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Fifty-one duplicate invoices. At least $20,000 in excess payments. And one nonprofit receiving a disproportionate amount of taxpayer dollars to broker stream restoration deals for private landowners in western North Carolina.
The Resource Institute, based in Winston-Salem, was a subject of a months long investigation by the General Assembly’s Program Evaluation Division (PED) into a project known as the Western Stream Restoration Initiative.
The Department of Environmental Quality and the Clean Water Management Trust Fund, which administer grants to the Resource Institute, were also scrutinized in the inquiry.
The PED announced its findings earlier this week:
- State funding for these projects is duplicative.
- There is a lack of monitoring on the performance of the grants.
- The grant awards are imprecisely calculated, increasing the risk that the state could pay too much for projects.
The Western Stream Restoration Initiative, a voluntary program, is part of a federal-state partnership, known as EQIP, the Environmental Quality Incentives Program. The streams portion focuses on 31 western counties in North Carolina where waterways have degraded because of farming practices, flooding or other factors. With federal and state grant funding, contractors restore stream banks, for example, to prevent erosion that deposits silt into the water.
Landowners pay nothing, or very little, to participate in the stream restoration program.
While this is a windfall for the landowners — and the contractors and go-betweens that funnel the money — the program is ripe for abuse. The U.S. Department of Agriculture, DEQ and the Clean Water Management Trust Fund — plus local soil and water conservation districts, private landowners, and in most cases, the Resource Institute — handle the money in a system that is “excessively opaque, tangled and complex,” said Jim Horne, PED principal program evaluator.
In the middle of this bureaucratic morass is the politically connected nonprofit, the Resource Institute. Its role is to administer the grants and hire contractors and subcontractors for the restoration projects. In some instances, the group applies for the grants on behalf of landowners and soil and water conservation districts.
It’s uncertain whether the lack of transparency is intentional — Horne was quick to add there is no evidence of fraud. However, the Resource Institute has benefited from a system that only it seems to have mastered — and whose creation it lobbied for.
A litany of errors
Beneath the veneer of civility lay an undertone of contempt at this week’s meeting of the PED committee — a forum in which lawmakers receive all findings of the Program Evaluation Division.
Michael “Squeak” Smith, chairman of the Resource Institute board of directors, acknowledged to lawmakers on the PED committee that the nonprofit was overpaid by $20,000. He also said that it had submitted 51 duplicate invoices for two projects to DEQ and the Clean Water Management Trust Fund.
But Smith blamed DEQ for the error. He said DEQ had delayed payments to the group while the agency underwent a 16-month internal review of the program, starting in 2015, requiring him to go elsewhere for the funds.
DEQ owed the Resource Institute $1 million, Smith said. He had to pay contractors, so he went to the Clean Water Management Trust Fund and explained why he was requesting the money.
The Trust Fund has been a long-time benefactor of the Resource Institute, awarding it $2.5 million in regional grants since 2013 — and more than $10 million in the past 15 years. These amounts are in addition to DEQ grant funds.
“If reimbursements had been made, there would have been no duplication,” Smith said.
That’s not true, said Linda Culpepper, director of DEQ’s Division of Water Resources. The Resource Institute never told DEQ that it had already asked for — and received — money from the Trust Fund. “We disagree with Mr. Smith’s assessment,” she told the committee.
Walter Clark, executive director of the Trust Fund also disputed Smith’s account. Until the PED investigation, Clark said, grant contracts with the Resource Institute indicated the only other funding source for the projects in question was the federal government.
“We were aware” that DEQ also provided EQIP funds, Clark said, “but we understood it to be on separate projects.”
As recently as last month, the Resource Institute supplied application material showing it received only federal funding, not DEQ money for projects, Clark said.
Had Clean Water Management Trust Fund officials known of the undisclosed money, the Resource Institute would have received a lower score for the projects, and in turn, fewer dollars. The money could have gone to other worthy initiatives, of which there are more than funding can accommodate.
DEQ did halt all grant payments to the Resource Institute for 16 months while the agency conducted an internal review of its EQIP program. The review, which lasted from November 2015 into early 2017, was prompted by the retirement of grant administrator Jeff Bruton. His successor, Darren England, reportedly suggested that the agency examine the program; England retired in late 2017.
DEQ’s internal review identified seven issues, including risks of conflicts of interest, awarding of grants without contracts, grant increases without authorization and a lack of clarity about who was supposed to receive the money. Those issues, Culpepper told lawmakers, were resolved by December 2017, with new tracking and verification systems in place. The agency also recouped $35,000 from a canceled project.
A review of emails between the agency and Resource Institute from 2016 to 2018, obtained under the Public Records Act, show no evidence of malfeasance, but do confirm the Resource Institute was trying to get the money it was owed while DEQ’s internal review was ongoing.
The emails also reveal the immense complexity of the program. There was constant confusion about contracts, signatures, approvals, invoices, billing, checks and conflict of interest statements.
The confusion contributed to errors on both sides: Three stream restoration projects in Ashe, Cherokee and Yadkin counties were paid $12,000 less than the total invoices requested. For another project in Jackson County, a Resource Institute contractor overbilled DEQ nearly $10,000. The error was caught by the new grant administrator Amin Davis, and the money was not disbursed.
Path to power
It’s difficult to trace how the EQIP system came to be so labyrinthine. But it is possible to trace the origins of EQIP’s Western Stream Restoration Initiatives program: The Resource Institute.
Two-thousand, thirteen was a pivotal year, not only for the Resource Institute, but for the state of North Carolina. Republicans had gained full control of both legislative chambers two years before. Voters had just elected a new governor, Republican Pat McCrory, who made several controversial appointments, among them conservative businessman John Skvarla — who theorized oil could be a form of renewable energy — as DEQ Secretary. In turn, Skvarla appointed former lawmaker Mitch Gillespie as his assistant.
That year, Resource Institute officials petitioned the U.S. Department of Agriculture’s Natural Resources Conservation Service to add the Western Streams Restoration Initiative to the EQIP program, which was first enacted by Congress in the 1996 Farm Bill, and has been reauthorized every year since.
Traditionally, EQIP applicants vie for federal money in a competitive process, and if they receive it, can then petition for state matching funds. EQIP also pays for technical assistance to farmers who establish conservation practices on their cropland, pastures or industrialized livestock operations.
In 2013, the new stream restoration program, though, was new.
With the USDA’s support, the Resource Institute approached state officials with a proposal to provide matching funds. Although the PED report doesn’t name the officials, multiple sources within DEQ say that Gillespie, the former lawmaker from Marion in western North Carolina and then-assistant secretary of the environment, was one.
Reached by phone, Gillespie would not comment on his involvement with the Resource Institute or the Western Streams Restoration Initiative.
“I’m retired,” said Gillespie, who is a member of the Environmental Management Commission. “You’ll have to talk to someone else and let them figure it out.”
State lawmakers subsequently appropriated $1.5 million in the 2013-14 budget for the Western Stream Restoration Initiative. (In the budget, the appropriation is listed as NRCS-EQIP.) The money was to be administered by DEQ — then known as DENR.
Each year since, state lawmakers have appropriated money to DEQ to award grants for the stream initiative, a total of $8.5 million, according to the PED.
But the money is not being spread around: Ninety-six percent of the funding — $8.16 million — has been awarded to the Resource Institute. Of the 67 grants for stream restoration, the Resource Institute has received 65 of them. Until 2016, the group was the sole grant applicant.
Meanwhile, the Clean Water Management Trust Fund has continued to award grants to the Resource Institute — another $2.55 million from 2013 through the present. Another nonprofit, Pilot View RC&D — which shares some board members with the Resource Institute — has received an additional $2 million over the same time period.
Against the backdrop of this new pot of money, the Resource Institute’s fortunes also began to change. According to federal tax documents, the group reported $846,000 in revenue in 2013. The following year, after the stream restoration program started in North Carolina, Resource Institute reported revenues of $3.4 million, an increase of 309 percent, according to tax documents.
Since 2015, the group has reported revenues ranging from $4.5 million to $5.2 million annually. (It did not net report any net assets in 2014 and 2015.)
The Resource Institute received another legal boost in 2017. Previously, applicants for stream restoration funds were the local soil and water conservation districts, intervening on behalf of an individual landowner or farmer. Soil and water conservation districts are a unit of county government; their boards are a mix of elected and appointed officials.
DEQ sent the checks to the districts, which then could disburse the funds to the Resource Institute, for example. From there, Resource Institute could take its commission, and pay its contractors for the work. (Clean Water Management Trust Fund monies are awarded directly to the Resource Institute.)
But in 2017, the state budget changed how this money would be distributed. Now the Resource Institute, and any non-governmental body, can also apply for the funds, not just the conservation districts. And in that case, DEQ pays the Resource Institute directly, as long as there is a signed agreement from the conservation district.
The provision was not included in the various versions of the state budget. But on Oct. 4, 2017, the change was inserted into legislation that included “technical corrections” to that year’s budget bill. Lawmakers ratified the technical corrections bill the next day.
Duplication of services
Two other systemic changes occurred in the early years of the Western Streams Restoration program in North Carolina. In 2013, lawmakers reduced the number of Clean Water Management Trust Fund board members from 21 to 9. (Gov. Pat McCrory also appointed former Apex Town Councilman Bryan Gossage as executive director of the Trust Fund, but he had little to do with the stream restoration program.)
And in 2015, the General Assembly moved the fund out of the Department of Environmental Quality and into the Department of Natural and Cultural Resources, along with the state zoo, aquariums and parks.
As a result, two grant programs conducting similar work were and remain split between two agencies that often don’t know what the other is doing.
The Trust Fund monies target projects in areas where streams are designated as impaired or are considered “high-resource,” such as trout waters. But of 25 projects funded by DEQ in 2014-2015, 13 of them also received Trust Fund dollars. For one of those projects, Dotson Branch in Haywood County, Resource Institute filed 39 identical invoices to each agency.
The Clean Water Management Trust Fund has also been unaware of the Resource Institute’s projects until after the fact, according to the PED report. Regional grants are not site-specific. There were instances, the PED report says, that the Trust Fund didn’t know exactly who was benefiting from the grant until after the funding had been approved for the Resource Institute.
Walter Clark of the Trust Fund says these regional agreements allow several parcels to be lumped into one project, and thus are cheaper. Only seven (or roughly three percent) of the Trust Fund’s 177 active projects are regional agreements. Of the seven, three have been awarded to the Resource Institute, Clark said.
Trust Fund staff now require that contracts for regional projects identify the sites before money is spent. The Trust Fund also has implemented an “interagency claim review,” requiring the submission of copies of invoices submitted to other state agencies. (The Resource Institute has also received federal and state agricultural funding to do engineering assessments for agricultural ponds damaged during last year’s hurricanes.)
Investigators and auditors could learn more about the funding practices and their beneficiaries if a proposed bill becomes law. As a result of the PED findings, a bill is being drafted that would direct the State Auditor to formally review state funds for Western Stream Initiative Projects, including those allocated to the Resource Institute.
The bill would also require the grant administrator for those projects to improve their management and oversight. And finally, the entire stream initiative program could be consolidated under either the Clean Water Management Trust Fund or DEQ — but it would no longer be split.
Sen. Brent Jackson, a Republican representing parts of Duplin, Sampson and Johnston counties, is on the PED legislative committee. He criticized the program as making taxpayer money “free to landowners.”
“Everybody needs skin in the game,” Jackson said.
The state dollars, replied Sean Hamel of the PED, “remove the skin in the game for the landowners.”
In fact, documents obtained under the Public Records Act show that after state and federal funds had paid for the restoration of a stream on a western North Carolina dairy farm, its banks had been damaged.
The cows had breached the fence and returned to the stream.
Read more: the Resource Institute also received big bucks in the state budget
Policy Watch investigated the Resource Institute’s activities last summer, after the group received $5 million in the state budget to conduct a beach nourishment study along the coast. When lawmakers later narrowed the scope of the work to Topsail Island in Pender County, the amount of money did not shrink accordingly.
Although not by name, the group received another $1 million in the state budget to restore a portion of Payne Branch Creek in Watauga County.
The General Assembly made the budget appropriations within 18 months of several top lawmakers receiving more than $100,000 in campaign contributions from Resource Institute officials, as well as the group’s subcontractors.