First of two parts
Editor's note: This story incorrectly left the impression that Wal-Mart had refused in all cases to follow the rules of the N.C. Rural Center. In some of the paperwork for grants, the center received all required information from Wal-Mart.
The N.C. Rural Economic Development Center portrays itself as working to heal North Carolinas struggling rural counties. Its brochures and website feature tractors, farm animals and brick buildings lining small-town streets. Leaders highlight work on the long-range future of rural counties.
But the private nonprofit organization also has used millions in taxpayer money to help build fast-food restaurants, golf resorts, discount stores and big-box retail outlets that include a Kohls in Southern Pines and a dozen Walmarts, records and interviews show.
It spent $85,000 to help an electronic sweepstakes software company outfit a building in Greenville after lawmakers tried to shut the sweepstakes industry down.
It granted $350,000 for water wells in La Grange, about an hour southeast of Raleigh, saying the infrastructure would generate 35 full-time jobs at a new restaurant. The restaurant was a Bojangles that had already hired workers and opened its doors the next week; the wells were drilled six years later to solve a major water-capacity problem in the town.
Numerous Rural Center grants have led to claims of jobs being created but where no or far fewer jobs exist, The News & Observer found after reviewing a sampling of dozens of projects.
And with millions each year from taxpayers, the Rural Center has built up a sizable cash balance: More than $69 million is unspent and still in the bank for its main job generating programs, largely because of projects delayed, not yet started or from busted deals, records show.
Bob Luddy, a Raleigh businessman appointed to the centers board of directors two years ago by Republican Senate leader Phil Berger, said he has grown concerned and thinks the organization should be stopped from handling taxpayer money.
This is state money and should be administered by some state organization or state agency that the government or governor takes responsibility for and the General Assembly provides oversight of, Luddy said. Heres what they do in a board meeting. They spend an hour and 15 minutes praising each other for the amazing work theyre doing. And they spend 10 minutes to just ram these grant resolutions through, maybe five minutes. Theres no discussion.
The center is led by Billy Ray Hall, 65, a veteran in state government circles who has headed the agency since it opened in 1987.
He says the center is a good steward of tax dollars and not every idea it tries will work out, but many do. He said his organization should not be judged after a narrow viewing of selected grants.
Hall said small towns and rural counties need a well-funded, separate organization focused on rural concerns.
I eat, sleep and breathe rural North Carolina, Hall said. Rural North Carolina, I think, deserves the respect of trying to chart their path. They deserve the value of giving them as much as you can to help them make good decisions. And I think thats what Ive been trying to do. Thats what the Rural Centers been trying to do. And weve been trying to do it smart.
Hall has been working to preserve taxpayer support for the Rural Center. The House, Senate and governor have put forth vastly different plans, from a complete cut by the Senate to a House plan that would give the center more than $36 million over the next two fiscal years.
Lawmakers will sort out the differences while trying to settle the state budget by July 1.
Claims of jobs
Halls message is straightforward: He says the center used state money to create 19,911 jobs in the past five years. Halls claim includes the centers share of incentives deals that were led by the state Commerce Department.
In February, he told lawmakers that every job the center claims can be proven through employment payroll records. Thats not the case. The N&O found more than 950 jobs included in his count on projects that havent yet begun.
The centers communications director, Garnet Bass, said in an email message: I suppose you could argue about whether were prematurely saying some of the jobs have been created. ... We think were providing the most accurate picture possible for the value of the state investment. It may not be perfect, but we havent heard of a better way.
The N&O reviewed a sample of the Rural Centers work tied to job creation, examining about 90 grant files and other documents, and by visiting places the jobs were supposed to go. The newspaper did not look at many other parts of the centers work.
All of the job grants must be supported by local governments, which Hall said puts the Rural Center in a role of helping local officials bring jobs to their areas. The centers files reflect crushing job losses across the state from the recession and before, when a rural economy long dominated by textiles, tobacco and manufacturing was falling apart.
In grant applications, mayors, commissioners and town officials write of an economic tornado and the importance of obtaining Rural Center money to help them get new jobs of just about any sort, from a Dollar General in Mount Airy to a small Sears store in Edenton. In all cases, the money is routed through the local governments; it generally pays for improving a building or for water and sewer lines to serve a particular project.
The applications state how many jobs will be created; if the projects dont produce, businesses or governments are supposed to repay the money. The grants pay as much as $12,000 per job, usually with a maximum grant of $500,000.
While every grant has its own story, the newspapers review found multiple instances where companies have not fulfilled the promise of adding jobs.
The centers jobs claim to the legislature included projects that have already fallen apart, such as 20 jobs at Hallelujah Acres in Shelby, west of Charlotte, which got a $150,000 grant for a sewer line so it could move across the street. It has now moved to Gastonia.
In Rocky Mount, a Subway was supposed to create five jobs after a $96,000 grant to spark it and a neighboring business. The restaurant has closed.
The Rural Center told lawmakers it had created 50 jobs with a watermelon distribution facility in Carteret County. It was never built. A total of $300,000 in state money was earmarked for the project from early 2008 until May 22, when the center says it defunded the project. That came days after the state suspended the melon associations charter for failing to pay taxes. (This article continues below the interactive unemployment charts; click a gray tab to see the data.)
The center has allowed failed projects to find substitutes, something its officials said is common in grant-making circles.
For example, the Rural Center gave $450,000 for water and sewer to serve a theater in Roanoke Rapids featuring Dolly Partons brother, Randy. It failed, and the city and Parton parted ways in 2007. The center allowed a Hilton Garden Inn built nearby to fulfill the theaters jobs promise of at least 50 full-time workers, releasing Partons Moonlight Bandit Productions from a contract to create theater jobs.
In an interview, Hall said he was unaware of the specifics. Did we fund Randy Parton theater? he asked.
A manicured Moore County golf course development, the Dormie Club, failed to meet its jobs promise after the Rural Center provided $428,000 to run water to serve the club. The 3-mile water line extension was supposed to create at least 50 jobs by 2010, records show.
That didnt happen; in a letter, the club blamed construction delays, the recession and bad weather. The Rural Center has now given the golf club until January 2014 to meet its pledge. But it already claims those jobs as having been created.
Center staffers say that the agency has recently attempted to start reconciling its numbers on old projects that havent developed as expected. The watermelon project, for example, would no longer be counted as creating jobs in the next report to legislators.
Hall said that his agency has tried to work with businesses and governments during one of the worst economies in state history and that he feels good about sustained efforts to help rural areas.
I am totally guilty of trying to be understanding of the real world, Hall said.
The newspapers review also shows that the Rural Center:
• Does not ensure its grants are necessary for a company to open or expand. One city official who has handled several Rural Center grants, Vanessa McCleary of Rocky Mount, said she advises potential recipients to treat it as gravy money not essential to business plans.
• Breaks its own rules, or adjusts them, to keep money flowing. The N&O found at least four instances of the center making one-time exceptions among multiple other decisions to break from its policies.
• Requires companies it subsidizes to pay only the minimum wage, which is what dozens of grantees agree to do. Many beneficiaries do not offer paid benefits, and some are retail and service operations that researchers and economists say do not generate much economic impact.
• Awarded grants to benefit 49 restaurants, including Krispy Kreme, Wendys and a range of locally owned eateries. It made at least 100 grants to retail and service outlets. The total: $22 million since 2004.
Money for Walmarts
Wal-Mart Stores is one of the worlds most successful companies. North Carolina taxpayers, through the Rural Center, kicked in about $6 million from 2004 to 2009 to help develop its stores in the state.
There was a catch in the deals: Wal-Mart refused to play by the Rural Centers rules in some cases, declining to sign commitments to create jobs.
Hall wrote to a company lawyer in 2005, saying the General Assembly needed the company to provide documentation of job creation, as other businesses did.
We are interested in counting heads, Hall wrote, not in investigating salaries and wages, or in examining benefits packages. Our sole purpose is to bring jobs to the rural communities in North Carolina, where the textile, furniture, and manufacturing industries once dominated, and where they are leaving.
Wal-Mart wouldnt agree. The Rural Center provided the money anyway.
In 2008, a Rural Center vice president, Patrick N. Woodie, was handling a planned Walmart in Raeford, west of Fayetteville. He said the agency should deviate from its rules because the planned shopping center would clearly fulfill the requirement of at least 100 full-time jobs.
(I)t galls me to no end that WalMart wont sign the performance agreement, Woodie wrote. Clearly, this project has unanimous local government support, and they want this project badly.
Hall, in an interview, said he finally gave up, cutting off the program for Wal-Mart.
We dont do Walmarts anymore, he said. Retail jobs are not his preference, he said.
He said the center funded the stores to help local governments in hard-hit areas.
Can you pick out a project like Walmart and say that would have happened anyway? Hall said. It probably would have happened anyway. But what would have happened to the local government if they would not have had help to get water and sewer to it?
In Elkin, northwest of Winston-Salem, Wal-Mart Stores benefited from a $500,000 Rural Center grant and left behind an empty store a few miles away.
Fred Eidson, who developed a gas station and McDonalds near the new Walmart there, said his group paid $100,000 for utilities, including $20,000 to ensure fire hydrant coverage.
Eidson, a former town commissioner and former owner of a gas company, said his group was unaware of Wal-Marts subsidy but didnt blame the company.
They were just smarter than we were, he said.
Jonathan Q. Morgan, an associate professor of public administration and government at UNCs School of Government, has studied infrastructure incentives and said they represent an interesting dilemma when made for retail, restaurants and other service jobs. The government money is not usually decisive, he said.
Morgan said his research on North Carolina governments shows about half have provided infrastructure to entice companies to locate in their communities, but only 7 percent do it for retail projects. He has encouraged local governments to be cautious and study the full impacts, but he said many do not have resources for that.
Retail tends to go where the customer base is, he said. Chains put a store in based on customer count and demand and some of those other types of things.
Some companies that benefit from Rural Center money could expand without it. Others, at least 40 since 2006, use the money to change locations. And in many cases, the money is going to communities that state law says should not be a priority.
Figure Eight Technologies fits all three categories and supports an industry that lawmakers find objectionable.
Three years ago, legislators voted overwhelmingly to ban electronic sweepstakes games in North Carolina, targeting vice and dissipation with a law that went into effect on Dec. 1, 2010.
Six months after the ban, as the state and the industry battled in court, it would have been inconceivable that the General Assembly would assist a sweepstakes software company.
But the Rural Center did, with $85,000 in taxpayer money. The money went for half the cost of outfitting a vacant building in Greenville for sweepstakes software maker Figure Eight Technologies. It is owned by Garrett Blackwelder, 35, of Grimesland.
Greenvilles population is about 85,000. State law says the priority for vacant building money is for places with a population of less than 5,000.
Brian Crutchfield, a Rural Center board member who oversees the reuse program, said he recalls discussing with others the type of business being funded but decided it was legal to do so. There was no focus on whether the money was needed by Figure Eight.
Blackwelder had bought the warehouse-type building in March 2011 after a gun store went out of business. He paid $340,000 cash.
Figure Eights application was sponsored by the Pitt County Development Commission.
Blackwelder wrote to the commission in April 2011, saying he bought the vacant building because his software company had outgrown its space in Simpson, a village of about 400 people outside of Greenville. He wrote that Figure Eight was poised to expand and would be adding at least eight new workers.
Documents reflect estimates of $170,000 to outfit the new building. A letter from Blackwelders bank, Select Bank & Trust of Greenville, said Blackwelder had sufficient funds to cover $170,000 in purchases.
The development commissions executive director, Wanda Yuhas, wrote to the Rural Center to endorse a grant of $85,000 half the renovation cost, the maximum allowed.
Figure 8 Technologies purchase of the building not only provides an opportunity to fill a vacated building but to also hire at least eight Pitt County citizens which will help to decrease the 9.6% unemployment rate, she wrote.
Figure Eight has more than doubled its employees since the time of the move. Scott Poag, industry coordinator at the commission, said that was proof that the grant had worked.
Blackwelder said the grant was helpful because it saved him money, helped him feel better about hiring employees and made his new office a nicer place. He said the grant began with a call from Poag.
I mentioned to him that we were expanding and looking to buy the building we are in now, he said. He said you possibly could be eligible for a grant. And I said, Well, great.
Database manager David Raynor and news researchers Brooke Cain and Teresa Leonard contributed.