Ka-Ching! Money Talks at the Department of Transportation

A 2008 State Audit declared that the North Carolina Department of Transportation (DOT) is a multibillion-dollar state agency that “appears to operate on hunches and intuition rather than hard data analysis.” As a result, wrote State Auditor Les Merritt, “taxpayers paid $152.4 million in unnecessary construction costs” during the fiscal years 2003-06. (Raleigh News & Observer.  And a 2008 Spotlight report by the John Locke Foundation gives the DOT an “F” for making budget and spending information transparent by posting it online for taxpayers.

Responding to the 2008 audit, Transportation Secretary Lyndo Tippett maintained cost overrun problems were either beyond DOT’s control or have subsequently been fixed. Back in 1971, Highway Commission Chairman Lauch Faircloth took a more personal approach, dismissing the Auditor’s findings by labeling him a “moss backed bastard.” (News & Observer, 10/15/92)

Yes, the French were right, at least when it comes to the Department of Transportation – it seems like the more things change, the more they remain the same.

Politics, Politics, Politics
News & Observer political columnist Rob Christensen relates a Lauch Faircloth story where the former U.S. Senator recounts a time during his Highway Commissioner days when he and other Commissioners were riding in the wheelhouse of a state ferry named for Faircloth. A tourist yelled, “Hey, fella, how do you get up there?” to which Faircloth hollered back, “Well, you start by managing Kerr Scott's campaign in 1948.”

That bit of folklore explains the influence of political fundraising on transportation policy in North Carolina. Despite repeated promises by governors since Kerr Scott, little has actually changed.

Budget
The Department of Transportation is a $3.9 billion, 14,640-employee agency charged with highway construction and maintenance, ferry operations, airport and passenger rail services, motor vehicles licensing and transit. Its revenue is generated from gas taxes, car registrations & sales taxes and a partial return of gas taxes sent to the Federal Government. State tax collections amount to $3 billion while federally collected taxes make up the remaining $900 million. Highway construction and maintenance, the DOT’s supposed primary mission, account for $2.8 billion of its expenditures. Transit, airports and rail consume $155 million, ferries another $31 million and $172 million is transferred to the General Fund since the inception of the Highway Trust Fund in 1993. An additional $264 million is siphoned into other state agencies for things like drivers’ education and environmental programs.

Board of Transportation
Despite recurring fits of pseudo reform, seats on the Department of Transportation Board, which is charged with directing the building of roads, remain choice political patronage. A 1998 law required that DOT Board members disclose campaign money they raised in the two prior years for any candidate for statewide or legislative office or for political party executives. Despite this new disclosure requirement, Gov. Mike Easley received $200,000 in campaign contributions from his first nineteen appointees to the Board, demonstrating the failure of the new law to put a halt to the political nature of the appointments.

But Governor Easley had also found a loophole in the law. When the governor entered office, he directed his legal counsel, Hampton Dellinger, to ask the office of the Attorney General, which Easley had just vacated, to rule on the definition of fundraising. The Attorney General concluded that the term referred to the actual acceptance of money – i.e. collecting cash in your hand. Using this definition, two Easley appointees organized fundraisers which netted $175,000 for the governor while avoiding public disclosure. (News & Observer, 2/12/08). Others have since voluntarily admitted their fundraising activities, at the same time unwittingly demonstrating that the 1998 reform was little more than a joke.

Moneymen Talk
While DOT Secretary Tippett admits delivering bundles of checks to Easley’s campaign, he says he didn’t peek to see who sent them. But Tippett apparently sees no conflict of interest in serving as the campaign treasurer for Sen. Tony Rand.

Some seats aren’t just about the money. Getting on the board also appears to be related to who you know. One Easley appointee told the News & Observer that he got the job after talking to R. V. Owens, a moneyman for his uncle Marc Basnight, the Senate President Pro-Tempore, and Easley.

And Sometimes Talk Too Much
One of the biggest DOT scandals of recent times was sparked in 1997 when Columbus County contractor James Cartrette asked Governor Hunt to return $30,000 because he had been denied a board seat that had been promised him by Hunt’s Finance Chair Jim Bennett and DOT Secretary Garland Garrett. According to the News & Observer, Cartrette said he received a follow-up call from Garrett, who told him, “If you follow through on the commitment made to Jim Bennett, you'll have a seat at the table.” (9/26/97). Despite Cartrette’s son delivering the promised checks to Garrett’s office at DOT, the appointment was never made and Cartrette asked for his money back.

The imbroglio unleashed a wave of scandal that consumed three Hunt fundraisers. Board member Carroll Edwards resigned after the press revealed he directed DOT to pave a road leading to his business and spent $39,000 on drainage work on property owned by Senator Aaron Plyler. Real estate developer Odell Williamson fell on his sword after pushing road projects benefiting developments owned by him and his family. Charlie Grady was ousted, indicted, convicted and sentenced to community service in a deal where his company was slated to make $45,000 on a land sale to DOT. Williamson was also indicted, but his indictment was later dismissed when a judge ruled that dementia made him incompetent to stand trial.

Board member Peter Pappas, another Hunt cash man, was identified after pushing for highway projects that would directly benefit his firm’s real estate holdings. Pappas also intervened to override the objections of DOT engineers to access roads sought by a client of Senator Fountain Odom’s law firm (News & Observer 12/20/97). But don’t count him out – Pappas is now contributing to the 2008 gubernatorial campaign of Beverly Perdue.

Governor Hunt sternly warned DOT officials “We have high ethical standards - and I will insist that they be honored.” (News & Observer 11/7/97). But later, Hunt himself was caught ordering DOT to fast track bridge construction in Wilson County near his farm so commutes could be shortened (News & Observer 1/10/98). The Governor turned to a Nixonian phrase from the past – “Mistakes have been made,” he said.

Former DOT Secretary Garland Garrett eventually went to prison in the FBI’s video poker probe.

The improprieties did not end with the end of Jim Hunt’s term. In 2004, Easley DOT Board appointee Frank Johnson was forced to resign after an email surfaced where he solicited funds for Easley’s campaign saying the funds were needed if he was to retain his seat on the board and his county could continue to benefit. Governor Easley and other Board members denied the accusations that transportation improvements were tied to fundraising.

In September 2008, right in the middle of the campaign season, the News & Observer reported that Louis Sewell of Onslow County, a former Easley fundraiser who the governor appointed to the DOT Board just after the 2000 election, apparently worked to steer $375,000 of state transportation money toward road improvements near property owned by himself or his son. The N&O found no mention of the clear conflicts-of-interest in the minutes of the DOT meetings where the projects were approved.

It was only after the disclosure by the N&O that Tippett, stung by the continuous revelations of corruption within his department, finally turned the matter over to the State Board of Ethics.

Sewell’s problem extended to the campaign of Lt. Governor Beverly Perdue during her bid for the gubernatorial top spot in 2008. Records show that Sewell and his family members contributed $37,500 to Perdue from 2003 to 2008. On the eve of a fundraiser for Perdue at his home in Jacksonville, Sewell cancelled the event after Perdue failed to confirm her attendance, and he resigned from the DOT Board.

Dumping Ground
Political patronage at the DOT has not been partisan. A 1992 state audit by Democrat Ed Renfrew accused the administration of Republican Governor Jim Martin of using DOT’s ferry division as dumping ground for political hacks. Martin officials called it a witch-hunt, but nobody could deny that Governor Martin’s four top fundraisers all served on the DOT board.

But if it was true under Martin, it’s also true for others. Eddie Thomas, a Greene County DOT employee and fundraiser for both governors Hunt and Easley, reportedly traded state jobs for campaign cash as late as 2004, after which he hastily retired.

Slushy
The slushy isn’t a just a drink sold at your local 7-11. It is also the funds the Board of Transportation and its Secretary ladle out to their friends from DOT’s discretionary, or aptly named “slush” fund. Money has been handed out of DOT’s budget for NASCAR owner Richard Childress’ winery ($400,000) and $75,000 for a private rail crossing for Long Beverage after an executive gave $1,000 to Governor Easley’s campaign (News & Observer 1/22/02, 9/11/03). In 2004, an auto salvage company received $250,000 from the slush fund after manager Michael Hockett was convicted of extortion for trying to set up and photograph a Virginia city official with an exotic dancer (News & Observer 6/29/04). NC State Board of Elections records show Kelli Hockett with the same company gave Mike Easley $1,000 three weeks later.

Any attempts at reform have been routinely quashed. In 2005, former Rep. John Rhodes tried to offer an amendment to eliminate a DOT slush fund. Then co-Speaker of the House Richard Morgan thwarted his efforts by using a procedural tactic. “So that we might not spend a great deal of time on an amendment that's not worth hearing,” ruled Morgan, “I'd like to move that this amendment do lie upon the table.” He then drummed up the votes to effectively kill any further discussion. It’s no coincidence that the $15 million slush fund in question contained $5 million that was at Morgan’s own disposal.

Effectiveness
While no one could dispute DOT’s effectiveness as a political fundraising machine, its effectiveness as a transportation agency is highly questionable. UNC-Charlotte Professor David Hartgen notes that our highways ranked eighth in the country in the 1980s but now rank a miserable 36th. While we experience the fourth worst traffic in America, Hartgen reports “Basically the priorities are not where they need to be.

Suicide and eBay
Another strange tale from the graveyard of DOT hits involves the ill fated Corolla ferry project, which was investigated in depth by the Carolina Journal.

Originally funded with $800,000 tacked onto a highway borrowing bill in 2003 by Senate President pro-tem Marc Basnight of Dare County, the ferry was purportedly authorized for the purpose of shortening commuting time between the outer banks and the mainland for schoolchildren. When it was later revealed that only one child might have actually used the ferry, many began to wonder if its real purpose was to transport hospitality workers living on the mainland to their wealthy outer banks employers more quickly.

But it wasn’t enough to just purchase a ferry no one would ride.

Upon discovering that the boat the DOT purchased had a boat too deep for the channel, DOT dredged the channel to allow the ferry to pass, bypassing the proper federal environmental permits - thus making the dredging illegal. Though no one has yet to claim responsibility for authorizing the dredging, DOT’s ferry chief was convicted of lying to the feds about the project. The whole debacle resulted in the convictions of three DOT employees various federal charges. And who was stuck with the bill for environmental fines and restoring the channel to its former pristine state? Why, North Carolina taxpayers, of course.

In an apparently related incident, a ferry department whistleblower on the project was found dead, hands tied behind his back and a bag over his head. The death was ruled a suicide by the Dare County coroner. In the end, the DOT tried to unload the boat on online auction Website eBay, but received no acceptable bids – thereby wasting another $1 million of the taxpayers’ money. This story isn’t over.

Mismanagement
The political corruption and rampant cronyism demonstrates the massive mismanagement and an astonishing lack of oversight in the state’s Department of Transportation throughout its history. Who can forget the highway bid rigging scandal of 1980-81 when federal indictments rocked the construction industry? In fact, the Greensboro Daily News carried a story quoting a contractor stating that Hunt had known about the corruption – something the then-governor denied. Politically-driven slush funds within the DOT remain prevalent. State contracts are overpriced and sloppy. And in 2008, taxpayers spent $20 million to repave parts of I-40 after pavement that was supposed to last thirty years cracked following a few months of use because of DOT’s defective design and oversight of the contractor (a similar incident also happened on the newly constructed I-795 highway linking Goldsboro and Wilson). In yet another glaring case, a recent audit discovered that based on a tip, Warren County DOT workers were told to allow a contractor to overbill for equipment rentals, confirmed $25,000 in overcharges which will be borne by the taxpayers of North Carolina.

These are just a few of the scandals known to the public. Countless others have likely gone unreported to the taxpayers of North Carolina.  In 2007, state taxpayers forked over $3.6 million to a private consultant to review the operations of the DOT. After a year of prodding, the report, which disclosed countless instances of waste and mismanagement at the department, was released in August of 2008. Now it’s up to the legislature to take action.

Summary
In a scathing letter denouncing DOT scandals during Governor Hunt’s administration, Columbus County prosecutor Rex Gore noted, “I've heard it referred to as ‘playing the game’. If we want to restore public confidence in the political system, we must stop ‘playing the game’ and change the rules. Most folks believe that the man who greases the wheel gets the smoothest ride through the political system. The appearance that seats can be bought on the DOT or any other board must be brought to an end.” (Charlotte Observer 10/26/97)

That was 10 years ago. We’re still waiting.

Updated September 25, 2008