When Gov. Mike Easley and top state officials recently approved the acquisition of a 36-acre parcel of land in Beaufort, they also might have helped a nonprofit organization hide financial losses from the Pepsi Americas’ Sail event in July.
The approval came at the monthly Council of State meeting Oct. 3. The council is composed of the governor and the other nine independently elected state officials, such as the state treasurer, lieutenant governor, and agriculture commissioner. By law, the council is required to approve state real estate transactions.
The property was acquired by gift from the Friends of the Museum, a nonprofit organization that supports the work of the three North Carolina Maritime Museums. The main museum is situated in Beaufort. The Friends of the Museum is also the parent organization of Pepsi Americas’ Sail 2006, the organization that sponsored the tall-ships festival conducted in Morehead City and Beaufort in early July. Neither the Friends nor Pepsi organizations have reported how much money the event made, or lost.
Proceeds from the event were to go to the development of the Olde Beaufort Seaport, a project of the N.C. Maritime Museum — to be situated on the same 36-acre parcel.
State taxpayers already had paid for the land even though it was being held in the name of the Friends of the Museum. The General Assembly approved $3 million, and the Natural Heritage Trust Fund donated $450,000 to purchase the land for $3.2 million in 1997. About $250,000 was paid for expenses associated with purchase of the property.
The state acquired the land subject to deeds of trust in the principal amounts of $995,000 and $3.9 million. The loans were taken out July 12, 2005 and Oct. 17, 2005. While the loans were supposedly to be used to build bulkheads, docks, and other improvements to the property, some of the money apparently was operational money for the tall-ships event.
An audio recording of the Council of State meeting showed that Easley was a strong supporter of the transaction. He failed, however, to mention that taxpayers already had paid for the property once before, that there were liens on the property, and that there was no documentation of a $4 million right-of-way payment supposedly coming from the N.C. Department of Transportation. He also failed to mention the reported financial problems of the nonprofit group donating the land.
State Property Office Director Joe Henderson made the presentation to the council. He explained that the transfer had been planned for a few years but had not taken place because of issues related to a new bridge that would affect the property. He said the state would be taking the property — which he said was worth $36 million — subject to the two mortgages. He said the state planned to pay it off by selling about four acres to DOT, in addition to about $700,000 the Department of Cultural Resources has in reserve.
“We don’t know exactly what the DOT payment would be, but between the two we will either pay it off or be within a couple of hundred thousand in paying it off, and I think we can handle a couple of hundred thousand from the upcoming budget,” he said.
Easley asked for a motion to vote on the matter, a motion was made, and second received. He opened the matter up for questions. Lt. Gov. Beverly Perdue asked to recuse herself from voting, saying she was involved in the project as a state senator. Easley replied, “I’d take credit for it. Give me a $36 million piece of property — pay $4 million. I’m for it.”
Labor Commissioner Cherie Berry said, “This is a very complicated transaction.”
“Well, not really,” Easley replied. “We got out of this for pretty close to nothing.” Easley called for a vote, and all voted for the project. Even though Easley presides over the meeting, his spokespersons have insisted he does not actually vote.
Neither Henderson nor Easley mentioned the liens even though copies on the property were in State Property Office file. Neither mentioned the reported financial problems of Pepsi Americas’ Sail and its parent organization, Friends of the Museum.
Attempts by CJ to ask Henderson about the lack of documentation for a $4 million payment from DOT, or about other issues dealing with the property were unsuccessful. Department of Administration spokeswoman Jill Lucas said, “Joe is not available to discuss this matter.”
After being informed about Easley’s and Henderson’s omissions, Berry told CJ that she had been misled. She said that she will ask for a full explanation of the transaction and for the council to take another vote on the matter.
Chuck Bissette, vice president of T. D. Eure Construction Company of Morehead City, said his company has not been paid for $190,273 worth of work on the property. His company filed a lien Oct. 2. He estimated that the total improvements to the property totaled less than $4 million. Thomas Simpson Construction Company of Atlantic Beach filed another lien on the property for $74,031 on Sept. 25.
Cochairman of the Pepsi Americas’ Sail 2006 James Kelly refused to say whether the tall-ships event made or lost money. Pepsi Americas’ Sail 2006 LLC was set up in June 2005, with the Pepsi name included for a major sponsor—a Pepsi franchise based in Greenville. But the New York-based organization that sanctioned the Beaufort tall-ships event said it is planning legal action against the North Carolina organizers, alleging that the group failed to share revenue according to a contract.
Americas’ Sail is not the only entity trying to collect money from Pepsi Americas’ Sail. Town of Beaufort Financial Officer Betsy Gilchrist said that as of Oct. 17 Pepsi Americas’ Sail still owed the town $14,145 for law-enforcement services and $2,148 in reimbursement for barricade materials.
Pepsi Americas’ Sail received revenue from ticket sales and sponsorships. A statement on the organization’s Web site said the “event attracted more than 150,000 visitors to Beaufort and Morehead City, including more than 30,000 who bought tickets to tour the ships.”
Even though Kelly would not disclose financial information, some of Pepsi Americas’ Sail financial records might eventually become public. Jeffrey T. Lawyer, Kelly’s law partner who filed the Pepsi Americas’ Sail articles of organization with the N.C. Secretary of State, said it was a single-member limited liability company for income tax purposes. All income and expenses will be included in the tax return of the only member — Friends of the Museum.
The Friends of the Museum organization is classified as an IRS 501(c)(3) organization and contributions are usually tax-deductible. It is required to file an annual IRS Form 990, Return of Organization Exempt From Income Tax, and to also make copies of the annual form available to the public on demand. Friends of the Museum Executive Director Brent Creelman provided a copy of his organization’s 2005 tax return. As of Dec. 31, 2005 the Pepsi Americas’ Sail event had earned $350,597 but incurred costs of $436,710.
In addition to private funds raised for the event, public funds were also involved. The General Assembly appropriated $1.65 million from last year’s budget to “enhance transportation infrastructure for the Friends of the N. C. Maritime Museum/Tall Ships Event in Beaufort.” Most of those funds went to a Vienna, Va.-based company, Transportation Management Services. But it was the Department of Cultural Resources that selected TMS and agreed to administer the $1.25 million contract. For that amount, TMS brought in buses from North Carolina and other states and managed parking lots.
A $300,000 Golden LEAF grant was made to the Friends of the N.C. Maritime Museum to support the staging and promotion of Pepsi Americas’ Sail. Cultural Resources Secretary Libba Evans is a member of the 15-person Golden LEAF board, which is set up to distribute tobacco settlement funds The Department of Cultural Resources spent $225,000 assisting the festival, the newspaper reported. Some of the money reportedly was paid to pirate re-enactors.
Several media reported a $30,000 party for public officials sponsored by the N.C. Ports Authority that was conducted on a boat borrowed from the N.C. Department of Transportation Ferry Division.
Don Carrington is executive director of Carolina Journal.