FRANKFORT, Ky. (WDRB) – Lawmakers peppered officials with Gov. Matt Bevin’s economic development cabinet for about an hour Thursday about an $8.5 million no-bid contract that the cabinet awarded to a new nonprofit organization that is led by a top cabinet official.
But legislators ultimately voted 7-1 to approve the unconventional deal based on assurances that Commonwealth Center for Commercialization, Inc., which is headed by the executive director of the cabinet’s Office of Entrepreneurship, will be open about its use of the money.
“The transparency that is going to be available now, the accountability that is going to be available now … Based on what you have told us, it looks like we will have a fighting chance to evaluate this program,” said Rep. Stan Lee, R-Lexington, co-chairman of the Kentucky General Assembly’s Government Contract Review Committee.
The other committee co-chairman, Sen. Stephen Meredith, R-Leitchfield, had previously expressed concerns about the arrangement.
But on Thursday, he said he understands the rationale for the nonprofit organization having cabinet officials on its board of directors, even if it might appear to be “kind of an incestuous relationship.”
“What really makes this unique – correct me if I am wrong -- is that this is actually a hybrid … to give you more direct oversight, more responsibility for those dollars,” Meredith said during the hearing.
C3, incorporated in October, is led by Brian Mefford, whose title with the cabinet is executive director of the Office of Entrepreneurship and KY Innovation. Mefford describes himself as C3’s unpaid, “interim CEO.”
He is also a board member of the organization, along with Terry Gill, the former secretary of the cabinet. Gill and Mefford signed the $8.5 million C3 contract before Gill resigned in May.
While C3 is legally independent of the cabinet, it will voluntarily comply with the state open meetings and open records laws like a government agency, Mefford and the cabinet’s general counsel, Jessica Burke, told reporters following the meeting Thursday.
Burke said the Kentucky Executive Branch Ethics Commission has indicated that Mefford and Gill’s unpaid positions with C3 do not pose a conflict, and that the cabinet has asked for a written opinion on the issue.
Burke added that ethics rules prevent former cabinet officials from working for C3 within one year of leaving state government, and Mefford stressed that there is “no plan” for the organization to hire any former cabinet officials.
Mefford told lawmakers Thursday that C3’s functions will include efforts to commercialize university research, providing state matching funds for federal small-business research grants and running the Kentucky Enterprise Fund, which the state set up in the early 2000s to invest in early-stage Kentucky companies.
“C3 is a central component to our state’s new innovation and entrepreneurial strategy,” Mefford told the committee.
The 2001 Kentucky Innovation Act mandates that the cabinet work with a “science and technology organization” to administer those programs, and the work has historically gone to the Lexington-based Kentucky Science and Technology Corp.
Mefford told lawmakers that there wasn’t enough state oversight of KSTC, a responsibility that until last year was split between the economic development cabinet and the Kentucky Council on Postsecondary Education, and that state officials think the innovation programs can be more effective.
“I think they (KSTC) were brought in 20 or so years ago and the inertia of state government took over,” Mefford said. “… The onus is on us to set the agenda, to set the expectations. We are here to take responsibility for that.”
Speaking to reporters following the meeting, Mefford added that the state Finance & Administration Cabinet is conducting an audit of KSTC.
Terry Samuel, KSTC’s president, said in an interview Thursday that the organization is “proud of our track record” administering the state programs.
He added that KSTC was “forthcoming and transparent” with the state auditor and “we have nothing to hide.”
Under KSTC’s management, the Kentucky Enterprise Fund made $32 million in investments in about 135 companies, which helped those companies raise $1.3 billion in private capital, Samuel said.
One of the companies in which KSTC invested was Covington-based Bexion Pharmaceuticals, which is developing a cancer drug.
Bexion was the focus of a promotional video that cabinet officials played for lawmakers on Thursday as an example of an innovative Kentucky company that C3 would support.
After the video concluded, Mefford told lawmakers: “We want to do everything possible to make Bexion-type opportunities possible in every nook and cranny of Kentucky.”
But Bexion is “a bad company to feature if you’re trying to show KSTC was asleep at the wheel,” Samuel said.
Mefford told lawmakers that about $15 million in cash is available from the Enterprise Fund’s investment returns, but that neighboring states like Indiana and Illinois have hundreds of millions available to them from similar funds.
Samuel said that KSTC previously won competitive bids to obtain its state work over the years, an opportunity the organization wasn’t afforded when the state gave the $8.5 million to C3 without a bid process.
“I question the goal of introducing competition through a no-bid contract,” he said.
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