Citizen Complains To Michigan Attorney General to Get Ann Arbor SPARK’s Audited Statements

Editor’s Note: Kai Petainen serves on the Editorial Board of The Ann Arbor Independent.

THESE ARE THE facts:

1.  Between June 2009 and November 2013, the City of Ann Arbor gave Ann Arbor SPARK $5.1 million dollars from its General Fund for “job creation.”

2. Ann Arbor SPARK has a history of sloppy accounting and, so critics claim, has reason to keep the details of its audited finances secret.

3. Kai Petainen is a lecturer at the University of Michigan, as well as a writer for Forbes.com. To him, SPARK officials’ refusal to make audited financial statements public was “a red flag.” And this is a guy who writes about Wall Street shenanigans.

As a lecturer at the University of Michigan, whose Vice President Dr. Stephen Forrest was, until recently, the Chair of SPARK’s Executive Committee, Petainen alleges he was warned off nosing around Ann Arbor SPARK and its finances.

Nonetheless, when The Ann Arbor Independent reported in its October 29th issue that Ann Arbor’s City Administrator had  refused Ward 1 Council member Sumi Kailasapathy’s request to see a copy of SPARK’s audit statements, it was Petainen who contacted the Michigan Attorney General to ask for copies of Ann Arbor SPARK’s audits.

Petainen also asked Michigan Attorney General Bill Schutte to explain why Ann Arbor City Administrator Steve Powers responded to Kailasapathy’s request for SPARK’s audits thusly:

“CM Kailasapathy, the SPARK audit is not available for public review. SPARK is not required to share its audit.  SPARK has chosen to maintain the confidentiality of its financial information. As an executive committee member, I have reviewed the audit and have no concerns with SPARK’s financial integrity and management controls.”

Schutte’s office handed over the requested documents. Petainen then wrote an email to the city’s elected officials that took the entire group to task for, basically, handing over millions in taxpayer dollars to SPARK without ever seeing the entity’s audits.

Petainen writes in an email sent to City Council members, “Do your job.  I shouldn’t have to do your job. When you give money to a non-profit (in this case, SPARK), then you should look over the financial statements of that entity. At the very least, you should do this. You didn’t.”

In 2011, a series of Freedom of Information Act requests were made to a variety of governmental entities giving tax dollars to SPARK. The FOIA requests made to the City of Ann Arbor, the University of Michigan and Washtenaw County asked all of the entities to produce SPARK’s 990 tax returns as well as its audited financial statements.

Despite the fact that Board of Commissioners had levied a millage to raise money for SPARK, Washtenaw County could produce neither the SPARK’s 990s nor its audited financial statements.

In 2009 the Washtenaw County Board of Commissioners (BOC) imposed an Act 88 millage on county residents to fund Ann Arbor SPARK. The new tax was imposed under the watchful eye of Robert Guenzel, then the Washtenaw County Administrator, now retired, and a member of the SPARK Board of Directors for the past several years.

In 2011 the BOC renewed the Act 88 millage, and increased the annual amount county taxpayers are required to give to Ann Arbor SPARK. The renewed Act 88 millage is expected to provide several hundred thousand dollars in county tax money to SPARK annually.

Just as county officials were unable to produce 990s or audited financial statements of SPARK despite funneling money to the organization, the same was true for the University of Michigan and the City of Ann Arbor.

In 2013, Kai Petainen submitted a similar FOIA request to Ann Arbor officials for SPARK’s 990s and audited financial statements. He writes in his email: “I know from a FOIA request that I made that you don’t have the financial statements.  I requested the audited financial statements for SPARK.

You give them money.  I figured that you’d have the statements.  Instead, I was told that the statements didn’t exist….You don’t have the financial statements, but I do.  That means something very disturbing…I know more about SPARK than you do.  I had this form and you didn’t.  And you’re the ones giving them millions of dollars.”

Critics claim officials at SPARK have been playing a game with members of the public who’ve asked to see the audited financial statements. The same game was tried with Council member Kailasapathy.

SPARK CEO Paul Krutko offered Kailasapathy SPARK’s 990 forms. However, Krutko was trying to play word games with a Certified Public Accountant.

“But 990s are tax forms,” said Kailasapathy, not financial statements.”

Kai Petainen included this in his letter to the Michigan Attorney General:

“Note:  According to the IRS 990 statements for both organizations (SPARK and its foundation), they state: ‘The organization makes their governing documents, conflict of interest policy, and financial statements available to the public upon request.’ ”

What Petainen received were SPARK’s audited financial statements for the years 2006 through 2012. It is a treasure trove of information which shows that while SPARK markets itself as “a nonprofit organization dedicated to advancing the economy of the Ann Arbor region,” Petainen alleges that SPARK is being run as a venture capital fund fueled, in part, with public money. If this is true, SPARK stands accused of using non-profit status to evade state and federal income taxes on its considerable income.

While SPARK officials originate investment deals, officials portray the entity as one that must “rely on the local business community’s continued support.” On the SPARK website, visitors are told that “Donations can be made at any level.”

The audits also reveal that SPARK has taken stock in several of the companies in which it has invested, holding shares of both common and preferred stock.

When companies are successful and are purchased or leave Michigan to expand elsewhere, SPARK, and not taxpayers, benefit from the profits realized. On the other hand, when SPARK-backed companies lose money, or are unable to pay back loans, it is the taxpayers who are on the hook.

Loans up to $250,000 dollars are made to companies at interest rates of between 7 percent and 15 percent. A recently launched micro-loan program, makes loans of between $10,000 and $50,000 at an interest rate of 12 percent. SBA micro-loans, offer interest rates that start at 8 percent and go as high as 13 percent, depending on the lender and the type of loan.

Local KeyBank branches offer mico-loans and lines of credit at prime plus 2 percent, or an interest rate of 5.5 percent.

Likewise, SBA 7a loan interest rates are calculated at prime plus a percentage. A $100,000 SBA 7a loan would be given at an interest rate of between 7.5 and 9.5 percent.

In response to questions about SPARK’s refusal to release its audited financial statements to the public, including City Council members, Donna Doleman, Vice President of Marketing emailed The Ann Arbor Independent: “SPARK is not required by federal or state law to make its audited financial statements available to the general public. Any suggestion that either Spark or the Foundation have not complied with applicable legal requirements is not accurate.

The SPARK Executive Committee meets every other month in its oversight role over the affairs and activities of Ann Arbor SPARK and the Ann Arbor SPARK Foundation. The Executive Committee will be meeting November 25, 2013 and as part of its agenda will review the question of releasing its audited financial statements, as well as its 990s, to the general public.”

Stay tuned.