The Charlotte Observer

Editorial -- April 17, 2006

Out of control

New N.C. audit singes NE economic development practices

When the N.C. legislature set up economic development partnerships in the 1990s to boost seven regions of the state, it did not intend to create financial empires allowing employees to profit from projects they helped bring to fruition.

But the legislature failed to impose strict accountability measures on the partnerships. As State Auditor Les Merritt documents in a new audit, the Northeastern North Carolina Regional Economic Development Commission allowed its top officials to create a messy conflict of interests, doled out hefty bonuses to employees without sufficient documentation and failed to report accurately to the IRS what it paid several of its officers.

Auditor Merritt's report said the group's president, Rick Watson, created a conflict of interest when he agreed to go to work for an entertainment complex that his agency helped develop. Mr. Watson agreed in March to work for company owned by Dolly Parton's brother, which is building an entertainment center near Roanoke Rapids, as soon as he retires in June. The partnership did not ask the N.C. Attorney General's office whether that presented a conflict of interest. Mr. Merritt's staff concluded that it was in direct conflict with Mr. Watson's employment contract. Mr. Watson has since resigned from the commission, but he is being paid a year's base salary of $165,000.

The auditor also found that bonuses worth $572,000 were paid to partnership employees and several state employees at the Department of Commerce without documented criteria showing they deserved it. The audit also said the partnership did not disclose total compensation of key employees on its IRS Form 990, a financial report available to the public. It said the partnership under-reported Mr. Watson's compensation by about $235,000 over a three-year period.

These findings should make the General Assembly reconsider its grant of extensive authority and money to nonprofit partnerships. While other regional partnerships may conform to good operating principles in their stewardship of the public's money, there have been alarming stories for years about how the Northeastern Partnership has run its affairs. In 1994, the audit pointed out, the partnership's commission tried to sever its relationship with the N.C. Department of Commerce. The attorney general's office said the commission was "unquestionably an agency of North Carolina government" and had no authority to do that. It continued to receive state funding, but news organizations found it difficult to readily get copies of financial and other records.

Legislators created the regional economic development commissions and have appropriated much of the money they receive. Lawmakers should reexamine the extensive authority and money they gave these partnerships. Taxpayers need to know the agencies are managing their affairs responsibly -- and legally.