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Rural Center cut may negatively affect WNC

A recent government audit of the North Carolina Rural Economic Development Center has divided much of the state. 


For many political and economic development leaders in rural N.C., the nonprofit Rural Center is an engine for economic growth, awarding millions of dollars in grants to towns and businesses for infrastructure and job creation. For others, however, the center is dressed-up government pork, a slush fund for the good ole boys’ pet projects.

N.C. Sen. Jim Davis, R-Franklin, said he was supportive of the Rural Center until the state auditor released her findings, which demonstrated a lack of oversight when it came to how the state grant funding was spent and whether grantees met the benchmarks necessary to receive the money. The audit came out last month.

SEE ALSO: WNC leaders worry that region will be left behind economically

“Evidently, the Rural Center has not been as diligent as it should have,” Davis said.

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Although he applauded the Rural Center’s contributions to Western Norty Carolina during its 26 years, Davis said the state could no longer afford to hand out millions in taxpayer money to the center. He supports Republican Gov. Pat McCrory’s plan to consolidate all the state’s economic development efforts under the N.C. Department of Commerce (see related story).

“That is the goal, to make (economic development) a lot more efficient and get more money into the community,” Davis said. “We can’t keep doing the things we’ve been doing because we can’t afford it.”

Although the state auditor and the News & Observer in Raleigh have scrutinized the Rural Center’s operations, some WNC officials are calling the movements toward closing the Rural Center a political vendetta lead by the governor.

“This is nothing but petty politics on the part of McCrory,” said N.C. Rep. Joe Sam Queen, D-Waynesville.

Waynesville Mayor Gavin Brown agreed that the dismantling of the Rural Center is more about politics than the audit results.

“I didn’t see all that much wrong (with the Rural Center),” he said.

In Queen’s mind, the governor is trying to collect power underneath his office by bringing economic development efforts under the N.C. Department of Commerce. Queen added that the state could have fixed the problems with the Rural Center, but “they had no intention of fixing anything.”

However, Davis said the nonprofit entity should have taken action prior to all the recent turmoil.

“I think the Rural Center should have fixed themselves before the audit,” he said.


Domino effect

The center’s financials are audited annually by an outside firm and it sends quarterly reports to the N.C. Department of Commerce. However, a separate November 2012 audit found that the Department of Commerce did not adequately watch over the state money given to the Rural Center. This summer was the first time the state auditor’s office has looked at the center’s operations.

Although past audits identified problems, none have had this drastic of an outcome, said Cece Hipps, a member of the Rural Center board and the executive director of the Haywood County Chamber of Commerce.

“Every year, something comes back – something that we need to change or do differently,” she said, adding that the center then works to remedy any problems.

Prior to the results of the recent state audit, The News & Observer in Raleigh wrote a two-part series in mid-June critiquing the lack of oversight on the part of the Rural Center. The story cited examples of times the center claimed to create jobs but did not.

Three days after part two of the newspaper series was published, the Rural Center announced it would conduct its own thorough review of its grant oversight procedures. Hipps was named to an eight-person committee that was tasked with reviewing and recommending changes to the center’s oversight procedures.

About a month after the News & Observer articles, the state’s audit came out. The same day, the governor froze the Rural Center’s funds and began calling for the resignation of Rural Center’s only president, Billy Ray Hall, and Board Chairwoman Valeria Lee. The eight-person committee charged with reviewing the Rural Center’s internal processes never met.

“Before we could even get to Raleigh to start looking at this, all this happened,” Hipps said.

Hall and Lee both eventually resigned.

Brown said he believes state legislators were trying to drum up a reason to close the Rural Center, so they attacked its president, Hall, and it’s work.

“They needed a scapegoat and found one,” Brown said.

The state audit questioned Hall’s six-figure salary of $221,070, saying it was more than twice what economic development CEOs and executive directors in the state typically earn. 

Although the amount is high, Hipps said, she trusts the board did its due diligence when considering his compensation and compared his resume to those in similar positions. 

“He basically started the organization from scratch. He has about 50 people in the office that report to him. It’s probably not that much out of line,” she said.


Up in the air

The governor’s decision to freeze the Rural Center’s accounts has prohibited the nonprofit from allocating any money for the time being. It has also prevented the center from, at least temporarily, following through on delivering already promised funds.

Just last week, the Office of State Budget and Management announced that it would pay out about $740,000 to 14 different organizations to which the Rural Center had awarded money. It is still reviewing other grant awards to determine whether to follow through with the payments.

“Hopefully more grants will be realized,” Hipps said.

Entities in Haywood County may still see that money, but it is unclear when the state budget office will make that decision. LifeSpan Creative Campus, an organization that works with the disabled, was awarded a $43,000 matching grant, but the money is now stalled.

LifeSpan was counting on the grant to help renovate a vacant building in Waynesville. The new office will allow the nonprofit to serves 60 people in Haywood County, rather than its current 45, and create 11 jobs. Although the money may never come, LifeSpan will go ahead with the project.

“We will continue on with our plans. It will certainly be a hardship for us, but we will continue with our plans,” said Lori Avery, senior director of development at LifeSpan.

It is unknown exactly how much money Haywood and other counties have received in the last decade. The Smoky Mountain News requested documents from the Rural Center regarding projects funded by the nonprofit in Haywood and Jackson counties, two weeks ago. However, the Office of State Budget and Management is currently inspecting all the center’s records, and a spokesman for the Rural Center said he is unable to access any records until the state completes its review.

What is known, though, is that the benefit translates to more than $2 million during the last four years. Projects include money for the growth of Sonoco Plastics, the nonprofit entity Haywood Vocational Opportunities, Haywood Community College, the renovation of the Imperial Hotel in Canton, the expansion of sewer systems in Canton and Jackson County, and the renovations of the MedWest Haywood psychiatric wing, among others.

“I don’t think you can argue these are bad projects done by good ole boy slush funds,” Hipps said.

The audit, which looked at funds granted during fiscal year 2012, did not specifically address any projects in Haywood, Jackson, Macon or Swain counties. Although, that does not necessarily mean every project was properly overseen or met its grant guidelines.

Hipps defended the funds sent into Haywood County.

“The money we received was put to good use,” she said.

Those who support the Rural Center said some have repeatedly benefited from its largesse because they had quality projects and bothered to apply for the funding. If you don’t apply for funding, you cannot be upset when you don’t receive it.

Hipps said she was appointed to the board four years ago to give Haywood County a voice at the Rural Center and up the county’s numbers.

“The intent was for more recognition for Haywood County,” Hipps said. “In the past, we were very low. We were not asking for grants.”

The Rural Center has a map with pins for different places it awards money to. When she started on the board, Hipps said that Haywood County was on the low end of receivers. However, now, the county is now littered with pushpins.

“A lot of it was about education because grants are complicated,” Hipps said.


Looking forward

The Rural Center board will meet next on Aug. 28 to decide whether Hall will receive his severance package and whether the center will disintegrate completely.

“Does the Rural Center go on in another form or does the Rural Center dissolve?” Hipps said. “I think right now the board does not have enough information to know if we are going to dissolve.”

Whether it continues or not, the Rural Center will no longer receive its average $25 million annual allocation from the state. In the recently passed state biennial budget, funding for the nonprofit was cut completely — a move by the state seemingly aimed at forcing the Rural Center to close without physically shutting the doors itself.

“They have thrown the baby out with the bathwater,” said Waynesville Mayor Gavin Brown, questioning the state’s decision. “To just at the end of the day throw everything out, I just don’t know about that.”

While there is potentially other funding available, no one source can replace the amount lost in state funding. If it survives, the Rural Center will need to look for grants, donations and other forms of revenue to keep it going. It will likely operate on a considerably smaller scale.

One Rural Center beneficiary said the center’s employees have consistently followed up with him.

“I think the oversight has been there,” said Pat Smathers, owner of the Imperial Hotel in Canton and a prominent Democratic politician. And if he forgot to file a progress report, “they reminded me.”

Just a few weeks ago, Rural Center representatives stopped by for an on-site inspection, he said.

“I thought the process was pretty good,” Smathers said.

Smathers received a $25,000 pre-development grant for architectural and engineering plans and another $90,000 for construction to renovate the old Imperial Hotel in downtown Canton. With the money, he refurbished the first floor, which contains a restaurant space that he leases out. In exchange for the Rural Center funding, Smathers pledged to create 15 full-time jobs and pay at least minimum wage.

Now some three years later — more than a year and a half after opening — Smathers said he is a month away from filing his final report, which will show the hotel’s performance for the first six months of this year. According to his calculations, the business employed roughly 12 people full-time during that period, Smathers said. However, he noted that the number of jobs the Rural Center now required of him had decreased to eight or nine.

“I don’t think 15 is the number now,” Smathers said.

In reality, Smathers only directly employs one person — a maintenance man. All the other jobs at the Imperial Hotel were created by Sid’s On Main, the restaurant that leases the first floor of the building.

In total, Smathers calculated that up to 30 people worked at the Imperial Hotel both full-time and part-time. However, Smathers said he was unsure of how the Rural Center would tally his employment numbers. Still, he is confident that the requirements of his grant were fulfilled.

“According to how I look at the figures, we are over the limit of what is required,” Smathers said.

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