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Rural Center board is intertwined in its grants

By J. Andrew Curliss

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  • Ethics standard is murky

    The N.C. Rural Economic Development Center Inc. has a nine-point ethics and conflicts-of-interest policy covering its board of directors that may not apply to the types of grants the center makes.

    The policy, in effect since at least 2008, says that the Rural Center shall not make grants to an applicant in which one of its directors has a “significant financial interest” unless three things happen: the full board votes on it; the director with an interest discloses it; and the interested director does not vote.

    The News & Observer reviewed board meeting minutes dating to 2005 and found no instance of the full board voting on a grant award under the policy – even grants that led to direct payments to board members as part of other organizations they are a part of. A subset of the board, the 12-member Executive Committee, has been making the grant decisions on behalf of the board.

    The center’s ethics policy says the phrase “significant financial interest” is one that “shall include” a board member’s investment in an “applicant company” or by an entity the director is affiliated with. It further says that an investment includes at least 1 percent ownership of the grant applicant or a stake of at least $10,000.

    The center does not provide grants directly to companies in which directors could have an ownership position. The Rural Center makes grants to nonprofits or to local governments that in turn use the money to aid some businesses.

    The policy also requires that contracts for its grants contain a statement that says no director of the center has an “economic interest” in a project funded by the Center. The grant contracts do contain that statement, but there is no listed penalty if it is not followed.

The 47-member board of directors at the N.C. Rural Economic Development Center is set to gather Monday for a special meeting to begin charting a future for the hobbled nonprofit – a path center officials hope includes the continued flow of state money to its many “rural partners.”

Some board members have more than a passing interest in the money, documents and interviews show: More than a third have worked for, or are involved with, other organizations that have benefitted from Rural Center grants.

At least seven current board members are connected to ongoing projects now waiting on money already awarded by the center. One, Cicely C. McCulloch of Elkin, is expecting $25,000 to help improve a building she owns.

At least two current board members have had their compensation paid by the center in the past, with more salary money budgeted this year at a nonprofit in Elizabeth City run by center board member Lenora Jarvis-Mackey, according to documents.

Yet another board member, Alan Rice of Yadkinville, was paid a $15,000 “consulting” fee out of a Rural Center grant, billing $103 an hour to a center-approved, taxpayer-funded program he set up to help poor people improve their lives. In April, his nonprofit was awarded a new $75,000 grant.

In some cases, current board members benefitted from Rural Center grants prior to the time they joined the center’s board – such as two members who were part of $250,000 and $390,000 awards that helped with buildings for companies they started.

In all, the News & Observer found that at least 20 of the 47 current board members at the Rural Center are part of other entities that have benefitted from at least one Rural Center grant. Several members have been part of multiple grants.

The center’s directors all serve in their oversight role at the Rural Center as volunteers – and many say they have watched with surprise as news reports and a state audit brought intense scrutiny to the center over the past six weeks.

Last week, state lawmakers cut off any more funding to the center, a dramatic reversal from the roughly $25 million they’d sent it annually since 2009. The center’s founding president, Billy Ray Hall, has resigned and state officials stopped the Rural Center from spending any of the more than $100 million in taxpayer money still on hand.

Board chairwoman Valeria Lee, who has resisted calls for her resignation by Gov. Pat McCrory and others, set Monday’s special meeting to deal with funding questions, the state audit and “to conduct any other relevant discussions.” The board is expected to vote on whether she should go.

No direct votes

As attention shifts to the board and whether it will continue to direct how state funds will be spent, the N&O examined board members’ interests and ties to center grants.

The newspaper found no instances of a board member voting directly on an award that helped his or her other interests – even though the center has been announcing publicly that all its grants were approved by the “board of directors.”

Instead, internal documents show, the grant awards have been made by a subset of about 12 board members, called the Executive Committee, who act on behalf of the full board. In several instances, records show those committee members abstaining from a vote when their full-time job or other connected organizations were being awarded grants.

Records do show that all of the board members with grant connections have voted repeatedly to seek continued and increased taxpayer funding for the center from the General Assembly, passing lengthy resolutions used as part of the center’s “advocacy agenda” at the legislature.

State Sen. Brent Jackson, a Republican from Autryville in Sampson County who has overseen the center’s budget, said the extent of dual interests concerns him. He said it solidifies his belief that lawmakers have acted correctly to limit the nonprofit’s control of taxpayer funds.

“Some of this sounds at least borderline unethical,” said Jackson, a large-scale watermelon farmer. “That’s not how it should be set up.”

In some ways, it’s not a shock that community leaders tapped to serve at the Rural Center would be active in various organizations, and that many would be part of efforts to support nonprofits with various funding streams.

But the relationships have raised questions about whether the board members can now provide proper oversight of the Rural Center when they have been involved with organizations that received Rural Center grants.

Chris Parrish, who joined the center’s board last year and also runs a small nonprofit in Wake County, said the center’s grants should have been off-limits to board members, especially for awards made at the same time a board member was serving. He said he wouldn’t have sought funding from the center for his own nonprofit, the Nessie Foundation, if it were eligible.

“I don’t think you should be on the board and be in some way a part of a grant,” he said. In that circumstance, he said, members should resign and “be off the thing for six months or whatever.”

He said there are plenty of people with experience and ability to oversee the Rural Center who would not also seek or benefit from its grants.

Scott Hamilton, a Rural Center board member and CEO of Advantage West, a nonprofit that focuses on economic issues in western North Carolina, said board members must be mindful of possible conflicts and, when acting for the Rural Center, must always set aside those other interests. He said he would seek guidance on appearances of conflicts as the board begins to take a more active role in the center’s future.

“You have to look at what is in the best interest of that board and what needs to be decided for the organization of the board you are serving on,” he said.

Advantage West has received multiple grants in applications that Hamilton wrote to the Rural Center while he was also a board member, records show, including one in 2008 for $300,000 that did not meet its initial goals. The project received three one-year time extensions until it wrapped up this month. The Rural Center has claimed the project, which helped incubate new businesses, created 100 jobs. Hamilton’s final report shows the Rural Center money created only 45 jobs at five businesses in rural counties.

One of those businesses, with six of the jobs, has since moved to Asheville, which is not considered rural.

Jennifer Chandler, a vice president at the National Council of Nonprofits, said conflicts of interest and ethics policies generally seek to require disclosures and prevent a board member from taking direct action to benefit themselves.

Rural Center records show members recusing and abstaining from votes. The center’s policy does not prohibit grants in which its directors have an economic interest.

Chandler said an important role for board members is to make sure that staff members of the center follow policies and have proper controls in place to ensure grant money is handled properly even after an award is made.

The state audit, released July 17, found that the center had not provided adequate oversight, resulting in “limited accountability” in the spending of millions of dollars. Auditors wrote they did not evaluate the center for “all possible conflict of interest arrangements.”

$103 an hour

Alan Rice said he started his own nonprofit organization, RFD CDC, after attending a Rural Center program years ago that changed his life. He had been a full-time Methodist pastor and would later join the center’s board.

Rice said he has discussed with center staff whether he could still seek funding for his nonprofit; he wanted to be sure there was no question of a conflict, he said.

He said he was assured there isn’t as long as he does not vote on a grant award for himself. He hasn’t, records show.

Rice acknowledged that he sought and received the $103-an-hour “consulting” payment from one of the grants, but said it was standard administrative “overhead” cost for overseeing a grant. In an email sent as he sought the payment, he wrote that it was for his time in making phone calls and sending emails and other matters but that he did not bill for his many hours spent working to secure the grant from the center.

He said it would be wrong for him to have used his board position to influence the award or to receive favoritism, and he didn’t. But board members should be allowed to seek grants, he said.

“It’s supposed to be absolutely a fair and open process,” he said.

He said he has good evidence that it has been: He said he has been denied on three or four grant applications.

Jarvis-Mackey is president and CEO of River City Community Development Corp. in Elizabeth City. The nonprofit has received $1.1 million from the Rural Center since the early 1990s, about $500,000 of it since she joined the center’s board in late 2005.

Invoices show that some of the Rural Center money has paid Jarvis-Mackey’s salary, benefits and retirement contributions. In the 2011-12 fiscal year, that contribution was more than $38,500. She could not be reached.

McCulloch, a town commissioner in Elkin, joined the center’s board on the same day this year that the center awarded a $25,000 grant to help improve a historic building she owns downtown. McCulloch was also part of a previous grant for a theater project in Elkin.

She said the center’s grant for her property is immensely important to her renovation project, which was budgeted at $1.4 million but has since grown to $2 million. The plan is for a banquet hall and restaurant in an old tobacco warehouse.

“It made this whole project more appealing for me to go forward, knowing that I am able to make this restaurant even better than what we anticipated,” she said.

She said she believes she can provide oversight as a center board member while she is also a grant beneficiary. She said she has been “amazed” by the Rural Center’s past efforts in rural areas but, given the recent disclosures, wants to learn more.

“I would love to be part of a bigger discussion,” she said.

Curliss: 919-829-4840
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