Editor’s note: This is part one of an in-depth examination of the challenges facing the North Carolina Technological Development Authority.

NCTDA: The facts:www.localtechwire.com/article.cfm?u=2243&k=17&I=04 David Emmett sits in his office at the North Carolina Technological Development Authority with the bemused look of someone who has just seen a tornado level his house while leaving his patio furniture unscathed.

That is just what has happened to Emmett, the president of the TDA, and his agency over the past year: A tornado of criticism unleashed by a scathing state audit has wiped out much of the TDA’s livelihood and jeopardizes its future.

But much like the devastated homeowner, Emmett and TDA officials are trying to rebuild and start anew. In light of the audit findings, they have revamped the organization’s policies and personnel and are narrowing its focus in order to survive.

This fall, for the first time since it was spun out of the state Department of Commerce 11 years ago, the TDA was left out of the final state budget. The omission amounts to about a 50 percent cut in the agency’s annual revenue, Emmett says, and has forced the TDA to lay off two-fifths of its staff and terminate all outside consultants in order to slash expenses.

Still, TDA officials are projecting a $1 million deficit by the end of next June, even after making the cuts and draining the agency’s reserves. That leaves the agency with two options: obtain a new revenue source or close up shop.

“We have engineered ourselves a little over a year of life at the current operating rate,” Emmett says. “So that gives us a runway to go out and either renew our funding from the state or find another financial partner.”

Officials will target foundations that support entrepreneurship as well as federal sources like the National Science Foundation and the U.S. Department of Agriculture for money to support technology startups and rural economic development if the state balks at further funding.

Even if the TDA comes up with the money, there’s no guarantee that the agency will have a business to run. State lawmakers will soon form a study committee to examine how the TDA’s network of 23 small-business incubators should be run and who should run it, says Rep. Bill Owens, an Elizabeth City Democrat who chairs the House Appropriations Committee’s subcommittee that oversees TDA’s funding.

“I’m willing to give them a fair hearing, but some people (in the General Assembly) have already written them off,” Owens says.

Political ramifications

An anonymous tip to a telephone hotline run by the North Carolina Auditor’s Office in the summer of 2001 set off the chain of events that has put the TDA in its current predicament.

After TDA officials initially deflected the allegation of the tip – the caller maintained that the agency had taken actions without board approval – state auditors decided to comb through the organization’s financial records and began finding a number of questionable expenditures.

The audit outlined expensive dinners for members of TDA’s board and staff, a $12,000 trip to Hawaii for an economic development convention, more than $500,000 spent on lobbying over a two-year period, an employee’s relative receiving $50 an hour to do odd jobs and compensation for Emmett and other employees that officials characterized as excessive.

During the course of the audit, the TDA’s board of directors took steps to answer the most critical findings:

  • The agency’s chief financial officer was asked to resign for being too lax on expense controls.
  • Policies on travel and entertainment were rewritten.
  • The longtime lobbyist who ran up the huge bills was cut loose.

But by the time the audit was released last December, Gov. Mike Easley had ordered that TDA’s state funds be frozen. The agency had drawn down only about a third of the $1.8 million annual appropriation at that point and had to tap its reserves to make up much of the resulting shortfall.

Easley’s ire also helped lock the TDA out of the current state budget. Although the agency has never been given an appropriation in past state budget proposals and has had to lobby every year for funding, this year marked the first time a governor publicly came out against state support of the TDA.

TDA supporters are still rankled by the treatment they received from many quarters, including the administration and the media.

Former TDA board member Walter Daniels says State Auditor Ralph Campbell was “reckless” in releasing the audit without any acknowledgement of the changes made by the TDA to correct the problems and in pursuing a criminal investigation of the matter. (Law enforcement officials eventually cleared the TDA of any wrongdoing.)

“The focus being on the price of a dinner versus what the organization has accomplished was, to me, and exercise taken out of context,” Daniels says, noting the TDA has expended much time, effort and money to expand the amount of early investment capital available to startups statewide.

“This was an organization that was fighting too hard for something that is important to the future of the state,” he says. “In retrospect, it appears some of the expenses were inappropriate … (but) it’s not inappropriate for the organization to have a presence before the General Assembly.”

More changes made

Emmett refers to the audit only as “an interesting process,” and appears more disappointed by what he calls the unbalanced coverage the issue received in the media. Every new story revealed more details of over-the-top spending while the TDA’s achievements got scant notice, he says.

TDA officials estimate that the agency has transformed $19 million in state funding over the past decade into more than 1,700 jobs and $900 million in economic growth across North Carolina by continually reinvesting money earned off the incubators and its investments in technology startups in other new companies.

“We’ve got to be more open to criticism. The other side of the coin is that people weave in a lot of personal opinion, and many times it’s uninformed as to what we really do here,” he says.

TDA Chairman John McConnell and Emmett both say the TDA deserved some of the criticism from the audit and should have done a better job of touting its successes – and, now, its improvements – to provide a more balanced picture of the agency.

Following the audit, the agency has continued to make adjustments to regain favor with state officials and the public. It has opened its financial records for review, has agreed to give the state a cut of all future returns on venture investments and has expanded its board of directors to include former state Treasurer Harlan Boyles and representatives appointed by Easley, the House speaker and the Senate president pro tem. The last three positions haven’t been filled yet.

Boyles, an icon to fiscal conservatives, says he joined the board at the request of former Gov. Jim Martin, who also is a TDA director. He says he wants to use his influence to mend fences in Raleigh and his experience to help it chart a new course.

“Technology is one of the strong points for the state in the future,” he says. “We can’t ignore the fact that (the TDA has) got to re-earn their wings first.”

Wait-and-see approach

Toward that end, he already has met with lawmakers and business officials on behalf of the agency. He says talks have been cordial, “but when the conversation is over, they always take the stance of, ‘Let’s see how it goes.’ “

A wait-and-see attitude is prevalent across government.

No one from the governor’s office has met with TDA officials since early this year, and officials there haven’t changed their stance against further state funding until they are convinced the proper changes have been made, says Cari Boyce, Easley’s communications director.

Commerce Department spokesman Tad Bogg addss: “When the General Assembly adjourns, Secretary (Jim) Fain plans to take a closer look at the part that TDA might play in this overall (economic development) strategy. He believes that TDA has taken the state auditor’s recommendations to heart and is showing due diligence in answering those concerns.”

Dennis Patterson of the state Auditor’s Office says follow-up inspections usually aren’t performed on audits prompted by anonymous tips, but officials there aren’t convinced enough accountability has been built into TDA’s board yet.

TDA supporters, on the other hand, say they done everything asked of them and would like to get a second chance while they still have time to take advantage of it.

“At this point in time, I don’t see what else the TDA can do to improve its standing in public opinion,” McConnell says. “We’re still working the political side of the issue and hope the legislature continues to see the value of the services we have provided and will continue to provide to the state.”

Tuesday: NCTDA’s role in state’s tech development