In a joint session Monday night between the Paris City Council and the Paris Economic Development Corporation, Mayor Matt Frierson called the meeting to order at 5:00 p.m. at the City Council Chamber.
With the only agenda item being to discuss and receive a report from PEDC on the competed forensic investigation, and take possible action, PEDC Chair Steve Grubbs began, “Tonight we’re here to discuss publicly the forensic investigation that was conducted by Defenbaugh and Associates. Our goal is transparency and truthfulness and to receive the facts, and to deal with them and move forward in a positive and proactive manner. With that said I would like to review the timeline of events that has brought us to this place and time. On March 10, 2014, the City Council requested that the PEDC make a forensic audit of operations following the receipt of an anonymous letter by then mayor Dr. A.J. Hashmi. The letter questioned specifically the value of the loan security or the appraised tax value or both of a certain transaction involving the PEDC and Harrison, Walker, and Harper. Additionally the letter indicates that there appeared to be a conflict of interest for then mayor, Will Baird, to have participated in the negotiation of the incentive agreement with HWH. That was the basis of the letter. On April 2, 2014, the PEDC elected to use Defenbaugh and Associates to complete the forensic investiagation at a cost estimated to be $50,000. We signed a 90 day agreement that began on April 3, 2014 and continued through July 3, 2014. Under the agreement Mr. Defenbaugh was to provide weekly oral status reports and a montly written report to PEDC. For the record, this never occurred. PEDC Board Rebecca Clifford denied having received any reports from Mr. Defenbaugh at the PEDC board meeting May 6. She again denied having received any written reports at the June 13th joint meeting of the City Council and the PEDC. On July 25, 2014, preliminary reports were received from Mr. Defenbaugh. On August 5, 2014, the PEDC board met in executive session to discuss personnel issues that were noted in the Defenbaugh report. Mr. Defenbaugh was in attendance. It was then that we were told that the report that we had received was in fact not his final report. On August 11th, the final report was delivered to the PEDC office by Mr. Defenbaugh. On August 15th, the final report was made available to the public via public records requests. On September 15, 2014, today, we are here to talk about what is contained in that report. I’ve asked an attorney representing the PEDC to come tonight to walk us through the more relevant aspects as it pertains to Texas law.”
PEDC Attorney Jeff Moore began with a Type A Sales Tax presentation. In his presentation, Attorney Moore outlined the Texas statute concerning State oversight. He noted, “A lot of the report is about lack of policies and procedures. What I would add is that the State law has already addressed that for you. The Type A sales tax is what you have, it’s a dedicated sales tax. It can only be spent for dedicated reasons. Those reasons are set out in the State statute. There’s an oversight process where the board has to approve expenditures. The City Council has to approve expenditures. You have to have written agreements. So State law has already addressed a number of the concerns. Part of the report talks about lack of policies and procedures and I would suggest you’ve already got them. It’s in State statute.”
Attorney Moore then addressed criminal penalties in the statute, “A number of years ago, back in 2001, a number of EDC’s were wanting to see criminal penalties put into the statute. They’d seen some misuses of the Type A and Type B sales tax and so there was a push for criminal penalties. At the time a Chairman named Jim Solis, down in the valley, a member of the house economic development committee, had seen some training put on by the Attorney General’s office and the State Comptroller’s office. What he authored was a bill that would require training on the use of the sales tax versus any sort of penalties. At the time, I was at the Attorney General’s office, I was charged with coming up with the training seminars, working with the Texas Department of Economic Development, to formulate the training seminars that were going to be used around the state. I’m still doing the training today. One of the concerns that cities would have is oversight. What I can stress is that it’s a local issue. Sales tax is a local issue. Voters can vote it in. Voters can vote it out. It’s not for the Comptroller’s office to investigate. It’s not for the Attorney General’s office to investigate. If there’s some criminal wrongdoing the District Attorney’s office will investigate, but by and large, the sales tax is a local issue. The Attorney General’s office can, if you hire a third party to do business recruitment and you don’t have a written contract for that business recruitment effort, the Attorney General’s office can go after the EDC for failure to have a contract. That’s a civil penalty. A fine can be up to $10,000. There’s no criminal penalty. The Attorney General’s office has never had to pursue any violations under that section. It’s a relatively new section.”
Attorney Moore went on to say that the central issue of the PEDC is whether or not the City Council has to Approve Expenditures for Permissible Type A and Type B projects. He answered yes, that it does have to approve expenditures. His presentation outlined that the Type A or Type B corporation has the power to expend the sales tax revenue, yet the City Council retains authority to approve all programs and expenditures of a corporation. His presentation further outlined that the City Council’s oversight includes the authority to approve promotional expenditures as well. He said that the city may not enter into a contract on the development corporation’s behalf and that State law leaves determination on expenditures to Board of Directors.
Then addressing the investigatory report directly Attorney Moore pointed to a suggestion by the report that, “the report should be appropriately destroyed when the information is no longer needed.” Moore suggested that that not be done as the PEDC and City are subject to the Public Information Act and records retention policies.
Attorney Moore pointed out other specific areas of concern in the report and addressed each one in his presentation and concluded with recommendations that were echoed throughout his address to the joint session. He suggested written performance agreements consistent with section 501.158 of Texas Local Government Code, adding that where possible, the PEDC should enter into performance agreements on a reimbursement basis. He recommended that all expenditures by approved by the PEDC board as well as the City Council. He recommended amending the bylaws or adopting policies that address travel policies and per diem charges. He lastly recommended the segregation of promotional expenditures, PEDC is limited to 10% annual revenue for promotional purposes.
With regard to the question of criminal conduct, Attorney Moore pointed to the investigatory report’s statement that there, “appears to be possible, or the possibility of fraud, waste, or abuse….account balance is short $8.00.” Moore commented that, “There could always be better accounting but that’s not fraud. Fraud is intent to deceive.”
At the conclusion of Attorney Moore’s presentation, Council Members Lancaster and Hashmi both opened discussion with the question of what recourse there is for lost monies and properties. Attorney Moore replied, “What State law has provided over the years, there have been a number of court cases that deal with expenditures, and setting aside a standing issue of, saying a taxpayer wanted to bring suit, what courts have done or said is that you don’t make them repay the impermissible expenditure, it’s moving forward you prohibit, a court could prohibit future impermissible expenditures. That’s the remedy. Moving forward with written contracts. You don’t repay the past. It’s moving forward. You can stop the future expenditures.”
After much discussion and debate about the possibilities of legal recourse, PEDC board member John Brockman made a motion that the PEDC recommend to the City Council that no further action be made on the Defenbaugh report. PEDC board member Don Wilson seconded. Mr. Grubb voted for the motion while board member David Turner and board member Rebecca Clifford voted against the motion. The motion passed 3-2.
The joint meeting adjourned at 7:30 p.m.