Investigators question Edenton-Chowan payments to lobbyist

By Connie Sage

Correspondent

EDENTON, N.C.

The Edenton-Chowan Development Corp. paid nearly $260,000 over four years to a Raleigh lobbyist, reportedly without the authorization of the ECDC board.

Former Chowan County Manager Cliff Copeland signed a contract with Capstrat Inc. to lobby for federal funds after Hurricane Isabel, according to records. The company was paid $259,493 from May 2004 to March 2008.

The ECDC is the equivalent of an industrial development authority. Its executive director also heads up the local Chamber of Commerce.

Several ECDC board members said last week they either were unfamiliar with Capstrat or thought its services were being funded solely by the county.

Copeland said Friday that money for Capstrat was in the ECDC budget, which is jointly funded by the town and county. Because Chowan County acts as the ECDC's fiscal agent, he said, he had the authority to sign the contract.

Edenton Mayor Roland Vaughan, Town Manager Anne-Marie Knighton and the county's Board of Commissioners knew that the lobbyist was being hired, he said. "It was not a unilateral decision by me."

"This was not just a county deal - we were hiring on the advice of Sen. (Elizabeth) Dole - it was a group decision and has reaped untold benefits for the county," Copeland said.

The county last month was asked by state auditor's office investigators for all records pertaining to Capstrat, according to County Manager Peter Rascoe.

He said a search of county files turned up only one document, a Feb. 6, 2006, ECDC contract signed by Copeland.

"This was the first time I have ever seen this contract, and it did not have a certification indicating it had been pre-audited by the county finance officer," Rascoe said.

The Office of the State Auditor, with the help of the State Bureau of Investigation's Financial Crimes Unit, is in the third month of a preliminary inquiry into the county's budget crisis.

The state's Local Government Commission in July told the county it was in violation of state law because the county's revenue estimates for the current fiscal year had been overstated by $4 million, and an investigation ensued.

The ECDC is a non profit whose board members include the mayor and a councilman, the town and county managers, two county commissioners, two citizens and Richard Bunch, ECDC's executive director.

County Finance Officer Lisa Jones said she maintained the ECDC's books, handled its budget and wrote checks as directed by Copeland, including those to Capstrat.

According to the 2006 contract, Capstrat was to provide the ECDC with advice on strategy and new initiatives, initiate efforts to find federal funding and accompany ECDC representatives to Washington "as needed to support initiatives."

"I don't think anybody on the board knew about it," Knighton said.

"All I knew, the county was paying for it," said Knighton, who said she didn't know ECDC was being charged. "Cliff said he'd take care of it. The county could have been paying for it out of the water fund for all I know."

"She certainly knew it was coming out of the ECDC budget, because we talked about it several times," Copeland said. "Anne-Marie's probably thinking she didn't specifically put in a town appropriation for Capstrat; neither did we. We had an appropriation for ECDC like we have an appropriation for the Chamber, the Arts Council and the library."

Copeland said that after the hurricane, he discussed Capstrat with Knighton, Vaughan and the late Wayne Goodwin, who was chairman of the County's Board of

Commissioners.

"It's technically not on the county's balance sheet - we're the fiscal agents," Copeland said. "I told the county's finance committee that we'd be increasing our appropriation to help finance Capstrat."

Copeland also said he's "pretty sure" he told the full Board of Commissioners.

ECDC board clerk Susanne Stallings said there was no mention of Capstrat in the minutes of that board as of 2004. And as clerk to the county Board of Commissioners, she checked its minutes as of 2003 and also found nothing referring to the lobbyist.

Bunch, who wears a dual hat as director of both the Chamber of Commerce and the ECDC, said he didn't know about Capstrat until last week when outgoing ECDC board member Bill Gardner raised questions.

Gardner, a county commissioner who was defeated in the spring primary, said he heard about Capstrat during the campaign and asked

Copeland about it.

"He touted the lobbyist's success," Gardner said, "but during the fiscal crisis I began to have doubts."

Gardner told fellow ECDC board members last week there was a perception that "smoke and mirrors" were involved in the Capstrat deal and that he wanted to find out who authorized the money, why it was spent and whether it was a good investment.

Jones said she and Bunch discussed Capstrat about a year ago but neither knew what it was. Bunch was responsible for signing annual federal tax returns for ECDC, she said, but those returns listed Capstrat expenses only as "consultation fees."

Jones said each year Bunch submitted an ECDC budget to her based on town and county appropriations and expected expenditures. The bulk of that money went to the Chamber of Commerce for his salary and overhead costs. Once that money was spent, Jones said,

Copeland asked her to write checks from county funds, in essence as loans to ECDC; Copeland on Friday concurred.

According to the county's 2007 audit, the ECDC owed the county $242,279, a running balance that has been on the books since 1999 when the county began serving as ECDC's fiscal agent, Jones said.

While Knighton, Copeland and Bunch could authorize ECDC expenditures, Jones said, "Cliff was the ultimate authority - everything filtered through him."

Knighton said she and Copeland were introduced to Capstrat through Frank Hill, Dole's former chief of staff. Hill later worked for Capstrat.

"Our primary function was to secure federal loans and appropriations to rebuild the emergency communications center that was damaged during the hurricane," said David Chapman, Capstrat's senior vice president for technology and economic development.

He said Capstrat helped the county secure $10 million in federal money for its new law enforcement center and $1.5 million for an instrument landing system at the regional airport.

Copeland said ECDC had returns on its Capstrat investment of "probably $20 (million) to $21 million."