LOUISVILLE, Ky. (WDRB) -- Kentucky Gov. Matt Bevin’s economic development cabinet paid $720,000 in state money last month to a private organization whose president is also a high-ranking official within the same cabinet, despite lawmakers’ reservations about the unconventional arrangement.

Legislators last month refused to endorse a no-bid, $8.5 million contract that the economic development cabinet awarded in May to a nonprofit organization called Commonwealth Center for Commercialization Inc., which was formed in October with a board made up of cabinet officials, university officials and private citizens.

Commonwealth Center for Commercialization’s unpaid president is Brian Mefford, who is also the executive director of the cabinet’s Office of Entrepreneurship.

And the organization’s board of directors includes former Cabinet for Economic Development Secretary Terry Gill. Three weeks before leaving state government at the end of May, Gill signed the $8.5 million award to Commonwealth Center for Commercialization on behalf of the cabinet, according to documents obtained under the Kentucky Open Records Act.

The legislature’s contracts review committee on June 11 balked at approving the $8.5 million deal, with the Republican chairman of the panel expressing concerns about sending tax dollars to an “off-the-books entity” without the same salary rules and accountability as state government.

“A new corporation -- Who is not to say, ‘We’re gonna pay the CEO a million dollars?,’” state Sen. Stephen Meredith, the committee chairman, said during the June 11 hearing. “… We have seen it a thousand times in state government. Funds become available, but they really don’t ever hit the target because of mismanagement or misdirection. That’s what really makes me uneasy about this.”

The contracts committee is set to take a second look at the deal at its next meeting Thursday.

But despite lawmakers’ reservations, state records show that on June 26, four days before the end of the state fiscal year, the cabinet processed payments on $2.2 million in invoices submitted by Commonwealth Center for Commercialization, which is called “C3” for short.

A spokesman for the cabinet said only $720,000 was actually paid to C3, as the cabinet stopped payment on a check for the other $1.5 million because C3 attempted to get expenses upfront instead on a reimbursement basis, as required.

Meredith said in a phone interview Monday that he was “going to have some real big issues” with the cabinet moving forward on the $8.5 million contract before lawmakers can fully vet it.

Told that some funds had already been paid to C3, Meredith said: “If that’s the case, that’s a problem.”

Meredith acknowledged, however, that his committee has only an “advisory” role. Even if lawmakers disapprove the contract – which they have not – the governor’s administration can still override that decision.

Jack Mazurak, a spokesman for the economic development cabinet, said the $8.5 million award to C3 is still a valid contract even if lawmakers have questions about it.

Records obtained by WDRB show the contract was effective May 15, with Mefford signing it on behalf of C3 on May 9 and Gill signing it on behalf of the cabinet on May 10.

“Cabinet for Economic Development leaders and staff absolutely respect the (contract review) committee’s right to review the contract and we have and will continue to comply fully with the committee’s inquiry,” Mazurak said in an email. “At the same time, since the contract was and remains in force, we needed to allocate funds ahead of the June 30 fiscal year-end and reimburse for expenditures already incurred.”

Mefford told WDRB on June 11 that he is the “interim CEO” of C3, a volunteer position, pending a national search for the organization’s permanent leader. He said no state economic development officials are being paid, nor will they, by C3.

C3’s initial address in state records was the cabinet’s office in Frankfort. As of the May 15 contract, organization’s address was the same as a co-working space in Lexington.

Mefford told lawmakers last month that C3 is a “collaborative partnership” between the cabinet and the state’s universities, with goals including helping more state university research become commercial ventures.

Mefford said last month that cabinet is standing up the organization, which will eventually operate independently, because officials wanted an alternative to a former longtime state contractor, the Lexington-based Kentucky Science and Technology Corp., or KSTC.

KSTC has historically handled most of the work associated with the 2001 Kentucky Innovation Act, which mandates that the state use “a science and technology organization” to administer entrepreneurial programs like small business grants and make investments in innovate Kentucky-based startup companies.

C3’s duties will include, among others, running the Kentucky Enterprise Fund, a state-funded pool of investments in early stage companies, and administering the required state matching funds for federal small business grants, according to the contract.

Mazurak said C3 is one part of “the ongoing sea change to the state’s entire strategy for supporting innovators, growing tech startups and commercializing university (intellectual property).

“Kentucky lags well behind competitor states in these and other key areas of its entrepreneurial ecosystem. The Cabinet, through its KY Innovation office, and alongside numerous partners statewide, is moving deliberately and transparently to build this better version of Kentucky.”

Copyright 2019 WDRB Media. All Rights Reserved.

Reach reporter Chris Otts at 502-585-0822, cotts@wdrb.com, on Twitter or on Facebook. Copyright 2019 WDRB News. All rights reserved.

Digital Reporter

Chris Otts reports for WDRB.com about business and economic topics, higher education and local / state government. He joined WDRB News in 2013 after seven years with The Courier-Journal. Got a tip? Chris is at 502-585-0822 and cotts@wdrb.com.