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Paris Economic Development Corp. has operated for years with “a complete lack of fiscal oversight,” PEDC board President Rebecca Clifford told the City Council on Monday.
After researching state law, financial information, PEDC bylaws and minutes, Clifford said it appears PEDC has spent a great deal on things that appear to have nothing to do with industrial economic development.
“I also discovered that the PEDC is no longer focusing on its stated goals of economic development through the encouragement and promotion of primary jobs,” she said during her 22-minute presentation. “Clearly, this was not because any board members intended to do anything wrong. It simply seems that as the focus of PEDC went off course, no one wanted to rock the boat.”
Using data available from the Texas comptroller, Clifford said she compared Paris with cities PEDC Director Steve Gilbert has identified as peers: Brownwood, Denison, Greenville, Marshall, Mount Pleasant, Sherman and Sulphur Springs.
“In fiscal year 2012, PEDC spent more than any of these peers for personnel, administration and marketing in both absolute dollar amount as well as percentage of income,” she said. “PEDC spent approximately $900,000, or 74 percent, of our current year’s income on these categories. No other city in our peer group spent more than 27 percent.”
Councilman Matt Frierson asked if any of PEDC’s annual audits had found any problems.
“An audit does not determine bad business judgment,” Clifford said. “Do you think spending 74 percent of our budget on overhead is OK?”
Frierson responded: “Bad business judgment is kind of an opinion. if other boards have approved the budget, I say that calling the other board members irresponsible is kind of out of line.”
The councilman said he had a couple more questions, but Clifford said she had no more comment – which she said would be the same at Tuesday’s planned PEDC board meeting.
“You have to have a reasonable discussion with a reasonable person, and I cannot have a reasonable discussion with you,” she said.
After the meeting, Frierson said he wanted to know how the other cities Clifford compared PEDC’s spending to matched up in terms of successes.
A large part of the problem is PEDC’s promotion expenditures, Clifford said. State law caps a Type A corporation’s promotion budget at 10 percent of income — $120,000 for PEDC. She calculated PEDC has spent 15 percent of its budget already with two months left in the year. Nothing can be done about it this year, but strict controls are needed to make sure it doesn’t happen again, she said. A start is to rethink advertising, Clifford said.
“Rather than spending thousands of dollars on local media advertising, we should invest in updating and improving our website,” she said. “Our website is our portal to reach potential new businesses from across the state and the nation.”
PEDC also needs to streamline its budgeting to more accurately track expenses, she said. She said the current system, which includes categories such as rural innovation initiatives, global recruiting and entrepreneurial resources, is full of “gibberish.” A better system, she said, would be to use categories such as travel, entertainment, conferences, advertising and legal fees.
The board president said she has found many “inappropriate payments” that should have been paid by other organizations. These include legal fees provided to the city, county, Red River Region Business Incubator and others; and $5,750 for the keynote speaker at the Chamber of Commerce’s annual banquet.
“’Because we have done it that way in the past,’ or ‘we have to fund it because no one else has the money’ should never be the primary justification for the expenditure of taxpayers’ money,” she said. “The voters have told us how this money must be spent, and we should and must honor their wishes.”
Clifford said other issues include the fact that the director can spend up to $7,500 at a time without board approval and has self-discretion for travel and entertainment expenses.
Gilbert was not at the meeting and declined to comment afterward.
PEDC needs to “institute proper business and accounting practices,” she said. She has appointed a subcommittee of the board to look at the organization’s policies and procedures.
“After serious consideration, the board will be making major changes to PEDC,” she said. “Only the most fiscally irresponsible person could possibly condone spending 74 percent of our revenue on operating expenses.”
The “Team Paris” concept is a good one, Clifford said, since it makes sense to have people who live and do business in Paris market the town to those who might want to move their businesses here. She said PEDC should offer to pay for “reasonable expenses” of those who volunteer, and the board will look to draft policies that define what reasonable expenses might be and how to recruit volunteers.
Much of the controversy started when Clifford started looking at the PEDC’s funding of the incubator. When she asked for whatever contract PEDC had with R3bi, Clifford was given the original memorandum of understanding that was drafted between PEDC, the incubator and PJC. The agreement was never executed.
“I was shocked to discover that PEDC has been simply gifting taxpayer money without a contract. The law specifically prohibits any gifting of taxpayer money without a contract,” she said. “I was even more appalled that I had been led to believe that I had been given an executed contract.”
In the last two years, PEDC budgeted $234,450 for R3bi. In that same time period, Clifford said, the economic development corporation has paid more than $365,000 to the incubator. She did not say what the extra money had gone toward.
“I have previously stated that the funding arrangement was inappropriate,” she said. “Upon further consideration, I now believe that it was clearly illegal. The deception involved in the attempt to cover up this activity was incomprehensible, and it will not be tolerated.”
R3bi board President Sydney Young disagreed, saying that PEDC was not the incubator’s sole source of funding and what money the economic development corporation did give was used to help clients that fit within the requirements for a Type A corporation.
“I’ve also looked at it in detail. I’m familiar with what R3bi does. I think we were serving PEDC’s function,” she said. “The good news is Paris citizens will continue to get the wonderful benefit of an incubator. I appreciate the city and PJC seeing us through.”
The city council finalized its agreement with R3bi to fund $30,000 to help the incubator unwind itself and fold into the junior college.
Several council members expressed disappointment when the PEDC board decided not to pursue an attorney general’s opinion about the legality of funding R3bi. Clifford said it wasn’t needed because PEDC was not funding the incubator anymore, which became even more of a moot point now that Paris Junior College is folding the incubator into its programs.
More important, she said, was that an opinion published online would make Paris look bad to the state and nation. She said PEDC’s funding of R3bi was clearly not in compliance with state law because the incubator clients did not fit a Type A corporation’s requirements and there was no contract or performance agreement between the organizations.
“I did not want to ask a question of the attorney general that could be answered by simply reading the law,” she said. “I did not want to advertise our poor business practices across the state and nation through a permanently published online opinion.”
By Jeff Parish, eParisExtra