Lawmakers lose track of projects

Generous Assembly Fourth of Five Parts
Lawmakers lose track of projects
From teapots to a sports museum to an automotive center, the state is spending millions based on promises of jobs that haven't come to pass.
By Dan Kane
dan.kane@newsobserver.com
Posted: Saturday, Jun. 13, 2009

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About the series

With the state budget in chaos, lawmakers and Gov. Bev Perdue still resist serious changes to state policy and spending.

In five parts, The News & Observer examines difficult decisions the state could make to save hundreds of millions.

Four years ago, state legislators gave $2 million to the city of Greensboro to launch a “Hall of Champions” for the Atlantic Coast Conference. It was to showcase the ACC's athletic heroes, an idea pushed by Kay Hagan, then a state senator, and other legislators.

Since that time, no additional money has been raised for the project, which was expected to cost $23 million. The city bought the building but backed out of using it for the hall.

The ACC Hall of Champions is a relatively small project. But it shows how the General Assembly's spending customs can get it into trouble when revenues start plummeting.

For the coming fiscal year, lawmakers are working to close a budget shortfall of more than 20 percent, or $4.5 billion, a reflection of the worst economic conditions since the Great Depression .

And long gone are the money they gave to Greensboro, the $15 million they've given to an automotive research center that hasn't come up with the private partner it promised and the tens of millions in tax breaks they've given to companies that ended up cutting jobs.

These types of projects are often created or boosted by powerful lawmakers looking to take money home to their districts or to promote feel-good measures related to education and job creation that play well on the campaign trail. Sometimes the projects benefit special interests or a lawmaker's financial interest.

Typically, these projects are inserted into the annual budget bill, sometimes so late in the budget process – or in closed or unpublicized meetings – that they go unnoticed.

In the case of the ACC museum, the money was inserted into the 2005 budget. Amy Yakola, an associate commissioner of the ACC, which is based in Greensboro, said the conference was not involved in the development of the project and does not have the money to spare.

The Greensboro City Council recently voted to spend the $2 million to get started. Until that money is spent, city leaders can't get more cash from the state.

The hall lost its planned home last year, but in May, the Greensboro City Council authorized spending the state's $2 million to start the first phase of the museum, now to be within the Greensboro Coliseum Complex's special events center.

Hagan, a Democrat and now a U.S. senator, declined to be interviewed. Her spokeswoman said Hagan requested the money in 2005, when she was a chief budget writer, to create a “national tourist attraction.”

A similar situation emerged in 2005 with a proposed teapot museum in Sparta. Lawmakers gave the project $400,000 that year.

The teapot collection went elsewhere, but organizers are keeping the money for a scaled-back museum that will feature arts and crafts. It has yet to be built, and the capital campaign was suspended because of the weak economy, said museum director Cynthia Grant.

A gift to businesses

Sometimes, the giveaways are far larger.

Each year, the state gives up roughly $50 million providing tax credits to hundreds of companies that have upgraded their facilities with the hope that the investments will lead to more jobs. But the evidence is that companies have shed jobs instead.

Ameritex Yarn was one of those companies. It received nearly $160,000 in tax credits earlier this decade for equipment investments in its Burlington plant, only to go out of business in 2006, leaving 125 employees out of work.

The company's former CEO, Rick Bullard, said the credits were “fairly meaningless” for a company that succumbed to imports.

Numerous studies over the years have found the credits ineffective, particularly at growing jobs and businesses in the state's poorest counties. But this gift to companies, part of the “William S. Lee Quality Jobs and Business Expansion Act” of 1996, remains on the books, another expensive example of state programs and initiatives that won't die.

These programs are so hard to kill because they quickly develop their own constituencies, which then fight hard to keep them alive.

State Sen. David Hoyle, a Gaston County Democrat and a co-chairman of the Senate Finance Committee, said he is feeling that heat on the Lee tax credits. His committee has put forward a plan to cut them and use the money to help reduce the corporate tax rate. He said he has heard from virtually every economic developer and chamber of commerce in the state asking him to preserve the tax credits.

“Any type of program you start, the minute it gets advocates, it is totally impossible to get rid of,” Hoyle said.

The credits were part of the state's first foray into the economic incentives game. In its first 11 years, the Lee Act handed businesses $630 million in tax breaks. Cutting them would allow the state to keep $574 million over the next six years, according to a University of North Carolina study released this year.

UNC researchers looked at companies that in 2004 took just the equipment incentive. Overall, their employment numbers dropped in subsequent years. The researchers suspect some of the credits might have been used to automate operations so the companies needed fewer workers.

The credits “are having little to no effect on employment growth and or a limited impact on company expansion/location decisions in North Carolina,” according to the study by the university's Center for Competitive Economies.

But powerful lawmakers are trying to keep them alive.

“We're in such fierce competition with other states and other countries to create jobs and keep jobs that we need to keep everything in the toolbox,” said Rep. Bill Owens, an Elizabeth City Democrat and chairman of the House Rules Committee.

The Lee tax credits are part of a rapidly growing plethora of economic development programs that cost the state more than $1 billion annually. Despite that significant investment, North Carolina's unemployment rate is the sixth-highest in the country.

The UNC report said so many programs now exist across state government that lawmakers have lost track of what's actually working.

Political shellacking

John Turcotte has found it difficult to guide legislators toward cutting programs. In 2007, he became the first director of the legislature's Program Evaluation Division, an entity created to identify poor performance in state government.

One of the division's first reports suggested that the state could save $55 million, plus another $3.7 million in annual operating costs, by closing seven agriculture research stations and consolidating management. N.C. has more agriculture research facilities than any other state, the report found, and several stations did far fewer research projects than the rest.

The research station report drew such ire that one lawmaker suggested the best way to achieve government savings would be to cut the Program Evaluation Division.

“The legislators that listened to us and would do the smart thing with the money, they got shellacked politically for even considering it,” Turcotte said. “So this isn't easy.”

Part of the problem, he said, is that government does such a poor job of tracking state-funded programs that lawmakers don't know their options when it's necessary to cut the budget. The News & Observer learned this through a basic request to the governor, the legislature, the state auditor and the state controller for a list of all state-funded programs created over the past 10 years and how much money they received.

The response? There is no such master list. Gov. Bev Perdue, a New Bern Democrat, has included $500,000 in her budget proposal to create a list.

“What I'm trying to do, quite frankly, is change the way we do business as a state, to make government more transparent on its face and make it more efficient and more thought-out strategically,” Perdue said.

When rules are bent

Sometimes, lawmakers don't follow their own playbooks in spending state money. In 2005, state lawmakers approved $7.5 million for what was then the Advanced Vehicle Research Center, but under the condition that the center partner with a private entity that would bring jobs.

The following year, the center (now called the N.C. Center for Automotive Research) announced an agreement with Lotus Engineering to bring 108 jobs. That agreement fell apart within months. Two state payments related to the agreement — a Jobs Development Investment Grant and a Golden Leaf Foundation grant — have been put on hold as a result.

But the center, located in Northampton County, is spending the $7.5 million lawmakers approved, plus another $7.25 million appropriated in subsequent budgets. The money was released after Don Hobart, then the Commerce Department's counsel, wrote that the private partner requirement had been met when the center struck an agreement with a private firm to manage the facility.

That firm, MDE International, would bring up to 20 jobs, but the center would have to pay for at least half. The rest would be dependent upon business the center brought in.

But even that agreement never led to a contract. To date, the center has no contracts with any private entities to create jobs, said Gary Brown, a center board member and executive director of Northampton County's Economic Development Commission.

Still, the center broke ground last fall, with plans to spend the $15 million in state money to build and operate an initial phase that includes two miles of track and a 23,600-square-foot building for operations, engineering and garage space. The work should be finished this fall.

Even when that phase, called 1A, opens for business, Simon Cobb, the center's chief operating officer and sole employee, said it will not generate enough business for the center to sustain itself. It will need at least $16 million more to expand the track and add other facilities before it can become a break-even proposition.

“Phase 1A is not going to pay the bills,” Cobb said.

The project has had a difficult history. Dick Dell, the man who envisioned the center and initially led it, said he was forced out three years ago. Brown said Dell left because of a contract dispute. Dell has started his own competing project and has kept the center's original name. He said he is building a center in Danville, Va., and has six companies ready to rent space. He expects to open the center this summer and to have 35 people working there by next year.

Rep. Michael Wray, a Northampton County Democrat, has helped corral state money for the N.C. Center for Automotive Research. A May 2006 memo at the state Department of Commerce shows that he sought release of the $7.5 million so that he could persuade the state Senate to pony up more money.

He said in an interview the center will be a “magnet for automotive industries.”

If so, that could help him sell an 86-acre site he co-owns adjacent to the center property. Wray said in the interview that he checked with then-Speaker Jim Black's office to determine whether it was a conflict of interest for him to be involved in the center project. He said Black's staff assured him it was not.

Wray later sought advice from Black's successor, Speaker Joe Hackney, an Orange County Democrat. Hackney, who called Wray a “straight shooter,” said he advised him to bow out to avoid a potential conflict of interest. Wray has since removed his name from legislation that would spend an additional $18 million on the center.

Joe Sinsheimer, a Democratic consultant turned government watchdog, said the museums and automotive center fit a classic “bait and switch” pattern.

One solution, he said, would be to create escrow accounts within the state Treasurer's office that would not allow money to be released until conditions are met.

“That's what's done all the time in the private sector,” he said. “Money's escrowed, and then when you meet your part of the deal, the money's released.”
http://www.charlotteobserver.com/597/story/778124.html

This is absolutely sickening! Does the state give tax credits to businesses without looking at their financial stability? I wouldn't doubt it.
Is there no oversight of money granted whatsoever?
And it is crazy that these funds are not escrowed until obligations from those getting the money are completed. Even if you sign a contract to buy a house and the inspector finds major things wrong, the funds sit in escrow until repairs are completed.
What's wrong with these people? And for any legislator pushing development so that their property will appreciate needs to be investigated and this person should be recalled or impeached or whatever.