ENDICOTT — Endicott Interconnect Technologies is falling short of an employment goal established in a 2002 agreement that garnered $4 million in state money to help local investors buy the microelectronics plant from IBM.

When EI was formed three years ago, it inherited 1,940 workers. The contract with the state stipulates the company must repay 40 percent of the grant amount — or $1.6 million — if the company doesn't keep at least 93 percent of those workers by Jan. 1, 2006.

Year-end audits of the work force show that in its first two years of business — 2003 and 2004 — EI met its agreement to maintain at least 93 percent of its work force, said Glynis Gotwald, a spokeswoman for the Empire State Development Corp.

But despite optimistic plans for new growth — tied to a homeland security scanning device called SureScan — the company lost jobs this year. As of last week, the company had 1,760 employees, said EI president James McNamara — or 90.7 percent of the original level.

The degree of the repayment penalty, if any, will not be determined until after an audit at the close of this year, Gotwald said.

The $4 million gift from the agency was granted under the condition the new owners of the storied microelectronics plant save jobs, according to records obtained by the Press & Sun-Bulletin. Other government funding of the $100 million deal, which included the purchase of real estate, machinery, equipment and inventory at the 43-building campus in the heart of the village, included a $1 million Community Development Block Grant not tied to jobs. The IBM site is in an Empire Zone, which also qualified Endicott Interconnect for an assortment of tax breaks and incentives tied to new investment in employees and capital equipment, among other benefits.

Private funding included $17.5 million from M&T Bank, $11 million from NBT bank and a $51.5 million lease arrangement with IBM, according to records from the Empire State Development Corp., obtained through the Freedom of Information Law.

Earlier this month, McNamara said EI's financial outlook is the best it has been since investors bought the company three years ago. But this week, he said he was unsure of EI's employment status as it relates to the contract and didn't want to comment further.

Whether the state will impose a fine, and how it would affect business and employment at the site, remains to be seen. But some officials with experience with economic development deals said they would not expect the state to reclaim the money.

"I would be surprised. Everybody would be surprised. They don't typically enforce them," said Timothy Grippen, a former Broome County executive and member of the county Industrial Development Agency. He is now executive director for Opportunities for Broome, an advocacy agency for the poor. In some cases, government-subsidized economic incentives are good for the public, Grippen added, but those lacking strict and tangible performance evaluations amount to "corporate welfare."

According to Grippen and other critics, the Empire State Development Corp. is notoriously lax in recouping funds from non-complying businesses.

"In many cases, if people on welfare were doing this, we would put them in jail," said Assemblyman Richard L. Brodsky, D-Greenburgh. "When it's a large corporation, we shrug and walk away."

Both Grippen and Brodsky said they lacked faith in the competency of the Empire State Development Corp. to oversee public money in private enterprise. But they agreed struggling companies falling short of employment goals should be given some flexibility if they show potential and are acting in good faith. Fining a struggling company such as EI — which is substantially backed by an assortment of many community stakeholders — may do more harm than good to communities.

Gotwald said she "could not speculate" about the outcome of the audit scheduled early next year. But, she added, the $1.6 million penalty would be "a maximum" and other circumstances could come to bear. In general, decisions about non-complying companies are made "after a thorough review, multiple meetings and on-site visits," she said.

HARD TIMES

The fate of the microelectronics plant — an economic giant that shaped the village — and attempts to save it are an emotionally volatile topic among vested stakeholders, including thousands of workers and former workers, investors, contractors, community planners and elected officials who already have lost much and stand to lose even more.

During IBM's global domination of the computer industry in the 1980s, the company called Endicott home. It provided livelihood to 11,000 workers and the centerpiece of a vibrant Southern Tier economy — the Valley of Opportunity — that featured an impressive tax base, lavish employment benefits and a flourishing contingent of contractors and subcontractors.

By 2002, IBM's work force at the Endicott plant had plummeted to about 4,200, and the company was planning to close the entire operation. Sanmina, an interested buyer, had no intention of keeping it open, according to Richard D'Attilio, executive director of the Broome County Industrial Development Agency.

"The end result would have been a shuttered plant," he said.

It's a fear fresh in the memory of state Sen. Thomas W. Libous, R-Binghamton.

"They (IBM) had informed us they were shutting down and moving out. That was no fun," he said. "It would have been very difficult to recover from, if at all, to have that whole campus empty."

Plans quickly surfaced to sell the heart of the company — called the Interconnect Products Division — to local investors, the Maines and Matthews families. The Maines family runs a $1 billion food distribution business in Conklin and the Matthews family has diverse holdings, including vast experience in the electronics manufacturing services industry. Both families said they were at the center of the deal to save jobs and what was long a stable element of the region's economy.

The thinking was, if the core of the company could be salvaged, it would provide an anchor for the sprawling campus, now called the Huron Campus, and a new generation of workers.

The news was met with a mix of skepticism and optimism from a public embittered by years of IBM layoffs but unwilling to give up hope.

Now, three years later, employment has continued to languish. IBM, through a lease arrangement with the new owners that helped fund the deal, continues operations there, but its employment has fallen from 2,290 to 1,500. Employment for EI and IBM combined has dropped from approximately 4,200 to 3,300.

CORPORATE WELFARE?

Some say the deal is another example of companies exploiting government handouts that are well-meaning but ineffective.

EI's job-creation plan was simply to lay off people with years of experience and hire people for much less, said Rick White, a union organizer who worked for IBM as an engineering technician for 28 years and was fired six weeks after the sale.

"If they follow the rules, but work just under the radar, then the system is not very reliable for the taxpayers," White said.

He cited the company's highly publicized effort to develop SureScan, a luggage screening machine for the homeland securities market. The project promised 700 new jobs over five years. Some may have been hired for the project, White said. But more were fired from other areas.

"They are not creating jobs," he said. "They are reshuffling them."

Joe Coudriet, a Town of Owego resident and a social justice minister for the Catholic Church, said the idea of offering companies public money as economic incentives "just seems wrong."

"It strikes me as blackmail," he said. "What they are saying is, if you don't give me money, I won't come here. I wish there was some way to get around it."

Libous, who championed the EI deal, said the state had little choice.

"It was either lose 4,000 jobs or put this deal together," he said.

Knowing, after three years, the company would show a net loss of 180 jobs, was it worth it?

"We make the decisions in life based on the information before us at the time. None of us has a crystal ball," Libous said. "IBM approached us and said we would like to know if the state of New York would be interested in buying the property and demolishing it. That's what was going on.

"Yes, it's been worth it."

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