News: CJ Exclusives

Auditor: State Unlikely To Recover Rural Center Interest Earnings

Wood said state has no policy to recapture $20 million in interest

State legislators racked their brains trying to come up with ways to recoup $20 million in interest the Rural Economic Development Center had earned — primarily on state tax dollars the center deposited in a private bank account.

But state Auditor Beth Wood told the General Assembly’s bipartisan Program Evaluation Committee that it’s likely out of luck.

The interest is “still with the Rural Economic Development Center,” Wood, a Democrat, told the committee regarding the interest income. “The definition of monies that belong to the state are basically any monies that are on deposit with the state treasurer’s office, and these monies where the interest was earned [were] deposited in a private bank.”

Wood went on to say that state law is silent on dealing with the interest, and the funds “were put in a private bank. And so the two of those items makes it pretty much difficult for the state of North Carolina to get it back.”

Wood reported to the committee on an audit released in July that assailed the Rural Center for the interest account, failing to monitor grants to ensure that their requirements were fulfilled, lax reporting standards, and excessive compensation for its president, Billy Ray Hall.

After the audit, Hall resigned. Days later, the General Assembly cut all funds for the Rural Center from the 2013-14 budget, setting up instead a division in the Department of Commerce to promote and oversee rural economic development.

Lawmakers from both parties queried Wood about the audit, and the $20 million in earned interest.

“Does the state now have control over this $20 million in some form or fashion, even though it’s not deposited?” asked Sen. Ben Clark, D-Hoke.

“No, it remains with the Rural Center,” Wood responded.

“We need to get our $20 million back,” said Rep. Julia Howard, D-Davie, who chaired the committee.

In response to a question by Rep. Marvin Lucas, D-Cumberland, Wood said that it would be difficult to know exactly how much of the $20 million has not been spent because that money is comingled in a bank account with other Rural Center funding.

Wood said that state law requires interest earned on unused grant money provided to local governments to be returned to the state. She suggested, and lawmakers seemed receptive to, enacting legislation that would write such a rule into state law.

She said it could be similar to the federal policy on grants, which says that — unless specifically exempted — interest earned on grants returns to the federal government.

Wood said that other nonprofit organizations getting money from state government could be earning interest on taxpayer-financed grants. The N.C. Biotechnology Center was the one she said came to mind.

The final budget compromise was reached this year within days of Wood’s crushing audit, in which she pointed fingers at the center and its leaders for misleading the public.

The initial House budget provided $16.6 million in General Fund spending for the current fiscal year and $20 million next year. The initial Senate budget called for ending Rural Center appropriations.

Instead, a new Rural Economic Development Division will be housed within the Commerce Department. It will get $11.3 million in state funding during the current fiscal year and $13.3 million next year.

Barry Smith (@Barry_Smith) is an associate editor of Carolina Journal.