Audit rips N.C. Rural Center; McCrory calls for new leadership

Jul. 17, 2013 @ 07:36 PM

RALEIGH — Gov. Pat McCrory is calling for new leadership at the North Carolina Rural Economic Development Center after a state audit showed the nonprofit agency failed to provide proper oversight of millions in grants while paying its longtime president too much money.

McCrory called Wednesday for center president Billy Ray Hall and board chairwoman Valeria L. Lee to be replaced.

The governor's statement came within hours after State Auditor Beth Wood issued a report saying requirements on $59 million in grants issued by the center in 2012 were not diligently enforced and that job creation claims on five recent grants could not be independently verified. The audit comes as some lawmakers push to cut off the center's state funding entirely.

"At a time when rural areas of our state are suffering the most, we must ensure that we are using our limited funds by the most effective, efficient and transparent means," McCrory said. "These funds must be used to grow our rural economies and create jobs I believe that new leadership will begin to address and fix the serious issues identified by the state audit."

The audit found that the center has earned $20 million in interest income from investing state funds it has received over the past five years but has not distributed. State law does not require those interest earnings to be returned to the state treasury.

The audit also calls the $221,000 annual salary paid to Hall "not reasonable." By comparison, the state Secretary of Commerce, who heads the department that primarily provides funding for the rural center, is paid $96,394 annually, according to the audit. Additionally, the center's vice presidents were paid between $120,000 and $130,000 a year.

The audit says Hall's compensation was set by the Rural Center's board based on a "flawed analysis" provided by agency staff using salaries paid to the heads of nonprofit organizations in areas like Washington, D.C., and New York City, where the cost of living far exceeds that in the Raleigh area.

There is also another $241,000 that has been stashed in a special account to be paid to Hall as a cash severance if he leaves, in addition to his generous retirement benefits.

The timing of the audit's release by Wood, a Democrat, is likely to stoke a debate now going on at the Republican-dominated state legislature about future taxpayer support for the center.

A state budget proposed by the state Senate would completely eliminate state funding for the center, while a proposal in the House would provide more than $36 million over the next two fiscal years. Lawmakers are currently meeting to sort out the differences between their budget proposals.

Senate leader Phil Berger on Wednesday renewed his call for taxpayer money sent to the center to be cut off.

"Funding the Rural Center would send the wrong message to voters who elected Republicans to provide accountability in state government," said Berger (R-Rockingham).

In an extensive written response to the audit, Hall said the center maintains "the highest degree of ethical and fiscal integrity" and defended his agency's stewardship of state funds. Wood responded to Hall's statement by saying it was crafted to "mislead the reader, or inappropriately minimize the importance of our findings."

Established in 1987 following a legislative study, the Rural Center is supposed to spur economic development in 85 North Carolina counties, with a special focus on helping individuals with low to moderate incomes in non-urban areas. The center received about $17 million in state funds over the last fiscal year.

The Rural Center received $146 million from the state in 2008 and 2009 for the Clean Water Partners infrastructure program. However, the audit found the center had not distributed approximately $56 million of that money. Another $145 million in state funds was provided to the center since 2005 for its Economic Infrastructure program. Only $87 million of these funds had been distributed, according to the audit.

The center has been under fire following stories published by The News & Observer of Raleigh last month that detailed several cases where grants resulted in no new jobs or far fewer than the center reported back to legislators. The Rural Center has nearly $70 million that has gone unspent because of delayed projects or busted deals, according to the newspaper's review of public records.

The newspaper reported that the center used millions in taxpayer money to help build fast-food restaurants, golf resorts and big-box retailers including Wal-Mart. While Hall claimed the center used state money to create nearly 20,000 jobs in the past five years, the newspaper found more than 950 jobs in the count from projects that haven't yet begun.