Golden LEAF Foundation: A Sterile Golden Goose?

Updated March 26, 2009

By one measure, Golden LEAF has been a smashing success. According to NCSU, after getting at least $365,000 in grants from Golden LEAF, goat harvesting grew from 6,000 a year to 16,000, though a skeptic could argue that burgeoning demand for more exotic meats and cheeses had more to do with it. Whatever the case, it appears that rather than making a real economic impact in rural, tobacco-dependent communities, many are concluding that Golden LEAF has been nothing more than a multi-million dollar slush fund that has done little to revitalize or reduce unemployment in rural communities.

In any event, the Golden LEAF has grown into one of the state's largest non-profits, currently ranking as North Carolina's second top foundation in both assets and grantmaking by NC Gives.

Mission
The official mission of the Golden LEAF Foundation is “to promote the social welfare of North Carolina's citizens and to receive and distribute funds for economic impact assistance to economically affected or tobacco-dependent regions of North Carolina.”

History
Officially known as the Long-Term Economic Advancement Foundation, the NC General Assembly established Golden LEAF in 1999 as one of three entities receiving funds from the national tobacco settlement. The Foundation receives one-half of the state's annual windfall, and is overseen by a board of trustees made up of political appointees.  While the money is intended to be used to spur economic development in formerly tobacco-dependent areas of the state, one might wonder about some of the grantees that the board has selected - some of which are not even in the state of North Carolina.

During his campaign for governor in 2000, then-Attorney General Mike Easley said that he carries his tobacco farming father's account ledger as a reminder of how tobacco money once flowed through North Carolina communities.  Easley likened the declining tobacco industry to the logging industry in Washington state, which was hurt by protections for the spotted owl, and said that it's appropriate for the tobacco settlement money to be used to help North Carolina's "endangered species" - its tobacco communities.

"It seemed horribly unfair for the country to come in and rip a patchwork out of the quilt of our society in North Carolina," said Easley, "and not make the resources available to create options for those communities." (Raleigh News & Observer, 3/21/99).

Easley reflected the intentions of many who created the Golden LEAF Foundation - that it would be a tool to direct tobacco settlement funds to distressed rural communities for revitalization efforts.  But as we shall see, that original mission has been transformed, and Golden LEAF has become nothing more than another fund in North Carolina's ever-expanding "economic development incentives" tool kit.

Golden LEAF sees its mission as going beyond tobacco dependent communities. Valeria Lee, who retired as president of the Foundation as soon as her successor was named in 2008, said "We don't make a grant just based on where the post office is [located]." (Raleigh News & Observer 3/30/07).

Since 2001, Golden LEAF has funded 667 grants to various entities, including non-profits and governmental entities in communities small and large, distressed and wealthy, across North Carolina. Some of these grants - like college scholarships and worker training programs - may serve the organization's mission by preparing workers for a new economy. Others - like a horse park in Hoke County, have purely local appeal, leading some to claim that they are merely pork-barrel projects that do not fulfill the original purpose of the Foundation.  

In other states, tobacco settlement funds are used for a variety of purposes, including infrastructure improvements.  Georgia, for example, uses tobacco settlement money for roads. Fifteen states have borrowed up-front and use tobacco settlement money to repay bond debt, transferring the risk that tobacco companies may go bankrupt onto private investors.

But in North Carolina, Golden LEAF continues to demonstrate its commitment to handing out small grants for innocuous purposes rather than using the cash to address critical infrastructure requirements or other needs that might actually enhance economic development. According to the NC Rural Economic Development Center, Cleveland County needs $22 million in water and sewer improvements by the year 2010.  However, Golden LEAF chose instead to grant $250,000 to a museum honoring the bluegrass musician Earl Scruggs - in Cleveland County.  In Halifax County, the Golden LEAF Foundation invested $399,000 in the failing former Parton Entertainment Center, rather than addressing critical transportation or sewer infrastructure needs in the area.  Similar choices continue to be made across the state - basic infrastructure improvements that might generate new business growth are ignored so that political pet projects can be funded - all without having to endure scrutiny by the legislature or by taxpayers.

These choices seem to be creating a widening dissatisfaction with Golden LEAF's approach. As far back as 2007, then Governor Easley suggested that "a nonprofit group tasked with overseeing $600 million in public money [should] to be more aggressive in helping rural areas win jobs." (Raleigh News & Observer 3/15/07).

Biotech Investments
According to Senate President Pro-Tempore Marc Basnight, "the most important thing we can do in this General Assembly ... is to create jobs, [and] the only place you can do that in this economy is biomanufacturing." (Winston-Salem Journal 8/14/02)  Golden LEAF has been a big supporter of the biotech industry.  In fact, some of the more interesting grants made by the Foundation have been those to biotech corporations, including those based overseas.  Easley insider John Crumpler, who has contributed $10,000 to Democratic leaders prior to 2008, organized a biotech investment fund to channel $30 million from Golden LEAF into the Switzerland-based HBM Bioventures (Triangle Business Journal 3/31/06).  Of course, the grants were touted for new job creation for the state - but after three years, not a single worker associated with those investments has been hired in North Carolina, though fund managers have reaped $1 million in personal gains.

In another conflict riddled case, a group including Charles Davenport, brother of former GLF Board Chairman Lawrence Davenport, received $10 million for biofuels production while a competing group was denied (Carolina Journal 12/20/02).

Attack on Corporate Agriculture
With the decline of tobacco production in the state, poultry and hogs are now clear leaders in North Carolina's agricultural economy, contributing $4 billion annually to the state's economy. But the Golden LEAF Foundation has become part of the plethora of groups attacking alleged factory farms. The Rural Advancement Foundation, which wants to ban companies like Smithfield Foods and Tyson from owning livestock (letter to Congressional delegation, January 2007) received $275,000 from the Foundation.  With today's stratospheric corn and soybean prices, Smithfield is losing $12 per hog. By supporting a group favoring bans on processor ownership of livestock, the Golden LEAF Foundation would dump this entire loss on individual family farmers who would be least able to bear it. Family farmers bear less market risk growing poultry or hogs under contract with a corporate partner - so increasing their risk runs counter to Golden LEAF's mission of strengthening the rural economy.

Fight Over Pork - It's Who You Know
Depending on where your elected officials fall in the state government hierarchy, your community may have been the recipient of Golden LEAF grants.  Funds have been used as economic development "incentives" - targeted cash or tax credits that benefit one private sector corporation at the expense of others - as well as for diverse pet projects like local ballparks, biking & hiking trails, and the Drag Racing Hall of Fame.

With so much money at stake, local competition can be intense. Former Rep. Stephen LaRoque claimed that "In Raleigh, Golden LEAF is known as the governor's slush fund." He complained that the Black Heritage Society received $50,000 for a museum in Kinston while the group reconstructing the Confederate ironclad CSS Neuse was denied funding, even after Golden LEAF president Valeria Lee promised support. (Kinston Free Press 11/15/06). The Black Heritage Society includes a number of Easley campaign contributors.

But former Governor Easley acknowledged at least some of the Foundation's failures.  "Golden LEAF has the responsibility of building economies in areas where we didn't have economies," Easley said after speaking at an annual meeting of the NC Chamber of Commerce. It needs "to get involved more, to get busy."

Potential Conflicts
During the 1999 debate on the bill establishing the foundation, Democratic leader Senator Tony Rand assured fellow legislators that politics would not intrude on its decisions. "A charitable trust shouldn't have anything to do with politics," he stated (Raleigh News & Observer 2/5/99).  But an objective analyst might disagree. For example, when Golden LEAF pledged $3.5 million to Dell Computer Corp., Dell's lobbyist was Jack Cozart of the Womble Carlyle law firm. The Womble Carlyle website lists Easley adviser John Merritt, a Golden LEAF Foundation board member, as a consultant.

Even the top staff position appears to be subject to political pressure.  When Valeria Lee announced her retirement in 2007, she agreed to continue serving as president until the Board found a suitable replacement.  Nearly a year later, Lee was still on the job - and in June 2008, the Golden LEAF Board of Directors delayed acting on the hiring decision until their September quarterly meeting, despite having four candidates already calendared for consideration.  Why another postponement?  So that the Board could consider Dan Gerlach, Easley's senior fiscal policy advisor, for the post a little closer to the end of the governor's tenure.   

For his part, Easley contended that the request for a second delay had nothing to do with Gerlach, but was made instead because of pending legislation that could impact the future of the Foundation.  But there's no denying that Gerlach's services to the governor was needed until the General Assembly concluded their business in the summer of 2008 -- and sure enough, the Board selected Gerlach at their September meeting at a starting salary of $189,000 per year.

Staff & Governance
In addition to President Dan Gerlach, the Foundation employs a staff of 13.  The Board of Directors of the Golden LEAF Foundation is made up of fifteen members, with the Governor, Speaker-of-the-House, and Senate President Pro Tem naming five apiece. Golden LEAF reports that it spends no money on lobbying, but with such high-powered individuals serving on its Board of Directors, it doesn’t have to.  Similar to the Board of Transportation, Golden LEAF's board is filled with generous campaign contributors and political cronies.

Financial Profile
Since 2001, Golden LEAF has received $706,546,189.63 in payments and has paid out $246,767,918.22 in grants, leaving an enormous balance in cash & investments on hold within the organization.  According to the foundation's 2006 IRS Form 990, Golden LEAF had revenues of $114,666,686 and net assets of $718,807,611 for the year, making the Foundation North Carolina's second largest by assets by NC Gives. Interestingly, Golden LEAF fund manager Farallon Capital has been engaged in buying sub-prime paper (Forbes 3/30/07) - mortgages which might be termed toxic and which have been under much public scrutiny as contributors to the current rash of foreclosures.  The fixed income that the fund holds is unspecified on the Foundation's documents, and public records make it unclear whether the Foundation might be invested in risky paper, or even how much money has been lost by the fund during the recent market turmoil.

The organization’s IRS filing reports that it holds at least one account in the Cayman Islands.

Increased transparency and scrutiny of the investments and records of the Golden LEAF foundation are sorely needed.

Summary
That the political classes are showing mounting displeasure is evidenced not just by the two bills which were offered for consideration in 2009, but also by the prior introduction of two measures during the 2008 legislative session which would have abolished Golden LEAF in its current form.  Senator Clark Jenkins' (D-Edgecombe) bill would have turned Golden LEAF's money over to the NC Rural Economic Development Center, an arm of the Department of Commerce. Upset by the rejection of a museum grant request in his rural county, Jenkins attracted over half the Senate to sign on as co-sponsors to his bill. A second bill by Sen. David Hoyle (D-Gaston) would have re-directed the money to a new Infrastructure Trust Fund to contribute to the state's capital needs (both construction costs and to pay down the capital bond debt).  Though neither measure passed during the 2008 session, they may explain why Golden LEAF recently pledged to seek more input from local officials in rural areas. Does that mean it intends to kowtow more to local wishes, or will it seriously reform the way it allocates grants?  Only time will tell.

The Golden LEAF Foundation was established in 1999 to manage half the money the state receives from a master settlement with cigarette manufacturers. Its primary mission is to help distressed communities overcome their dependency on tobacco and other declining industries, such as textiles and furniture manufacturing, thereby building new business foundations.  But after nine years and hundreds of millions of dollars in grants spread across the state (and internationally), the Foundation has failed to honor its original goals, and few structural changes have been made to the organization's policies and procedures that might indicate that a change is forthcoming.  Instead, Golden LEAF seems to be growing even more entrenched in its divergence from its core mission.

In 2002, the Winston-Salem Journal reported that "When they created Golden LEAF three years ago, Easley and legislative leaders said that the idea was to commit half the state's $4.6 billion tobacco settlement to an independent group that could operate outside the political battles of the General Assembly." (Winston-Salem Journal 8/16/02). Will that actually occur under Governor Perdue?

And the tooth fairy leaves quarters under the pillow.