Posted on 03/13/2006 3:38:06 AM PST by prisoner6
By: Bob Bauder and Stephanie Waite - Times Staff
03/12/06
A three-month Times investigation revealed the Beaver Falls-based Beaver Initiative for Growth also has never been audited until this year, and has awarded lucrative contracts to campaign donors.
The operations of BIG, which Veon and LaValle created 14 years ago, run contrary to accepted standards for economic development organizations and nonprofits alike, according to officials in those fields.
In an arrangement one nonprofit observer described as "highly irregular," BIG's board of directors until recently had only two members: Veon and LaValle. BIG added two board members in February after news media began questioning its operations.
BIG's top employees said Veon, D-14, West Mayfield, who wields considerable power in the Legislature as Democratic whip, was directly responsible for leveraging the money, which amounted to about $10.6 million in state grants over the last seven years.
After a 2005 legislative pay raise put Veon under heavy criticism, BIG for the first time set aside big money for specific economic development projects.
No application process was involved; BIG employees said Veon alone simply chose which projects got money.
According to BIG employees and IRS documents obtained by The Times, BIG spent about $2.9 million from 1999 through 2005. About 69 percent of that - around $2 million - was used to pay BIG's own overhead. The remaining 31 percent - about $900,000 - has gone to pay consulting firms - one of which employs Veon's brother, Mark - and to buy property in Beaver Falls.
Over that same period, BIG obtained a total of $10.6 million in grants from the state Department of Community and Economic Development. About $7.6 million of the cash has been kept in reserve.
Financial documentation prior to 1999 is nonexistent. BIG employees claim to have no financial records predating 1999, and the group has not yet filed its income tax return for 2005.
"The idea that these guys (Veon and LaValle) have taken in that much money with no auditing and no oversight is just unbelievable," said Richard Parker, a public policy expert at Harvard University's John F. Kennedy School of Government. "It just smells like it's trouble."
BIG's supporters argue that county residents should be happy to have such a powerful Democrat as Veon in office, one that can deliver so many millions of dollars.
Veon and LaValle said BIG is vitally important to Beaver County because it brings together people from the public and private sectors to discuss, promote and agree on area economic development.
Veon said BIG has operated under an annual written budget, disputing what the director of finance, Cindy Vannoy, told The Times: "I haven't seen a budget for years."
Veon and LaValle said BIG has never been audited because, until the last few years, it operated on a shoestring budget. But individual grants have been audited, they said. BIG was being audited for 2004 and 2005 and the organization would likely be audited every year in the future, they said.
Veon and LaValle said they meet with staff and BIG's numerous partners, including local economic development agencies, county commissioners, elected municipal leaders and members of the business community to decide how the grant money should be spent.
But for an organization that is as important to the county's future as its supporters say, it hangs on a surprisingly tenuous thread.
If Veon is not re-elected, BIG officials said, the organization will probably die. Veon, who has served in the Legislature since 1985, is up for re-election this year.
The Times investigation also showed the following:
n BIG officials could not provide financial documents for the years prior to 1999. "There aren't any that I know of," Executive Director Tom Woodske said.
LaValle said BIG has always kept financial records and speculated they might have become misplaced due to a turnover in directors and staff. BIG has had three directors over the past 14 years.
"I'm sure there are records somewhere," LaValle, D-47, Rochester Township, said.
n Over the years, Veon and LaValle have received at least $84,000 in campaign contributions from people and firms that have either benefited from BIG services or have some connection to the organization.
By far, the largest contributors have been two consulting firms and a developer, which have contributed more than $45,000 into the Veon and LaValle election campaigns since 2000. BIG paid the two consulting firms a total of $574,263 for consulting work in 2004.
Veon and LaValle said campaign contributions have no influence over decisions they make pertaining to BIG.
n BIG publications, including quarterly newsletters and its Web site, contain numerous items and pictures, praising the work of Veon and LaValle. A typical item in BIG's February-March 2006 newsletter proclaimed that Beaver County had received $3.46 million in state grants "Brought to you by State Representative Mike Veon."
Veon and LaValle said their job is to promote Beaver County and they are proud of the work they have done for BIG and the county.
n BIG staff members, including Woodske, former financial officer Annamarie Peretta-Rosepink, and Mike Romigh, a former KDKA Radio talk show host, have worked simultaneously on Veon's legislative staff, drawing paychecks from both. Woodske hired his son, Dan, as BIG's marketing director.
LaValle said he viewed the overlap as "a positive." For example, he said, he has been working with a man who was encountering problems with state agencies in opening a business in Koppel. LaValle said he phoned Woodske to help out with the problems.
"I don't view that as something wrong," he said.
n The board's two new board directors - Dennis Rousseau, a local labor leader, and Ed Piroli, borough manager for Rochester - are politically linked to Veon and LaValle.
Veon said that each has much expertise in economic development issues in Beaver County and that all BIG board members have equal input in overseeing the organization. He and LaValle said they had intended to increase the number of board members for months, and that they would probably add board members in the future.
BIG money
BIG was created in 1992 by Veon and LaValle in an attempt to revitalize economically depressed Beaver County and replace thousands of jobs lost in the local steel industry during the 1980s.
For years, the organization operated on a shoestring, but that changed dramatically after 1999, when Veon was elected Democratic whip.
Simultaneously, BIG, which almost died for lack of funding, began receiving regular monetary infusions from the state.
BIG, which operated for years with a staff of one, has grown to six employees. In addition to the Woodskes and Romigh, BIG staffers include Vannoy, Paul O'Palka Jr. and Hillary Halsac.
The money came in the form of Department of Community and Economic Development grants, also known as "Walking Around Money," or WAM, cash awarded each year with very little oversight to legislators in the good graces of their party caucuses.
State officials said the Republican and Democratic caucuses have exclusive control over who gets WAM grants. A DCED official told The Times last year that legislators can pretty much spend the money however they like.
From 1999 to 2005, BIG received 20 grants worth about $10.6 million. The grants were awarded for such things as community revitalization, business assistance and tourist promotion.
According to DCED and BIG employees, 57 percent of the $10.6 million - about $6 million - was designated by BIG to pay administration costs, which includes salaries, benefits and equipment, office expenses, economic development studies, promotion of BIG programs and general operating costs.
The remaining 43 percent - about $4.5 million - has been earmarked for economic development projects. Part of that was also designated for administrative costs, according to DCED, but neither the state agency nor BIG could give the exact breakdown.
Most of the money - at least $7.4 million - was awarded to BIG in 2005, the year of a controversial legislative pay raise supported by Veon, who got a 34 percent raise before it was rescinded.
BIG officials announced the grants with great fanfare at the height of a public furor over the raises, much of it directed toward Veon. He not only helped write the pay raise legislation, but he was the only state representative to vote against a measure to overturn the raises.
Veon said the pay raise controversy had nothing to do with his motivation in getting the grant money for BIG. He also disputed that 57 percent of the $10.6 million in grant money will be used for administrative costs, but he could not provide The Times with an itemized breakdown during an interview Friday.
BIG has spent $2.9 million of the $10.6 million over the last seven years. The expenditures include $222,270 on the purchase of two properties in Beaver Falls. BIG bought the former Moltrup Steel plant and a former railroad freight station, most recently used as a truck terminal, for potential residential and recreational purposes. The two properties total about 14 acres. BIG has commissioned a study to decide exactly how to use the properties.
It has approximately $7.6 million in reserve.
Vannoy, BIG's financial officer, said the reserve money would be used for programs such as riverfront development in Rochester, the cleanup of blighted properties across Beaver County and a main-street beautification program in Beaver Falls. She said citizen committees chosen by BIG would oversee the projects, with BIG administering the money.
BIG's organizational bylaws permit the BIG board and staff to determine how that money should be spent, she added.
Joe Pano, executive director of the Pennsylvania Association of Nonprofit Organizations, said nonprofits should always strive to spend most of their money on programs.
"At least half should be a minimum goal of an organization," he said. "I personally would not contribute to a nonprofit that didn't meet those standards."
In addition, he said, it would be "irresponsible" for a nonprofit to operate without a budget. And, he said, it would be highly irregular for a nonprofit to have only two members on its board.
When asked about the contrast between overhead and projects, Vannoy said DCED would not have given an economic development agency $6 million for bricks-and-mortar projects. But it would be more likely to award that amount for program administration, she added.
"We're not designed to spend a significant part of our money on bricks-and-mortar," Veon said. "That would be a foolish way to spend our money because there are so many other state programs designed to spend money on bricks-and-mortar."
However, other economic development agencies spend far less on administrative costs.
n The Beaver County Corporation for Economic Development, a nonprofit agency governed by a 20-member board, spent about $17.3 million over the past seven years, according to a review of its financial reports. About $14.5 million of that - 84 percent - was used for economic development projects. The remaining 16 percent - $2.8 million - went to pay overhead.
In addition, CED has been audited annually since it began about 20 years ago and has always operated within an annual written budget, according to President James Palmer. Palmer said the CED board strives to spend most money each year on projects.
n The Washington County Council on Economic Development, which BIG employees said they look to as a model, spent about $2.1 million from 2002 through 2004, the only dates for which financial information was readily available. Of that, the council spent $360,000 - 17 percent - on administrative costs, according to Executive Director Malcolm L. Morgan. The remaining 83 percent - about $1.7 million - was spent on programs, he said.
The council is governed by a 29-member board, operates within an annual budget and is audited annually, Morgan said.
BIG campaign contributions
By far, BIG's largest single expense - 22 percent of the $2.9 million spent to date - was on consultants who were paid $654,000 in 2004.
BIG employees said the firms performed a variety of studies on sites targeted for economic development in Beaver County, including sewer and water lines through Big Beaver, the Rochester riverfront and the former industrial sites in Ambridge known as the Northern Ambridge Redevelopment Project.
They said the firms have played a vital role in numerous successful economic development ventures across the county and in helping Veon leverage millions from the state for Beaver County.
BIG paid a total of $574,263 in 2004 to two firms: World-Class Industrial Network LLC of Pittsburgh and Delta Development Group of Mechanicsburg. Delta is the firm that employs Veon's brother, Mark S. Veon of Cranberry Township, as a senior associate. BIG spent $25,000 on "a number" of other consultants, according to BIG employees.
In addition, Castlebrook Development LP of Pittsburgh, which once employed Veon's same brother, is developing the Rochester riverfront, which is among the projects that will share $1.8 million in state grant money announced late last year by BIG.
According to campaign finance reports, the three firms have contributed more than $45,000 to Veon and LaValle campaign funds since 2000.
Partners at WIN, Delta and Castlebrook contributed a total of $37,199 to Veon's campaign, most of it over the last two years. Castlebrook contributed $14,100, WIN gave $13,250 and Delta contributed $9,849.
Delta, which has worked for BIG since the organization was created in 1992, has been donating to the Veon campaign since 2000. Castlebrook has been donating since 2003. Partners at WIN began donating in 2004, the same year the firm began working for BIG.
Of the three, only Castlebrook contributed to LaValle's campaign, with donations totaling $7,825 since 2003.
Pascal M. "Pat" Nardelli, a principal partner at Castlebrook, said he's been supporting Veon and LaValle for years and would continue to do so regardless of any work his firm might do in Beaver County. Barry Maciak, president of WIN, said the same about Veon. A Delta representative did not return a phone call from The Times.
"I'm proud to say that I've been supporting both of those guys for 20 years," Nardelli said. "I support them when I do nothing in Beaver County, and I support them when I do deals in Beaver County."
In addition to the consultants, people and firms with ties to BIG have contributed a total of $36,825 to Veon and LaValle campaign committees. BIG employees have contributed an additional $2,605 to the pair over the years.
Veon's contributors include Ernest Pisciotti of Patterson Township, who owns the former Citizens Bank Building, now known as the Beaver Falls Professional Center at 1122-1124 Seventh Ave., where BIG rents its offices.
In its federal income tax returns, BIG reported occupancy expenses - rent and utilities, Vannoy said - that jumped by more than 3,000 percent from 2000 to 2004. Its occupancy expenses totaled $1,165 in 2000, $24,678 in 2002, $14,082 in 2003 and $38,232 in 2004. BIG did not itemize occupancy expenses in a short form it filed for 2001.
Pisciotti, who has contributed $925 to Veon's campaign over the past four years, said having BIG as a tenant had no influence on his decision to support Veon. He said he would have done it regardless.
"My honest and sincere feeling is Mike Veon is the best person to get things done for Beaver County," he said.
Veon and LaValle said they do fund-raising each year for their campaigns. They said many of the same people who donate to their campaign funds also donate to many other elected officials. They said donations have no influence over their decision-making.
Barry Kauffman, executive director of the government watchdog group Pennsylvania Common Cause, said the campaign contributions amount to political payback.
"You have a private individual, who makes a contribution, and then the taxpayer pays them back, in this case about 13 or 14 times their contribution," Kauffman said of the three consulting firms. "You essentially have the public refunding the political contribution to these favored donors with a very lucrative return on investment. It starts to have the smell of a giant money-laundering operation."
BIG jobs
BIG justifies its existence partly by claiming that it has helped create thousands of jobs in Beaver County.
But the number of jobs it claims to create differs widely - by as many as 1,000 jobs - in its various publications. BIG also credits others, including the Beaver County Corporation for Economic Development, the Beaver County Redevelopment Authority, the Beaver County Corporation for Owner-Operated Projects, state legislators, county commissioners, local elected officials and consulting teams at WIN and Delta for helping to create the same jobs.
In December, the BIG Web site contained a list of projects, actual and potential, with a running total of numbers of jobs created.
"THESE PROJECTS TOTAL," it trumpeted, "424 NEW jobs, 1,665 retained workers, 3,811 potential jobs...All in Beaver County! That's a total of 5,900 people working in Beaver County!"
BIG has since eliminated that paragraph from its Web site.
In a January letter to The Times, BIG said it has been involved in 49 projects that created 830 jobs, retained more than 2,600 jobs and have the potential to add 1,400 jobs. That's a total of 4,850 jobs, more than a thousand less than it took credit for back in December.
Those claims also contradict state Department of Labor Statistics showing nearly flat job growth in Beaver County over the past few years.
The number of jobs in Beaver County grew by less than 1 percent from 2002 to October 2005, according to department statistics. That's a growth rate that lags behind the state as a whole and behind other fourth-class counties.
According to the state, average monthly employment in Beaver County rose from 54,913 in 2002 to 55,288 in October 2005, an increase of 375 jobs or 0.68 percent. During that same time period, jobs statewide increased by 1.6 percent.
It is possible that more than 375 jobs were created, because the number represents the difference between jobs created and jobs lost.
State figures prior to 2002 were not accurately comparable to today, the state said.
Some of Beaver County's nearby, fellow fourth-class counties showed dramatically higher rates of job growth. The number of jobs in Butler County increased by 10 percent; in Washington County, by 5.2 percent.
Even Cambria County, which has suffered the loss of thousands of steel and mining jobs over the years, saw more than double Beaver County's job growth rate, at 1.7 percent.
BIG's director, Woodske, said Beaver County's unemployment rate is now comparable with statewide numbers. (In December, the most recent month available, Beaver County's jobless rate was 5.3 percent, while the statewide rate was 4.9 percent, according to the state Department of Labor.)
He also argued that the dramatic loss of jobs here in the 1980s puts Beaver County at a comparative disadvantage to other counties.
"I believe that what we have done has made a difference," Woodske said. "Is what we have done enough? No. But none of the western Pennsylvania counties suffered (job losses) with the same magnitude as Beaver County did."
BIG impact
It is very difficult to gauge BIG's impact on the local economy, especially when other economic development organizations in Beaver County offer the same services and claim the same accomplishments.
In its January letter to The Times, BIG officials said the organization works to "create an atmosphere that is conductive to the private sector creating jobs."
"We facilitate, we promote, we advocate for state and federal government funding, we provide expert staff and consultants to work with private-sector officials to navigate through the local and state government bureaucracies, we provide staff and consultant assistance to analyze the local economy to help local officials understand what economic development tools and infrastructure is needed to create the environment in our county for private investment, new companies and new jobs," they wrote.
BIG is not alone.
By the reckoning of BIG consultants Delta Development Group, BIG is one of 10 groups in Beaver County working on general economic development, one of nine working on business advocacy, one of eight working on business attraction and expansion, and one of eight working on job training/workforce development, among other redundancies.
The results were part of a study commissioned by CED to examine how to revitalize the county's Enterprise Zones.
Besides BIG, groups working on "general economic development" include CED, the commissioners, the Corporation for Owner-Operator Projects, a BIG offshoot called BIG Enterprise for Technology Advancement or BETA, the Governor's Action Team, the Beaver County Cooperative Extension, the state Department of Community and Economic Development, the Pittsburgh Regional Alliance, the Redevelopment Authority of Beaver County, state legislators and the U.S. Economic Development Authority.
Delta suggested that the 10 organizations working in general economic development find niches, and also that the county give greater consideration to finding a lead organization.
According to Vannoy, BIG "has filled the gap, become the coordinator."
Since the pay-raise furor, BIG has become involved in new economic development niches.
It is now helping CED with riverfront projects, an area that has long been CED's bailiwick. Tearing down dilapidated buildings is normally handled by individual municipalities, or the county's Community Development Block Grant program, but now it is partly BIG's job.
Organizations like CED, and municipalities, just don't have the manpower to administer additional grant money, Vannoy said. They welcome the help.
In addition, Veon said BIG provides the means to develop Beaver County's riverfronts and restoring blighted properties "bigger, better and faster" than other agencies in Beaver County.
Veon and LaValle said that these and the other services BIG provides are critical to Beaver County's economic future. They said they have fought tirelessly with no compensation on behalf of BIG to promote economic development in the county. Now, they feel they are being unjustly criticized for doing their jobs to the best of their ability.
BIG "is not being used for political purposes," LaValle said. "It's being used to do things that people in the district and taxpayers expect us to do. Everything is politics. However, the bottom line is this is what we're supposed to do in our jobs, and we're doing it. BIG does what BIG does better than was done before by anybody else."
A friend I work with recently lost his dad who was a 4 term mayor of a Beaver County city - Aliquippa. He claims there's LOTS more to this than what's in the article and the best is yet to come.
Popcorn time.
prisoner6
"Beaver Initiative for Growth" ??? Also kown as BIG? There's got to be a Viagra joke in there somewhere, but I'll pass. :^)
As PJ said: Putting money in the hands of politicians is like putting whisky and carkeys in the hands of teenage boys.
Or Ted Kennedy. 8^)
Sounds like a culture of corruption.
Wow. You ain't kidding.
Interesting. Socialism practiced on a small scale, like Beaver Falls PA or a large scale, like Venezuela, always has the same result; massive capital is stolen by a few politically connected individuals, and the workers, who were 'championed' by the Left, get crumbs, if anything.
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