A little-known Kansas company is at the center of a controversy about whether Victoria County spent Hurricane Harvey recovery money in the taxpayers’ interests.
To learn more about the company, formerly called the Virtus Group and now known as Commercial Restoration Company, the Victoria Advocate contacted 58 Texas counties the Federal Emergency Management Agency said were affected in some way by Harvey. The newspaper found that Chambers and Refugio counties bypassed bidding laws and entered into contracts with Virtus Group that were nearly identical to what Victoria signed about the same time.
Like Victoria, the counties, both with much smaller populations, said they hired the Olathe, Kan., company at the recommendation of their insurer, Texas Association of Counties. Chambers County paid Virtus about $1.9 million, while Refugio County paid $893,047.36.
Victoria airport commissioner and businessman Dennis Patillo, one of the first to raise concerns about Victoria’s Harvey spending, said he wanted to know more about how the county selected Virtus.
“When vetting for a big project like that, it is a substantial need to see that our money is spent wisely and competently,” Patillo said. “I’m still waiting to hear those answers.”
What’s the background?
In June, some airport commissioners criticized how Victoria County managed Harvey-related remediation and repairs at the Victoria Regional Airport.
In response, county commissioners defended the process as proper because state law allows them to bypass bidding in an emergency and all payments went through the independent auditor’s office.
But the Advocate reported in July that the auditor at the time rubber-stamped payments to Virtus totaling about $2.1 million without questioning them. This was in part, officials said, because they were submitted by Joyce Dean, the former director of administrative services. Dean, the Advocate reported earlier this month, criticized county employees who questioned this arrangement with Virtus.
Patillo said he was frustrated by how long it was taking County Commissioner Kevin Janak to review the spending. Janak formed a small internal group in March to sort out the Harvey project after Dean retired in late February.
“We are told that there is an investigation ongoing that is now in its eighth or ninth month that Kevin Janak is leading,” Patillo said. “I congratulate him for doing it, but the fact that it’s taken so long really exacerbates people’s concerns that ask, ‘Were there checks and balances in the system?’”
Patillo repeated his call for an independent citizen task force to review the Harvey spending.
“I think that everybody – elected officials, county employees and taxpayers – would all be served best with complete transparency,” he said. “As a way of looking forward, we are going to face another emergency in the future, so we can look to this to see how we can improve.”
TAC’s relationship with Virtus
The Texas Association of Counties was going to explain to the Victoria Advocate how it selects the contractors it recommends counties use but then changed its mind.
It said it selects contractors that are reputable, financially stable and capable of responding to a disaster with the necessary materials and personnel, but it refused to explain how Virtus had demonstrated any of those characteristics.
Virtus formed in 2013. Five years later, the company changed its name to Commercial Restoration Company, and its website contains neither descriptions nor photographs of its previous work, unlike the website of Gerloff Company, a San Antonio-based contractor that restored Port Aransas school district buildings after Harvey.
In an email sent to the county the day Harvey made landfall Aug. 25, 2017, an association representative recommended both Virtus and Gerloff. Dustin Gerloff, the vice president of Gerloff Company, said Victoria County never called.
Neither Virtus nor Commercial Restoration Company is rated by the Better Business Bureau, and the company has at least one pending lawsuit filed against it in Comanche County, Okla., in which a woman claims she was injured while Virtus was working on her home.
Bill Sutter, the CEO/founder of Virtus, declined to say how Virtus’ relationship with the Texas Association of Counties or Victoria County began or whether the company completed the work in Victoria County or intended to do so.
“We cannot comment on anything because of our nondisclosure agreement,” he said.
Airport commissioner Patillo said he found it troubling that Virtus would not be more forthcoming.
“It’s important that we learn something about this company,” he said.
Virtus denied paying the insurance association for its recommendation, and the association denied accepting payment for recommendations.
“No, we don’t pay anyone for advertisements. If they had done so, it would have been their recommendation, but certainly not something that we paid for,” Sutter said.
Government ethicists say if it is not already illegal for an insurance company representing counties to accept payment for recommendations, it is inappropriate.
Contractors such as Virtus have found ways to get into Victoria County’s good graces without money directly changing hands in the past.
For example, during a continuing education event in Beaumont hosted by the Texas Association of Counties, Linebarger Goggan Blair & Sampson, a national firm that provides legal services to the county, representatives offered a free limousine ride to dinner and then to a casino for commissioners and Dean, Commissioner Gary Burns said. Burns said he declined because the offer made him uneasy, while Dean and the remaining commissioners, who still hold office, accepted.
According to the Texas Ethics Commission, no elected official or county employee can accept any gift or benefit if it might influence a government decision unless the item is worth less than $50 or is “payment for meals, transportation or lodging expenses in connection with a conference or similar event in which the public servant renders services.”
Although a gift might be legal to accept, it might not be prudent to do so, said Robert Wechsler, Harvard College and Columbia University Graduate Law School graduate who has published several books about the ethics of local government.
“The appearance of impropriety is damaging to the public trust,” he writes in a 2013 book titled “Local Government Ethics Programs.” “If a government official appears to have a conflict, even though the situation is not clearly prohibited by an ethics code provision, and that apparent conflict is not handled responsibly, it has the same effect on the public in terms of their trust in those who govern as it would if the conflict were prohibited by law.”
Virtus’ man on the ground in Victoria after Harvey was Shawn Jernigan, and he appears in photos at Dean’s wedding in March of this year.
Hana S. Callaghan, the director of government ethics at the Markkula Center for Applied Ethics at Santa Clara University, said to investigate whether this was improper, the public should ask, “Was this a long-standing relationship separate from their business relationship? Was the county employee in any sort of decision-making position?”
In a brief interview, Jernigan said he did not know about Victoria, nor did he know Dean before Harvey. He did not answer why he attended the wedding.
Dean has declined to comment on the controversy.
Insurance or FEMA money?
Every time Victoria county Commissioners discuss Virtus, either commissioners and county employees present to the public a different amount paid to the company and where it came from.
Most recently, Commissioner Janak and Becky Smiley, who works in the auditor’s office, said the insurance association reimbursed the county $4,631,514.79 of the $4,636,989.82 the county spent doing remediation and repairs after Harvey.
On a spreadsheet above that amount, Smiley wrote that the insurance had paid $1.6 million to Virtus directly.
Smiley said after Monday’s commissioners meeting that the $1.6 million was in addition to the about $2.1 million the county paid Virtus. She said she included the amount at the insurance association’s request.
So far, the Federal Emergency Management Agency has obligated about $4.3 million to Victoria County.
FEMA describes this as “public assistance” and says fund are supposed to go toward debris removal, life-saving emergency protective measures and restoring public infrastructure.
FEMA also allowed some of the $4.3 million to go toward reimbursing Victoria County 90% of its $50,000 insurance deductible with the association, Victoria County Emergency Management Coordinator Rick McBrayer said.
McBrayer said the reason he sent an email to Jernigan on Feb. 27 asking for a more detailed description of Virtus’ work on an airport hangar was the county had selected it – along with other buildings at the airport – to demonstrate to FEMA it had met its deductible.
The Advocate tried to question the Texas Division of Emergency Management, which is in charge of dispersing FEMA public assistance funds, about the situation, but it did not respond by deadline.
Reasons to bid
Even though it is time-consuming, some counties said they are bidding Harvey-related work because they think it will increase their chances of being reimbursed by FEMA.
Matagorda County Auditor Kristen Kubecka said officials had to do one emergency repair because electricity went out in the courthouse, “but we will have to go out to bid for all the long-term fixes because they exceed $300,000 and FEMA has obligated funds toward them. The way FEMA works, you have to look at not only local and state procurement guidelines but federal guidelines and go with whichever one is the most restrictive.”
In about two months, Aransas County, where Harvey made landfall, will advertise for bids for a courthouse architect, said William Whitson, whose position overseeing recovery and FEMA reimbursement there was funded by a grant from a nonprofit starting in October 2017.
When the Advocate asked Whitson what he thought about Victoria County exempting itself from having to go out for bids and entering into a contract with Virtus, he said, “All I would say is that I would advise differently.”
Reporters Jon Wilcox and Morgan Theophil contributed to this story.