VALE – Finally, Malheur County was poised to recover some of the costs for the rail shipping project in Nyssa.

Under a new deal approved last summer, the way seemed clear to get thousands of dollars in reimbursements, with the money coming out of the $26 million state fund set aside to build the Treasure Valley Reload Center.

Greg Smith, the county’s economic development director and rail project manager, urged county commissioners to approve the contract that would yield up to $5,000 a month for the county and its taxpayers.

“There’s no reason that Malheur County cannot be reimbursed back for the professional services it is providing,” he told the commissioners.

It seemed like easy money – some paper work, some patience and the money would flow.

Yet it never happened.

Despite the contract, Smith hasn’t sought a dime from the state fund to repay the county, an investigation by the Enterprise has established.

He recently justified the failure to invoke the contract as “more work” than it was worth.

As a result, the county is out about $50,000 it could have recovered to use on other county needs.

County officials haven’t pressed the matter, accepting Smith’s representations that the state didn’t want to cover those costs out of the $26 million.

That wasn’t so, state Transportation Department officials told the Enterprise recently.

"We don’t know why or why not the MCDC team did not continue to explore reimbursement for some of the admin costs," an agency official said in an email Monday. 

Smith wouldn’t respond to questions about the basis for his claims and he and his team couldn’t produce a single record documenting such a stance by the state.

An Enterprise investigation relied on public records and interviews with county and state authorities to untangle what happened. Along the way, the newspaper encountered conflicting claims from Smith’s team.

For instance, Lonny Hytrek CPA, the Ontario accounting firm on Smith’s team, wrote in an internal email last December that the state had “rejected” earlier invoices. A more recent statement to the Enterprise that Smith said was provided by Hytrek said that “ODOT did not turn down the monthly payments.”

Meantime, the county and taxpayers continue to subsidize a rail project whose costs were supposed to be covered by the state’s $26 million grant. The county’s prime expense: Paying the $6,000 monthly fee to Gregory Smith & Co. for managing the rail project.

Smith and the Hytrek accounting firm didn’t answer detailed written questions from the Enterprise about the county’s costs and how they have been handled.

Instead, Smith responded to the questions last Friday with a statement from the seven directors of Malheur County Development Corp., the public company running the rail project. The board includes the local state senator, a banking executive, and local onion producers. They answered no questions sent to Smith and his team.

“While we are aware of the Malheur Enterpriseʼs concerns, they simply are not valid,” said the statement. The directors said it was “wrongful” for the Enterprise not to describe the rail project as an investment in Malheur County.

That investment would produce a shipping warehouse and rail lines at a new industrial park outside Nyssa. The intent is to gather onions in once place, load them onto a Union Pacific Railroad train, and dispatch them to markets east. The onion industry expects to cut its costs and add customers if the center operates as anticipated following its scheduled opening next year.

The Malheur County Court established the Malheur County Development Corp. as a public corporation that functions like a government entity. The commissioners appointed the directors but otherwise they have no legal authority over the development company. The company’s sole project now is the Nyssa shipping center.

As a result, the $26 million set aside by the 2017 Oregon Legislature will flow through the development company, not the county.

The state doesn’t issue one big check, though. As typical for such state projects, the development company incurs costs, uses a bank loan to pay its vendors, and then goes to the state for a draw out of the $26 million fund to pay back the bank.

The process gives the state oversight, ensuring that public money is spent properly and only for the rail center.

That process has been used since October 2019 to pay bills for the shipping center. Last spring, Malheur County was added to the mix of vendors.

Invoices in the county’s name were prepared for January, February and March of 2020, charging $4,000 a month. That would recover some of what the county was paying for Smith’s work on the rail project.

In May 2020, the development company paid the three invoices, sending $12,000 to the county. The development company borrowed from its bank to cover the payment, anticipating the state’s reimbursement would be used to pay off the borrowing. Now, it just had to wait for the money from the state.

Smith’s team had never before billed the state for the county’s services, and those at the Transportation Department questioned the invoices.

A state official wrote in a May 27, 2020, email that the Transportation Department needed “some additional information” before it could process the charges from the county.

“Please provide me with a copy of the agreement between MCDC to Malheur County for administrative work,” the official wrote. The message went to Hytrek CPA, which handles the rail project’s invoices.

Weeks ticked by. The state didn’t get the information it needed and the invoices sat.

Finally, on July 9, the Transportation Department got an answer by email.

“I have been asked to remove the 3 Malheur County invoices that are in question,” wrote an employee at the accounting firm.

READ IT: Email exchange

That meant that while Malheur County had its $12,000, the development company suddenly was without a source to repay the bank.

Smith and Hytrek didn’t address questions from the Enterprise about who asked that the $12,000 in invoices to be pulled and why.

Unaware of these developments, county officials worked to give the Transportation Department what had requested – a contract for services between the development company and the county. This wasn’t unusual because the development company has written contracts with its other vendors.

The prime benefit of the contract was that the state money would finally be flowing into the county treasury.

Smith pitched that new contract to the Malheur County Court on July 15, 2020, based on a recording of the session.

“As you commissioners know, Malheur County has been financially paying for the professional services associated with the reload facility,” Smith said. “It probably does make sense for the county to get reimbursed back as it is an allowable use of the grant.”

Smith assured the commissioners he had money in the state grant to repay the county.

“When I put together the original budget two years ago, I built that in,” he said.

He hasn’t addressed recent questions from the Enterprise about how much money he budgeted or how he settled on a number.

During that session with the county commissioners, Smith said nothing about invoices already being withdrawn from state consideration.

On July 15, 2020, the commissioners signed the agreement, putting it into effect.

READ IT: County contract

“We thought (based on a conversation with Greg) that a contract would resolve the issue – and with a contract ODOT might be willing to reimburse county invoices,” wrote Stephanie Williams, county counsel, in an email to the Enterprise.

Transportation Department officials said they didn’t receive the contract until it was provided recently by the Enterprise.

And Smith didn’t produce it to the Enterprise despite two public records requests over a month, including one seeking “any” document related to the monthly charges.

Williams, the county attorney, and Lorinda DuBois, the county administrative officer, said they didn’t pursue the $5,000 reimbursements because they understood from Smith that even with the contract, the Transportation Department didn’t want to pay.

Smith repeated that in a public meeting recently, saying that Transportation Department officials had advised that it would be “in everyone’s best interest not to proceed down that path and I said you are probably right.”

On May 6, Smith provided a statement he attributed to Hytrek, the accounting firm.

The Transportation Department “advised that the reimbursements could be misinterpreted as an undue cost,” the statement said.

READ IT: 'Undue cost' statement

“There’s nothing in our records that indicates that ODOT told MCDC that their administrative costs were considered ‘undue costs,’” said Cecelia Gilbert, a top executive in the agency’s ConnectOregon program that is funding the Nyssa project.

Smith provided another explanation for why his team hadn’t chased after the $5,000 monthly reimbursements from the state. He did so during an April 27 meeting of the development company board, where he explained the county payment situation and then asked if the Enterprise still wanted records on the matter.

He mentioned in his explanation the Transportation Department’s unease with the payments to the county.

But he also said that seeking the money “was more work than there was benefit” and “the benefit was not there.”

He didn’t elaborate on what he meant and he didn’t address subsequent written questions seeking more information about that workload.

He may have been referring to a provision in the contract executed last July that would have required careful documentation of what Smith’s firm was doing for its money on the project.

The “Agreement for County Services” requires the county to document with each invoice the “number of hours or time period worked per staff member,” “specific activities and work conducted,” “itemization of hourly rate, payroll costs and benefits per staff member” and “description of incurred costs.”

“I did not think the process was cumbersome and I was prepared to do it,” said DuBois, the county administrative officer.

And this wasn’t novel. The development company already was dealing with vendors who were providing copious detail about their work to justify their invoices.

Anderson Perry & Associates, the La Grande firm providing engineering for the project, submits invoices showing the hourly rate and number of hours for each person working on the rail project, describing what they were doing such as “cultural resources evaluation.”

Yturri Rose, the Ontario law firm representing the development company, lists the hourly rate for its attorneys, itemizing by fractions of an hour what work was done. A December 2020 invoice, for instance, detailed 1.5 hours spent on “meeting re: Industry Track Agreement; memo to file; work on revisions to agreement; instructions to legal assistant.”

Greg Smith & Company bills the county $6,000 for managing the rail project and it is a share of those costs the county hoped to recover.

But the invoices provide little clue what Smith’s team does each month.

Instead, the invoice each month states simply: “Project Manager Services.”

Reach Editor Les Zaitz by email: [email protected]

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