Documents Altered on $750,000 State Grant - | Nashville News, Weather & Sports

NewsChannel 5 Investigates: Friends in High Places

Documents Altered on $750,000 State Grant

(Story created: 1/17/03)

As Gov. Don Sundquist prepares to leave office, there are new questions about how his administration spent your tax money.

Among the questions: did state officials create phony documents to cover up a questionable expenditure?

Now, state auditors have seized some files from the state Department of Economic and Community Development while they try to answer that question.

NewsChannel 5 investigative reporter Phil Williams discovered the documents that raise questions about a possible cover-up.

The suggestion came from a mid-level ECD official after top officials insisted upon approving a grant that some employees believed was clearly inappropriate.

"The question now is how to fix this," wrote Michael E. McGuire, suggesting that the department could backdate approval documents. McGuire, now retired, was director of the office that administers grants.

After NewsChannel 5 discovered those documents, state auditors seized the Theragenics files while they investigate.

McGuire has now told them that it was his attempt -- perhaps misguided -- to protect the ECD employees who were ordered to approve the grant and to keep from establishing a precedent for retroactive funding of projects.

The questions focus on a special ECD fund designed to lure industrial jobs to Tennessee. That fund is called the Tennessee Industrial Infrastructure Program -- TIIP, for short.

It's supposed to be used to help local governments pay for water and sewer lines, as well as other infrastructure improvements, for manufacturing facilities being built here.

The questionable transaction involves a company called Theragenics, which produces radioactive devices used to treat prostate cancer.

In April 1999, Theragenics announced plans to build a production facility in an industrial park near the Oak Ridge National Laboratory. Construction began a short time after the announcement.

The industrial park was being developed by the Community Reuse Organization of East Tennessee, a nonprofit group whose board of directors included then-ECD deputy commissioner Alex Fischer.

Then, a year later, the Sundquist administration approved $750,000 to help the city of Oak Ridge pay for the project.

But documents obtained by NewsChannel 5 show McGuire raised questions about the funding.

In a memo dated Dec. 28, 1999, McGuire wrote to Fischer that "most" of the proposed expenditures "are problematic" -- including using taxpayer money to pave a private drive for Theragenics.

"It would appear to me that we have legitimate costs totaling $271,198 ... rather than the $731,014 requested," he added.

McGuire questioned whether TIIP funding was even appropriate:

"In their words, they are locating in Oak Ridge because 1) the equipment and technology is there, 2) the expertise available at the ORNL, 3) the availability of a technical work force. This would indicate that if they are going to conduct business it must be in Oak Ridge. Is this true? If it is, why spend TIIP money? Just let them come."

ECD's loan and grant committee approved a $750,000 grant on April 20, 2000.

Among those voting to approve was Fischer.

Then, in a memo dated Jan. 25, 2001, McGuire wrote to Fischer that he was disturbed by the fact that the state's contract with the city of Oak Ridge was not effective until Aug. 31, 2000.

At the time the memo was written, Fischer was commissioner of economic development.

"The problem now is that the construction contract was dated June 23, 1999, and we have received invoices and requests for payment for work which predates the Committee's reservation of funds, contract approval, and proceed-at-risk approval."

McGuire added, "The question now is how to fix this."

"Unless you want to pay for work which was done prior to the Committee's approval of anything, it will be necessary for us to 1)back date a proceed-at-risk letter to June 15, 1999 and 2) modify the minutes of the June 10, 1999 to reflect Committee approval of such.

"The alternative is to go ahead and make payment on the invoices and hope this doesn't get noticed by ECD or Oak Ridge auditors. We can pass off the April 20, 2000 proceed-at-risk approval as just forgetting we did it on June 15, 1999."

It's not clear whether top ECD officials saw that memo.

But a proceed-at-risk letter provided to NewsChannel 5 by ECD officials was backdated to June 23, 1999. Other documents also appear to have been altered.

In a written statement, ECD officials sidestepped questions about why McGuire may have felt the need to backdate documents related to the project.

They say the Theragenics grant was a fulfillment of a promise made to the company before it agreed to set up shop in Tennessee and bring much needed jobs to the Oak Ridge area.

ECD officials later approved another $500,000 to build an electrical substation to benefit Theragenics -- even though the legislature has limited TIIP grants to $750,000.

Similar questions arose in 1995 after the Sundquist administration committed $4 million to help Thomas & Betts, an electrical supply company, move its headquarters from one Memphis office park to another. Thomas & Betts indicated it would increase its workforce there from 500 to 1,500 -- a goal it never achieved.

At that time, the legislature had set a $1 million cap.

A department spokesperson says that's a "contract limit" -- which they interpret as meaning ECD officials can provide an unlimited amount of grants to benefit a company through multiple contracts.

State auditors have also seized the Thomas & Betts files as part of the investigation.

In addition, auditors confiscated files relating to an ECD advertising contract with a longtime Sundquist supporter, Darrell Akins.

They want to know if ECD officials circumvented state bidding procedures by funneling other contracts through Akins' firm, including a consulting contract with former Tennessee Valley Authority chairman Craven Crowell.

ECD officials say their contract with Akins' firm allowed for such "pass-through" contracts.

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