NC Rural Economic Development Center: Hangers On?
Updated January 26, 2009
In 1993, Governor Jim Hunt advocated the creation of a high-speed computer network that his administration claimed would change the economic balance among the states by linking schools, hospitals and other public institutions in a statewide video conferencing network. This "information highway" project was led by one of his operatives, Jane Patterson. Warning that boosters didn't understand the technology involved, a consultant hired by the State House of Representatives predicted the failure of the plan in 1995. (News & Observer 7/8/95).
Five years later, after the State Auditor reported that the proposal would cost $1 billion instead of the promised $30 million, Hunt was forced to drastically downscale the plan.
If an employee of a private business authorized the expenditure of millions on a computer system that flopped, they’d get fired. Not so in state government. Today, Patterson draws $148,000 as a director in charge of wiring the state to the internet for the North Carolina Rural Economic Development Center, a taxpayer-funded non-profit. As the saying goes, failure is only rewarded on Wall Street and in government.
Mission
According to the NCREDC, its mission is “to develop, promote, and implement sound economic strategies to improve the quality of life of rural North Carolinians.” The NCREDC states that it has a special focus on low to moderate income families and communities with limited resources in the state’s 85 rural counties.
History
According to former News & Observer reporter Ferrel Guillory, the North Carolina Rural Economic Development Center (NCREDC) was created in 1987 to give then-Democrat Lieutenant Governor Bob Jordan an economic platform during the administration of Republican Governor Jim Martin (News & Observer 10/22/93). The recommendation for the formation of the group came from a 1986 legislative commission on jobs & economic growth.
Since that time, the organization has served essentially as a quasi-division of the Department of Commerce with a focus on rural economies. It boasts a number of accomplishments since its inception. However, because of the public-private nature of the group, the NCREDC has also managed to get itself mired in a number of questionable activities over the years.
Subprime Before Subprime Was Cool
Before Countrywide and Fannie Mae turned subprime loans into an art, the NCREDC was pushing banks to lower lending standards, dangling promises of taxpayer subsidies to bail out losses.
The News & Observer wrote that “[Billy Ray] Hall, president of [the NCREDC], launched a program to induce the state's banks to relax their standards for lending money to rural entrepreneurs.” The center earmarked about $1.7 million in state and federal revenue in a special fund to provide money “to help banks hedge the risk of making such loans.” But Hall promised that when those funds were exhausted, "We'll approach foundations and the government and get more money." (News & Observer 9/17/94)
How much of the program eventually metastasized into subprime slime is hard to say. But the 2007 NCREDC IRS balance sheet notes $2.3 million in doubtful accounts, possibly from loans made by the Center.
Caught In Frank Ballance’s Web
Former NC state senator and US Rep. Frank Ballance’s Smart Start and housing group, the Warren Family Institute, received $117,000 from the NCREDC over the last three years of reporting, despite the Warren County organization’s involvement in the Frank Ballance scandal.
According to the Carolina Journal, “In March 2005 Ballance sent $1,000 to the Warren Family Institute, an organization that had also cooperated with Ballance in the movement of public funds. According to the federal charges, Ballance secured a $75,000 state grant for the institute and then directed the organization to forward $58,500 of it to his non-profit Hyman Foundation.”
Though the financial reports posted on the NCREDC website lack detail, since 2002, the Center has enjoyed revenues of well over $300 million (including $78 million from state taxpayers for the 2008-09 fiscal year). And clearly, their funding is overwhelmingly public, with $20 million collected from government in 2004 and barely half a million from private foundations.
Programs
Since its inception, the NCREDC has continued to diversify its program areas, now addressing everything from entrepreneurial start-up funding to community activist training to infrastructure and economic development. But first and foremost, it needs funding to pursue these programs.
Budget/Lobbying
The NCREDC lists seven “Rural Policy Initiatives” to which it devotes its resources, including economic stimulus, “Water 2030,” dislocated workers, entrepreneurship, small towns, building reuse, and health insurance.
Though Billy Ray Hall, the NCREDC president, bragged about not hiring lobbyists in 2004 (News & Observer 6/28/04), the group is actively engaged in the legislative process, spending $57,000 on federal lobbying last year using the Washington-based Ferguson Group. For the 2009 session of the NC General Assembly, the NCREDC has four registered lobbyists in North Carolina, all NCREDC staff members. The majority of lobbying appears to be devoted to securing increased funding for the Center.
Business Funding
The NCREDC makes funding available to businesses through two programs, the Microenterprise Loan Program, which provides loans, business planning, and technical assistance to businesses; and the Rural Venture Fund, which provides equity funds and a subordinated debt program. Both programs are designed to assist businesses in economically distressed counties.
Grantmaking
The NCREDC makes grants for rural infrastructure, economic development, and other community services. The money can go to local governments or private businesses and non-profit organizations, making the NCREDC a nonprofit vehicle for passing taxpayer money to other non-profits via grants. According to the News & Observer, “The Center has become another source of state funds for some nonprofits. The legislature gives the Center about $1 million a year to be spent on minority-run nonprofits that are interested in pushing commercial or housing development in distressed areas.”
The center has, for instance, given grants totaling $75,000 over the past two years to the nonprofit One Dozen Who Care, a group in Western North Carolina which Hall describes as “a minority community development corporation.” The grants were for the purpose of developing a youth mentoring project and building “organizational capacity." (News & Observer, 6/28/04). But during the fiscal year 2006-07, when One Dozen Who Care received $22,000 from the NCREDC, the minority ODWC organization’s IRS reporting indicated that they spent $101,000 on compensation to staff and advisors, placing the group $117,000 into the hole ($52,000 of their income came from government, $4000 from private donations, $6000 from rent).
The NCREDC, which is supposed to focus on economic development in rural areas, also makes grants to cities such as Winston-Salem and Asheville, many for programs that appear to have little to do with economic growth. But an enormous number of grants go to small communities for infrastructure and other development needs.
Other “Capacity Building Programs” offered by the NCREDC include leadership training for community activists, an Agricultural Advancement Consortium, and the Institute for Rural Entrepreneurship, which includes a number of programs designed to advance enterprise development.
Research & Information
The NCREDC maintains databases of demographic and economic information about North Carolina cities and towns, a rural resource guide, and other publications for entrepreneurs and economic developers. Newsletters about the Center’s activities are available to subscribers at the NCREDC home page.
Staff & Governance
More valuable than the governor? Billy Ray Hall, who began working in state government in the 1970s, was the NCREDC’s founding President and sole employee in 1987. Today, he oversees a staff of fifty and commands a compensation package totaling $233,000 annually - nearly $100,000 more than the governor. In fact, according to their most recent IRS filing, four of the Center’s employees, including Jane Patterson, make more than Governor Beverly Perdue.
Although it’s funded, in large part, by North Carolina state taxpayers, the NCREDC operates outside government. However, it is run by a 50-member Board of Directors, many of whom are selected by government officials. Nine board members are appointed by politicians (Governor, House Speaker and Senate President Pro-Tempore appoint three each) and the Board selects its other members.
A 12-member executive committee wields oversight over the organization. Philosophically, as one might expect from a vehicle created primarily by Democratic Governors and legislative leaders, they tend to lean to the left, making contributions large and small to Democrats in federal races (according to the Center for Responsive Politics, no executive committee member has backed a Republican).
Potential Conflicts
Interestingly, Billy Ray Hall, as a Golden Leaf Foundation board member, helped steer millions to a biotech fund managed by John Crumpler, a major Easley donor who was also an aide to Lieutenant Governor Jordan, the NCREDC’s godfather.
Executive Committee member Andy Anderson is President of Community Innovations, a Whiteville mental and disabled health care company with a record of Medicaid fraud (BNA Health Settlements 1999). He is also on the board of the Columbus County Dream Center, a drug abuse group that received over $60,000 in the last three years from the NCREDC.
Democrats have used the Wilson County Opportunities Industrialization Center, a job-training program which has received over $300,000 from the NCREDC, to produce campaign mailings. One North Carolina House member who benefited from these activities is Joe Tolson, a former NCREDC board member. (News & Observer 6/28/04)
Summary
The NCREDC says that “During the booming economy of the late 1990’s as well as the recession and structural change of 2000-2003, one thing has remained constant: rural unemployment has been significantly higher than urban unemployment.” The Center seems to make the claim that through its programs, that dynamic can be changed, but throughout history, rural areas have always suffered the most. And much of the NCREDC revenues go to urban areas.
All of this leads to the question of whether all of this extra spending is actually working to improve North Carolina’s rural economy. The recipients of the NCREDC’s largesse might say that it does, but others may question whether we need a whole additional bureaucracy funded by taxpayers (but not technically part of government), whose bureaucrats make more than the Governor, to provide programs that if valuable, should be funded directly through federal, state & local governments or from private interests.
While many of the programs funded by the NCREDC may be worthwhile projects, the pass-through of the funds from taxpayers to the legislature to the NCREDC to North Carolina’s communities seems unnecessary, since needed infrastructure improvements can be funded directly by those local governments or, where funds exceed availability, approved by the legislature – bypassing the extra cost (and lack of oversight) afforded by the NCREDC grantmaking process.
