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09/15/2014MINUTES OF THE JOINT CITY COUNCIL PARIS ECONOMIC DEVELOPMENT CORPORATION MEETING OF THE CITY OF PARIS, TEXAS September 15, 2014 The City Council and Paris Economic Development Corporation of the City of Paris met for a special session at 5:00 p.m. on Monday, September 15, 2014, at the City Council Chamber, 107 E. Kaufman, Paris, Texas. Present: Mayor: Matt Frierson Council Members: Richard Grossnickle; Billie Lancaster; Benny Plata; Edwin Pickle; and A.J. Hashmi City Staff: John Godwin, City Manager; Kent McIlyar, City Attorney; Janice Ellis, City Clerk; Gene Anderson, Finance Director; Larry Wright, Fire Chief; Kent Klinkerman, EMS Director; and Bob Hundley, Police Chief Absent: Council Member: Aaron Jenkins Present: PEDC Chairman: Steve Grubbs Board Members: Rebecca Clifford; David Turner; John Brockman; and Donald Wilson Opening Agenda 1. Call meeting to order. Mayor Frierson called the City Council meeting to order at 5:00 p.m. Board Chair Grubbs called the PEDC meeting to order at 5:00 p.m. 2. Discuss and receive report from PEDC on the completed forensic investigation, and take possible action. Mayor Frierson said he would turn the meeting over to PEDC Chairman Steve Grubbs to share his thoughts. Mr. Grubbs said they were there to discuss publicly the forensic investigation by Defenbaugh and Associates, their goal was transparency, truthfulness, to receive the facts, to deal with them and to move forward in a very positive and proactive manner. Mr. Grubbs reviewed the time line of events beginning with March 10, 2014, when the City Council elected to request that the PEDC initiate a forensic audit of operations following the receipt of an anonymous letter by then Mayor, Dr. A.J. Hashmi. Mr. Grubbs said the letter questions Joint City Council /PEDC Meeting September 15, 2014 Page 2 specifically the value of the loans, security or appraised tax value, or both, of a certain transaction involving the PEDC and HWH. He also said the letter indicates 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. Mr. Grubbs said on April 2, 2014 the PEDC elected to use Defenbaugh and Associates to complete the forensic investigation, the estimated cost to be $50,000, a ninety day agreement was signed and it 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 monthly written report to the PEDC and that never occurred. He said PEDC board chair Rebecca Clifford denied having received any reports from Mr. Defenbaugh at the PEDC board meeting on May 6 and again denied having received any written reports at the June 3, 2014, joint meeting of the City Council and the PEDC. Mr. Grubbs said that he received a preliminary report from Mr. Defenbaugh on July 25, 2014, and on August 5, 2014 the PEDC board met in executive session to discuss personnel issues that were noted in the Defenbaugh report. Mr. Grubbs also said that Mr. Defenbaugh was in attendance and it was then that they were told that the report that they had received was in fact not his final report. On August 11 `f` the final report was delivered to the PEDC office by Mr. Defenbaugh and on August 15, the final report made available to the public. Mr. Grubbs said he asked PEDC attorney Jeff Moore to walk them through the more relevant aspects of the report as it pertained to Texas Law. He informed City Council that Jeff Moore was a partner with Brown and Hoffineister, who had a practice emphasizing local governmental law, economic development, zoning and land use. He also said Mr. Moore possessed 20 years of municipal law experience, was a frequent speaker around the State of Texas on Municipal topics such as Economic Development for Texas cities, including Type A and Type B sales tax, chapter 380 agreements, tax abatement agreements, tax incentive financing, the Texas Open Meetings Act and the Texas Public Information Act. Mr. Grubbs stated Mr. Moore had spent four years with the Texas Attorney General's office as the head of the Municipal Affairs Section and currently assists the Texas Economic Development Council, the Texas Attorney General's Office and the State Comptroller office with Type A and Type B sales tax training, and conducts training seminars required by the Texas Legislature. Jeff Moore gave a presentation to the City Council and the PEDC Board, which covered Type A Sales Tax Issues, State oversight, permissible Type A projects, promotional expenditures, job training, sales tax proceeds for promotional purposes, business recruitment and development, gifting proceeds, approval of PEDC expenditures, and State conflicts of interest statute. Mr. Moore noted the report had a lot of discussion about the lack of policies and procedures, and then pointed out that State Law had already addressed all of that. Mr. Moore stressed the sales tax was a local issue. He said voters vote it in and voters can vote it out, and it was not for the Comptroller's office to investigate, and it was not for the Attorney General's office to investigate. Mr. Moore said the district attorney's office is to investigate if there is some criminal wrongdoing, and that they could ask the prosecutors assistant division within the Attorney General's office for help. He noted that in the report there was some quest for the Attorney Generals' office or the Comptroller's Office to review, and then stated if the EDC hired a third party to do business recruitment and they did not have a written contract for that business recruitment effort, that the Attorney General's Office could go after the EDC for failure to have a contract. Mr. Moore said that was a civil penalty and the fine could be Joint City Council /PEDC Meeting September 15, 2014 Page 3 as much as $10,000. Mr. Moore said there was no criminal penalty and added that the Attorney General's office has never had to pursue any violations under that section. Mr. Moore said the comptroller's oversight was limited to the administration sales tax that retailers remit the sales tax it receives, it goes to the comptroller's office, and the comptroller's office retains it for about 6 weeks, and then remits it to the City. He said the City is supposed to promptly turn it over to the EDC. He also said the EDC had oversight of the sales tax training, and was responsible for the annual report due every February, he said there was a $200 penalty for failing to file the report. Mr. More said the expenditures do not have to be primary job employers, but could be retail such as Home Depot and Lowes, that they could pay for job training and targeted infrastructure. He said in 2003 Representative Mark Homer authored the bill that allowed this. He said the board could provide water, sewer, electric, drainage, streets and roads for business development. He also said the money did not have to be spent on a primary job employer, and it did not have to be a manufacturer. He handed out Greg Abbott opinion GA86 issued in 2003, in which the AG ruled the board of directors could make the decision about promotional expenditures subject to the review of the City Council. Mr. Moore said any sort of promotional expenditure was supposed to publicized for business development. He also said 10% was an annual limitation for promotion, but in the current fiscal year they may have an unexpended portion for promotion, and if so that could roll over to the new year in addition to the 10% that is allocated for the new year. In regard to gifting monies, Mr. Moore said the EDC could not gift monies without a written contract or a performance agreement that sets out a capital investment, jobs to be created or retained and some sort of penalty provision. Mr. Moore touched on business recruitment, in that if you are going to hire a third party to do business recruitment then basically you have to have a written contract approved by the board. He said the Council appoints the board members and can remove them, but the board of directors oversees the sales tax and it ultimately goes to City Council for approval of expenditures. Mr. Moore said he understood they amended their Bylaws which were approved by the City Council and that included anything spent over a certain dollar amount must go to the City Council for approval. With regard to conflicts of interest statute, Mr. Moore said there was an AG opinion that noted that the conflicts of interest Statute does not apply to Type A or Type B corporations because, they were not considered local public officials. He said conflict of interest statements do not apply to nonprofit corporations unless bylaws, articles of incorporation or City ordinance impose the requirement. Mr. Moore referenced page 5 of the report and noted that the report said it should be destroyed when the information was no longer needed. Mr. Moore stressed that the report should not be destroyed without reviewing the records retention schedule. He said he had covered the PEDC financial review and lack of oversight. He said they could adopt a travel policy as Council did or adopt a travel policy on what was allowable and not allowable expenditures. Mr. Moore also said tracking of fund expenditures must be required to account for the use of public funds. With regard to PEDC paying for expenses which should have been Joint City Council /PEDC Meeting September 15, 2014 Page 4 incurred by other entities, he said he noted a couple of the expenditures included promotional expenditures, such as the incubator, grand opening session, and promotional expenditures. He said these expenses were consistent with that AG opinion if they publicized or advertised the city for business development, and that PEDC could pay for the promotional activity. Mr. Moore said whether someone else should pay for it or not is a judgment call, as the Statute leaves that to the Board to make the decision. Subsequently, it is for Council to approve or disapprove. He referenced funds provided to Lamar County Chamber of Commerce and it says potential fraud, waste and/or abuse. He said the Chamber was actually a specific Statute under Section 504.102 of the Local Government Code that says the PEDC can contract with any corporation to carry out the objectives and duties of the EDC. He also said a number of cities have a joint Chamber /EDC office and the Statute says Type A or Type B can fund those sorts of private entities, provided the Chamber does EDC stuff. Mr. Moore emphasized the need to have written contracts and approval, but said if you did not it was not criminal. He said he understood the political ramifications but again that opinion does not it say it's a criminal violation not to have a contract. He said the Chamber could advertise for the community and the EDC could pay for the Chamber's advertising activities. Mr. Moore stated although there were no policies and procedures in place regarding expenditures, PEDC staff had a judiciary responsibility to ensure the best use of 4A now called Type A development funds. He said that was not exactly accurate for the staff, it was really for the board. The diversity initiative program basically noted it was a kind of a good program in that it worked, but there was an $8.00 shortfall, He said there could be better accounting, better bookkeeping, but that was not fraud or waste or abuse. Mr. Moore defined fraud as intent to deceive. With regard to the HWH agreement, Mr. Moore said there was a note that read information revealed there was a lack of fiscal oversight in the EDC. Mr. Moore said State Law had already addressed that oversight, which states it takes Board approval, Council approval, and written agreements. He also said Chapter 171 of the Local Government Code does not apply to all conflicts, but only applies to very specific conflicts. He said if the person had a substantial interest in a business entity or real property, that's further defined as usually 10% or more gross income from that business, that's going to be a substantial interest in a business. He said for real property it is a legal explicable interest of $2,500 or more of real property. Mr. Moore said the Statute provides if you have that sort of conflict, there are three things you have to do and that is file an affidavit, sustain from discussing it, and sustain from voting. He said if there is a violation, it's a Class A Misdemeanor, and that would be reviewed by the District Attorney's Office for determination. Mr. Moore further said they were talking about 2010 and if a violation had occurred, the statute of limitation had run. Mr. Moore said he reviewed the conflicts disclosure statement under Chapter 176 that was submitted to the EDC. He said the report notes that Gilbert participated in the contract negotiations with HWH as this was part of his official duties as the executive director of the PEDC, and he may have been fostering a private relationship with the HWH. Mr. Moore said he was not aware of any noncompeting clauses for cities. He said he understood that the $7,500 per occurrence for expenditures without approval had been removed and if it had not, that would have been one of his recommendations. Mr. Joint City Council /PEDC Meeting September 15, 2014 Page 5 Moore said all expenditures need to go through the Board and go to Council for approval and that could be done through the budget. With regard to the Red River Region Business Incubator Review, the report reflects there was a lack of fiscal oversight, and State Law has already addressed that. He said they could fund the incubator, because the emphasis under this project was for manufacturing and if it is under 501.101, you could provide monies for manufacturing, you could provide land, buildings, equipment, facilities, targeted infrastructure as well for manufacturing, and you could pay for job training expenses. He said Regionnavate was business recruitment with a third party, and that is allowed if you have a written contract. He suggested contracts be on a reimbursement basis, meaning once the work is done and the receipts are turned in, then payment is remitted. Mr. Moore suggested amending bylaws, which includes policies addressing travel. He said they want to look at an incidental per diem, have a per diem for travel, promotional expenditures, keep those separate, and segregate those because you're limited to 10% for promotional purposes. He also said they may want to consider a non - compete provision. He said he didn't see anything criminal in his review, maybe there was waste because that it didn't work, and it didn't achieve the objective. He also said it was not fraud, but there could have been better bookkeeping. Mayor Frierson asked if anyone had any questions. Council Member Hashmi inquired about the difference between 4A and 4B, as he understood Mr. Moore to say that almost every expense was doable under 4A such as infrastructure and roads. Mr. Moore explained that Type B was under Chapter 505 of the Local Government Code and the main difference was Type B had some procedural issues that Type A did not. He said Type B required that notice of the projects be published in the newspaper and there was a waiting period of sixty (60) days before the project could be funded. Council Member Hashmi asked if that meant creation of manufacturing jobs under 4A was not required. Mr. Moore said that was correct for some provisions and that Section 501.103 allows for infrastructure for a business development. Council Member Lancaster confirmed with Mr. Moore that a Type A or a Type B Corporation could not give proceeds to a business entity without a performance agreement. She said the R313I was given a considerable amount of money in excess of 10% and wanted to know how that could be achieved without a contract. Mr. Moore said there should have been a written agreement. Council Member Lancaster inquired if that was a violation and Mr. Moore said there was not a criminal penalty for it. Council Member Lancaster said she did not say criminal, but asked if there was a violation. Mr. Moore said it was inconsistent with State Statute. She said she was submitting that it did happen and she had the numbers to prove it was considerably more than 10 %. Mr. Moore said promotion was limited to 10% of any sort of expenditure, such as a project, job training or promotional activity and there should have been a written agreement since they were dealing with public funds. He also said the written agreement should have been approved by the Board and approved by the City Council. Council Member Lancaster asked what relief could be provided since that did not occur. Mr. Moore said over the years there were a number of court cases that dealt with expenditures, which reflected a tax payer could bring suit. Mr. Moore stated what the Courts had done thus far was rule that the impermissible expenditures Joint City Council /PEDC Meeting September 15, 2014 Page 6 did not have to be paid back, but prohibit future impermissible expenditures as a remedy. Council Member Lancaster inquired what would happen to the assets of that particular entity. Mr. Moore wanted to know which entity and Council Member Lancaster told him R3BI. Mr. Moore said it depended on what she was talking about and Council Member Lancaster referenced property and monies. Mr. Moore said he could not address how that should be disposed. Council Member Lancaster wanted to know if it would go back to the PEDC or the City and Mr. Moore inquired if PEDC had a lien. Council Member Lancaster said it was purchased by the tax payer money. Mr. Moore said if there was a lien, they could get repayment. Council Member Lancaster also asked about the existing monies in the bank accounts. Mr. Moore said a lawsuit could be filed to potentially recover monies that were owed under a contract. Council Member Lancaster reminded Mr. Moore there was no contract. Mr. Wilson asked if the contract was signed, to which Council Member Lancaster replied no. Mr. Wilson asked about a remedy for an unsigned contract and how much money was expended. Mr. Moore explained there may be some applicable arguments or detrimental reliance arguments that could be raised if they had a contract. He said they were getting into equitable issues to raise, but obviously it was better to have a signed contract. Mr. Wilson again asked how much money was given to R3BI and wanted to know what it was used for. Council Member Lancaster told Mr. Wilson it was used for everything, such as Hank Betke's salary although he was a contract employee of PEDC. She said it was used for bail -outs and most of the first year it looked like it was just feathering their nest. Mr. Moore reiterated they need to have written contracts. Council Member Lancaster said absolutely and because there was no written contract, there was no oversight. She said this was a severe waste of tax payer monies. Mr. Brockman inquired if the monies were approved by the Board and the City Council and Council Member Lancaster said they were not approved by the Board. Mrs. Clifford asked if she could answer that question. Mrs. Clifford reported that over the three (3) year period approximately $400,000 was given to R3BI. She said part of that was put into a line item on the budget for a certain amount, but a lot of it was in excess of what they paid in advertisement for the grand opening, and used for just about anything. Mrs. Clifford explained from the accounting part if you look at the line item budget for that account, you would see there were other expenses placed in that account line item budget. She further explained if you go through and look at R3BI and review the exact line item, there were much more throughout the budget. She also said some expenses may be under new industry, it may be under existing industry, it may be under global recruiting, rural innovations, just anywhere they needed to stick the money. Mrs. Clifford said if you look back through it, you could say those were fraudulent, because it wasn't the line item those expenses should have been put in. Mrs. Clifford told Mr. Moore that was one way of looking at it and referenced attended the training he conducted in 2013. Mrs. Clifford said at that time she asked the question, could you give money to another organization and Mr. Moore's answer was no. She said she guessed that was what he was saying now too. Mrs. Clifford brought up the AG Opinion that he talked during that training regarding that the City of Pampa could not give money to the Junior College. Mrs. Clifford wanted to know what would happen if Pampa would have just gone and done it. Mr. Moore said if they would have done it, the Attorney General would have told them they need a written contract because you cannot gift public monies, and that there needs to be a written contract. He also said at the same time there was not a criminal provision. Mrs. Clifford inquired why you Joint City Council /PEDC Meeting September 15, 2014 Page 7 even needed an Attorney General Opinion as you could just do what you wanted to do, which is kind of what PEDC did. Mr. Moore said well, no. He said they had a political issue and the voters can vote in or vote out the sales tax if they think there is miss -use and that it was a local issue. Mr. Turner questioned the remedy. Mr. Moore said the remedy was to move forward, to have written contracts, and to make sure they follow the approval process. Council Member Lancaster said there was another remedy and that was to simply do away with this useless organization. Mr. Turner said two lawyers could look at a set of facts and come to different conclusions. He said Mr. Moore had discredited Defenbaugh's report and said there was no criminal conduct. Mr. Turner also said he had reviewed the Defenbaugh report and there was criminal conduct. He said the way to resolve this was to convene a grand jury, get a prosecutor and issue subpoenas. Mr. Turner said if nothing had been done then it would clear the name of people and if there had been criminal conduct and the tax payer monies had been squandered the way he believed it had, then let the criminal penalties fall. Mr. Moore said he agreed that attorneys will disagree and have different opinions. Mr. Moore said if it was criminal, that was for the District Attorney to review. Mr. Turner said he understood Mr. Moore was initially hired by Mr. Gilbert. Mr. Turner also said this was tax payer money, that he did not want it abused and that the people had not gotten the value for their dollar. Mr. Moore said they had gotten some value. Mr. Turner responded by saying there had been an awful lot of money squandered. Mr. Moore said promotional activity sometimes takes two or three years before you see results. Mr. Turner said over the past twenty to twenty -five years the tax payers of this community had put 25 -30 million dollars into PEDC. Mr. Wilson confirmed with Interim PEDC Director Shannon Barrentine that PEDC received about $250,000 annually, which was 21 million dollars total income received by PEDC. Mr. Turner said 21 million dollars was a heck a lot of money. Council Member Lancaster said the spreadsheet she had indicated that it does come to 35 million dollars and she got it from the PEDC. Mr. Moore suggested that the State Comptroller could provide that answer. Mr. Moore referenced different cities and comparisons, such as the Cowboy Stadium and the baseball Park as related to Type A or Type B sales tax. Mr. Turner said it was good when the money was properly used and not squandered. Council Member Lancaster said Paris did not have any of those things, those were wonderful and she would love for them to be in Paris. Council Member Pickle said the Council was to blame because they were the ones to decide who to put on the PEDC. He said it was obvious they had done a poor job of making appointments to PEDC over the years. Council Member Grossnickle inquired of Mr. Moore if it was an unusual situation for an EDC not to have a lot of success stories. Council Member Grossnickle said Paris was competing against multiple cities, both in state and out of state. He said you are very lucky when you attract Kimberly -Clark or Campbell Soup and those were done without the aid of PEDC, but by good citizens who worked hard to make those deals come true. Council Member Grossnickle said most cities believe that an EDC is a useful function, but Paris had a capital of people who banded together to try to decide that they should vote that out. He also said Mr. Gilbert was the one being accused of all this wrong doing, yet under him PEDC was the most successful during his Joint City Council /PEDC Meeting September 15, 2014 Page 8 time and he actually received awards. He referenced Mr. Gilbert receiving national attention for being one of the most successful EDC's and said whether they squandered money or not, they spent money and they got some results, which is more than the previous directors had done. Council Member Grossnickle said he was not defending Mr. Gilbert, but Mr. Gilbert had not been given the chance to speak. Mr. Turner asked where Mr. Gilbert was. Council Member Lancaster said he refused to be interviewed. Council Member Grossnickle said he was already fired and Mr. Turner said he was not fired, but that he quit. Council Member Plata asked Mr. Moore's opinion as to if he thought there were sufficient written procedures for PEDC. Mr. Moore said State Law addresses all of it except maybe travel policy, including per diem expenditures. Council Member Hashmi referenced the Algae project, and said he thought the PEDC gave them about $100,000 and they were supposed to give the money back if the project did not materialize. He said the project did not materialize, and the $100,000 was gone. Council Member Hashmi asked Mrs. Barrentine if PEDC was paid back and Mrs. Barrentine said .... [inaudible as she was speaking from the audience] Council Member Hashmi said a problem occurs when you have rules that require an agreement and it is not done. He asked Mr. Moore, what recourse was available to the Council, EDC, and citizens. He said Mr. Moore said it was not criminal and it was not fraudulent, and then inquired what could be done when tax payer funds were wasted. Mr. Moore stated you always have the remedy of filing a lawsuit. Council Member Hashmi wanted to know what happens when the EDC Director is responsible for getting the agreement executed and does not follow through with it, but gave the company funds. Mr. Moore said this was a political issue and Council Member Hashmi wanted to know why it was a political issue. Mr. Moore said people could lose their jobs for not carrying out their duties. Council Member Hashmi wanted to know what the recourse was if the city manager starts spending monies on road repairs, and actually does not sign the contract but expends the money to the contractor. Mr. Moore said what the Courts have done is prohibit impermissible expenditures. Council Member Hashmi wanted to know how the City or PEDC gets the money back, and if the person responsible is supposed to be punished, or does the law say it is acceptable. He referenced an employee theft where money was pocketed and the employee was arrested. Mr. Moore explained employee theft was different in that the employee personally benefited or gained and the Texas Penal Code had theft statutes that addressed those sorts of theft of public funds. As far at the $400,000, Mr. Moore suggested they change the expenditure policy on what requires Council approval. He stated that written agreements approved by the Board and City Council was a good remedy. Council Member Lancaster said they need to clean up the approval process and make sure there are written agreements. She said she knew of one instance where a company had not met job requirement obligation but the company was given a good sum of money. Mr. Moore said they may have a written agreement that provides a recourse of the penalty under the tax abatement. Council Member Lancaster said they should be enforcing them. Council Member Lancaster said she was shocked when she learned of one company, who was to have hired a certain number of employees, but did not hire even one person and still received the incentive money from PEDC. Mr. Moore said City Council would have approved that agreement and Council Member Lancaster said she did not think that Council approved the agreement. Joint City Council /PEDC Meeting September 15, 2014 Page 9 Mr. Wilson said he was hearing that the director should be accountable, because he gave out the money and it did not work out. He said the PEDC Board should have reprimanded Mr. Gilbert and then inquired if he was given a job performance evaluation. Mrs. Clifford informed Mr. Wilson that all of these things were done prior to her being appointed to the Board, including the Algae Agreement, the HWH Agreement and the R313I (Incubator). She said the Board put policies and procedures in place to limit the amount of travel expenses. She also said Mr. Gilbert would go to Las Vegas and stay at the Wynne and they put a stop to that, but did allow the Howard Johnson. Mr. Wilson wanted to know when Mrs. Clifford discovered this if she put anything in his personnel file. Mr. Turner told Mr. Wilson that the Board did not know this was going on until they received the Defenbaugh report. Mr. Turner said they stopped the Incubator, because it was a sinkhole for money. Mr. Turner also said when you first get on the Board; you do not know what is going on. Mrs. Clifford said when she asked for the Incubator contract, she was given a copy but did not learn that it had never been signed until she was speaking to one of the other parties. Mrs. Clifford told Mr. Wilson that Mr. Gilbert quit. She stated they had limited what he could spend, including credit card expenditures. Mrs. Clifford said she expressed concern and Mr. Wilson stated she did not place anything in his personnel file. Mr. Turner said he did not place anything in Mr. Gilbert's file either and told Mr. Wilson to quit jumping on Mrs. Clifford. Mr. Turner said once the Board started reviewing all of the finances, Mr. Gilbert quit because he knew it was coming. Steve Grubbs said he read the allegations of fraud, waste and abuse, and about the possible ethics violation. He inquired of Mr. Moore if there was a nondisclosure form and Mr. Moore answered in the affirmative, stating he thought Mr. Biard completed a form on August 23, 2010. Mr. Grubbs asked if Mr. Defenbaugh discovered this during his investigation and Mr. Moore said he thought it was provided in between the preliminary report and final report. Mr. Wilson said Mr. Defenbaugh had simply asked questions and investigated, but he did not call the city and he did not call anyone to find out if there was a conflict of interest statement. Mr. Wilson said Mr. Defenbaugh took whatever was given to him by Mrs. Clifford and others, and made his report. Council Member Lancaster said there were a lot of people who refused to be interviewed. Council Member Hashmi said at a point he felt that Mr. Wilson had a conflict of interest when the Incubator was being discussed because of his association. He asked if conflict of interest rules apply to PEDC board members like they do to City Council. Mr. Wilson said he was not on the PEDC Board when the Incubator was going on. Council Member Hashmi said he was asking if Mr. Wilson had a conflict now that he was on the PEDC and the R313I was being investigated. Mr. Moore informed them that it applies to local or public officials and the AG opinion had concluded that States Statute on conflicts of interest does not apply to Type A Board Members. He said he understood that it was imposed locally. Mr. Wilson said he did not understand how he had a conflict of interest and asked if he was saying he could not even engage in discussion because Defenbaugh's report covered the R3131. Council Member Hashmi said he was referring to the city ordinance on conflicts. Mr. Wilson questioned how he had a conflict. Council Member Hashmi said Mr. Moore told them if you had a conflict you could not even engage in discussion. Mr. Moore explained it was those that had a substantial interest in R3BI, Joint City Council /PEDC Meeting September 15, 2014 Page 10 that would be 10 %, 10% or more of your gross income and Mr. Wilson said he did not. Mr. Moore said if you had a conflict, you had to file an affidavit, abstain from voting and discussing it. He also said there was an AG opinion that states you cannot go into the executive session if you have a conflict. Mr. Wilson asked Council Member Hashmi if his conflict of interest was because his son served at some period of time on the R3BI and Council Member Hashmi answered in the affirmative. Mr. Wilson said he had nothing to do with the Board when his son served on the R3Bi. Mr. Moore asked if Mr. Wilson's son was still on the R3BI Board and Mr. Wilson said it had been dissolved. Mr. Moore said the conflict was usually because 10% of gross income, so there was not a conflict of interest. Council Member Hashmi said Council Member Pickle owned a printing company and asked if he could do printing for the City of Paris. Council Member Pickle confirmed that 10% or more of his gross income came from the printing company. Under State Law, Mr. Moore said he would have to file an affidavit, abstain from voting, abstain from discussion and the rest of the Council could take up the matter. Mayor Frierson said the Board had taken steps over the last year to tighten up procedures for expenses and to improve oversight and asked if there were any other concerns. Mr. Moore said if the Board approves projects and expenditures, and the Council approves projects and expenditures and they have written agreements, he thought that would resolve the issues. Mayor Frierson asked Mr. Grubbs to review with the City Council steps the PEDC Board had taken in the last year to address issues and recommendations that were referenced in the report. Mr. Grubbs said he did not have a big role in it, but that Rebecca Clifford and Bruce Carr improved the processes and procedures of the PEDC. He said sixteen needed policies were identified and written and included authorized spending levels, credit card use, travel, entertainment, delegation of authority, procurement of services, contracts and so forth. Mr. Grubbs said they had done a really good job and that it did help. Council Member Pickle asked Mr. Moore if he was saying if there was to be any more action taken by the City Council or the PEDC that it would need to go through the District Attorney. Mr. Moore said if they thought it was criminal that it would need to go through the District Attorney's Office, because the Comptroller and the Attorney General did not have oversight. Mr. Moore also said they could pursue civil action against a business for nonperformance under an agreement. Council Member Pickle confirmed if Council goes to the District Attorney then the District Attorney decides if it goes to the Attorney General's Office. Mr. Moore explained that areas, such as open meetings, the AG office had a level of expertise or maybe in some rural areas where the DA's office doesn't have certain expertise. Council Member Pickle asked about the issues they were discussing. Mr. Moore said he thought the District Attorney could look at those issues and if necessary they could contact the AG's Office, because they have a prosecutors' assistance division. Council Member Pickle said Mr. Moore had an expertise in Economic Development Law and had been recognized by the Attorney General's Office for his input in writing of the Economic Development Handbook. Mr. Turner wanted to know how many criminal cases Mr. Moore had tried in the last year and Mr. Wilson said that was not the issue. Mr. Moore said he had tried 10 or 20 Class C Misdemeanors, but no murder trials. Council Member Lancaster said the District Attorney may have some closes ties to this investigation and wanted to know where Joint City Council /PEDC Meeting September 15, 2014 Page 11 they go from here. Mr. Wilson said the D.A. could simply ask to be recused and bring in a visiting D.A. Mr. Moore said that was a possibility. Council Member Plata stated that people wanted more transparency and inquired what was the best thing they could do. Mr. Moore reported the best way to handle this was to have written agreements and once executed, they become public. He also said that the meetings were subject to the Open Meetings Act, and that transparency helps. Council Member Lancaster questioned accountability and stated it looked like they had lost a lot of money and no one was going to be responsible for it. Mr. Moore said as they move forward, they tighten up the policies and that would address those issues. Council Member Lancaster said she had a hard time moving forward past $35 million dollars, that was a lot of money, and that she was not a rich person. Mayor Frierson reiterated that Mr. Moore addressed the fact that they want success every time, but in the economic development arena you bat one in a thousand. He said they need to tighten up the contracts, make sure the fallbacks are built in and make sure performance appraisals are done, and make sure employees are being held accountable for their actions. Mayor Frierson said outside of that, there were not many other choices. A Motion that the PEDC recommend to the City Council that no further action be taken in this matter was made by Mr. Brockway. Mr. Wilson seconded the Motion and asked for additional discussion. Mr. Grubbs asked Mr. Brockway if he wanted to table that motion for the time being and then come back to it. Mr. Brockway temporarily withdrew the Motion. Council Member Grossnickle said this seems to be all about punishment, not accountability. He also said it had been approved by the PEDC Board, and the City Council and they spent $50,000, even though the list of improvements in financial oversight had been made by Ms. Clifford and the rest of the Board. Council Member Grossnickle said there may have been mistakes and problems with accountability, but they weren't necessarily illegal so they should move forward as Mr. Moore suggested. He said he did not see any point in trying to pursue legal action unless it was against the Algae Company, for example. He also said as far as the money that's been spent by the PEDC for the past 20 years, they cannot get it back, it's gone and if the citizens are for doing away with the PEDC that was their right. Council Member Grossnickle said there was a big orchestrated campaign going on to make the citizens feel this way, and if you look back at the people responsible they are the ones constantly on the radio, the television, Channel 8 news, and they are the ones that hang around after Council meetings after having a 4 'h hour meeting. Council Member Grossnickle said he thought if they spend any more money, it should be towards recovering money that was recoverable. He also said the Incubator was shut down, and he did not know how much money they had in their bank account, but if there was money there they should try to get that back and return it to the PEDC. He said other than that, he did not see much recourse at this point or punishment. Council Member Lancaster said the main thing was to make sure these things did not continue. She referenced the Algae Project and said they have a lot more money that the $100,000. She also said the citizens were due the City's diligence, as they had invested in trying to improve the City's future. Council Member Lancaster said she made no apologies about going on the radio, shaking hands, or trying to get her point of view across, because she was backed up by fact. She said she would show Joint City Council /PEDC Meeting September 15, 2014 Page 12 anyone the facts, it was what it was, that this could not be whitewashed and it was a shame. Council Member Pickle asked her if she was willing to take responsibility and she responded that she was and would be willing to review PEDS's expenditures that she brought to the meeting with her. She brought up another expenditure, which was $1,000 for a breakfast and said she disagreed with Mr. Moore's advice about what that money could be used for. Council Member Lancaster said she felt the money was supposed to be used to bring jobs to Paris and that was not going to bring jobs to Paris. She said it was a shame that no one had looked at all of this. Mayor Frierson said that was the responsibility of the PEDC board, which was what Mr. Grubbs was doing. Council Member Lancaster said he was making it her responsibility. Mayor Frierson told Council Member Lancaster she had opportunity every time they voted to approve the actions and budgets of the PEDC. She said she was going to take a longer look at those expenditures and actions. Council Member Lancaster said after many years, she did not see the PEDC as a positive organization. Mr. Wilson said it was obvious there was an organized and orchestrated movement to discredit PEDC and this whole thing started with an anonymous letter. Council Member Hashmi said he had prepared a statement and he would like to read it. He read the following: "Ladies and gentlemen I had some reservations about coming to the meeting when Mr. Defenbaugh was not present, but I felt compelled to come since there was a lot of misinformation going around and I wanted to clarify it. First and foremost, I want to say I have not had any meeting or contact with Mr. Defenbaugh of any sort. I received the anonymous letter in January or early February at which time I told the mayor pro -tem Mr. Wright and the city manager about it since he was the one that puts things on the agenda. I asked Ms. Cleonne Drake since she had prior law enforcement experience, as to who investigates these kinds of things. She said did not know but she said that she would ask her husband. Later on her husband said that he found two companies that did it and that he could arrange for them to meet with me to which I said no, since the Council had not met and no decision had been made by the Council as to what direction they want to proceed. Also, three to four days later which was in the middle of February, in the executive session I handed sealed envelopes to all the City Council members with the anonymous letter and the documentation that came along with it. I also informed the PEDC Director Ms. Rebecca Clifford about it and I also felt like I should inform Mr. Holland Harper since there was some relationship to that company. Again, I'm not saying right or wrong, I'm just giving you information. The anonymous letter was received in the month of January or early February and given to the Council Members in the executive session in February. It was subsequently placed on the regular agenda in the March meeting. At no time during this period did I or any of my family members meet with Mr. Defenbaugh or had any discussions with any of his associates, not only that, at no time after that did I meet Mr. Defenbaugh other than the one day that he showed up at my office and I've already disclosed that to the Council. I did not try to contact him or any other members of either the City Council or the PEDC Board to suggest that Mr. Defenbaugh should or should not be appointed for the investigation. This misinformation that I contacted him before I got the letter or that in any way or form that I suggested his name to some of the Council Members or PEDC, that he was hired by me before the Council had voted on it is completely false and I am perfectly willing to say this under oath. I had absolutely no contact; I almost didn't even know his name until he showed up at my office. So if anyone says that I signed a contract with him or that I had prior Joint City Council /PEDC Meeting September 15, 2014 Page 13 information about him or that I had not received the letter and we had already appointed him is a bunch of bologna and I am willing to take, say that under oath." Mr. Wilson said that Council Member Hashmi stated in a Council meeting in June that he was only in that meeting for one minute and then he left. Council Member Hashmi said that was correct. Mr. Wilson said when the PEDC Board questioned Mr. Defenbaugh he said that was not correct. Council Member Hashmi said no sir. Mr. Wilson said he guessed Mr. Defenbaugh was not telling the truth, and Council Member Hashmi responded that is exactly why he wanted Mr. Defenbaugh at this meeting. Mr. Wilson said Council Member Hashmi said there were three people in the meeting and Council Member Hashmi said that was correct. Mr. Wilson said Mr. Defenbaugh said that Ms. Clifford, Mr. Defenbaugh, Defenbaugh's assistant Beverly and Mr. Strathern were at the meeting. Council Member Hashmi said when he was in the room, that Mr. Strathern was not in the room, and that he was seeing patients that day. Council Member Hashmi said Mr. Defenbaugh asked him what he had to say and he told him nothing, other than what he had already said in his presentation to the City Council about the expenditures and receipts. Council Member Hashmi reiterated that is why he wanted Mr. Defenbaugh at this meeting. Council Member Hashmi questioned why Mr. Defenbaugh was not listed on the PEDC Agenda when he went to that meeting. He asked Mr. Moore to review the City of San Antonio Case, 820 S.W.2d and the AG Opinion on that case and then tell them whether or not the writing of Mr. Defenbaugh's name was required on the PEDC Agenda. Council Member Hashmi said they had these discussions about openness and transparency and questioned why Mayor Frierson, Council Member Pickle and Council Member Lancaster as Council Members, were not permitted into Executive Session at the PEDC meeting. He said Mr. Defenbaugh's invoice reflected the final report was in July and that was given to the Council in July by Mr. Grubbs and then they learned it was not the final report. He asked Mr. Grubbs what those charges were for if it was not the final report and why the Council Members were prevented from going into Executive Session with Mr. Defenbaugh for discussion. Mr. Grubbs said the Executive Session was closed except to Board Members, because it was the Board's prerogative and they had the right to do that. He said he could not talk about anything that was talked about in executive session nor would he. Council Member Hashmi questioned the fact that Defenbaugh came to a meeting and they had already been delivered the final report and two days after the meeting, they were told it was not the final report that was delivered to them. Council Member Hashmi asked why the secrecy. Council Member Hashmi said PEDC's agenda included an executive session for personnel, but was not specific. He said there were only two employees at PEDC and that was the interim director and her assistant. Council Member Hashmi said Ms. Barrentine was not present at that meeting and inquired whether or not it was her that was being discussed, because the agenda was not specific. He said the discussion went on for an hour and a half with Defenbaugh and Mr. Moore in a closed session about two employees, who did not get a raise, who did not get fired and who did not get anything. Mr. Moore explained there were two exceptions listed on the executive session, one was for personnel and one was consultation to receive legal advice and that he was probably in executive session for 45 minutes and it was only for legal advice. Council Member Hashmi said he was not asking them to disclose the discussion. He referenced when he gave the anonymous letter to the Council in executive Joint City Council /PEDC Meeting September 15, 2014 Page 14 session, and said the city attorney found out when the city manager told him. Council Member Hashmi said when they came out of executive session, the city attorney inquired about the discussion and he told him there was no major discussion, but that he had handed them a sealed envelope and he asked under what guidance I did that. Council Member Hashmi said he discussed it with the city manager and they put it under PEDC, because it was related to PEDC. He said at the time the city attorney said it was posted wrong and should be corrected. Council Member Hashmi said he then had it placed on the future agenda as a proper agenda item. Mr. Wilson asked about the people who were harmed in the investigation and who did not get a chance to speak with Mr. Defenbaugh. He said the night the anonymous letter was presented it was all about whether HWH got a 5.8 million dollar loan with $43.000 worth for collateral. He said that very day before that meeting that night information was provided by Ms. Barrentine that there was 7.75 million dollar worth of collateral and that appraisal was brought to the City and given to the City. Mr. Wilson also said he had a copy of the meeting video and could play it if they wanted, and that Ms. Lancaster said perhaps PEDC or HWH could bring this forward and could lay it out for them. He said Mrs. Drake said the same thing. Mr. Wilson said the city attorney was sitting there and let the entire conversation go forward without saying that was not true. He said he did not know whether Dr. Hashmi told the city attorney not to use that appraisal that night, but he knew the appraisal didn't come out to this Council. Council Member Grossnickle said he did not get the appraisal until Jordan Harper provided it to him in a ring bound notebook. Mrs. Clifford said she had a question about the appraisal. Mr. Wilson said the Council slandered and slandered the Harrison Walker firm and it was all over town and it was even in the newspaper as an editorial written by Judy Battle on the 7a' before they had the meeting and announced it on the I Oh. He said he could not understand how they proceeded under false accusations with an anonymous letter that was not true and yet spent 50,000 or directed Mrs. Clifford to go out and hire an investigator when Dr. Hashmi already knew the outcome... Council Member Hashmi told Mr. Wilson not to say that, because he had already clarified the timeline. He told Mr. Wilson to not make a false accusation, and that he did not stop anyone from giving documents to anyone. Council Member Hashmi said he never mentioned the name HWH at any point, not once, that he did not slander them and the first time the name of HWH was mentioned was by Council Member Grossnickle. He also said if he knew the allegations were true they would not have had to investigate. Council Member Hashmi said he did not waste $50,000 as the Council voted to request PEDC to get a firm to investigate and PEDC could have voted not to do that. Mr. Wilson asked Mr. McIlyar to come forward and said he had a conversation with Mr. McIlyar on Friday. Mr. McIlyar confirmed that Mr. Wilson came to his office. Mr. Wilson said Ms. Barrentine showed Mr. McIlyar the appraisal and that she remembered he asked her to make nine copies for the Council. Mr. McIlyar said he double checked with Ms. Barrentine to make sure there was no appraisal related to the 2010 project, because it had been placed on the Agenda. He said Ms. Barrentine told him she was out of town at a conference and the first time she would be able to get with him was Monday, the day of the Council meeting. Mr. McIlyar said on the same day of the Council meeting he was at the smoking task force committee meeting that lasted up until the Council meeting and he did not Joint City Council /PEDC Meeting September 15, 2014 Page 15 believe he got those reports. Mr. Wilson confirmed Ms. Barrentine took the copies to his office. He asked Mr. McIlyar if he saw the appraisal when he went to Ms. Barrentine's office that day and he answered in the affirmative. Mr. McIlyar said it was a large document, that he was not an appraiser and he did not have time between meetings to verify whether it was accurate or not. Mr. Wilson asked Mr. McIlyar if he looked at the tax statements that added up to more than 5 million dollars. Mr. McIlyar said he did remember seeing tax statements. Mr. Wilson asked Ms. Barrentine if she gave Mr. McIlyar a copy of the tax appraisals and Ms. Barrentine responded [inaudible as she was speaking from the audience]. Mr. McIlyar reiterated that he did not remember that. Mr. Wilson said at the March 10, 2014 meeting Mrs. Lancaster, Mrs. Drake and Dr. Grossnickle all said they were concerned and stated shouldn't they ask HWH or shouldn't they get with PEDC and verify if this was all of the value. Mr. Wilson told Mr. McIlyar that he did not understand why he did not inform them of the appraisal. Mr. McIlyar said the chief finance officer for HWH was at the meeting that night and he didn't feel like it was his business to tell the Council whether HWH had an appraisal from 2010 when their CFO was at the meeting that night. Mr. McIlyar said he thought Council Member Hashmi and other Council Members also made it clear that they were not just investigating an HWH agreement, but they had concerns about financial impropriety, budgeting, bookkeeping, accounting, and a lot of things. He said he did not believe the vote would have been different if he had told them an appraisal had been found by Ms. Barrentine. Mr. Wilson wanted to know why when he asked him whether he had discussed this with Dr. Hashmi, why did he say it was attorney client privilege. Mr. McIlyar said because he had an oath with the State of Texas and the City Council members are his clients and he cannot reveal their conversation to third parties. Council Member Pickle asked Mr. McIlyar if he discussed that appraisal with any Council Member. Mr. McIlyar said at some point he did. Council Member Pickle asked if it was before the Council meeting and Mr. Wilson asked if it was after the Council meeting. Council Member Pickle said he wanted to know if Mr. McIlyar discussed it with any Council Member prior to the Council meeting. Mr. McIlyar said he would go into executive session and answer his question. Council member Pickled moved to go into executive session. Mrs. Clifford said she would like to make a comment about the appraisal. She said she believed the appraisal question came up through an open records request when someone asked if there was documentation to support the 5.8 million dollar guarantee. Mrs. Clifford stated that when Ms. Barrentine received the request from the City about the appraisal, she reported she was not aware of one and that she had e- mailed Mr. Gilbert who was not aware of one either. Mrs. Clifford said Mrs. Barrentine did locate the appraisal, but at the time neither she nor Mr. Gilbert knew there was an appraisal. Mrs. Clifford suggested they go back and look at that appraisal, since it was a big part of the investigation. She said the guarantee was a guaranty collection of a 5.8 million dollar loan, a collateral loan where HWH offered for appraisal their property at 1401 3rd Street. Mrs. Clifford said this was a direct quote from HWH's appraisal and that the property was appraised by Thompson Appraisal Services in Lindale Texas. She also said the bank stipulated they would only grant the loan if the property appraised for 6.7 million dollars and the property appraised for 7.75 million dollars. She said they also stated that the list of property located at 1401 3rd Street on the 2010 Lamar County Appraisal District showed property Joint City Council /PEDC Meeting September 15, 2014 Page 16 valuation in the amount of $30,290. Mrs. Clifford said her calculation was they were being taxed at 3.9% of fair market value. Mrs. Clifford reported the appraisal also noted review of the Lamar County website records which reflected there were unexplained variances for this property. The appraised value of this property in 2007 was $1,106,800. In 2008 it was $1,118,670. For the years 2009, 2010, and 2011 the appraised value was a constant $43,970 with improvements in the amount of $1,960,700 which were reflected in 2007 and 2008 appraised value; however, these improvements were not reflected in the following years. The appraisal reflected the market value (as quoted) as is for all combined HWH properties located at or near 1401 3rd tract and the buildings located thereon. Had all the HWH properties on this particular tract been combined on the appraisal district website, the amount would have resulted in a valuation of approximately 1.3 million dollars, 16.77% of fair market value. Mrs. Clifford said the loan document and guaranteed collection was very specific that the appraisal was to have been on 1401 3rd Street, not the entire complex. She said even in the appraisal that was provided in the booklet provided by Mr. Harper listed out 9 different account numbers with the current assessed value of $1,322 910, which equates only to 5.05 per square foot and this is far below the estimated market value as is. Mrs. Clifford said this was an advantageous assessment for them. Mr. Grubbs wanted to know what Mrs. Clifford was reading from and she told him from the report and appraisal that Mr. Harper provided to all of them referencing Rodgers Wade. He asked her if her point was the property was undervalued on the tax rolls. Mrs. Clifford said there were two points; one was that it was undervalued and secondly, the guaranteed collection reflects one of the properties and in the appraisal he uses nine properties according to the Defenbaugh report. Mr. Brockman said for simplicity he did not list nine addresses, but listed the entire legal description of the nineteen acres. He also said the address listed was their headquarters. Mrs. Clifford said she was not an investigator and the report said differently. Mr. Brockman said he would like to make a motion that the PEDC recommend... Mr. Wilson said he had one other thing he would like to bring up and it was addressed to Mrs. Clifford, who stood in this meeting, went to the board meetings and she said she could not give a written report, yet when they talked to Mr. Defenbaugh, that he said to Mrs. Clifford that she told him not to give a written report. Mr. Turner objected to this statement saying this was coming right out of executive session and they were not supposed to talk about what was discussed in executive session. Mrs. Clifford said the executive session was to only have been about personnel but Mr. Wilson brought up they had discussed the report, which obviously deviated from the executive session. A Motion that the PEDC recommend to the City Council that they take no further action on the Defenbaugh report was made by Mr. Brockman and seconded by Mr. Wilson. Motion carried, 3 ayes -2 nays, with Mrs. Clifford and Mr. Turner casting the dissenting votes. A Motion to adjourn PEDC made by Mr. Brockman and seconded by Mr. Grubbs. Motion carried, 5 ayes — 0 nays. PEDC adjourned their meeting at 7:24 p.m. Council Pickle inquired if it was legal to move into executive session at this point and Mr. Mellyar told him it was not posted that way. He asked Mr. McIlyar if a Council Member Joint City Council /PEDC Meeting September 15, 2014 Page 17 looked at the appraisal and were they aware of the appraisal before the Council meeting the night of March 10 and Mr. McIlyar said he did not know if they did or did not. Council Member Pickle said he did not answer that question a minute ago and Mr. McIlyar said he had asked a different question a minute ago. Mr. McIlyar said he had asked whether he had specific conversations with any Council Members. Council Member Pickle said this Council wants to know and no one up here has an object. Mr. McIlyar said he was ignoring the fact that there were different Council Members as far back as March; other Council Members were not on the current Council. Mr. McIlyar said he could not violate attorney client privilege even of past Council Members in an open session. Council Pickle said Mr. McIlyar was insinuating that someone knew it then. Mr. McIlyar said no, he was not. He also said he could not answer that question in open session, because it involves former City Council Members or current City Council Members. Council Member Pickle said even though this Council is asking you to and you work for this Council. Mr. McIlyar said he understood who he worked for, but at least two Council Members that were previously on the Council are not on this Council. Council Member Pickle inquired why he could answer it in executive session and could not answer it in public when all of the Council was present. Mr. McIlyar said he could only address it as to one Council Member who was on the current City Council and it was not going to be illuminating as he would think. Mr. Pickle told Mr. McIlyar to answer the question. Mr. McIlyar told Council Member Pickle he was not going to answer the question in open session, but would bring it back at the next meeting in executive session. Council Member Pickle asked that at the next meeting, they add 1) Mr. McIlyar answer the question 2) possible termination of the city attorney for failure to do his job. Mayor Frierson asked if the city clerk noted this and she answered in the affirmative. Mayor Frierson said they had a Motion from the EDC and asked if there was any other discussion among the council at this time about this. Nothing was referenced. 3. Adjournment. There being no further business, a Motion to adjourn was made by Council Member Pickle and was seconded by Council Member Hashmi. Motion carried, 6 ayes — 0 nays. The meeting was adjourned at 7:28 p.m. MATT FRIERSON, MAYOR u L?, ICE ELLIS, CITY CLERK