Winning a city's funds, trust: Why EMA must overcome skepticism in Pittsfield to become an Economic Development Fund success story

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PITTSFIELD — On a sunny afternoon in mid-September, a podium bearing the Pittsfield seal was placed in a lot across the street from the Berkshire Innovation Center. A small group that included Mayor Linda Tyer and Business Development Manager Michael Coakley gathered around the lectern.

A year earlier, Tyer, Gov. Charlie Baker, Lt. Gov. Karyn Polito and other officials had congregated nearby, during a groundbreaking ceremony for the BIC, the $13.8 million William Stanley Business Park facility that is set to open in early 2020 and represents Pittsfield's decade-in-the-making attempt to reinvigorate part of General Electric's former campus.

Now, it was time to lay out the welcome mat for the Woodlawn Avenue building's first potential tenant: Electro Magnetic Applications, or EMA, a Colorado-based company aiming to install a new aerospace testing chamber in Pittsfield.

If the City Council accepted Tyer's incentives proposal for EMA, the mayor said the firm could establish Pittsfield and the BIC "as a hub of the space industry." When it was EMA Principal Scientist Justin McKennon's turn to speak, the Pittsfield resident used even stronger words.

"We're not here to just create a few jobs," McKennon said. "We're going to build an empire."

But, in the announcement's aftermath, McKennon's confidence, as well as Tyer's Economic Development Fund-based incentives package to lure the business to Pittsfield, gave rise to a familiar skepticism among some in the city. Concerns manifested online and at City Council meetings, where an intense approval process for Tyer's financial offer — in an age of technological mobility, incentives packages are a common tactic to draw companies to cities, perhaps most famously with the multibillion-dollar overtures for Amazon's "HQ2" — provided another hurdle for EMA to clear, revealing the lengths to which businesses must go to obtain the city's money and earn the public's trust. Online skeptics particularly surprised McKennon.

"They're looking for a reason why it's going to fail. In a city that's been admittedly starved for new business, that was probably the worst part," McKennon said by phone recently.

When the EMA proposal went before the City Council for the first time Sept. 24, many Facebook commenters expressed doubts about the company's potential to make Tyer's incentives package — $140,000 from the $4 million-plus available in the city's Economic Development Fund and $65,774 forgiven from the company's personal property taxes — worthwhile.

"They must have given Tyer a real BS story of making it big here," one wrote.

McKennon, a former General Dynamics and NTS Lightning Technologies employee, tackled these responses head-on, providing more information about EMA and its Pittsfield intentions in the Facebook thread. Through measurements and computer simulations, the company assesses how different electromagnetic environments can affect electronics and materials.

Lately, much of EMA's business has come from the space sector. While the commercial space industry is taking off because of companies like SpaceX and Blue Origin, few places in the world — about seven, according to EMA's City Council presentations — offer the opportunity to test equipment, such as circuit boards and the cover glass on solar panels, headed for outer space, and some of them are more interested in research than commercial advancement.

The chamber would allow EMA to mimic the environment in space, informing the input data for its simulations and thus providing more accurate information to its customers.

Consequently, for McKennon, his "empire" comment wasn't intended to promise hundreds of jobs; he's hoping to fill the six required in the fund agreement by the end of 2020. Instead, the passionate scientist wanted to make a statement about his company's future contribution to the city's "niche industry" economy as a space research destination.

"We have world-renowned lightning testing. We're going to have world-renowned space radiation effects and testing. We already have advanced manufacturing and materials — we have General Dynamics out here. So, the goal, I think, is to use that niche industry, where you can only go to Pittsfield to get these very specific types of things that are very needed, to put us on the map," McKennon said.

Still, without the city's money, McKennon and company strongly would have considered other locations for its chamber.

"I don't want to say that if we didn't get the money, it would have been an absolute 'no,' but it would have been a much, much more uphill battle," McKennon said.

During three meetings at City Hall, McKennon, EMA Senior Scientist Gregory Wilson and others stated EMA's case for the money, preparing lengthy slide presentations and sharing company financial information.

"We had to give out uncomfortable amounts of company data, much more so than we do for government audits," McKennon said.

Community Development Director Deanna Ruffer said the city reviews different financial documents from the previous few years for potential fund awardees. Profit and loss statements, balance sheets and tax returns are among the documents that might be looked at. After the fund's early failures with Electric Vehicles Worldwide and Workshop Live, Ruffer helped strengthen the city's vetting process, creating milestones for recipients to meet and securing the city's investments should plans go awry.

"It's worked well for us," Ruffer said by phone recently.

Ruffer added that the city doesn't seek to "overly burden" a business. Speaking generally, McKennon said he understood city officials' thorough approach but also felt that the city's upcoming election might have played a role in the City Council meetings' intensity.

"It was extremely exhausting," he said.

On Oct. 22, with EMA President and Chief Scientist Tim McDonald in attendance, the City Council unanimously approved the incentives package. Still, the councilors set a tone of cautious optimism rather than celebrate. Ward 2 Councilor Kevin Morandi put it bluntly.

"The city has a history of getting burned by companies," he said.

The root of the skepticism

Any discussion of sentiments toward industry in Pittsfield must begin with GE. For decades, the international corporation was the city's largest employer. But, the closure of its transformer plant in the mid-1980s was the first of several events that led a roughly 7,000-person workforce in the city to dwindle to nearly zero. Also, some of the company's operations contaminated the Housatonic River with PCBs.

But, out of that pollution grew Pittsfield's Economic Development Fund. As part of the company's cleanup agreement, GE agreed to pay $10 million to Pittsfield through $1 million annual installments that ended in 2010. The fund "can offer financial incentives to businesses that will have a significant positive impact on the City's economic development," according to the Pittsfield Economic Revitalization Corp.'s website.

"Consideration in determining the level of incentives the City might offer is given to the long-term public benefits of the project, including capital investment, potential tax revenue income, the number, quality and longevity of jobs, community programs offered, and secondary economic benefits that will be generated by the business activity," the site says.

In 2000, Electric Vehicles Worldwide was the fund's first beneficiary, receiving a $250,000 grant. The disbursement followed a $1.35 million federal grant the previous year. The company's original plan was to build electric-powered buses and delivery vehicles on GE's brownfields site. Their employment forecast projected 1,000 city jobs by 2005.

"When I leave, I want to leave behind the largest employer in the city of Pittsfield," CEO Michael J. Armitage told The Eagle shortly after the company's plans were announced.

It didn't work out that way.

EV Worldwide never came close to meeting its predicted job-creation numbers. By 2001, the company had ditched its vehicle-manufacturing plans, instead choosing to focus on making hydrogen batteries under the name ElectraStor.

As of March 2002, the firm had 12 employees, and little growth followed.

Eventually, legal troubles plagued its leader, too. In 2011, Armitage was sentenced to 5 1/2 years in federal prison and ordered to pay more than $6 million in restitution for fraud, tax evasion and lying to federal officials, according to The Eagle.

EV Worldwide's failure came on the heels of the Husky Injection Molding Systems plant shutdown and was compounded by Workshop Live's subsequent flop. Husky, a Canadian manufacturer, brought 125 jobs to Pittsfield when it started making machines for plastics molds in one of GE's buildings. The company closed its Pittsfield operation in 1999, four years after it announced its Pittsfield plans. It chose to continue its large-tonnage machine production in Europe for strategic reasons rather than Berkshire shortcomings, according to The Eagle's reporting at the time.

State grants and tax credits had helped entice Husky to choose Massachusetts and Pittsfield. The Economic Development Fund didn't yet exist, as it did when Workshop Live, the fund's next for-profit awardee, was searching for a hub. In 2004, the City Council approved a $750,000 grant for the digital music education startup. This time, the disbursement was tied to job numbers, figures the company didn't meet.

Workshop Live shuttered, with the city only disbursing $100,000 before the grant's 2009 termination. Unlike now, Pittsfield didn't have a policy in place to recoup its money if the business closed within a specified time frame.

Since Workshop Live, the fund's recipients have met the majority of their capital investment and job-creation milestones outlined in their awards, according to Ruffer, though some ultimately have missed further disbursement opportunities when their employment numbers fell short of expectations. The Beacon Cinema was born, in part, from Economic Development Fund assistance.

"This funding was provided in the form of loans as a result of the use of New Market Tax Credits in the project financing," Ruffer wrote in an email.

A portion of the loans was repaid on time. Another portion was forgiven in 2018 to ensure the theater's sale to Phoenix Theatres. (The remainder was restructured to be forgiven after 10 years.)

Covanta Energy Corp. received a deferred payment loan — it's a loan in which principal and interest payments aren't paid unless agreement terms are unmet — from the fund in 2016 to help save its Hubbard Avenue waste and recycling facility. In 2019, Community Eco Power bought the facility.

"As part of this sale, Covanta agreed to guarantee the facility, even though sold to a third party, would remain open through the end of the ten year period set forth in the original funding agreement. The sale also required the City to approve the sale," Ruffer wrote.

Ice River Springs, a water bottling company, was acquired this year. Before being sold to Premium Waters, Ice River Springs didn't meet the final employment milestone in its 2011 deferred payment loan agreement, according to Ruffer. She said the company's job creation had plateaued because of automation. The city didn't lose the loan's remaining balance.

"Ice River Springs exercised its right to repay the remaining balance on the loan at the time of the sale, rather than transfer the remaining term of the agreement to the new owner," Ruffer wrote.

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Loans made through the Small Business Fund have assisted seven firms in the city with at least three years under their belt and fewer than 50 employees, as of Sept. 30. A rescinded Massachusetts Bay Transportation Authority rail car grant and two deferred payment loan agreements to LTI Smart Glass make up the rest of the Economic Development Fund's for-profit business approvals to date.

LTI makes glass windshields for military vehicles, among other products. The company won its first deferred payment loan from the fund in 2008, aiming to bring 100 jobs to Pittsfield. In 2017, LTI received a second deferred payment loan to fuel further company growth. Today, the company has 120 employees based in the Berkshires.

Yet, the fund's early setbacks still are top of mind for many in Pittsfield.

One Facebook commenter alluded to EV Worldwide's failure and referred to EMA as another startup.

"We are NOT a startup," McKennon replied.

EMA

Electro Magnetic Applications, incorporated in 1977, has been involved in analyzing and testing the systems that powered the space shuttle, U.S. defense missiles like Minuteman and Trident, ships, tanks, and military and civilian aircraft. Today, the Lakewood, Colo.-based company has 22 employees and focuses on commercial products in addition to its government work, providing simulation, consulting and measurement services to a wide range of aerospace and defense clients looking to ensure their equipment's safety and functionality.

At the Oct. 22 City Council meeting, a slide featured the logos of some of those customers, including SpaceX, Sierra Nevada Corp., Bombardier and Boeing.

"In the 42-plus years we've been around, there's really very few companies in the aerospace and the military sector that we haven't worked with," McKennon said.

In the City Council presentation, EMA reported $3.5 million in revenue last year — for context, GE reported $121.6 billion in revenue in 2018 — and profits "almost every year." Though the city's financial vetting goes beyond those figures, private companies don't typically want to publicly divulge too many financial details, for competitive reasons.

Until recently, EMA's founder, Rod Perala, owned the company. But as of this year, McDonald and Principal Scientist IIs Matt Miller and Cody Weber share ownership. Perala still is an EMA consultant.

"He was looking to retire but not totally remove himself from the business," McKennon said.

McKennon joined EMA in April. He has lived in Pittsfield for years. He arrived in the city after receiving bachelor's and master's degrees in electrical engineering from the University of Massachusetts-Dartmouth, finishing up in 2012. His wife, Jill, had landed a job in Western Massachusetts, so McKennon took a senior systems engineer position at General Dynamics. He remained there for about two years before moving on to NTS Lightning Technologies, working his way up the simulation and engineering ladder.

He met EMA employees and leadership at conferences and the like. The company allowed him to remain in Pittsfield, where he could work remotely on consulting projects out of a Wendell Avenue office. He also liked the company's organizational structure. EMA empowers its staffers to make decisions about new projects, enabling McKennon to pursue his Pittsfield ambitions.

"There's no hierarchy at that company," he said. "There's leadership where it needs to be in terms of financial decisions, which the owners provide, but as far as the technical expertise goes, everybody is kind of treated on the same plane. So, there's no anybody's better than anybody else. I've never seen anything like it in my professional career."

The chamber

The project McKennon is bringing to Pittsfield revolves around the Spacecraft Charging and Environmental Effects Chamber.

The 3-foot-by-5-foot stainless steel cylinder chamber would re-create an outer space environment that can be harsh to materials and equipment on manned and unmanned spacecraft. In addition to factors such as the solar wind and solar spectrum, spacecraft are exposed to charging, or "the condition that occurs when a spacecraft accumulates excess electrons or ions," according to academics Shu T. Lai and Kerri Cahoy. Spacecraft charging often leads to equipment malfunctioning in space, knocking out, for instance, the communications system in Intelstat's Galaxy 15 telecommunications satellite in 2010.

"I think that the first spacecraft charging problems were discovered, literally, on the first satellites that were launched and have been an issue ever since," Utah State University physics professor JR Dennison said by phone recently.

Dennison is a leader in the institution's Material Physics Group, a "research center for the study of space environment effects on aerospace materials," according to the school's website. The center offers multiple chambers for testing. In EMA's presentation, Utah State was listed as one of about seven institutions around the world that "can evaluate even some reasonable aspects of the space radiation environment empirically"; others on the list included NASA's Marshall Space Flight Center in Huntsville, Ala.; ONERA in Toulouse, France; and the Lockheed Martin Advanced Technology Center in Palo Alto, Calif.

EMA's chamber would use a simulator to mirror the solar spectrum and electron and proton sources to match space's energetic particles. Its high-energy electron source would either be a particle accelerator or strontium-90, a radioisotope that would be "be employed using a design similar to the one in the SST Chamber at Utah State University" and would follow licensing requirements through the Massachusetts Radiation Control Program, according to the company's City Council presentation.

The need for more chamber testing has emerged because the once-government- and academia-dominated spacecraft industry is becoming increasingly commercial, with companies such as SpaceX pushing for exponentially more satellites and other space products. Multiple Wall Street companies' reports indicate that the $350 billion industry could grow to more than $1 trillion by the 2040s.

"Commercial space is really poised at the threshold of an explosion, and I think the only question there is whether the explosion is about to happen or it's already started," Dennison said.

For the most part, academia focuses on research rather than commercial projects like the 4,000 Starlink satellites SpaceX is launching to facilitate global internet connections. But schools such as Utah State can train students to contribute to such efforts.

When McKennon was looking for candidates to help him bring the Pittsfield chamber to fruition, he found Wilson, who is remotely completing his doctorate in physics from Utah State. Dennison is his adviser. Wilson worked with the school's chambers during his time on campus.

"They have the experience," McDonald said of Wilson and McKennon at the Oct. 22 City Council meeting.

Why Pittsfield?

While McKennon's "soft spot" for Pittsfield — "We've had nothing but terrific experiences with everything in the city," he said — might have motivated him to base his operation in the city, EMA leaders were willing to substantially invest in the chamber project. The company put $100,000 in cash internally and more than $500,000 in estimated labor costs toward the endeavor, according to its City Council presentation. Those figures don't include salaries for six positions that must average $60,000 per year in order for the firm to keep its Economic Development Fund loan. Still, winning the city's money was vital to making McKennon's plan a reality.

"We have some money, but we don't have enough, at least to do it in the time period we want," he recalled of his thinking.

McKennon first approached state Sen. Adam Hinds about where to find funding.

"Everybody knows Senator Hinds around here," McKennon said.

Hinds pointed him to Ruffer, who connected him to Coakley. They walked him through how to apply for the city's money.

Meanwhile, one of McKennon's neighbors, Synagex CEO John Sinopoli, introduced him to the Berkshire Innovation Center's leadership. McKennon considered "dozens" of other local properties, but "nothing that jumped off the page" like the research-and-development, training and conferencing facility known as the BIC.

"We get this beautiful, front-facing, brand-new building where all of our customers, for any form of testing, they always come in, one, because they think it's cool," McKennon said. "But two, because this testing is nonstandardized and there's a lot to learn by doing it, so they'll want to participate and educate themselves in it."

He envisions customers being product suppliers, like Honeywell, to major companies such as SpaceX. McKennon will help attract business as the chair of the Commercial Space Committee, a group tasked with developing performance standards for space-bound equipment. He plans to host various committee meetings in Pittsfield, exposing peers to the Berkshires.

But, recruiting talent to the region permanently might prove more difficult. Wilson opted to relocate to Pittsfield, and the company has hired local Ph.D. Casey Peirano. But the lack of a major STEM — science, technology, engineering and math — university in the Pittsfield area poses a challenge to a company seeking graduate- and doctorate-level candidates, EMA acknowledged in its presentation.

The company is working to bridge the workforce gap creatively. EMA is participating in a pilot program with the Northeast CyberTeam, which is led by a host of academic institutions and the Massachusetts Green High Performance Computing Center in Holyoke. The program will land the company an intern pursuing a degree in higher education. Once focused on providing a talent pool of research computing facilitators to small and midsize academic institutions, the National Science Foundation-funded initiative now is planning to work with commercial entities in need of advanced computing help.

EMA is the first company to participate. McKennon's project impressed program manager Julie Ma, as did the BIC. She would like to find other opportunities to work with the center.

"There's this workforce in the Berkshires that we feel like we can activate with programs like this," she said by phone.

Once EMA moves into the BIC, the chamber should take about 20 weeks to be custom-built in the U.S. and delivered, according to McKennon. He anticipates at least two more chambers and, as a result, more jobs in the future. For now, he's focused on fulfilling the company's initial Pittsfield promise.

"We signed up for something that we absolutely had zero percent doubt that we would be able to do in the time period that we needed to do it in," McKennon said of a loan that is forgivable, provided that the company meets obligations that include being operational in Pittsfield for at least 10 years.

From a networking and facilities perspective, EMA will have an ally in the BIC.

"Our goal at the BIC is to support that vision that they have and help them meet every one of their goals," BIC Executive Director Ben Sosne said. "They are ambitious, and to get there, they need help and support."

Benjamin Cassidy can be reached at bcassidy@berkshireeagle.com, at @bybencassidy on Twitter and 413-496-6251.


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