JACKSONVILLE, Fla. — Eager for a “made in Jacksonville” success story, the City Council in May 2011 signed off on a $590,000 deal to help a family business make enough Jerome Brown brand barbecue sauce for it to be sold nationwide.
At the time of the vote, the family had not paid its property tax bill; and it was the 10th time in 12 years it was late in paying property taxes for its business. Sometimes the payments were delinquent for more than two years.
That might have been a red flag for city decision-makers considering committing taxpayer dollars to the sauce venture.
But the city’s vetting of the business didn’t dig into the family’s financial history, which included four bankruptcy filings in the 1990s and a string of state Department of Revenue actions that included late payment of $11,461 in sales taxes in 2009, according to court records.
City Council backed the agreement in a 14-3 vote, clearing the way for a $380,000 loan in 2012 followed by a $210,000 cash grant in 2014.
The approval of the deal indirectly helped launch the political career of business co-owner Katrina Brown, who successfully ran for City Council in 2015 in a campaign that portrayed her as a savvy business executive who secured city funding for the sauce plant.
But the business, which she co-owned with her mother, repeatedly was late in making loan payments and paying taxes. It failed to create any of the 56 jobs it pledged in the development agreement, leaving the city with nothing to show for its investment but a breach-of-contract judgment against the business in July. Federal agencies have been doing their own investigation because the sauce plant got a $2.65 million loan backed by the U.S. Small Business Administration.
The failure of the ambitious undertaking shows what can happen when a business makes a lofty sales pitch for city assistance, gets the benefit of the doubt that it can deliver on its promises, and then skates along for years with spotty oversight by the city, according to a Times-Union review of city records, meeting minutes and court documents.
The city agreed to the barbecue sauce deal even after being burned over the years by failed economic development plans like one for The Shipyards, which was the subject of grand jury hearings in the 2000s.
That baffles John Winkler, president of the Concerned Taxpayers of Duval County.
“One would have thought there would have been lessons learned from, for example, The Shipyards, that could have been applied to avoid this debacle in the first place,” he said.
Winkler said that after the city did the deal for the sauce plant, “Why did it take years to figure out there was a systemic problem? It really suggests they didn’t want to know.”
The city money involved came from the Northwest Jacksonville Economic Development Fund, which got a boost in 2001 with $25 million from the $2.25-billion Better Jacksonville Plan. The fund seeks to fill the funding gaps for job-creating projects in the northwest quadrant of the city, where many communities suffer from a lack of private investment. The fund tends to take on projects with an above-average level of risk because private lenders, which typically put up as much as 75 percent of the financing, won’t participate without the city’s involvement.
Dozens of projects creating about 1,000 jobs have resulted from the fund-aided businesses, according to city reports. Some successful projects have been Moncrief Plaza, First Coast No More Homeless Pets, Third & Main, and Jacksonville Farmers Market. But the fund has invested millions of dollars in projects that went belly-up, such as Shoppes of Norfolk, HOPE Plaza, and the vacant Sax Seafood restaurant, also known as LaVilla Bistro, that got a $1.9 million city loan but never opened.
Former City Council member Bill Bishop, who voted against the barbecue sauce plant in 2011, said the city has a role in taking calculated risks for job creation, but it should be done “in a transparent manner so everyone knows what they’re getting into.”
He said the idea of a homegrown business going nationwide with its barbecue sauce was a compelling sales pitch, but “there was a lot of hope and speculation involved in it.”
“At the end of the day, these things have to be looked at from a business perspective,” Bishop said. “The city gets ourselves involved in this stuff on so many of these deals. I think there’s more hope than reality on some of them.”
The city’s public information office said city officials would not answer any questions or do any interviews about the barbecue sauce agreement because the city is suing the business.
The city wasn’t alone in putting money into the sauce plant venture. The Small Business Administration’s backing of a $2.65 million loan by a New Orleans bank has put a federal spotlight on the failure.
In December, the SBA’s Office of Inspector General joined the FBI and the Internal Revenue Service’s criminal investigation division in a raid on the Commonwealth Avenue plant.
In response to a Freedom of Information Act request, the SBA Office of Inspector General said this month it has “voluminous records” on the business, but it would not release them at this time because that might “interfere with an ongoing law enforcement investigation.”
The city of Jacksonville’s Office of Inspector General has been in communication with federal agencies investigating the sauce plant, according to a response the city’s Office of Inspector General gave to a Times-Union request. The office declined to provide those records, citing provisions in Florida’s Sunshine Law that say if an agency receives “criminal investigative information” from a non-Florida criminal justice agency on a confidential basis, the records fall under that restriction.
The city’s Office of Inspector General also cited a provision that records connected to an investigation by an inspector general in Florida do not become public until after the investigation is complete or no longer active.
Katrina Brown declined comment on the sauce plant. She and her mother Joann co-owned Cowealth LLC and Basic Products LLC, the entities sued by the city for breach of contract.
Katrina Brown’s father Jerome did not have an ownership stake, but was involved as the chef who created the sauces for Jerome Brown Barbecue & Wings restaurant, which is separate from the sauce plant.
Jerome and Joann Brown did not respond to phone calls and emails.
The swirl of investigations and lawsuits hasn’t affected Katrina Brown’s standing at City Hall, where she is serving her second consecutive year on the powerful Finance Committee.
City Council President Anna Brosche appointed Brown for a term starting July 1 along with three other northwest Jacksonville council members who voted as a bloc in support of Brosche for council president.
“I approached my committee selections considering the fact that I have a commitment to a safe and healthy northwest Jacksonville, and so ultimately, Districts 7, 8, 9 and 10 being on Finance is a reflection of that commitment,” Brosche said. “She is a City Council member and was elected by the constituents of District 8.”
Brown’s position on the Finance Committee puts her on the front lines of vetting the same kind of economic development agreement her family got in 2011.
Marcella Washington, a retired Florida State College at Jacksonville political science professor, said Brown’s position on the Finance Committee sends a message to the public that it’s no big deal for a council member’s business to breach a contract with the city.
“When a public official is in a situation like Katrina Brown, it should not be business as usual,” Washington said. “A price should be paid because it’s in the public interest to do so.”
While Katrina Brown doesn’t want to talk about the barbecue sauce plant now, she made it a cornerstone of her campaign for the District 8 council seat in 2015. As a newcomer making her first run for elective office, her campaign biography portrayed her as a business executive able to bring “new leadership, new perspectives and new solutions” to city government.
“Katrina has been directly involved in securing a distribution agreement with Sam’s Club/Walmart,” her biography said. “She also coordinated the financial arrangement of private equity, SBA lending and grant funding to redevelop a large manufacturing facility.”
In a campaign commercial, her father touted her involvement in the family business, proclaiming she “took a small business and turned it into a million-dollar entity.”
But the business was already starting to go bad.
In March 2015, the housing division told the Browns they were in default based on failing to make $8,101 in monthly loan payments and being almost a year delinquent on paying the business’s 2013 property tax bill.
The Browns paid the 2013 bill that month, but then fell delinquent on paying the 2014 bill. The business also owed almost $5,000 in sales and use taxes to the state Department of Revenue.
After a campaign opponent told Brown to pay her taxes at a candidate forum, the business hastily caught up. The family also paid $5,764 it owed the city for expenses related to using Metropolitan Park for the Jerome Brown BBQ and Music Festival in August 2014.
In May 2015, the housing division told the Browns they still needed to turn in a form detailing the business’s use of the Jacksonville Small and Emerging Business program. The agreement required a “good faith” effort to provide $72,200 of materials and services to certified JSEB businesses.
In July 2015, the housing division told the Browns they were once again in default on the agreement because they owed $6,092 in loan payments and had not submitted the JSEB form. The business caught up on the loan, but it’s not clear if it ever filed a JSEB report. The city says it has no records of that report.
That same month, the business staved off foreclosure on the bank loan by entering into a forbearance agreement with Biz Capital, a financial institution in New Orleans, according to court documents.
The forbearance bought some time, but in March 2016, the housing division told the business it still needed to submit an audited financial statement for its 2014 books. The letter also reminded the business of the contractual obligation for creating at least 56 jobs. That April 30 deadline passed without the business submitting a report showing any jobs, putting the business into default.
The collapse of the agreement came five years after the proposal for the barbecue sauce plant overcame some skepticism about whether the Brown family could accomplish such a big undertaking.
The family was hand-producing the Jerome Brown BBQ sauce in a 2,000-square-foot building they leased in Springfield, and selling the sauce at a few Jacksonville area Sam’s Club stores. To ramp up the operation, the family had lined up the $2.65 million SBA loan, but they needed the city’s support for the final funding piece.
In return for the city support, the Browns pledged to purchase a 34,000-square-foot building at 5638 Commonwealth Ave. and turn it into a high-volume food manufacturing operation, which would require extensive renovations and equipment. The Browns agreed to create at least 56 jobs.
Supporters said confidently the family could pull it off because Walmart was going to sell the sauce in its stores.
That assumption was based on reports by city staff that said the business had obtained “supplier agreements” with Walmart for sales of the sauce nationwide. But it’s not clear if city staff ever had such agreements in hand because the city does not currently have copies of such Walmart documents in its files.
Even if a business obtains a supplier agreement, Walmart says on its website, that doesn’t guarantee Walmart will sell a product, but “simply means that you are eligible to receive orders or business from Walmart or Sam’s Club.”
In discussions at the time, officials questioned whether the Browns could keep up with orders on a national scale.
Jacksonville architect Ted Pappas, who served on the fund’s advisory committee, said, “I remember having the emotion of ‘This sounds great, but will it happen?’ kind of thing.”
To vet the proposal, the city hired AmeriNational Community Services to evaluate the business plan and the Browns’ ability to accomplish it.
AmeriNational said Jerome Brown’s credit score was “below the normal acceptable range,” mainly because of a $10,772 federal tax lien that was paid in February 2011. Joann Brown’s credit score was “slightly below” normal, mainly because of delinquent payments.
Credit scores cover a seven-year period, so the review of the couple’s credit history did not capture other information in their past, such as federal court records that show bankruptcy petitions by Jerome and Joann Brown in 1990, 1994, 1997 and 1998. The city did not require AmeriNational to seek out bankruptcy records.
AmeriNational’s report said the Browns had “very limited cash on hand,” so the business would depend on sales of the barbecue sauce to cover its obligations. The Browns said they expected to generate $9.2 million a year in sales by the third year of operation, a rapid pace of growth that AmeriNational said would “present significant challenges in terms of capacity planning and hiring of competent senior plant management able to handle this amount of volume.”
Despite those concerns, AmeriNational recommended city approval of the agreement because the firm determined the business only needed to generate at least $2.6 million a year in sales to “break even” and cover its financial obligations. AmeriNational said the deal would fulfill the goals of the Northwest Jacksonville Economic Development Fund by investing in a small business that would produce local jobs. Finally, AmeriNational said the Browns had shown the sauce would sell at local Sam’s Club stores, and the supplier agreements with Walmart “may significantly impact their sales.”
The deal had the backing of Mayor John Peyton’s administration. In addition to support from the Housing and Neighborhoods Department, which oversaw the economic development fund, Jacksonville Economic Development Commission staff member Joe Whitaker appeared before City Council to recommend approval.
Whitaker, who retired from city government in 2014, currently is a member of the Northwest Jacksonville Economic Development Fund Advisory Board. Whitaker declined to comment on the barbecue sauce agreement.
When City Council debated the viability of the sauce plant operation, Bishop said the proposal would be a “quantum leap in expansion for this particular company.”
Supporters countered that the Browns could handle the growth, and they cited retail giant Walmart in making the case.
“How many other companies in this city have been invited into the Sam’s and Walmarts of the world with a project that was born out of Jacksonville, Florida,” Denise Lee, who was serving then on City Council, said in response to Bishop.
Lee’s argument carried the day. Bishop joined Stephen Joost and Clay Yarborough in voting against the agreement, but 14 council members agreed to it.
As it turned out later, Walmart did not carry the barbecue sauce.
Peyton said in a statement that like most economic development deals, the vetting of the sauce plant took place at the staff level and he does not have any specific recollection of the review that lead to the recommendation for it.
He said, “While it certainly is disappointing that this project failed to deliver its projected returns, it should not deter our community from thoughtfully considering investment in other projects that can bring opportunity and prosperity to northwest Jacksonville.”
Enforcing the terms of the deal fell to the mayoral administrations of Alvin Brown and Lenny Curry.
The agreement called for completing building renovations by May 31, 2012. The Brown administration extended the deadline for construction completion to April 30, 2013, giving the business more time to finalize purchase of the Commonwealth Avenue building. Even with the longer period for construction, work at the building wasn’t finished until November 2013, or seven months late.
The city provided a $380,000 loan to help Cowealth purchase the building. Under terms of the agreement, the city withheld giving the $210,000 grant until after the business showed it had completed all the building improvements called for in the agreement. The Housing and Neighborhoods Department released the grant funding in December 2014.
The grant came with strings attached. The 2011 agreement stated the business had to create 56 jobs at the sauce plant, and if it didn’t, the city would claw back some or all of the $210,000 grant, based on how far short the business fell of the job number. Originally, the deadline for the jobs was May 2015, but the city moved that to April 30, 2016, as part of the amendment that gave more time for construction.
In a February 2013 interview, Housing and Neighborhoods Department Director Terrance Ashanta-Barker, who no longer works for the city, said the business was in compliance with the agreement.
“Everything appears to be on track,” he said. “These guys have a strong business plan.”
But city officials were in the dark about basic aspects of the business.
The business turned in annual forms from 2012 to 2015 in which the city asked for job numbers, but the business left that section of the forms blank, except for writing “N/A” for not applicable. The business also left blank the section in the annual reports where the city asked for updates on the status of the project.
According to the development agreement, the business was supposed to submit yearly reports “regarding the jobs retained and created” until the business satisfied the 56-job requirement. But in response to Times-Union questions over the years, city public information officers have said the business was not required to file any jobs report until the April 30, 2016, deadline arrived.
The business also left blank the section in the annual reports where the city asked for updates on the project.
And the business ignored the development agreement’s requirement for submitting audited financial statements. It filed a statement for 2013 and none after that.
Alvin Brown could not be reached for comment.
The sauce plant got a boost in spring 2015 when Winn-Dixie agreed to sell the Jerome Brown brand at about 100 stores in north Florida and south Georgia as part of the grocery chain’s promotion of locally made products. But that would prove to be too little, too late.
With the city now in clean-up mode on the development agreement, the city General Counsel’s Office is trying to collect the breach-of-contract judgment. But it faces an uphill climb.
Biz Capital’s foreclosure on the Commonwealth Avenue building gives the bank the highest claim on that asset. Joann Brown and Jerome Brown filed for bankruptcy protection this year for themselves and for KJB Specialties, which does business as the Edgewood Avenue barbecue restaurant, shielding those assets. The city’s development agreement lists Katrina Brown as a guarantor. She earns $49,000 a year as a member of City Council.
Florida law allows the winner of a lawsuit to garnish wages in order to collect on a judgment. In general, the ability to garnish wages from a guarantor requires the guarantor to be named individually in a lawsuit, said Tad Delegal, a Jacksonville attorney who works in the field of employment law.
The city’s breach-of-contract suit was filed against Cowealth LLC and Basic Products LLC, but not against Brown individually.
Winkler said it’s odd that the city hasn’t sued Brown as a guarantor.
“I guess what surprises me most is it doesn’t seem like anybody is really focused on her,” Winkler said. “She was involved and nobody seems to be pursuing her about anything, which I find sort of remarkable.”
Assistant General Counsel Jacob Payne declined comment on the suit.
In 2016, City Council approved moving the Northwest Jacksonville Economic Development Fund out of the Housing and Neighborhoods Department and placing it in the city’s Office of Economic Development, which Curry said would bring more accountability to the program.
The current criteria for reviewing applications for funding does not say anything about asking applicants if they ever filed for bankruptcy.
As for the barbecue sauce itself, it’s not clear if the Brown family is still making it.
Southeastern Grocers, parent company of Winn-Dixie, said that while it is selling the Jerome Brown sauce, it is closing out the current stock, meaning it won’t buy more after selling out what’s on hand.
The Commonwealth Avenue building that was supposed to house a nationally known barbecue sauce manufacturing plant is vacant. The building had tenants in it before the Browns bought it, but it’s lifeless now, just one more vacant industrial building in northwest Jacksonville.
Pappas recalled how the city was out to help change that, and what may have gone wrong.
“I was on that committee for a number of years, and it just seemed that if there was any doubt, the person seeking the funds got the benefit of the doubt. And that’s only because there was a point in time when not much was happening (in northwest Jacksonville). There was a push to make things happen. That’s probably what drove most of it.”
Information from: The (Jacksonville) Florida Times-Union, http://www.jacksonville.com