A committee of state legislators approved an $8.5 million contract Thursday morning for a nonprofit that was chosen, created and run by current and former officials of the Cabinet for Economic Development, despite those legislators deferring approval of that same contract in June due to concerns over the organization’s formation and independence.
As first reported by WDRB, the Commonwealth Center for Commercialization Inc., known as C3, was formed last October and two of its original board members were Terry Gill, the secretary of the economic development cabinet at the time, and Brian Mefford, who remains the cabinet’s director of its Office of Entrepreneurship and Innovation.
Shortly before resigning in May, Gill signed the $8.5 million no-bid contract awarded to C3, which had typically gone to the Kentucky Science and Technology Corporation (KSTC) since the Kentucky Innovation Act went into effect in 2001. That law requires the cabinet to work with a science and technology organization to administer programs like the Kentucky Enterprise Fund, which hands out state grants to qualified startups and university researchers.
Mefford is currently the interim CEO of C3, though he does not take a salary for that position.
State Sen. Stephen Meredith, R-Leichfield, the co-chair of the committee, balked at giving final approval to the contract at the meeting in June, expressing concerns over the formation of the organization and whether it was an “off-the-books entity.”
However, after Mefford and the cabinet general counsel Jessica Burke — also the secretary of C3, according to records of the Secretary of State’s office — gave a presentation and took questions from the committee on Thursday, those concerns from Meredith and all but one other legislator faded away, as the committee approved the contract by a 6-1 vote.
Mefford told the committee that while KSTC initially did a serviceable job in its new role after 2001, Kentucky has begun to lag behind other states when it comes to similar innovation programs and funds — noting that Kentucky’s enterprise fund is at only $15 million, while Illinois’ is at $700 million. He added that C3 would provide a fresh approach to the program that provided more oversight and less overhead costs.
Asked about a WDRB story on Tuesday noting that the cabinet had already awarded $720,000 to C3, Mefford said that was money left over from the last fiscal year that ended on June 30 that had to be spent.
However, Rep. Charles Booker, D-Louisville, questioned Mefford and Burke over whether a contract awarded to an organization with such strong ties to current and former economic development cabinet officials created conflicts of interest and violated state ethics laws.
Burke answered that the board of C3 was not completely controlled by the cabinet, as there were other private sector officials on the seven-member board, noting that the board members with ties to the cabinet did not take a salary. She added that the cabinet has requested a formal opinion from the Executive Branch Ethics Commission confirming that no ethical violation was taking place as long as Mefford and those board members were not paid.
Insider Louisville found that a new filing submitted to the state by C3 on Thursday afternoon now lists Vivek Sarin, the interim secretary of the economic development cabinet, as a new member of the C3 board.
Booker also questioned whether the newly created C3 had proven track record as a science and technology organization, as is required by the Kentucky Innovation Act, but Mefford said that C3 is partnering with state universities to meet that qualification.
After Booker’s questioning, Rep. Mark Hart, R-Falmouth, made a motion to table the contract again until the meeting next month, saying that members still had a lot of questions about C3.
However, Mefford pushed back against that suggestion, saying that further delay would hurt C3’s ability to make new hires and start distributing grants to companies that were already lining up to receive them, suggesting that some of those companies may not be able to survive much longer without them.
Though Sen. Phillip Wheeler, R-Pikeville, questioned the business model of any company that might go out of business if it didn’t receive a government grant in the next 30 days, he and other members of the committee voted to approve the contract, with some arguing that it couldn’t hurt for the state to try something different on this program, which they can now track the progress of.
Even so, the committee only has an advisory role, and the cabinet could have moved the contract forward even if the committee did not formally approve it.
Speaking to reporters after the meeting, Mefford said that 15-20% of the $8.5 million awarded to C3 would go to its staff and overhead costs, with the rest being distributed in grants to companies. He added that while C3 will have half the staff of KSTC, that was not an apples-to-apples comparison, as KSTC has had other functions beyond administering the Kentucky Enterprise Fund.
Asked if former cabinet officials like Gill might eventually take paid positions with C3, Burke and Mefford said that state ethics law would prohibit that from happening within the first year after his resignation. Mefford added that there were “no plans” to do so next June after that one-year period had ended.
Mefford said that while he did not have any specifics about the overhead costs of KSTC, he noted that the Finance and Administration Cabinet was currently conducting an audit of that organization.
Burke added that C3 would volunteer to comply with the state’s open meetings law and open records law for the sake of transparency.