Former Chowan County Manager Cliff Copeland, who retired abruptly in June 2008, left the county in such bad financial shape that the Local Government Commission, which oversees the finances of government agencies, wouldn’t let — and still won’t allow — the county to borrow money.
Copeland oversaw $29 million in spending by the county over 10 years from the revenues of a hospital lease, even though county commissioners passed resolutions stating that only interest from investing the proceeds of the lease were eligible to be spent.
The debacle has led to a preliminary investigation by the state auditor, a probe by the U.S. Attorney’s office for the Eastern District of North Carolina, and county employees revealing notes they took about their contact with Copeland.
“Don’t say a word, Raleigh says this, [auditor investigation] is a joke and he will be cleared of everything,” County Clerk Susanne Stallings wrote of her April 23, 2009, conversation with Copeland. “Kept saying he knew for sure and don’t say a word.”
Eddy Goodwin, the chairman of the Chowan County Board of Commissioners, said many people in Chowan County think no action will be taken against Copeland.
“He was bragging and talking that the fix was in,” said Goodwin, a Republican elected in the predominantly Democratic county after the financial problems came to light. “A lot of people think that because he’s connected politically, nothing will be done.”
The preliminary investigation by state Auditor Beth Wood, a Democrat, found problems with the county’s financial management but no criminal wrongdoing. The mess also prompted the U.S. Attorney’s office for the Eastern District of North Carolina to investigate. No criminal charges have been filed.
Dennis Patterson, a spokesman for Wood, said the state auditor found that only local money was involved, so it didn’t fall under the state auditor’s jurisdiction.
“State money is what we’re interested in,” Patterson said. “That’s what we’re responsible for.”
Former Auditor Les Merritt, whose office initiated the investigation, declined comment.
Copeland referred questions to his attorney, Wade Smith, a former state Democratic Party chairman. Smith did not return a phone call from Carolina Journal.
“They were doing pretty good before I left,” Copeland said of the county.
Favors for Basnight, Spear?
Another conversation, on Oct. 15, 2008, referred to state Senate President Pro Tem Marc Basnight, D-Dare, and state Rep. Tim Spear, D-Chowan.
“AMK (Edenton Town Manager Anne-Marie Knighton) said auditor didn’t ask about finances, only about favors for Basnight, Spear, and Paul Waff,” Stallings wrote about what Copeland told her.
Schorr Johnson, a spokesman for Basnight, said Basnight “doesn’t have any response because he has no idea what this means and he has not represented Chowan County for many years.”
Waff, an Edenton contractor, said the conversation may have referred to a grant of more than $200,000 that paid for utilities to a marina and restaurant he owns. But Waff said there was no political favor.
“I don’t quite understand that statement,” Waff said. “I think somebody may have taken something out of context.”
Patterson said he couldn’t say if auditors asked about Basnight and Spear. “We never discuss or release work papers,” Patterson said.
Knighton declined to comment, and Spear did not respond to requests for comment.
Bob Steinburg, a Republican running against Spear for the House District 2 seat, said in an e-mail he can’t comment “to the extent, if any, of any involvement, implied or otherwise, on the part of these individuals. It is my understanding the investigation into Chowan County’s fiscal meltdown in `08 has yet to be concluded. However, the question does ‘infer’ to a certain truth about eastern North Carolina politics specifically, and Raleigh’s ‘machine politics’ in general. Political leaders have been caught on the receiving end of insider information that all too often results in special treatment and financial kickbacks.”
Copeland also acknowledged responsibility for payments to a Raleigh lobbying firm in a conversation with then-County Manager Peter Rascoe on April 29, 2009.
The auditor’s preliminary investigation questioned $259,493 that the county paid to the lobbying firm, Capstrat, through the Edenton-Chowan Development Corp. Capstrat is run by Ken Eudy, the former executive director of the state Democratic Party.
“He did comment about Capstrat saying ‘That was my fault. Things got hectic,’” Roscoe wrote. “And he said, ‘I assumed the town [Edenton] was contributing to it, and they were not.’”
Lobbying costs questioned
Articles in The Virginian-Pilot raised questions about claims by a Capstrat lobbyist that the firm helped secure financing for a landing system at the regional airport and a 911 system. The preliminary investigation recommended that Chowan County try to find what specific benefits it had received from the lobbyist and try to get the money back if no possible benefits were found.
Eudy said that Wood had apologized to him for the investigation, which he called a letter sent to Chowan County.
“The references to Capstrat in that letter were based on nothing more than a stack of news articles,” Eudy said. “No one from the auditor’s office ever contacted Capstrat or asked to interview us before writing that letter. … If we had been asked by the auditor, we would have provided information that demonstrated our efforts for Chowan County and the Town of Edenton. We remain proud of our work for that community.”
Patterson said Wood apologized for the document being released publicly “under the guise that it was some sort of official ruling from us, which it was not.” Preliminary investigations, such as the one into Chowan, normally are confidential.
Budget has small surplus
Chowan County commissioners approved a $16 million budget in June that has no tax increase. Final numbers for the last fiscal year aren’t in, but the county hopes to have about $1.5 million, or 8 percent of the general fund, stockpiled against emergencies. That surplus would bring the county into compliance with state guidelines for good budgeting.
“Cash flow was a big issue,” said Lisa Jones, the county’s finance manager. “We couldn’t even get a tax anticipation note. We had to think of other things to get us through.”
The county got a financial windfall of about $29 million in 1998 when it leased its hospital to Pitt Memorial Hospital/University Health Systems. County commissioners set up two health reserve funds for the money with the restriction that no more than 75 percent of the interest would be spent, allowing the funds to grow.
But Copeland spent money from the health funds without permission of county commissioners. Chowan County spent more than it brought in for years. It built an agriculture center and an adult day health center and renovated the library. Much of the work was done with borrowed money. From fiscal years 2003-08, Chowan County spent between $1.3 million and $3.3 million more than it collected in taxes each year.
As early as 1998, the Local Government Commission warned Chowan County that some of its revenue funds weren’t generating enough money to meet expenses.
Sarah Okeson is a contributor to Carolina Journal.