Martinsville owes the state $150,000 for its role in a failed economic venture by a crooked defense contractor with ties to a local congressman.

Late last week, officials with the Virginia Economic Development Partnership informed city officials of the amount due, which is a partial repayment of $500,000 in state economic incentive grants that went to a military intelligence center.

Proposed nearly four years ago by defense contractor MZM Inc. and the company's president, Mitchell Wade, the center was supposed to bring 150 high-tech jobs and new life to the region's struggling economy.

But Wade refused to apply for incentive grants needed to retire the debt on the city-owned shell building he wanted to move into. So in an unusual move, Martinsville signed a performance agreement that made it responsible for the state grants if MZM failed to deliver on its hiring and capital spending promises.

Not long after the deal was signed, MZM began to flounder as Wade was convicted of bribing a California congressmen in exchange for lucrative defense contracts. In a second case, Wade pleaded guilty to making illegal campaign contributions to U.S. Rep. Virgil Goode.

Goode, R-Rocky Mount, played a key role in the MZM proposal, introducing local officials to Wade and appearing at a ribbon-cutting ceremony for the center. At the same time, more of his campaign contributions were coming from Wade, other MZM employees and the company's political action committee than from any other single source.

Critics have accused Goode of returning the favor by seeking federal funds and a favorable state incentive package for the company.

According to e-mails between VEDP officials at the time the MZM deal was being negotiated, the idea of Martinsville being responsible for the performance agreement was first raised by Goode after Wade balked at applying for the grants.

"Congressman Good [sic] suggests/requests that Martinsville be allowed to stand for the GOF [Governor's Opportunity Fund grant money], and that they be allowed to accept responsibility for the performance agreement," VEDP staffer Johnny Perez wrote in an Oct. 3, 2003, e-mail obtained under the Freedom of Information Act.

In an e-mail Tuesday, Goode said, "I never recall talking with Johnny Perez or anyone in VEDP."

However, documents related to the proposal contain numerous references to Goode's involvement in discussions with both local and VEDP officials. In fact, his role led officials to dub the venture "Project Goode."

Goode has not been accused of any criminal wrongdoing in his dealings with Wade.

He has said throughout the controversy that his main goal was to bring economic benefits to his 5th Congressional District -- a theme repeated in his most recent written statement. Even though MZM's intelligence center was sold to a new owner before eventually going out of business last year, Goode stressed that during its existence it pumped $4.5 million in payroll dollars into the local economy and landed another $4 million in federal investments.

The decision by VEDP to recoup its losses marks the first time a locality has been left on the hook by a performance agreement tied to state incentive money. Usually, the company is the one that agrees to be held accountable.

"This request for re-payment in no way reflects any negative view of the city or of your efforts in this project or overall," VEDP general counsel John Sternlicht wrote in a Feb. 8 letter to Assistant City Manager Wade Bartlett. "We are simply constrained to collect the amount due under the performance agreement."

Although the total amount was $500,000, Martinsville was given credit for the jobs and capital investment realized before the center shut down last summer because of a lack of Pentagon funding.

Martinsville officials have said that although the city is capable of paying the money back, the bill nonetheless comes at a bad time of company closings and job losses -- a problem that the city had hoped would be eased by the presence of MZM.

The Associated Press reported this week that the Henry County Board of Supervisors voted to buy the former MZM building for $1.65 million to house social services and health departments.