On Tuesday, Jan. 25, county commissioners decided to postpone meeting with EDC officials until after the audit has been finished. Jackson County Commissioners will meet at 6 p.m., Monday, Jan. 31 at the Justice Center room A201 to discuss the status of the airport authority. EDC officials will hold a meeting at 7 p.m. on the same day at Sylva's Town Hall.

Those involved:
Economic Development Commission
Sylva: Brenda Oliver, John Faulk
Dillsboro: Jean Hartbarger
Webster: Jay Coward
Forest Hills: Irene Hooper
SCC: Gene Couch
WCU: Tom McClure
County: Marty Jones, Frank Wilkey, Chuck Hall

Jackson Development Commission
Jay Coward, Scott Connor, Boyd Sossomon, Jr., Tom McClure, Tamara Crisp

Revolving Loan Fund Committee
Tom McClure, Vicki Greene, Rick Kirkpatrick, Tamara Crisp

Jackson County government’s relationship with the local Economic Development Commission has fractured amid questions about who is in charge of an economic development loan fund.

Jackson County commissioners have called for payment of more than $1.2 million in loans issued to six local industries, suspended their participation in the EDC, launched an investigation of the commission’s financial records and seized documents after questions arose about the EDC’s expenditures.

EDC officials have responded by demanding their records be returned and have called for a joint meeting with commissioners to address the situation.

Two weeks ago county commissioners held several hours of closed-door deliberations over a two-day period. Afterward the board made a five-part motion that called for an internal investigation and audit of the EDC and EDC office and the removal of Tom McClure — the EDC Chairman, chairman of the county’s revolving loan committee and chairman of the Jackson Airport Authority — from all county committees and appointments.

The motion aimed to bring all EDC activities under the responsibility of county commissioners, an unprecedented move given the historical autonomy of the EDC, which is a joint venture by the county and local towns but under no one’s jurisdiction. Also, the motion specified that the Jackson Development Corporation — a nonprofit closely tied to the EDC that can buy and sell property — is in no way associated with Jackson County government.

In addition, commissioners called in more than $300,000 in loans issued to textile manufacturer QC Apparel through the revolving loan committee and all other delinquent loans with the threat of foreclosure should the loans go unpaid.

The motion, made by commissioner’s chairman Stacy Buchanan and seconded by Commissioner Joe Cowan, passed unanimously, setting in motion a whirlwind of police-led records seizures, closed sessions, emergency meetings and hand-delivered lists of demands.

Private Gestapo

After the motion was passed, two uniformed sheriff’s deputies were sent to McClure’s Western Carolina University office to bring back all records pertaining to the Economic Development Commission. McClure is the director of the Office of Regional Affairs at Western.

“We were still having a meeting and I wanted them secured and brought back,” Buchanan said. “I didn’t want a confrontation.”

The deputies handed McClure — whose position as EDC chairman is unpaid — a letter from Buchanan stating that he was “hereby requested” to turn over all EDC records in his possession.

“Had he refused, (the deputies) were instructed to come on back,” Buchanan said.

McClure, reading the letter and police presence another way, handed over EDC checkbooks and bank statements.

“Frankly I shouldn’t have given them the records, but I was so shocked and stunned,” McClure said.

The handover — made without a warrant or a judge’s signature or anything signifying it was a legally mandated transaction — thereby became voluntary.

With records in hand, the deputies returned to the county’s Justice and Administration Center. Local audit firm Dixon Hughes was called in and the next day two senior auditors began poring over the records, as well as EDC budgets, Jackson Development Corporation property buying transactions and payments to the county’s revolving loan fund.

The following Tuesday (Jan. 18) commissioners again went into a nearly hour-long closed session only to recess and reconvene the next day. Commissioners reportedly opened the meeting at 4 p.m., however reporters from the Smoky Mountain News and Sylva Herald, as well as Sylva Mayor Brenda Oliver and Dillsboro Mayor Jean Hartbarger — both members of the EDC — were not privy to the motion as doors to the commissioners’ board room were locked.

After another hour-long closed session, during which commissioners met with Dixon Hughes auditor Mitchell Crisp, Buchanan re-opened the meeting to report that based on preliminary audit reports it appeared that no county employee was guilty of malfeasance.

The only county employees having anything to do directly with the Economic Development Commission are Tamara Crisp — the Economic Development Coordinator who works solely with the EDC but is paid by the county — and Darlene Fox — the county’s finance officer who receives all payments made to the revolving loan fund. McClure is not a county employee.

And according to open meetings laws, the only reason a public body such as the county commissioners may enter into closed session with regards to hearing the audit report itself is to “hear reports concerning investigations of alleged criminal misconduct.”

When asked if the reasoning behind the audit was a suspicion of malfeasance on the behalf of a non-county employee, Buchanan said, “We wouldn’t comment on that anyway.”

The day after commissioners heard the preliminary audit report, the EDC met in emergency session (Jan. 20) and commission member Jay Coward motioned that the group “demand the return of all documents and records” seized by commissioners. Coward’s motion said that the county acted “in the spirit of Constitutional violation of rights.” The six members in attendance — McClure, Coward, SCC’s Gene Couch, Dillsboro Mayor Jean Hartbarger, Forest Hills Mayor Irene Hooper and Sylva Mayor Brenda Oliver —passed the motion unanimously.

The EDC also unanimously passed a motion for McClure to hand deliver a letter written to Buchanan demanding the records back and inviting commissioners to a joint meeting to discuss EDC-county relations. The meeting would be held Monday, Jan. 31, board members said.

McClure at first seemed hesitant to deliver the letter, repeatedly asking his fellow commission members if it had to be done in person — yes, they insisted.

“I’ll do it, I’m the chair,” McClure said.

The meeting, retooled to fit commissioners’ schedules, has been set for 6 p.m., Tuesday, Feb. 1, at the Jackson County Justice and Administration Center.

In the beginning

The launch of the investigation into the EDC came about through the back door.

The secretary of state notified Jackson County’s attorney, Paul Holt, that Triple S Partnership was beginning foreclosure proceedings against the Jackson Development Corporation.

The JDC bought the Tuckasegee Mills property — approximately seven acres located between the Jackson Community Center and Scotts Creek — from Triple S for $800,000 on July 18, 2002. The purchase was funded by a $568,000 loan from the EDC to the JDC, plus a $250,000 mortgage to Triple S. The mortgage has yet to be paid in full.

“That got us looking into the whole situation,” Buchanan said.

QC, which employs about 40 workers and manufactures textile goods such as pillowcases and bed-in-a-bag materials, moved into the Tuckasegee Mills property in 2002 carrying seven years worth of loan baggage.

Originally issued $60,000 from the county’s revolving loan fund in May 1995, QC failed to make payments. The loan was renegotiated from a 9-percent to an 8.25-percent rate, assumed by another company in 1996 and then reassumed by QC in 1998. The company’s balance stood at nearly $53,000, which was upped by an additional loan of $20,000.

In 1999 and again in 2001 the loan was renegotiated, and payments were made bringing the balance back down to almost $60,000. Then in October 2002, QC was issued another $300,000 at 7 percent, a recommendation McClure made to commissioners as head of the revolving loan committee. A condition of the loan was that QC use a $25,000 grant from the EDC to hire a financial consultant.

The $300,000 was to be used to finance a business expansion, which at the time QC owner Clemmey Queen said would help keep his business competitive and allow him to hire approximately 100 additional employees over the course of the next year and a half. As security for the loan, Queen put up his house and all of QC’s business assets.

Queen’s assets dwindled as he lost money on bad business deals, so in mid-2004, McClure introduced Queen to one of his Western Carolina University colleagues — Frank Lockwood, assistant professor of entrepreneurship.

“The last time that McClure had come before us and briefed us about the companies, he told us that QC had turned the corner, that they’d brought somebody on board with strategic planning to improve their cash flow,” Buchanan said.

Lockwood recommended a commercial practice using collateralized lines of credit based on accounts receivable.

Under this arrangement, the Jackson Development Corporation would loan QC the cost of an invoice, giving the company cash to pay off its loans to the county. QC would send 3-percent of the invoice cost to the county. When QC shipped customers’ goods and received payment, Queen would write a check paying back the JDC for invoice loan, plus interest. The arrangement, executed 17 times since June, allowed the company to make regular payments.

However, Buchanan is wary of the practice.

“You’ve got money going in circles,” Buchanan said.

Another plan devised to infuse money into QC was one again using McClure’s Western Carolina University contacts. A Raleigh-based inventor agreed to partner with QC to manufacture specialty clothing-vents for his temperature-controlled suits like those worn by team mascots or Disney-characters. The agreement would provide work, jobs and a lab setting for university students, as the inventor also would serve as an adjunct professor. That deal is now in jeopardy.

To date, QC has been chipping away, but failed to pay back the loans — which now total $331,000.

Money Matters

At the center of the EDC audit is the county’s revolving loan fund. Originally established in 1982 with a $750,000 Community Development Block Grant issued to Jackson County government, the fund created a pot of money that could be loaned out to assist local businesses.

Revolving loans are considered high risk as they are most often issued to start-ups or struggling businesses as a means of injecting capital. Monies may be slow to be paid back or lost altogether, as in the case of the 1993 loan to Hensley-Dean sign company.

That $25,000 loan accrued interest for eight years and eventually totaled $31,000. In 2001, commissioners, at McClure’s recommendation, agreed to take a hit and reduce the amount owed to $15,000. Two months later the loan was paid off.

Today, six known loans including those made to QC carry a total outstanding balance of just more than $1.2 million.

Three loans totaling $768,000 were issued to three different companies — Clearwood Inc., Southern Lumber and Fraternal Composite Specialties. The county has received a total of $133,000 in payments.

A $14,000 loan to the now defunct recycling business Country Collections has accrued slightly more than $500 in interest since it was issued in May of 2001.

And a $250,000 loan was just issued to Metrostat Communications in November.

Buchanan said that commissioners were not deceived about the true status of the loans.

“We’ve never been told that there’s not any delinquent loans,” he said.

However, he said that he feared for the future of the revolving loan fund.

“A lot of the negotiations going on between the EDC and the companies to restructure the loans, to take on lines of credit, factoring, these all are things that jeopardize the revolving loan fund,” Buchanan said.

Auditor Mitchell Crisp said that actions taken in regards to the revolving loans appear, at least initially, to be in order.

“The activities that we’re seeing here are not at all unusual,” he said.

Loans from the fund require approval from county commissioners. First, the county’s revolving loan committee — McClure; Vicki Greene of the Southwestern Commission Region A; Rick Kirkpatrick, manager of Sylva’s Wachovia branch; and Tamara Crisp, though McClure was unable to definitively say if Crisp was a voting member or a staff member — reviews loan applications and makes recommendations to county commissioners. Loans are issued from a county account and payments made back to the county through the finance office.

Historically, county finance officer Darlene Fox has written letters to notify loan recipients they are behind on their payments. Crisp has visited these companies.

However, from the EDC/county commissioner fallout has arisen a dispute over who was supposed to be monitoring the loans. McClure says he told county officials it is their responsibility, that the loan committee has no authority itself and that the EDC has no authority over the committee. All loan records are under Fox’s care, McClure said.

“Never had any revolving loan committee records,” McClure said, referring to himself.

County Manager Ken Westmoreland says that monitoring of the loans was delegated to the EDC through the creation of Crisp’s position in a memorandum of agreement dated March 18, 2003.

The agreement states that the county “will transfer and assign the present Planning and Development Coordinator (Crisp) to full-time economic development activities with the title Economic Development Coordinator.” The agreement also states that Crisp “will report to the County Manager but will be assigned to support EDC activities exclusively.”

No part of the agreement specifically addresses the revolving loan fund or the revolving loan committee.

By the power vested in me

Technically speaking, county commissioners do not have the authority to do about half the things they passed a motion to do.

Commissioners can suspend their participation in the EDC, which they have done.

The EDC in its current form was created in December 1999. The 10-member commission is (or was) comprised of representatives of the county commissioners, towns of Dillsboro, Sylva, Forest Hills and Webster, as well as Southwestern Community College and Western Carolina University. County commissioners got three appointments, Sylva two, and the remaining entities one each.

Each member is elected to serve a one-year term and may serve a total of three consecutive terms.

The EDC is the only county board/committee/commission that does not have a county commissioner as a liaison, Buchanan said. However, commissioners have been free to use a commissioner as one of their three appointments.

Commissioners cannot, however, remove McClure from his position as EDC chairman.

Both WCU and SCC’s representatives are “permanent,” voting, ex-officio members, either being the chancellor or president or his appointed representative, according to EDC bylaws. If anyone were to remove McClure from the EDC, it would have to be WCU Chancellor John Bardo. The only way McClure could be stripped of his chairman’s title would be for EDC members themselves — who select one of their own members to be chairman — not to re-elect him.

McClure has said that according to the Institute of Government, at the University of North Carolina at Chapel Hill, a person appointed for a specific term cannot be removed from office without proof of malfeasance. However, David Lawrence, a William R. Kenan Professor of Public Law and Government at the institute, said that there is no general statute regarding removal of an appointment.

Commissioners can remove McClure from the revolving loan committee.

It is a county committee not directly affiliated with the EDC and there is no language tying revolving loan committee membership to the commission, Westmoreland said.

Commissioners can call in their loans in accordance with each applicant’s terms of agreement.

However, commissioners admittedly are in the grey about whether they have the legal right to audit the EDC’s or the Jackson Development Corporation’s books.

EDC bylaws require that the commission be audited but do not stipulate when or how often.

“To our knowledge the EDC has not been audited,” Buchanan said.

The county’s existence as the largest contributor to the EDC — each of the EDC’s member governmental entities contribute amounts generally based on their per capita income — essentially gives commissioners the power to exert control over the commission when the expenditure of taxpayer money is called into question, Buchanan said.

“The general public sees the EDC, the revolving loan fund and the JDC as county government, as their county’s local tax dollars,” Buchanan said.

Since Buchanan became county commissioner chairman, county dollars have been placed in a contingency fund earmarked for use by the EDC rather than given directly to the EDC. The move was made to have some say in how county funds were being used, Buchanan said. Before allocations from the fund were made, commissioners would have to approve the project.

McClure has called the county’s move to fund via a contingency account non-participatory. During the EDC meeting held last Thursday (Jan. 20) he brushed off the draws from the account.

“We may have accessed a little bit of that,” McClure said.

In the 2003-04 budget year commissioners budgeted $100,000 to go to the EDC, but spent just slightly more than $83,000.

For 2004-05 commissioners again budgeted $100,000, and received an additional grant for $12,000. So far $33,333 has been spent.

In comparison, Sylva contributed slightly more than $8,000 for 2003-04 and again this year.

The county’s total EDC contributions from 1993 to 2003 total almost $1.4 million.

Now what?

County commissioners have called for the EDC to be brought in-house and under county control.

“I know we don’t control the EDC,” Buchanan said. “We need to.”

Buchanan recommended restructuring the group, and making sure there is a county department to oversee at least the revolving loan fund.

Auditors expect to complete their work in another week to two weeks – a task that has yet to be assigned a final price tag, but Westmoreland has quoted at the rate of $80 to $90 per hour for each auditor.