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Goliad leaders look for way out of economic mess

By Melissa Crowe
Oct. 26, 2013 at 5:26 a.m.
Updated Oct. 27, 2013 at 5:27 a.m.

Texas Star Investments was granted money for infrastructure on this empty lot on Pearl Street in Goliad.

Where the money went

$122,750 grant to Texonian Development; the land has not been developed

$66,320 partially forgiven loans given to Angels RV Park

$65,845 loan and grant given to Goliad Funeral Home, which has been repaid

$60,000 grant to Best Western

$51,120 grant to Texas Star Investments

$50,000 loan to Antlers Inn, which is in good standing

$32,000 loan to ANS Welding

$31,128 loan to WL Laundry

$25,600 loans to Lone Star Video store, which has closed

$24,000 loan and grant to the Hanging Tree Restaurant

$19,588 loan to Panache on the Square, which has closed

The background

An extensive Victoria Advocate investigation revealed a program started to promote economic development has instead been riddled with poor record-keeping, questionable loan practices, missing documents and virtually no accountability.

Since 2008, the city has issued about $550,000 of public taxpayer money in loans or grants in the name of economic development.

Of the 13 approved loans and grants, six of 10 loans defaulted, two businesses closed, and several contracts could be up for legal dispute because of unclear contract terms or unsigned documents.

GOLIAD - This small town is struggling with a bookkeeping nightmare, a legal battle and little chance of a return on its investment of a million in tax dollars funneled through an unchecked economic development program.

In reaction to a Victoria Advocate investigation, the city has ceased lending and hired an outside attorney and a financial consultant to clean up the economic development program, called the Municipal Development District.

Adair Sutherland, the longest-serving member of the Municipal Development District, said she wants to do away with the program and return to one with state oversight.

If Goliad had continued to operate under state rules governing economic development corporations, she said, "a lot of this would not have happened."

Investigation

Former members of the Goliad Municipal Development District said they saw the problems coming - when the program's incentives focused on propping up business dead-ends and helping friends rather than creating jobs or boosting the economy.

Newton Warzecha served on the board during its inception in 2008 until the day he resigned in 2011.

"I think there's a lot that has gone on and has been going on that needs to be exposed," said Warzecha, executive director of the Presidio La Bahia in Goliad. "The public, the voters who elect those city officials, should know about it."

Since the Victoria Advocate's extensive investigation into the development district's lending practices began, Goliad County District Attorney Michael Sheppard called in the Texas Rangers to investigate those lending practices.

Sheppard said the Rangers have "a plan of action" but did not want to release details about the ongoing matter.

Mayor Jay Harvey has said he welcomes the investigation. His predecessor, former Mayor Bill Schaefer, said it is warranted.

"There's contracts not signed, contracts missing, money unaccounted for, and all this needs to be accounted for and taken care of properly," Schaefer said. "I hope they will answer the public's questions. Right now, the public has a lot of questions and rightfully so."

Saw it coming

Former city staff and board members said they worried some incentives helped friends of other board or council members. They cited concerns about members accepting bribes and kickbacks and being involved for personal gain.

Former Economic Development Director Bridgette Bise said the problems started "long before" she was hired in 2012.

"It bothered me that we had City Council members that owed the city money for businesses that weren't in existence anymore," Bise said.

Bise, who also served as Main Street director and promoted community development, said she was "disheartened" and "frustrated" with the economic development program, the mentality of the city and, specifically, the Texonian development grant and loans given to council members Vicki Rubio and Lionel Garcia.

Rubio was loaned $25,600 to open a video store that went out of business, and Garcia was loaned $31,128 for a laundromat. Garcia stopped making payments on his loan a month after being elected in May 2011. He recently started repaying his debt.

"It was a mess," Bise said. "Loans were given out to people who did not have the experience nor the background or references that we checked out."

Bise cited concerns about the development district and City Council awarding a $122,750 grant in 2012 for a 51-acre commercial and residential development. A year later, the field sits empty, and the grant money has not been disbursed.

Roney Powell, a retired investigation sergeant with the Ohio State Patrol, knew what to look for to find fraud.

Powell, who was a board member in 2008 and 2009 as well as a city councilman, said the board took a bad turn "when council people started using the MDD for their own benefit."

His wife, Linda, called it "the perfect storm."

It made no difference whether a vote was a good or bad business decision; the loans always passed, she said.

"I think it started with the majority of the MDD members never bothering to read their own policies and procedures," she said.

The mentality of helping each other - rather than being stewards of taxpayer money - took precedent in decision-making, she said.

Return to EDC

Erika Bochat, who served as economic development coordinator before Bise for about two years, said the program was not as professional as it could have been, and the facts back that up, she said.

"Yes, things could have been done more prudently," she said. "City staff and decisions could have been made much more soundly by board members and by City Council."

The board developed a checklist and its own rules and regulations, Bochat said, "but then small-town politics comes into play."

She said her role was never influential.

She worked with Goliad as the Main Street director when the town converted its state-regulated Economic Development Corporation into a Municipal Development District with no state oversight. The city manager at the time hoped the development district would bring in more sales tax revenue because it extended the taxation boundaries, she said.

"I believe it met that to a small degree," Bochat said. "We don't have a lot of businesses in Goliad."

The program adopted a mentality of neighborly love, she said.

"You have to live with these people. That's what made it complicated," Bochat said.

Sutherland, the long-serving development district board member, agreed.

"If somebody came forward with a request, you don't turn them down if it was the only request we've got," she said. "When somebody came and wanted something, how can you turn them down when there's nothing else around?"

Lending philosophy

Since the start of the program in 2008, the longest-serving councilman, Buddy Zavesky, has backed it.

During a recent council meeting, Zavesky said the members should have been more ethical but later defended their history of lending and their philosophy to recouping taxpayers' investments.

"I want their money, not their piece of property," Zavesky said. "We're not in the real estate business. We're in the business of business. ... If somebody leaves us high and dry, then we've lost it, just like the bank has."

Zavesky, a former mayor, said he wants the loans to grow successful businesses.

"We want people to stay in their business and work," he said. "I don't want them to close up or owe money."

So long as the debtors stay in town and assure the City Council they'll eventually repay, Zavesky said, it's OK. The program, he said, is about keeping businesses open.

"There's nothing here that would make me a dollar," he said. "I wouldn't even go into the car wash business."

He said the town of 2,000 residents cannot compete with Victoria, about 30 miles down the road.

"I want to see what we've got stay in town and prosper," he said. "They're not going to make a million dollars at the laundromat, but I want to have things here that these Goliad people can use."

Legal issues

Meanwhile, the development district continues to try to sort out its books. After five months of delinquent payments, the district sent a collection letter to the owners of ANS Welding.

The two owners, Alvin and Stephanie Welch, received a $32,000 low-interest and partially forgivable loan in March.

The company said the business would bring more oil-field industry to town and create jobs for 10 people within three years.

Instead, the Welches never purchased property in town, and the company never opened.

The Welches' attorney, Leslie Werner, refuted the claims.

"The GMDD ... has engaged in extremely questionable and most likely tortious conduct," Werner wrote in a response letter, demanding the board members cease all mention of the Welches.

City Administrator Larry Zermeno refused to comment on the issue, citing the ongoing Texas Rangers investigation.

Zermeno served as the city's financial officer in 2011 and 2012, during which time, the city gave out $308,870 in incentives, not including the loan for ANS Welding.

The development board has hired Victoria attorney Kevin Cullen to represent it in the matter against the Welches.

City Attorney Terry Baiamonte did not return multiple messages for comment.

As a board member, Sutherland placed the blame, albeit lightly, on the City Council for the mess.

"The council -- they're not an educated group," she said. "I don't like to criticize the people I work with."

A new economic development director, Jeremy Turner, who is a former employee of Warzecha's at the Presidio, started work with the city last week.

But Sutherland said that might not be enough to resolve Goliad's issues.

"Having an economic development person very definitely helps -- if they're educated for the job," she said. "We'll just have to wait and see."

She says the problem is rooted in due diligence.

"Had we had, throughout this, really professional people doing their homework, a lot of this would have been avoided," she said.

Read more about our investigation:

Goliad's $1 million mess:Multimedia Investigation

The businesses:Who received the loans?

Editorial:Goliad's $1M mess

Texas Rangers to investigate Goliad lending practices

Legislators to review development districts law

Goliad district operates under few state rules

How Victoria's economic development works

Advocate editorial board opinion: Public must push harder for open government

Goliad board lowers councilman's loan payment (video)

Goliad mayor says Advocate report 'hurt' (video)

Goliad officials attempt to collect on $32,000 loan

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