3 U.S. arraignments set today in state-grant kickbacks case

Ecclesia, a private Christian college, Tuesday, Jan. 24, 2017 in Elm Springs.
Ecclesia, a private Christian college, Tuesday, Jan. 24, 2017 in Elm Springs.

FAYETTEVILLE -- Former state Sen. Jon Woods and two others indicted in a kickback scheme go before a U.S. magistrate judge for arraignment this afternoon.

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Meanwhile, efforts to change who controls the state General Improvement Fund, which Woods is accused of abusing, have stalled in the Legislature. And a lawsuit challenging the legality of how the improvement fund money is distributed sits before the state Supreme Court.

Woods; Oren Paris III, president of Ecclesia College in Springdale; and consultant Randell Shelton Jr. of Alma are to appear before U.S. Magistrate Judge Erin Setser at 1:30 p.m. today.

Woods of Springdale is accused of 12 counts of fraud and one count of money laundering. Paris and Shelton also are charged in 10 of the 12 fraud counts.

The three men are accused of arranging payments to Woods and then-state Rep. Micah Neal, R-Springdale, in return for steering General Improvement Fund grants to the private, Christian college. The March 2 indictment doesn't name the college but says Paris is the president of it.

Neal pleaded guilty Jan. 4 to f̶o̶u̶r̶ ̶c̶o̶u̶n̶t̶s̶ one count* of taking kickbacks for his part in the plan. Shelton is accused of taking the kickback money through his consulting firm to pass along to Woods, keeping a portion for his business.

The grants involved were all issued from 2013 to early 2015. Ecclesia received General Improvement Fund grants totaling $717,500, grant records show.

Woods, a Republican, also is accused of receiving a kickback from a private, nonprofit job-training corporation that received a $400,000 grant from the fund. Woods was paid that kickback, the indictment says, from a businessman who has not been charged. Neal also received a kickback from that source, according to his guilty plea.

The indictment does not name the business involved but says Woods and Neal each contributed a portion of the grant. Grant documents and a state audit show that the only job-training program to receive the backing of both Woods and Neal that received $400,000 during the 2013-14 time period was AmeriWorks Inc. of Bentonville.

Neal pleaded guilty to taking $38,000 in kickbacks, according to his plea. Woods received an undisclosed amount of money, much of it in cash, but one wire transfer from Shelton's company totaled $40,000, the indictment claims.

An effort to eliminate individual lawmakers' control of the fund is not going to make it through the Legislature this session, sponsor Sen. Trent Garner, R-El Dorado, said of Senate Bill 325.

"I am disappointed to say that it doesn't have the support to get through the budget committee," Garner said.

His bill would have put unspent money from other state budgets and interest earned on state accounts -- the sources of the General Improvement Fund -- into a special fund that would have required a supermajority vote of the Legislature to spend.

The governor's administration did not support the bill, saying it was too restrictive, he said. Gov. Asa Hutchinson included no General Improvement Fund money in his proposed budget and has said he opposes such spending in principle.

By law, the governor receives a share for distribution of whatever money is appropriated into the fund, with the rest going to the Legislature for local grants. The Legislature's portion has been as high as $70 million for a two-year state budget cycle in recent years.

Local legislators -- 35 state senators and 100 state House members -- then recommend which projects should receive that money.

Lawmakers opposed to Garner's bill, such as Sen. Larry Teague, D-Nashville, said Monday that there was no need to hurry and pass a bill when there was no project money in the budget anyway.

Garner argued that having the prospect of money to spend for the projects would only make it more difficult to get any lasting change, and that passing the law now, when it would not remove any money from the fund, was the best time.

Teague will propose a change in Senate rules so that a public record will be kept of which projects are approved by its members, he said. Problems with the fund largely stem from the lack of any such statewide record-keeping, he said. He said he considered introducing a bill to that effect but decided against it, saying he thought it would be unwise for a senator to propose a law mandating what records the House should keep on its members.

The Legislature used to approve grants directly, but that was found to be unconstitutional in a 2005 lawsuit that was upheld by a state Supreme Court ruling in December 2006. State money is supposed to go to projects with a statewide benefit, the court found.

In 2007, the Legislature adopted the current system of parcelling out their share of money for local projects to eight economic development districts. Those districts cover the state and are meant to encourage regional cooperation on economic development. Although the grants go through the districts, lawmakers decide how to disburse the grants.

According to the indictment, each legislator is responsible for distributing a portion of the money.

Mike Wilson, a former state House member from Jacksonville, challenged that method, too, but lost a Pulaski County Circuit Court ruling last year. He filed his appeal to the state Supreme Court earlier this month, he said in a telephone interview Monday.

Lawmakers still control the awarding of General Improvement Fund grants, and both the federal indictment of Woods and Neal's guilty plea say so, Wilson said. The district boards do not challenge the will of the lawmakers they depend upon to appropriate the money, he said.

The change made accountability worse, Wilson said, because spending and record-keeping became divided among eight different districts with little oversight.

"There's no legal leeway for the Supreme Court to consider recent developments, such as the indictments, in their deliberations, which will be on points of law from the original case," Wilson said, also noting that the charges against Woods are still pending.

House Bill 1704 HB1704 includes a lot of specifics on how the money is to be spent in response to recent abuses, he said, demonstrating the desire of the Legislature to control the spending, he said.

The indictment and guilty plea vividly show problems in the existing system, Teague said, but those problems can be addressed.

"This program is a great help to my local fire departments and little towns," he said. "There's value to the General Improvement Fund, but the dollars need to be tracked."

Metro on 03/28/2017

*CORRECTION: Former state Rep. Micah Neal pleaded guilty Jan. 4 to one count of conspiracy to commit honest services fraud, admitting he took two kickbacks totaling $38,000 in exchange for directing grants from the state General Improvement Fund to two nonprofit entities. A previous version of this story gave an incorrect numbers of counts.

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