Spending in the Shadows

Politicians and the powerful touch NC Rural Center cash

acurliss@newsobserver.comJune 16, 2013 

Last of two parts

Officially, the nonprofit N.C. Rural Economic Development Center awards “job generating” grants, funded by state taxpayers, to nondescript government agencies. The city of Rocky Mount. Montgomery County. The town of Indian Trail.

From the center’s files, other stories emerge: Legislators influencing where the money goes. People and businesses from across the political landscape getting in on the deals. Political money men benefiting from taxpayer cash, spent with little notice or scrutiny.

One of the biggest names: Discount store business Variety Wholesalers, whose CEO, Art Pope, is a well-known supporter of nonprofit groups that criticize taxpayer subsidies for businesses. A former Republican legislator, he’s now Gov. Pat McCrory’s budget director.

One of the best connected: Bob Jordan, the former Democratic lieutenant governor who helped start the Rural Center and was a longtime board member. His company was recently part of a grant, but then backed out.

One of the state’s new leaders: State Sen. Tommy Tucker, who pushed for $300,000 in Rural Center money to help develop a 14-screen movie theater complex in his district – 5 miles from where Interstate 485 loops around Charlotte. Tucker, a Republican from Union County, asked Rural Center leaders to ignore legislation that restricts the center’s spending, according to interviews and documents reviewed by The News & Observer.

The center agreed. Tucker subsequently collected campaign cash from several of the project’s developers.

Politics permeate the Rural Center, which a report in Saturday’s N&O showed has claimed to have created jobs that don’t exist and used millions to support big-box retailers, golf developments and restaurants.

Its president, Billy Ray Hall, has a cart of files near his office full of bright red folders, one for every lawmaker in the state. Inside them are dossiers of biographical information – and details on every project the center has put in that legislator’s district.

Ask Hall how things are going with his latest funding request, and he will quickly recount a list of projects in key legislative districts.

When Hall spoke to lawmakers in a committee meeting in February, he took note of what happens when he or members of his 50-person staff say no to a project.

“You call me,” Hall said. “I know all about that.”

Hall has been working to preserve taxpayer funding for the center. The House, Senate, and governor have produced substantially different plans. The Senate would cut all funding in order to shift the money into state agencies, while the House would give the center more than $36 million over the next two fiscal years.

A reminder of help

It was the budget process that led to a meeting early this year between Hall and Pope, who has attracted state and national attention for his support of Republican and conservative causes, mostly through a family foundation. Pope joined McCrory’s team late last year after taking a leave from his discount store business, which operates more than 380 Roses, Maxway, Bargain Town and other discount retailers.

In March, Pope encountered Hall while attending a retreat at the Rural Center’s offices near Interstate 440 in Southeast Raleigh.

For Hall, it didn’t go well. McCrory’s budget, unveiled two days before, had proposed a 60 percent cut, which would provide the center with about $13.2 million in state funding for the next two fiscal years.

At one point in their meeting, Hall made sure to let Pope know that the center was helping his family business.

Pope recalled Hall mentioning a grant: “He said, ‘Art, you know, your company is getting support and help from the Rural Center.’”

“Billy Ray likes to point out how he’s helped everyone,” Pope said. “I didn’t even know.”

Hall acknowledged making the point.

“I was needling him,” Hall said. “What I was saying was you don’t believe in incentives, but you are working on projects that incent growth in the areas that are tough areas to grow in.”

Pope said he could not recall discussing the grant prior to that. Hall says he does not believe they did. At the time the grant was approved, they served together on the board of the Golden Leaf Foundation, a nonprofit set up with proceeds from the national tobacco settlement.

Money helps Pope’s business

The grant is listed as going to the city of Rocky Mount. It was awarded Oct. 15 last year in the amount of $200,000.

It was crucial to Walt Crayton Jr., a developer from New Bern who wanted to rehab a vacant shopping center on the eastern side of the city’s downtown.

Crayton is using the grant money to improve the building so Pope’s company can put in a new Roses discount store and grocery. City officials sponsored the grant – local government involvement is required – and contributed $10,000. Officials there say a grocery is badly needed.

Crayton said he couldn’t make the numbers work without the taxpayer assistance through the Rural Center. The Roses is set to open this summer, and there is a 15-year lease. Last week, dozens of people lined up to apply for jobs.

Crayton said that Pope’s business, Variety Wholesalers, didn’t get a special discount on its lease with him because of the grant funding. He said Variety essentially set its lease terms, and he had to figure out the rest of the deal. The public money allowed it to proceed, bridging a gap in financing on the $1.2 million project, he said.

In several interviews this month, Pope said he did not think the Rural Center grant had any effect on the lease terms – and he suggested his company did not know about the Rural Center’s aid as the deal came together.

“There was no knowledge and no involvement of how the work was done on that (shopping) center owned by the developer and where his source of funding came from,” Pope said.

Records and interviews show otherwise, and Pope later said he was mistaken.

Documents show that on Aug. 15, 2012, the chief operating officer at Variety Wholesalers, C. Wilson Sawyer, wrote a “job commitment” letter to the developer that said the store would hire at least 25 full-time employees. Of those, 22 were cashiers or associates to be paid about $14,000 a year.

Sawyer wrote in the letter that a condition of Variety Wholesalers’ lease was that the developer would be able to obtain a grant for the site.

Crayton said in an interview that he did not deal with Pope on the Rocky Mount project but said the company “absolutely” knew the grant was coming from the Rural Center. Other company documents and emails support that.

Pope emphasized that, while the company has committed to the jobs, the grant did not benefit his company directly and had nothing to do with what his company is paying for the lease. He acknowledged his company at least “indirectly” benefited from the grant.

“To the extent that public funds are involved, and often are involved, does that make it more affordable for the developer/landlord, for the rent for the retailer or the industrial facility?” he said. “In the case of retail, does it make it more able to even locate there? And offer our goods at lower prices to the customers in the community and provide jobs? Yes. That happens. But there was no negotiation along those lines, at least in our case.”

Pope said he supports making cuts to the Rural Center’s funding. He said there is “very high unemployment” in rural counties and new approaches might work better.

In January, the Rural Center produced a report for legislators on the employment impact of its grants. The 25 jobs soon to come at the Roses were included.

Pope said his business, not the Rural Center, is creating the jobs.

“They like to claim credit for everything,” Pope said. “They like to build up IOUs because, ‘We helped you.’ In this particular case, I’d say it was Variety Wholesalers who creates the jobs when we open the stores and sell products at a good price and the customers want to shop there and it, in turn, allows us to pay our employees and pay our rent. That’s what creates the jobs. Not a grant.”

Politicians get help

The Rural Center was born in 1987 of a legislative commission and remains financed largely by government money. For many years, it focused on clean water projects, research and community development, not projects with direct claims of job creation.

In 2004, lawmakers sent millions its way to build “economic infrastructure” with a mission of generating jobs. Since 2004, the center says it has made grant awards of more than $375 million that led to 32,000 “homegrown” jobs.

The center’s annual appropriation has been about $25 million a year over the past four years.

Grants must be routed through a local government. Records also show involvement from politically connected people, including one of the fathers of the Rural Center.

Bob Jordan, a Montgomery County lumber executive, was lieutenant governor in 1987 when that office ruled the Senate. He was a key player in starting and overseeing the Rural Center for years and remains an “emeritus” board member.

His company signed on this year for a $155,000 grant to rehab a building it owns in Biscoe, about halfway between Raleigh and Charlotte.

The grant was approved in late April. Jordan and Hall said they hadn’t discussed the grant prior to its award.

In an interview, Jordan said his company is strong, has weathered the recession, was ready to expand – and had already hired the workers it promised for the grant.

The company backed out on May 17, three weeks after the money was awarded. Jordan said the company had reconsidered and decided it didn’t need the money.

Others active in politics have been involved in Rural Center grants. Some examples:

•  Fred Hobbs, a former Democratic state senator and a behind-the-scenes figure who illegally funneled tens of thousands in campaign contributions from his company to top Democrats when they were in charge. Hobbs’ engineering consulting company has filled out dozens of applications for Rural Center money on behalf of towns and counties, winning at least $62 million in grants, according to an archive of his website from 2009. His company is paid an administration fee and brings in other revenue from each project. Hobbs could not be reached.

•  Tim Moore, a Republican from Cleveland County who is chairman of the influential House Rules Committee. The Rural Center awarded a grant in April 2011 to rehab a building he owned. N.C. Policy Watch, a left-leaning group that reports about public policy, wrote about it, and board member Bob Luddy said he raised questions in a meeting. Moore, who had sought and received a favorable ethics opinion on accepting the grant, later backed out.

•  Walter Dalton, the former state senator, lieutenant governor and Democratic gubernatorial nominee last year. Dalton filed a bill in 2005, while he was a board member of the Rural Center, that gave it $20 million in infrastructure incentives. Records show Dalton’s home county of Rutherford was in the top 10 for grants received in the 2000s. It was in the bottom half in the 1990s.

•  Former lawmaker Marc Basnight, a Democrat who ruled the Senate for 18 years, pushed to win grants for multiple projects in his coastal district. In 2008, he backed a $70,000 grant for a vineyard in Tyrrell County that hasn’t met its job promises, records show.

•  State Rep. Joe Sam Queen, a Democrat. When he was a state senator, Queen directed $100,000 in two grants from the budget bill through the Rural Center to then benefit nonprofits in his mountain district, according to minutes from a Rural Center board meeting. The minutes do not reflect any discussion of the grants’ merits.

‘Good ol’ boy fund’

Hall, who has run the Rural Center for 26 years, dismisses any notion of an insider’s game.

He said grants happen through a routine process open to all. He also said he tries as best he can to respond to lawmakers’ requests.

Mike Graham isn’t so sure about the grants being open to all.

Graham owns a soda shop restaurant, Jukebox Junction, in Canton, west of Asheville. He read in the newspaper that an old building in his town was going to be turned into a restaurant, with $110,000 from the Rural Center. Its owner: Pat Smathers, a former mayor active in Democratic politics.

Smathers once served as chairman of one of the party’s major annual dinners and was a candidate for lieutenant governor in 2008. Smathers wrote in an application that his employees would make $13,650 a year.

Graham said he had been thinking of buying and renovating a building nearby, in downtown Waynesville, to open a second restaurant. His numbers were coming up short on the purchase of the building and he won support from the mayor for a center grant. He said he was surprised when Rural Center officials told them not to apply. The reason: While he estimated his employees would make about $15 an hour, much of it was based on tips; he would not guarantee paying the minimum wage.

He said he believes better political connections might have led to a different result. He called the Rural Center a “good ol’ boy” fund.

Pushing for a project

Union County, near Charlotte, is one of the fastest-growing counties in the state. In 2011, the Rural Center’s board looked at the latest census data and realized its definition of rural no longer applied to Union, Henderson, Iredell, Lincoln and Pitt counties.

So the board changed its criteria to keep those counties eligible for grants. That was helpful when Hall and state Sen. Tommy Tucker met to discuss a movie theater complex proposed in Indian Trail.

Hall and Tucker, who first won election to the General Assembly in 2010, discussed the project with developers who were trying to make the finances work. Those numbers included $1.6 million in interest payments for the partners, according to a document filed with the Rural Center.

That meeting produced a letter on Dec. 13, 2011, from Hall to the senator. Hall spelled out that the center would have to bend its rules to make the requested $300,000 grant.

According to the Rural Center, state law says that private developments can receive only up to $5,000 per job created. The theater project would commit to creating 30 jobs, making it eligible for only $150,000.

Prior to that meeting, Hall said, Tucker had put him “on the spot,” wondering what the Rural Center did, as he made his rounds to talk with lawmakers.

After the meeting, Hall wrote that he would recommend a “one-time exception” to allow for a $10,000-per-job payment using money not typically available for private improvements.

Hall and a vice president won approval after talking by phone individually with five members of the Rural Center’s executive committee, described as its “business arm.” Hall serves on that committee and voted for it. The full 50-member Rural Center board approved the grant as part of a package the following February.

Campaign money

In the meantime, eight of nine partners in the theater project wrote campaign checks to Tucker, a total of about $6,500, records show.

One of those partners was Billy Norwood, who wrote checks totaling $1,125. Norwood is president of State Utility Contractors, based in Monroe.

The Rural Center money paid for the “internal” roadways near the theater, including some sidewalks, curbs and a carpet of brick pavers close to the box office. Norwood’s company did the work.

Norwood could not be reached through messages left at his home and office.

Brian Crutchfield, an executive board member who oversees a committee that handles some of the center’s jobs grants, said the board gives a lot of credence to Hall’s recommendations.

“There is a lot of confidence in the staff,” he said. “And this was a very unique and upscale movie theater.”

In an interview, Tucker said he is friends with the developers and that he was glad to support a great project that he said helped get other money to fix a dangerous intersection there. He praised the stadium seating at the theater and said it’s been wonderful for the area.

He said the campaign money had no connection with his help.

“I can assure you we did everything above board,” he said.

Olin Busbee, 23, bought tickets to see the latest “Star Trek” movie there last week. He said the theater is a nice gathering spot that has kept people from traveling too far to see a flick. He had no idea it was developed with state tax money.

“Oh, man,” he said. “That makes it a hard one because you think there could be some money going more to the schools. I will say that, since this thing was built, you can’t really call us a small town anymore.”

Database manager David Raynor and news researchers Brooke Cain and Teresa Leonard contributed.

Curliss: 919-829-4840

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