startups via crowdfunding is risky and highly speculative. Investments cannot easily be converted to cash and investors could lose the entirety of what they invest.”

Auditors found that neither Spaced Ventures nor 9Point8 Capital have lived up to their obligations.

According to the agreement, Spaced Ventures was to create and retain four new full-time local jobs for local residents and local independent contractors at an average hourly rate of $30 per hour on a permanent basis (40 hours per week and 2,080 hours per year). As the graph shows above, the company'c compliance on the different parts of the agreement had been unconfirmed (U) or is non-compliant (N).

The auditors found that in the second agreement GBIC granted $1,000,000 to 9Point8 Capital which was documented in the agreement as a New York Corporation. The $1,000,000 was payable 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.

It also states 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 $10,000,000 to within the city limits of Brownsville.

Auditors found that, just like Spaced Ventures, 9Point8 Capital, had not complied with its obligations under the agreement with the city, with no jobs created as it promised.

That agreement was signed by Arseneau for 9Point8 Capital and by Helen Ramirez as GBIC Executive Director and CEO of the GBIC on September 29, 2021. City auditors found that the company has also fallen short of its obligations.

When the auditors asked, the founder of 9Point8 Capital provided the city a Delaware registration for “9Point8, Inc.” 

"Although requested on multiple occasions, he has not provided COB, GBIC, or the City Auditor financial records, tax records to verify what was paid to consultants or employees, he has not verified more than one local consultant who we found has resigned, has not shared a calculation of how he intended to document bringing $10 million of investment into Brownsville City limits, has not substantiated a physical business address in Brownsville, Texas, and has not substantiated the Space Scholarship Fund with UTRGV past the conception stage at the time of our audit reporting finalization. 

"Our last attempt to obtain documentation was made April 26, 2023 and we were referred to contact his attorney. The result of the City Attorney’s demand letter remains to be seen at the time of our finalizing this audit." 

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