SPRINGDALE — State Rep. Micah Neal, R-Springdale, pleaded guilty Wednesday to taking $38,000 in kickbacks from two nonprofits he helped gain state funding, the U.S. Department of Justice announced.
Neal’s plea implicates an as-yet unnamed state senator as someone who facilitated the kickbacks, court documents show. The senator is described in court documents as serving “in the Arkansas Senate from 2013 to the present. Prior to his service in the Arkansas Senate, Senator ‘A’ serves as a representative in the Arkansas House of Representative from 2007 to 2012.”
Four members of the state Senate have political careers fitting that description. Two of those reside at least 200 miles from the entities that paid the kickbacks.
Of the two from the Northwest Arkansas region, Sen. Jon Woods, R-Springdale, dropped out of his re-election bid last year. He said Wednesday afternoon he had no comment.
Sen. Bryan King, R-Green Forest, also fits the description and lives in Carroll County, which borders Washington County. King denied any involvement Wednesday.
The kickbacks involved state General Improvement Funds distributed by the Legislature to pay for local projects. The fund has been a subject of controversy and lawsuits since the Legislature took over its distribution in 1997. The fund consists of unspent money from the previous fiscal year and interest earned on state deposits.
Two Northwest Arkansas nonprofit entities, not named in Neal’s plea, agreed to pay Neal part of the improvement funds appropriated to them under arrangements made through the senator, according to court documents
The Justice Department didn’t return phone calls Wednesday requesting comment on whether the senator, officials from the nonprofits or others would be charge.
Neal’s case is complete, according to defense attorney Shane Wilkinson of Bentonville and court documents. Neal, 42, entered his plea as soon as the Justice Department had a case prepared without waiting for a formal indictment, Wilkinson said. Court documents agreed. Neal pleaded guilty before U.S. District Judge Timothy L. Brooks.
“There’s no more to this. Micah admitted to everything he did wrong,” Wilkinson said. “There’s no tip to an iceberg here. Micah did a lot of good for his community and state. Hopefully that will be remembered.” Neal directed all questions to Wilkinson.
As part of his plea agreement, Neal is required to cooperate with the Justice Department on any further investigations.
“He’s a public official, so he’s facing theoretically up to 20 years,” Wilkinson said. “These are federal years too, not some ‘serve one-sixth of your sentence and get out.’ He could serve 85 percent of his sentence. That sentencing is enhanced in federal guidelines by his position as a public official.”
Federal guidelines also allow fines of up to $250,000 and require at least some restitution, according to court documents.
The plea agreement didn’t include any specifics on sentencing. A sentencing hearing hasn’t been scheduled, according to the Justice Department and Wilkinson. Neal pleaded guilty to one count of conspiracy to commit honest services fraud. Under federal law, honest services fraud is a type of fraud committed by public officials, who owe “honest service” to the public. The FBI and the Internal Revenue Service conducted the investigation that lead to the charge.
Neal did not run for re-election and is in the last days of his term as the District 89 representative. His successor, former Washington County Assessor Jeff Williams, R-Springdale, is to be sworn in Monday.
The first entity to pay a kickback is identified in court documents as a nonprofit corporation that reeived $400,000 in state money and “purportedly sought to create manufacturing jobs in Northwest Arkansas, specifically for a specialized workforce including disabled veterans, disadvantaged youth and individuals recovering from substance abuse.”
The nonprofit corporation is associated with a healthcare provider that has location in Northwest Arkansas and elsewhere in the country, court documents said.
The second entity “was a nonprofit corporation operating a college located in Springdale, Arkansas” that received $200,000, the documents said.
[REPORT: Read the audit report]
The Northwest Arkansas Economic Development District was subject to an investigation by Arkansas Legislative Audit in 2015. The August 28, 2015 report concluded the district misused both taxpayer and private funds, mixing money appropriated for one purpose with spending for another. The investigation report also includes a list of all entities that receive grants from GIF funds distributed by the district from 2013 to 2014.
Eleven entities received at least $200,000 in general improvement money distributed by the district, the investigative report shows. Only one of those 11 entities is a private college based in Springdale: Ecclesia College, which received a total of $592,500.
Neither Oren Paris III, the president, nor the dean of the college returned requests for comment Wednesday. Ecclesia is a Christian college, which sits on about 200 acres. It has about 200 students, half of whom are enrolled through distance education, according to Paul Snyder, director of the distance division.
Neal’s case “strengthens the concern that GIF funding — while it can be used well — in circumstances it can also be used and it’s a gray area and for that reason — and the fact that we’ve got a lot of needs in our state — the current balanced budget that I presented does not have any GIF funding” to be distributed by the Legislature for local projects, Gov. Asa Hutchinson said Wednesday.
Before 1997, the governor distributed General Improvement Fund money, usually for state buildings or projects on state-run colleges and universities. In that year, the Legislature took control of half the fund for local projects after a dispute with then-Gov. Mike Huckabee.
At first lawmakers distributed their portion of the money directly. That practice was successfully challenged in court as an inappropriate “local appropriation” in 2005. State appropriations, under the state constitution, are supposed to have a statewide benefit.
After 2005, lawmakers gave the money to state agencies and regional entities — and lobbied those entities to distribute the money to local projects. This approach was upheld in circuit court, but is on appeal now. Mike Wilson, a Jacksonville attorney who spent 12 terms as a Democrat in the state House, sued in February. He called the newer method of distributing the money a scheme still allowing lawmakers to use state money for local purposes.
The Legislature’s share of the fund amounted to $70 million in 2013. A portion of the fund in the legislative session that year went to the Northwest Arkansas Economic Development District, a nonprofit corporation headquartered in Harrison.
There are eight such districts in the state set up in 1969 to encourage regional cooperation. The Northwest district includes Benton, Washington, Madison, Carroll, Boone, Newton, Marion, Searcy and Baxter counties. The executive director at the district didn’t respond to a request for comment Wednesday.
The workforce training group in the scheme involving Neal received $400,000 from the development district, with $275,000 attributed to the senator, according to court documents citing development district records. The remaining $125,000 was attributed to Neal’s influence. Although lawmakers can’t directly distribute the money as a result of the lawsuit, every lawmaker controlled a share of the money as a practical matter, court documents said. Neal and the senator detailed specific amounts in email to the district, according to the documents.
The Springdale nonprofit group deposited the checks Sept. 30, 2013, according to court records.
Neal received $20,000 for his part in the transaction, paid through the unnamed senator on behalf of the nonprofit group’s director. Court documents do not say the unnamed senator received any money.
The college in the second case received $200,000 in 2014, with $150,000 at the senator’s request and $50,000 at Neal’s. The college deposited a check for $200,000 from the development district Dec. 19, 2014, according to court documents. Neal was paid $18,000 the following Jan. 30, according to court documents.
Neal’s family owns Neal’s Cafe in Springdale, a longtime landmark and gathering place for the region’s political discussions. Neal was a member of the Washington County Quorum Court before running for state representative in 2012. He didn’t seek re-election but announced for Washington County judge last year. He dropped out of the race, citing family concerns.
“He’s a friend of mine, no matter what he does he’s still going to be a friend of mine because I know him and I know him well, and there’s nothing he can do that would make him not my friend,” Rex Bailey, Washington County justice of the peace from Springdale, said of Neal.
“I may not approve of it, but he’s always going to be my friend.”
NW News on 01/05/2017