Auditor: Rural Center earned $20 million off state funds

Posted August 19, 2013 4:16 p.m. EDT
Updated August 21, 2013 10:40 a.m. EDT

— While investigating grants and executive pay at the embattled North Carolina Rural Economic Development Center, state leaders discovered a loophole that allowed the nonprofit to earn $20 million in interest on state money. 

While the state can keep track of how nonprofits spend tax dollars, once the money is invested, the state loses that control, Auditor Beth Wood said Monday.

"That is a gaping hole for the state," Wood said.

Now, lawmakers are considering a change to state policy that would retain control over the interest nonprofits earn with state dollars. While the scrutiny is focused on the Rural Center, the move could impact all state-funded entities.

Lawmakers eliminated the Rural Center's state funding last month. Facing criticism for his high salary, longtime President Billy Ray Hall resigned, and board Chairwoman Valeria Lee stepped down under pressure two weeks later. 

Even with all the changes at the organization, it still doesn't appear that the state has any legal right to that $20 million in interest.

"The state was completely short-sighted in the management of the distributing to these agencies. We've done a bad job," said Rep. Marvin Lucas, D-Cumberland. 

Rep. Julia Howard, R-Davie, agreed.

"Those are taxpayers' dollars," she said. "We need to be able to capture those dollars."

Lawmakers said they plan to take up the funding policy change next legislative session. They may pattern it after a federal law that maintains control over interest.

"(The) bottom line is we need to monitor where this money is going and keep control of it," said Sen. Neal Hunt, R-Wake.

In the meantime, the state Department of Commerce is taking over all of the Rural Center’s grants. It will be up the center's board, however, to decide what to do with the remaining earned interest.