December 8, 2013
You’ve likely passed one of the Virginia Tobacco Commission’s many projects every day for the past few years without even realizing it.
One is the Bristol Train Station, a familiar landmark that received $50,000 in commission cash for its renovation. Maybe the drive to work has led you past the 300 acres of the Oak Park industrial complex just off Lee Highway in Abingdon. A total of roughly $11 million went toward the park’s sewage, utilities and access road.
In a little more than a decade, the Tobacco Commission has dropped $1 billion into Southwest and Southside Virginia museums, construction projects, industrial parks, scholarship funds and private business infrastructure – all to recapture the dollars and jobs lost to a dwindling tobacco industry. Of that money, $338 million has gone into projects intended solely for Southwest Virginia.
Much of the money has flowed into project coffers with little more fanfare than a news release, a few ceremonial groundbreakings and walkthroughs with state legislators, and sometimes the obligatory ribbon-cutting photo ops.
The money is no secret to those who scramble daily for every financial grant out there, however. To people like Jessica Turner, curator of the Birthplace of Country Music Museum now under construction in Bristol, it’s a wellspring of funding that boosts a project’s chances of seeing the light of day.
“The community may not know about it,” she said. “The Virginia Tobacco Commission has created quite an amazing program.”
Still, the commission has seen its fair share of controversy: it’s been bilked out of millions of dollars by a state official now in federal prison, and has been blasted by two audits calling for a greater bang from the commission’s bucks.
These controversies led a retired Tobacco Commission member and former state lawmaker to question whether the money has been wisely spent.
“They were all really good projects,” said Bernie K. Day, also a retired delegate for Patrick County. “It just seemed to me the way we gave away money … we really didn’t have much to show for it.”
Spending
Since April 2000, the commission has spent slightly more than $813 million and set aside $189 million more for 1,700 grants tied to projects in 41 cities and counties across the state’s Southwest and Southside regions.
Of that money, $309 million went to tobacco farmers to help account for the revenues lost in a dying industry. This commission spending program ended in 2012.
“We paid farmers for their lost quotas,” said commission Chairman Delegate Terry Kilgore of Gate City. “We’re the only state that did that.”
Technically, the Tobacco Commission goes by the title Tobacco Indemnification and Community Revitalization Commission. State legislators created it in 1999 following a federal lawsuit in which 50 states and one territory successfully sued the nation’s four largest cigarette-makers for the costs of treating smoking-related illnesses.
Four states negotiated a settlement with the companies. The remaining states divided winnings that totaled $206 billion. Virginia’s share was initially estimated to total $4.1 billion over 25 years.
Virginia legislators created the 31-member commission to find a way to make up for the jobs and revenues lost to a declining tobacco industry, which was the life’s blood of this corner of the state. The commission has 10 members from the state’s Southwest region, 18 from the Southside section, and three state officials, including the secretaries of commerce and trade, agriculture and forestry, and finance. They meet three times a year.
Soon after the national legal victory, state legislators decided to funnel half the money toward the Tobacco Commission, roughly 40 percent went toward smoking-related Medicaid costs, and the remaining 10 percent toward anti-smoking and anti-obesity campaigns.
“A lot of other states put [their share] in the general fund … which, in my opinion, is an absolutely horrible way to do things,” Day said.
Here, in the southwestern part of the state, the commission has sprinkled the money into as many projects as possible.
Much of the money has been a single piece to larger funding puzzles. For example, in June, Bristol, Va., officials won a $5.5 million funding guarantee by the commission to make The Falls shopping center more attractive to the bond market, where the city hopes to sell millions of dollars worth of revenue bonds to fund the ongoing construction near Interstate 81’s Exit 5.
The 1.5-million-square-foot project, to be anchored by a Cabela’s outfitters, will cost at least $100 million. It is expected to compete head-on with the in-the-works The Pinnacle shopping center, located six miles away at I-81’s Exit 74, just across the border in Tennessee. It will be a 1.3-million-square-foot center anchored by Bass Pro Shops.
Another example can be found in the Birthplace of Country Music, which raised nearly $12 million from various groups for its 24,000-square-foot museum, now under construction and expected to open in 2014.
The commission allocated $4.09 million to the museum from 2004 through 2009.
In a way, the commission’s grants bestowed credence on the museum and opened the door to more funding opportunities, curator Turner said.
“It’s a little easier to get everybody on board,” she said. “If we didn’t [get approval for grant requests] that would have sent a negative signal to the other organizations.”
Criticism
Scrutiny has been leveled against the Tobacco Commission over the years, especially over the way it has spent its millions of dollars.
A 2008 Blue Ribbon study headed by former Gov. Gerald Baliles blasted the commission for often funneling much cash into small-budget projects that either yielded few new jobs or spurred inconsequential returns on the investment.
“Having a local grant proposal process with every funding decision approved [by a political figure] contributes to ‘forum shopping,’ increases political considerations …” the Baliles commission found.
Simply put, commission members often direct their attention toward hometown projects while ignoring programs that could have boosted the regional economy, the study found.
“I once got money for a covered-bridge festival,” former commission member Day admitted. “I don’t know what that’s going to do for jobs. But I’m sure it made a lot of local people real happy.”
Years later, in 2011, a similar study by the Virginia General Assembly’s auditing arm stumbled upon the same pet-project dilemma.
“Most of the local and regional economic developers from the tobacco region acknowledged, sometimes critically, that the commission’s funding decisions are at times based on criteria other than the merits of the proposal,” reads the study by the Joint Legislative Audit and Review Commission.
The problem might have been endemic with big-budget groups comprised of politicians representing small, localized areas, Day said.
“If your community is asking a commission member for a few dollars, it’s hard for that individual member to vote against that,” he explained.
In 2010, the spotlight landed on the commission’s spending habits when a former member landed in federal prison for using a shell corporation to bilk the group out of millions of dollars.
John W. Forbes II was the state’s secretary of finance when he held a commission seat from mid-2001 to early 2002. In that time, he convinced the commission to allocate $5 million to a bogus literary foundation, federal court records state.
About $924,000 actually made it to a legitimate adult literacy fund. But the rest either paid the salaries of Forbes and his wife as foundation heads, or wound its way through several shell companies before footing the renovation costs for his house.
He is now serving a 10-year federal prison sentence.
“It was a black eye for the commission,” Kilgore said of Forbes. “But that really helped us set in place more controls and getting more information from applicants.”
Controversy has also dogged the commission because it scrutinizes its deal-closing, business development grants – called the Tobacco Region Opportunity Fund -- more heavily than it does to money handed to other programs.
“In most of its other programs, the commission has devoted most of its staffing resources to reviewing applications and monitoring the spending of grantees, and has given relatively little attention to monitory outcomes or performance,” the 2011 audit states.
A recent example can be found in the proposed King School of Medicine, also called the Southwest Virginia School of Medicine, which would locate in Abingdon and serve as an allopathic medical school for the region. In 2009, the Tobacco Commission pledged $25 million to the project, and initially released $1 million for school officials to spend as part of the set-up.
But progress on building the school seems to have come up short. So, at September's commission meeting, members decided to freeze those funds – all but $350,000 of the amount released has been spent -- and required school officials, including interim President Tariq Zaidi, to show some satisfactory progress by the commission's meeting next month.
Attempts in recent weeks by the Bristol Herald Courier to contact Zaidi for an update have not been successful.
Members of both the Abingdon Town Council and the Washington County Board of Supervisors have offered funds as a match to the tobacco commission grant, and have so far advanced about $100,000 to the project.
To Kilgore, “it’s impossible” for the level of scrutiny usually reserved for job-creation business grants to be applied to education projects like the medical school or community programs like the Birthplace of Country Music Museum.
“On something like the museum, you know it’s going to help the quality of life in the area and you know it’s going to help tourism, but then you’ve got one economist saying something about jobs created and another economist saying something different,” Kilgore said.
The long run
The Tobacco Commission’s time is growing short. It spends roughly 10 percent to 15 percent of its budget each year and the money will run thin at some point.
“Eventually, you’re going to have some real lean years,” said commission Director of Finance Stephanie Kim.
By the time those lean years arrive and the commission’s bank account has spread thin, Kilgore estimates that nearly $2 billion will have been dropped onto Southwest and Southside.
“I think we’ve got five to seven years of life left,” he said.
Since 2008 alone, the commission estimates that its money has resulted in commitments by private industry to create 14,000 jobs and spend $4 billion for capital investment.
Still, many people wonder if it’s enough, especially in a region that lags behind the rest of the state in economy, education levels, wages and employment.
“I’m not sure you can transform the (region’s) economy with $2 billion,” Day said. “It’s a lot of money, and it’s not a lot of money. It’s not much when compared with the state’s entire budget. Is it enough to revitalize the economy of a distressed region?”
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