Carolina Journal News Reports
RALEIGH — The state Department of Commerce, apparently for several years, paid a private nonprofit organization for economic development funds that by law should have been paid to a state-established regional commission.
Until June 2003, Commerce's fiscal department issued checks that, by statute and under the biennial state budget laws, should have gone to the Northeastern North Carolina Regional Economic Development Commission. Instead the "pass-through" payments were made to North Carolina's Northeast Partnership, a non-profit organization established by some of the same board members as the Commission, but not considered to be a public agency by its staff, board members, and legal counsel.
Exactly how much money was paid to the Partnership could not be established by press time, because Commerce's retention policy for records provides that it keep documents for only the previous three years. But the Partnership was paid $1.33 million for Fiscal Year 2002-03, and records obtained by Carolina Journal show that the Partnership was paid $1.35 million in 2001-02.
The Partnership has been the subject of previous CJ stories in which its executive director, Rick Watson, may have had a conflict of interest because of personal interests in a fingerprint technology company, and because of attempts to gain equity in companies that he tried to recruit to the state.
Watson would not accept a call from CJ on Friday, and the Partnership's finance officer, Sarah Jackson, declined to answer questions about the two organizations. Jack Runion, board chairman of both the Commission and the Partnership, could not be reached by press time. Watson routinely ignores requests for interviews by phone and e-mail from CJ.
Partnership says it's not public
The Partnership's lawyer, Ernie Pearson of Sanford Holshouser LLP in Raleigh, has told CJ in the past that the organization is not a public agency and is not subject to the public records law. He said he does recognize that the Commission is a public agency.
"However, [the Commission] serves as an administrative body and all recruitment activities have for years been carried out in that region by North Carolina's Northeast Partnership," Pearson told CJ in a March 18, 2005 written response to a records request for documents related to the fingerprint company. "Consequently, the Commission does not have any files on the subject projects."
Despite Pearson's claim, the Partnership in the past has complied with some records requests from CJ, although in some cases negotiations to gain their release have been lengthy. But because the Partnership does not consider itself a public agency, it is not known whether those requests were completely fulfilled.
In 1999 the Partnership sought from then-Attorney General Mike Easley a legal opinion about whether the organization is subject to the state's public records law. The response, written by former deputy attorney general Reginald Watkins, determined that the Partnership is a state agency and "fully subject to the Public Records Act."
The Commission was created to operate administratively under Commerce by the General Assembly in 1993, but was to "exercise its statutory powers and duties independently of [Commerce]." But according to Watkins's opinion, the Commission's meeting minutes of July 27, 1994 stated that as of August 1, 1994, it "would no longer be affiliated with the Department of Commerce, State of North Carolina, but would, as of that date, begin operating on it's [sic] own."
In September 1994, Watson filed articles of incorporation for the Partnership.
"The Partnership's articles of incorporation and bylaws indicate that it assumed the duties and functions of the Commission associated with economic and tourism development," Watkins wrote, "and that members of the Commission automatically became members of the Board of Directors of the Partnership by virtue of their appointment to the Commission."
The Commission's board of directors consists of 18 members, with an equal number of appointees made by the governor, the Speaker of the House, and the President Pro Tem of the Senate. But the Partnership no longer shares the same identical board members as the Commission, although Runion chairs both. The Partnership has an eight-member board, according to its website.
Watkins said in the opinion that because the Partnership receives approximately $1 million in Commerce money each year, is subject to state audits, and must submit financial information each year to the state, that it is subject to the public records law. But even he seemed confused by the official responsibilities of the Northeast organizations.
"Although the Commission apparently still exists," Watkins wrote, "it is unclear what functions or duties, if any it performs. The Commission was not authorized to remove itself from [Commerce] in 1994.
"There is nothing in [the statute] that grants the Commission the authority to divest itself of its statutory powers and duties in the areas of economic and tourism development. Nor can such authority be implied as reasonably necessary as an incident to the accomplishment of the purposes for which the Commission was created."
Other commissions remain public
Two other regional state commissions, created in likewise fashion at the same time as the Northeast Commission in 1993, have operated under Commerce without declaring their independence. The Western Regional Economic Development Commission, doing business as AdvantageWest, has remained a state agency for 11 years while also registering as a nonprofit agency that can raise private funds. A single board of directors runs the organization. The Southeastern Regional Economic Development Commission, or North Carolina's Southeast, operates in a similar manner.
"We are able to do it all under that one umbrella," said AdvantageWest president Dale Carroll.
According to Carroll, Commerce has always made its "pass-through" payments in the name of the Western Commission. Southeastern Commission chairwoman Jane Smith wasn't sure how their checks were made out, but that wouldn't have mattered since the Southeast Commission and NC's Southeast are the same organization.
But in the case of the Northeastern Commission, Commerce until June 2003 paid the Partnership, the separate "unauthorized" organization, according to Watkins's opinion.
"If we made payments to the Partnership, it was because the Commission requested us to do so," explained Commerce spokeswoman Alice Garland in an e-mail. "In August 2003, the Partnership designated the Commission as the entity to receive the funding appropriated by the Legislature."
Why the Partnership in 2003 requested that Commerce start issuing checks to the Commission remains in question. But under state statutes the Partnership, as a separate organization, had no power to authorize the change or to receive the payments in the first place.
Watson creates Northeast organizations
In addition to the Commission and the Partnership, Watson has created other affiliated organizations: North Carolina's Northeast Committee of 1000; North Carolina's Northeast Economic Development Foundation; and the North Carolina's Northeast Partnership for Financing — created last November.
In recent years Watson has also altered the official name of the Partnership twice. In July 2003 he filed a request with the Secretary of State's office changing the name from "Northeastern North Carolina Regional Economic Development Partnership" to "North Carolina's Northeast Economic Development Partnership." Last August he changed the official name again, to "North Carolina's Northeast Partnership."
Watson in 2003 also changed some key provisions to the Partnership's articles of incorporation. He greatly broadened the official "purposes" of the organization to include any activities outside of economic development. He also removed the Department of Commerce as the recipient of all the Partnership's assets should it be dissolved, leaving the decision with the board of directors.
Watson also amended the articles to allow directors and officers of the Partnership to receive "reasonable compensation for services rendered…" and "reasonable expenses incurred in furtherance of the [Partnership's] business…." The changes also protected current and former directors, officers, employees and agents of the Partnership from financial expenses incurred from "actual or threatened litigation."
The broadening of the activities of the Partnership, coupled with the allowance for payments to employees, could mean that Watson, other employees, or contractors could be paid for almost anything they decide to do.
Rep. John Rhodes, a Mecklenburg Republican who last year requested that former State Auditor Ralph Campbell investigate the Northeast Partnership and Northeast Commission, said the arrangement needed scrutiny and the payments from Commerce to the Partnership "raises many red flags." He said the proliferation of state-established and –funded nonprofits, their legal status, and their relationship to public agencies confuses taxpayers.
"The relationships between these entities are so convoluted, that when a question arises about propriety, it's almost like chasing your own tail," Rhodes said. "They run you around until you get so frustrated that you give up."
Paul Chesser is associate editor of Carolina Journal. Contact him at email@example.com.