Audit Questions USTAR's Success Stories

Written by Bob Bernick on . Posted in Today At Utah Policy

Some years ago the Legislature’s Auditor General produced a scathing report on the high salaries and other goodies within the state’s retirement office.

I well recall the then-Speaker of the Utah House, Nolan Karras, getting red-faced and slamming his fist down on the committee room table, vowing to take severe action against the abuses.

Within several months most of the top retirement officials either retired or were let go; the retirement board reshuffled.

Now comes an equally critical legislative audit of what many in Utah believed (they may well question that now) to a shining state star of innovation: The Utah Science Technology and Research initiative, or USTAR.

The seven-year USTAR effort has been backed by governors, lawmakers, business, research and university leaders – along with more than $330 million of taxpayers’ money.

Praise has fallen on USTAR like fall leaves – golden and loving.

USTAR report after report shows wonderful intellectual ideas being turned into bursting public/private businesses employing hundreds of Utahns and bringing capitol investment into the state.

But could it all have been overstated?

Or at the very least, much less successful and more expensive per job created than legislators and the public has been led to believe?

Senate budget chairman Lyle Hillyard, R-Logan, has been a long-time supporter of USTAR. In fact, when Utah State University desired to be, along with the University of Utah, the primary research schools “incubating” USTAR projects, Hillyard used his considerable budget clout to, at the end of a general session, come up with $1 million to move USU cowsheds just so a new USTAR building could be constructed on the USU campus.

But Tuesday, Hillyard, like other members of the all-powerful Executive Appropriations Committee, voiced real concerns over the audit’s findings.

“My deep concern is, not the fact that (USTAR) has not been successful, but what has been represented. I don’t know what I can believe. And that is a bad position for your agency to be in.”

Hillyard was addressing a much-humbled USTAR executive director Ted McAleer.

Lawmakers have given USTAR $334 million over recent years, some coming in operating funds, others in bonds to build USTAR buildings on college campuses.

That’s a lot of money, and Hillyard said in some of the lean years when lawmakers were cutting budgets USTAR still got some funding to keep its programs going.

One of the main goals of USTAR is to combine university researchers’ innovative ideas and inventions with capital and business-knowhow to created new – and hopefully very successful – products and markets.

There is to be a cluster effect through the successful combinations, said Rep. Brad Wilson, R-Kaysville, Exec Approp House co-chair.

“We wanted a cluster; just not this kind of cluster,” said a sullen Wilson, leading some in the audience to gasp and laugh.

“I’ve never seen an audit like this,” said a clearly unhappy House Majority Leader Brad Dee, R-Washington Terrace.

He basically ordered McAleer to appear before future Exec Approp meetings to explain all of the criticisms found in the new audit.

Majority Assistant Whip Rep. Don Ipson, R-St. George, owner of a trucking firm, said he always looked to USTAR to create good, high paying jobs.

“Now I find out that (job numbers) were based on (three-year-old) projections. This is just mindboggling to me. How do we get in touch with reality?
“This is very disturbing. I have no idea what we’ve created here.”

You can read all of the accomplishments of USTAR here on its web page, outlines and media reports over how successful USTAR was.

A political challenge here is this: The backers and board members of USTAR are well-respected leaders in Utah, including the state treasurer and economic development leaders.

Finger pointing, always a popular sport on Capitol Hill, started at the Exec Approp meeting, with several Democrats on the committee asking where was Herbert when all of this USTAR falsifying was going on.

“USTAR is not a separate entity,” said Sen. Luz Robles, D-Salt Lake, who is looking at a U.S. House run next year.

“Where was GOED?” (The governor’s budget office.) “Where is the governor?” She asked.

A member of Herbert’s budget staff came to the table to say that USTAR may, legally, be located in the governor’s budget office, but in reality is run by the USTAR board, and Herbert has no direct line supervision.

McAleer, apparently in anticipation of a very negative audit, said 45 days ago he replaced the USTAR finance director with someone McAleer said is “well-known” to the legislators -- a former state budget staffer.

And financial accounting will certainly get better, McAleer said.

It is unclear if that, however, will satisfy any future calls for someone’s head to be delivered on a platter.

The 51-page audit (you can read it here) found 15 flaws in how USTAR has been managed and how its accomplishments have been distorted.

There are no charges of fraud or criminal wrongdoing.

Rather, it appears, according to the legislative auditors, that USTAR bosses simply overstated how successful the various intellectual-property-to-business-startups have been, and are being today.

There was also lax financial management, with various USTAR projects getting considerable amounts of cash that was not adequately accounted for.

Those audit findings include:

-- USTAR has overstated how much money its startups have made and inflated the number of jobs actually created.

-- USTAR has “performance teams,” groups of researchers/businessmen, who haven’t property been supervised; with no real measurement of success or failures.

-- USTAR overreported $254 million in engineering contracts and private investments and overreported $4.4 million in sponsored research.

-- In reporting how much money it had made, or debts owed, depending on your accounting methods, USTAR didn’t list $166 million that the Legislature bonded for new USTAR buildings, making USTAR’s bottom line look better.

-- USTAR reported revenues of $130 million from a private firm affiliated with USTAR, yet that private firm in fact was not part of USTAR projects – it had simply lent its technology to USTAR and any profits from that lending would go to the private firm, not USTAR.

As the complaints by Exec Approp members increased, Rep. Joel Briscoe, D-Salt Lake, said these concerns should be put into context.

In the early 1990s, two University of Utah professors said they had invested “cold fusion.” The state put millions of dollars behind their research, which turned out to be seriously flawed. There is no “cold fusion” today.

This is not the case with USTAR, said Briscoe. Real new technologies are being developed and marketed.

In fact, next week a new-energy bus will begin running on the University of Utah campus – a USTAR success story.

And, said there are millions of dollars on order for more of the new busses, he added.

Still, GOP legislative leaders said the audit’s findings will be further examined and USTAR called to explain each of the concerns.