McCrory administration freezes Rural Center's cash

acurliss@newsobserver.comJuly 19, 2013 

  • Keeping its investment gains

    The Rural Center has been getting money from lawmakers before it was needed for projects on the ground, allowing the agency to earn and keep $20 million in investment income in five years, a state audit says.

    Taxpayer money has been given to the Rural Center “long before those funds were needed to fund Rural Center grants,” the audit says. “These early disbursements allowed the Rural Center to accumulate significant interest income while waiting for projects to be completed.”

    One example is a Clean Water Partners program run by the Rural Center that received $145.5 million in state funds in fiscal years 2008 and 2009. By June 2012, the audit says, approximately $55.9 million still had not been spent.

    The center received $145.3 million in infrastructure grant funds from 2005 through mid-2012 but had distributed only $86.9 million of it, the audit says.

    The audit says state law does not require that the Rural Center share the investment earnings with the state, but said the state should consider a different approach and the General Assembly should clarify its intentions.

    -- J. Andrew Curliss

The governor’s office froze state money at the N.C. Rural Economic Development Center on Thursday as the agency’s longtime president, Billy Ray Hall, resigned in an effort to save the agency he led for 25 years.

The center’s board chairwoman, Valeria Lee, refused calls to also step down as she pledged to honor a controversial severance payment to Hall of at least $241,000. She said the payment was intended to show appreciation for what Hall has done to help rural communities.

The swift developments followed mounting questions about the nonprofit organization’s handling and oversight of millions in state dollars received from the General Assembly.

A critical audit Wednesday from the office of State Auditor Beth Wood, a Democrat, had triggered calls from Gov. Pat McCrory, a Republican, for Hall to resign.

In freezing funds at the Rural Center, the governor’s office invoked a state law that allows it to protect taxpayer dollars by stopping grantees, such as the Rural Center, from spending state money. State Budget Director Art Pope suggested in a memo to lawmakers that the center had been “actively” delaying the audit’s release to secure more state funding as part of the final details of the state budget, expected this month.

Hall, who was not available for an interview, wrote to center board members Thursday morning that he hoped his resignation would allow the agency to continue in its mission of helping develop rural swaths of North Carolina.

Hall said the center’s work is valuable and not finished.

“I hope to clear the way for the General Assembly to make the right decisions about funding for the Rural Center and its work on behalf of rural communities,” he said. “It is important that this work continues, and that can best be accomplished under new leadership.”

Within hours, Pope’s office hand-delivered to Hall’s replacement the order that demanded the agency stop spending state money.

Pope wrote that the administration is considering “the further step” of seeking recovery of all state funds now held by the center, an amount that may top $100 million.

Pope, whose family discount store company has benefitted from a recent Rural Center grant in Rocky Mount, wrote to lawmakers that the administration would aim to oversee the money in a “common goal that these funds be used to meet the needs of rural North Carolina, in compliance with the legislative intent and express legal requirements.”

An uncertain future

The order includes a halt to any state money going to grantees or to the center’s employees. It was not immediately clear, according to a Rural Center spokeswoman, whether the funding freeze affected Hall’s severance pay.

The spokeswoman, Garnet Bass, declined to comment on the full effects of the order, saying officials were still gathering information. The center receives federal money and private donations and has accumulated earnings on unspent money, but its primary source of funding, by far, is the state.

The nonprofit organization, based in Wake County with about 50 employees, has grown from a rural jobs commission effort in the 1980s into a major grant maker on behalf of lawmakers. It has received about $25 million a year from the General Assembly in each of the past four years.

In a memo to lawmakers explaining the decision to freeze its state funds, Pope cited the critical state audit of the Rural Center that prompted Hall’s resignation – and the center’s response to it.

The audit had found a lack of proper grant monitoring at the center. Wood’s office had taken the unusual step of remarking on the Rural Center’s formal response to the audit. Auditors said the Rural Center had not provided accurate information.

“Governor McCrory is not only concerned with the findings of the (audit), but the Rural Center response, which the State Auditor stated was ‘not true’ and misleading,” Pope wrote to lawmakers.

He wrote that the audit has apparently been underway for months, with a draft submitted to the Rural Center weeks ago, but that it “appears that (the) Rural Center may have been actively concealing the existence of the audit and delaying the delivery of the audit, in hopes that the final state budget, including increased funding for the Rural Economic Development Center, would be enacted before the release of the audit.”

‘The right decision’

Hall, the president of the Rural Center since its creation in 1987, answered McCrory’s request for his resignation by midmorning.

Hall, 65 and widely known in rural areas across the state, said in his letter he was stepping down now because “it is the right decision for the organization and the rural communities we serve.” His resignation is effective Friday; he said he had been planning to retire soon anyway.

Hall, Lee and about 10 other Rural Center executive committee board members had met on a conference call Thursday morning, discussing the pressure and circumstances that had cast the center’s efforts and funding in doubt, Lee said.

Hall offered his resignation and the board accepted, she said.

Lee later wrote to board members that while a two-part series in The News & Observer last month and the state audit this week were “critical of some aspects of the work, we know the Rural Center is an organization of integrity and accomplishments.”

Bob Luddy, a Raleigh businessman and Rural Center board member who has emerged as a leading critic of the center, said the resignation was overdue. Luddy had worked to trim funding to the center last year, saying he grew concerned with the center’s overall operation.

He said the N&O series uncovered deep concerns about how tax money had been handled at the center and had made a “profound difference” in how lawmakers viewed it heading into budget negotiations. The audit released on Wednesday, he said, was the last straw.

Wood, who is in her second term, spoke with multiple news outlets after the audit’s release and emphasized that auditors had serious concerns about the center’s handling of tax dollars.

The Rural Center had promised a thorough review of its grant procedures following the N&O reports, and Lee said that will begin once the state budget picture is more certain. She said that process would help answer questions raised by the state audit as well.

The center has been a critical topic in state budget negotiations, this year and in the past. The House has pushed for full and then increased funding, totaling about $36 million in the next two years. The Senate wants to divert all money that would go to the center to state agencies. McCrory had proposed about $14 million over two years.

Senate leader Phil Berger emphasized his chamber’s position that the center should not receive more taxpayer money.

“Bringing about fundamental reform requires more than just a change at the top – we must make sure tax dollars go directly to our rural communities instead of the pockets of unaccountable bureaucrats,” Berger said.

Curliss: 919-810-7179

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