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Az court calls 'moot' in appeal over World View-Pima County deal

State appeals court judges ruled that a suit over Pima County's support for high-altitude balloon firm World View is moot, because the company's facility was completed years ago.

In a nine-page decision released Monday, three judges of the Arizona Court of Appeals said that taxpayers represented by the libertarian Goldwater Institute could have tried to halt construction with an injunction while they pressed their case, which was filed in April 2016.

The ruling was the fourth court win for Pima County in Goldwater's push to block the deal with the tech company, dating back to 2016.

The plaintiffs suing the county — Rich Rodgers, Shelby Magnuson-Hawkins and David Preston — "could have preserved the possibility of a meaningful remedy by seeking to temporarily enjoin" the project from moving ahead during the suit, Judge Karl Eppich wrote.

"They did not, however, despite ample opportunity."

The judge, joined by Judges Peter Eckerstrom and Phillip Espinosa, dismissed the case.

"The taxpayers filed suit less than three months after the contracts were entered, and more than eight months before the facility was substantially completed. Indeed, the taxpayers maintained that the design and construction contracts still had not been fully paid in June 2017—fourteen months after they filed their lawsuit. A live controversy therefore evaded review only because the taxpayers did not take appropriate legal action to attempt to preserve one. We therefore decline to decide this moot issue," the decision said.

County Administrator Chuck Huckelberry told the members of the Board of Supervisors in a memo Monday that "the county selected highly qualified consultants, who delivered a quality product on time and under budget. During the three-and-a-half years that the Goldwater Institute has spent challenging this project, the project has been completed and World View has moved in, paid the county nearly $1.9 million in rent, and maintained a payroll exceeding that required under its agreement with the county."

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A pending claim by Goldwater attorneys that the county violated the state gift clause has yet to be decided in Superior Court. The county is preparing to move for summary judgment, asking the judge to dismiss that remaining part of the case.

"We've prevailed a number of times; I hope the Goldwater Institute will reimburse us for the sake of the taxpayers," said Supervisor Sharon Bronson. "How many times do we have to win before they stop?"

Jobs fell short of promises

Although Pima County taxpayers invested $15 million in a facility for the high-altitude balloon company, the number of workers at the firm wasn't taking off as officials had forecast — or even as World View's lease requires, a TucsonSentinel.com investigation showed earlier this year.

Far from a projected 400 workers, the company in February had fewer than the 100 employees it should have had under its deal with the county, even before a layoff of 10 employees. Although the county could void the lease with World View, its prospects for recourse are limited and pushing a firm with growth potential out and leaving a vacant building instead isn't on the table, officials said last winter.

"We have an asset to protect; they're still making their lease payments" on the building, Richard Elias, chairman of the Board of Supervisors, said in February. "I wish they had more employees. We have to work with them to ensure they have a good shot at improving their numbers."

The company now has 114 employees here, Huckelberry told the supervisors earlier this month, "on track to get to 135 employees by the end of 2019, and to 160 full time employees by June 2020."

In 2016, the county agreed to build a factory and launch facility for the Tucson-based company, which was just getting off the ground with plans to launch scientific instruments nearly to the edge of space — and touted plans for "space" tourism via manned balloons ascending into the stratosphere.

While the company's undertaken numerous launches of its "Stratolite" balloons — which can carry small payloads into the upper reaches of the atmosphere for a fraction of the price of a rocket launch — mostly for NASA and undisclosed (read "military") government agencies, it's since dialed back on those marquee claims of carrying passengers aloft for profit. Its balloons can carry gear to altitudes of 100,000 feet — at 20 miles up, nearly the edge of space.

In addition to rent over 20 years — which is projected to cover the construction costs and interest borne by taxpayers — the company pledged to hire a certain number of well-paid workers to justify the county's economic development investment.

Not only has World View's staffing fallen far short of those public projections — an analysis used by the county said there would be nearly 300 employees in 2018 and 342 in 2019  — but the company hadn't yet topped even the 100 minimum workers it was required to have under its lease agreement, documents showed. For all of last year, the company reported essentially no growth in its number of employees. World View is, however, paying at least 50 percent more than the average salary mandated under the deal.

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To start off 2019, the company even shrank its staff, although World View said it would soon hire some workers in other areas. Tucson's stratospheric balloon company publicly named a new CEO in late February, a move months in the making as World View "retools" toward boosting scientific and communications gear.

World View's new CEO is a veteran leader in the drone industry, Ryan Hartman, former president of Insitu, Boeing's unmanned aircraft subsidiary. That company builds drones for the U.S. Navy, and others.

Dropped from the top of World View's list of executives and board members to the bottom was Jane Poynter, the first CEO and a co-founder of the company.

83 < 100, 86 > 50

World View must submit quarterly reports on the number of workers and average salaries, under the terms of its lease. The company disclosed a staff of 83 for each report covering 2018 — but also claimed to have 90 staffers when listing the average salary of $86,000 for the last report of the year, with data from Dec. 23, 2018.

Huckelberry told the supervisors in February that the latter number included seven "contract workers," in addition to the 83 "full-time" staffers.

Under World View's lease, the company was required to have an average of 100 employees, at an average salary of at least $50,000, for each report in the second year of the contract, which would have been last year.

While World View was projected to have 400 workers by 2020, with an annual payroll of $25 million, it's not required to hit that headcount mark until fully 15 years into the deal. From the initial baseline of 100 employees, the requirement goes up by 100 workers every five years. That means, by 2022, World View should have at least 200 employees, with an average salary of $50,000 each.

Of potentially canceling the lease over the number of jobs, "They're so close to the margin; we're not going to do that," Huckelberry told TucsonSentinel.com in February.

Huckelberry acknowledged that the company was falling short of the jobs requirement, but still said the county's deal with World View was a good investment.

"The salaries are better than expected," he said in an interview. "My view is that this is 100 more employees in Pima County making twice the average wage of most residents."

"If they weren't here, they'd be paying their lease in Florida," Huckelberry said. "If you look at where they started and where they are — it's a growing economy and growing technology — the question is, 'was it worth the risk?'"

"Yes. The county taxpayer's not out a dime," he said.

In a January 2017 memo to the supervisors, noting that the construction project was complete and the facility had been turned over to the company, Huckelberry said "World View has begun hiring additional staff and will rapidly accelerate their hiring process to operate their new manufacturing facility and headquarters."

"World View will likely employ over 400 people within the next 24 to 36 months," Huckelberry wrote at the time.

Earlier this month, the county administrator said that the company had 114 employees at its headquarters here, with 135 projected by the end of the year, and 160 workers projected by next June.

The number of World View employees required under the contract was initially withheld from the public in 2016, and the attachment to the contract that listed those metrics was not disclosed during the meeting at which the supervisors approved the deal. It was only released later, after public records requests and delays — the company considered one of the contract's basic performance measures to be "proprietary and confidential information."

"Do not disclose," the addendum to the document was headed.

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World View was initially not filing the quarterly statements with the county to outline employees and salaries. While the company was giving informal information to officials, at some point county staffers realized that the required affidavits had not been provided. World View turned in its first two reports (covering the three months leading up to March 23 and June 23, 2017) in September 2017.

Goldwater suit

From the start, the deal with World View raised questions — some in TucsonSentinel.com's reporting published within hours — along with eyebrows and even hackles.

Disapproving of the deal was Supervisor Ally Miller, who heatedly questioned its founders during a public meeting and later bragged to one of her staffers about covertly working with the Goldwater Institute to have the county sued to void the contract. Ally Miller voted against the contract in 2016, repeatedly mentioning the lack of details released by the company, and saying the deal was too risky an investment for the county.

While the suit by the right-wing group proceeded, so did construction — the building was completed in December 2016. In February 2017, a lower-court judge ruled that the deal broke state procurement laws that require open bidding, and said the lease should be voided. But that December, a state appeals court overruled that decision, holding that the county acted within its economic development powers.

That decision, written by Judge Peter Eckerstrom for a three-judge panel, referenced the county's forecasts of World View's employment and economic impact in finding in favor of county's ability to sign the deal.

The ruling cited the lease, which said that "based on an economic impact study by Applied Economics, commissioned by Sun Corridor, Inc., which takes into account World View's anticipated employment and salary levels, the Board has determined that World View's operations ... will have a significant positive impact on the economic welfare of Pima County's inhabitants."

The judge referenced that finding in ruling that the county "did not enter the agreement pursuant to its general leasing power, but appropriately acted pursuant to its economic development power. Having made the requisite findings, the County was not bound by the competitive bidding process, but was free to negotiate and contract directly with World View."

Goldwater's suit maintained that World View plans a "an unproven, for-profit luxury adventure-tourism business" that will be facilitated by the county deal.

County officials have mocked Goldwater for focusing on the "space-tourism" aspect of World View's operations while not mentioning the expected economic impact of their plans.

"No reasonable person would argue that the stratosphere will, in the near future, replace Disneyland as a vacation destination for middle-class families. But providing affordable recreational opportunities for county residents, though a legitimate public purpose, is obviously not the public purpose the county is seeking to further in its transaction with World View," wrote Regina Nassen, a deputy county attorney, in an April 2016 letter to a Goldwater lawyer.

Layoffs & changes at the top

World View said that the layoffs of 10 workers at the beginning of the year was a "retooling" meant to "align our resources with skill sets we'll need for the future."

The company has slowly floated away from attraction of "space" tourism that garnered so much early attention. While the balloons don't fly nearly as high as most conventional definitions of space — most say the edge of space is 50-60 miles up — the company said in its first promotional materials that the experience for passengers would be much the same as a space launch, if more gentle.

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In July 2016, Huckelberry told the supervisors that World View has "unfortunately, received a great deal of notoriety about space tourism; even though 90 percent of their current business model relies on commercial communication, research, business and defense applications of their balloon technology."

The focus seems to be even tighter today. Rarely do company representatives mention manned balloon capsules, whether carrying passengers paying $75,000 per ride or not.

With Jane Poynter, formerly the public face of the company, eased out of the top executive role, World View's management is more focused on the immediate bottom line than garnering headlines outside the tech press.

Still listed as a co-founder and "strategic advisor" to the company is former astronaut Mark Kelly, who recently announced that he's running for the U.S. Senate as a Democrat. Kelly was formerly described by the firm as its "director of flight crew operations."

Burst in 2017

A hydrogen-filled World View balloon exploded at the company's "Spaceport Tucson" launch pad in December 2017, causing about a half-million dollars in damage to the headquarters and manufacturing building and shaking up businesses and residents for miles around.

Sky-high projections

Poynter and MacCallum, who were crew members of the Biosphere 2 experiment and also partners in local tech firm Paragon before leaving in 2014 to pursue investors for World View, refused to make public many financial details of the company before it was approved by the supervisors on a 4-1 vote in January 2016.

In pitching the deal to the supervisors three years ago, Poynter said the company planned to manufacture "hundreds of balloons" by its second year of operation at the facility.

County officials said then that the project should have total economic impact of $3.5 billion over 20 years, with the company having a $25.3 million annual payroll by 2020.

While saying on the day of the 2016 vote that there were "parts of this proposal that look like pie in the sky," Supervisor Richard Elias said he thought the potential upside was too great to pass up, and voted in favor of it.

This week, learning of the contractual shortfall in staffing from TucsonSentinel.com, Elias said, "I don't think it's outstanding yet, but they're heading in the right direction."

"This is how public-private partnerships are supposed to work," Supervisor Sharon Bronson said in a 2016 news release about the approval of the deal. "World View is getting the help it needs to get off the ground, literally, and Pima County is getting the private investment necessary to bring high-wage jobs to our valley."

Now, Bronson acknowledges the project has fallen short of its employment predictions, but said "we're still going to get what we expected in terms of the final result. Taxpayers will be the beneficiaries."

Bronson pointed to problems across the high-tech industry with getting visas approved for skilled foreign workers as one reason World View lags in hiring.

"We're not producing in our colleges enough of the folks who have the kinds of skills that high-tech companies need," she said in an interview Wednesday. "The turmoil in Washington (D.C.) has contributed not only to World View's challenges, but caused problems nationwide."

Pima County will "realize a return in investment on the lease" even with the lower number of jobs, Bronson said, pointing out the higher level of wages being paid than at some other development projects that have been highly touted recently, such as Amazon's distribution warehouse.

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A rendering of the World View building.


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