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Slugfest in Kentucky: McConnell versus Bevin (Part 2)

at 06:05 AM ET, 07/26/2013

“Matt Bevin says he’s a conservative businessman. But when his Connecticut businesses needed help, Bevin took $200,000 in taxpayer bailouts — even though Bevin failed to pay taxes.”

— voiceover in a new ad, “Bailout Bevin,” by the Mitch McConnell campaign

(Part 2 of 2)

 It looks like it’s going to be a nasty race for the Republican nomination between Senate Minority leader Mitch McConnell (Ky.) and his Tea Party-backed rival, businessman Matt Bevin.  The day Bevin announced he would mount a primary challenge, he launched a tough ad about McConnell’s “failed leadership,” and the McConnell campaign responded with an ad labeling the novice politician as “Bailout Bevin.”

Both campaign appear to have very diligent researchers. Let’s examine the facts behind McConnell’s attack on Bevin.

Bevin is a business executive who, in his first ad, attacked McConnell for voting for the Troubled Assets Relief Program (TARP), which rescued distressed banks, auto companies and other firms during the Great Recession. (McConnell famously called the bailout “one of the finest moments in the history of the Senate.”) But Republicans have soured on the program, and so “bailout’ is an albatross for McConnell in the primary.

In a bit of jujitsu, McConnell is attacking Bevin’s perceived strength — his business expertise — with the same “bailout’ pejorative. Do the facts justify this label?

 

The Facts

Bevin made his fortune in asset management, i.e., managing stock and bond purchases for institutional investors. But this is a story about a small bell manufacturer, Bevin Brothers Manufacturing Co. in East Hampton, Conn., with a 179-year history, including making the bells for the movie “It’s a Wonderful Life.

As Matt Bevin tells it, he got involved in the family firm in 2008, when it fell on hard times, though he did not fully become president until 2011. The timing is a bit murky, as various news articles describe him as president much earlier, including a 2008 profile in Business First, a Louisville business journal.  

“He got a call in 2008. He gave a loan and slowly started to get more involved,” said Bevin spokesman Sarah Duran. “Over time, he helped more and more and eventually was given more and more control as he saved the company. In that sense he was acting president but it wasn’t like it just happened in 2008. It was a gradual thing over 3 years and then he was officially elected president in August 2011.”

Why is the timing important? Bevin Brothers had fallen behind on its local and federal taxes, which forms a key part of the McConnell ad: ‘When his Connecticut businesses needed help, Bevin took $200,000 in taxpayer bailouts — even though Bevin failed to pay taxes.”

The McConnell ad continues: “Bevin’s business was assessed at least eight liens for not paying taxes. And Bevin’s company was the #1 tax delinquent.”

Here’s what actually happened: A devastating fire on May 26, 2012, believed to have been caused by lightning, burned down the Bevin factory as well as a related business in which Matt Bevin is a minority shareholder. East Hampton once was home to 30 bell manufacturers, but Bevin Brothers was the last one remaining. And now it was up in smoke.

That’s why the company needed “help” — and why Connecticut officials quickly offered $100,000 in grants to help rebuild the bell factory. (Another $100,000 grant went to the other company, P.S.I. Plus, which makes compressed gas cylinders.)

The bell company used its grant to purchase machinery and equipment, and was required to employ 12 people, its existing workforce at the time of the fire, according to Jim Watson, spokesman for the Connecticut Department of Economic and Community Development.

In order to qualify for the grants, companies must “be in good standing on all state and local taxes,” according to the state guidelines.

So how does the McConnell campaign charge that he took the “bailout” cash while owing taxes? The factory still owed nearly $75,000 in federal taxes, which were paid in November, 2012, a few months after receiving the loan, according to documents supplied by the McConnell campaign. (We embed these documents below the Pinocchios.)

What about those eight liens mentioned in the ad? Most of those refer to local East Hampton taxes, which were fully paid off a few months before the fire. The ad highlights a 2011 newspaper report showing that the factory was the number one tax delinquent in East Hampton. But Jeff Jyllka, East Hampton’s finance director, said that did not mean much because so few businesses were located in the town. “It’s not a strong commercial base,” he said, noting that 93 percent of the city’s taxes comes from residential real estate.

The ad flashes the article headline: “Top 10 Tax Delinquents: $5.4 million owed to area towns.” But the amount owed by Bevin Brothers was just $116,684 — and the campaign instead could have shown the article’s chart with the specific figure for Bevin Brothers.

The figure of “eight liens” also does not mean much. One of the liens was for less than $25. (The McConnell campaign notes that they did not count other liens or taxes owed by the company from before Matt Bevin’s involvement began in 2008.)

The McConnell campaign justifies calling the state grant a “bailout” in part because the factory did not have fire insurance to cover its losses. “Our concern is the business practices Mr. Bevin chose to exhibit when he allowed taxes to go unpaid, liens to be assessed and go unaddressed for years, failing to insure his business, and allowing taxpayers to pick up the tab when disaster strikes,” a campaign official said.

 Duran did not respond to questions about the insurance coverage, but it’s a bit of a red herring given the age of the building and the equipment. “My understanding is that it is very difficult to get insurance on an old building built in the 1880s,” Jyllka said. Bevin has been quoted as saying that he “had business interruption insurance, but the insurance company considered his massive metal presses so depreciated that the coverage only valued them for scrap.” 

We have embedded, below the Pinocchios, a letter concerning the grant and tax transactions written by East Hampton Town Manager Michael Maniscalco, provided by the Bevin campaign.

All things considered, the bell factory is a rather small business. It has only 12 full-time employees. Before the fire, East Hampton assessed the value of the factory building at $368,390 and the land at $114,850 — lower than homes in many suburban areas. The aged equipment was assessed at $20,290. The relatively small tax liens also suggest it is a low-margin business.

McConnell, in his efforts to thwart President Obama’s desire to raise taxes, often cited the burden on small business.

 

The Pinocchio Test

Regular readers know we hold attack ads to a higher standard. This ad especially reminds us of the Obama campaign’s attacks on Mitt Romney’s business record at Bain Capital, in which a sliver of truth often was taken out of context.

Since the nature of Bevin’s business is never mentioned — or why “help” was needed — a viewer of this ad might imagine Bevin was involved in some sort of hedge fund or bank that went bust, rather than an iconic symbol of bygone American manufacturing.

Labeling McConnell’s rival as “Bailout Bevin” — complete with a Web site called bailoutbevin.com — is especially misleading, given the ad does not point to any long history by Matt Bevin of accepting state or federal assistance. This grant — a more accurate term — is specifically tied to maintaining job growth and is aimed at small businesses, and was received after a significant setback.

Although the ad highlights the company’s failure to pay taxes on time, the East Hampton tax liens highlighted in the ad were actually paid in full before the grant was issued.

The image portrayed in the ad is that Bevin gets “bailouts” while skipping out on his taxes. The reality is that, after financial success, he became involved in a small family business with historic roots in the community and had started to get the company back on its feet when tragedy struck. Rather than throw in the towel, he decided to try to rebuild the business, with some state aid.

Ordinarily, one would think McConnell would celebrate such gumption by a small business owner.

Three Pinocchios

 



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    About the Blogger

    Glenn Kessler has covered foreign policy, economic policy, the White House, Congress, politics, airline safety and Wall Street.

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