DATE: Tuesday, November 11, 1997            TAG: 9711110284

SECTION: LOCAL                   PAGE: B1   EDITION: NORTH CAROLINA 

SOURCE: BY LANE DeGREGORY, STAFF WRITER 

DATELINE: SOUTHERN SHORES                   LENGTH:  108 lines

PANEL TO AUDIT PROJECT BLUE SKY SPENDING WHAT DID THE TOWN OF SOUTHERN SHORES GET IN RETURN FOR SPENDING MORE THAN $262,000?

Why did this small Outer Banks beach town pay more than $262,000 to bail out a program on improving home construction techniques?

What did Southern Shores taxpayers get for their money?

And did Project Blue Sky accomplish the goals state and federal officials expected when they approved more than $1.5 million in grants to fund it?

Those are some of the questions a citizens committee will attempt to answer as its members begin analyzing Project Blue Sky this week.

``Some things will come out of this review that will be embarrassing to the town and the town council,'' said Southern Shores Councilman Gerald Beshens. ``But that's OK.''

On Monday, Beshens was appointed to a five-member committee that will look into all aspects of Project Blue Sky. Councilwoman Diane Henderson, whose term expires next month, is the only other elected official on the committee. Town residents Ursula Zdziarski, Paul Ford and Jim Morrison also are members of the group, whose first meeting will be Wednesday.

``We hope to have a report ready in 60 days,'' said Henderson, who served as temporary town manager after Town Manager and Blue Sky Project Chairwoman Cay Cross resigned in September. ``We hope to answer the questions people are still asking. The audit we recently received pretty much told us what we already knew.''

Last week, officials received a 40-page audit of town and Blue Sky finances prepared by Kitty Hawk accounting firm Johnson, Burgess, Mizelle & Straub.

The study - which cost taxpayers $8,500 - concluded that almost one-fourth of Blue Sky's $2.8 million expenditures were ``not supported by appropriate documentation'' and that cost overruns occurred in at least five areas. Some of the grants' matching fund requirements also were not met - and some grant money was used for purposes other than those intended, the report said.

``We can't tell what the final figures will be for the project or the town until we close out Blue Sky accounts completely and do a separate audit on the project,'' Henderson said. ``We hope to get a final Blue Sky audit in a month or so. And I'm not sure we can say now what the citizens really got out of Blue Sky for their investment.''

Begun in late 1994 as a way to learn more about hurricane-resistant building techniques, Project Blue Sky was Cross' brainchild.

Initially, town leaders appropriated $100,000 in local tax dollars to meet state and federal grant matching requirements. Southern Shores leaders pledged other in-kind contributions to the program. But the bulk of the costs were expected to be carried by grants and corporate sponsors.

During fiscal year 1997, however, Southern Shores had to shell out another $262,059 to meet Blue Sky's unpaid expenses. Temporary Town Manager John Smith said Monday that the town has spent another $98,000 on Blue Sky since July. And at least $40,000 in bills are outstanding.

``But we expect to get grant money back to pay those bills and repay some of our funds,'' Smith said. ``We anticipate that by the end of this fiscal year, our losses will be closer to $215,000.''

The audit - and town officials - say although Cross probably erred in accounting and administration practices, there was no evidence of illegal activities. Some of the corporate contributions that had been promised never materialized, Henderson said. And the $1 million Blue Sky building - which is adjacent to the Southern Shores town hall - cost about $400,000 more than had been budgeted.

The two-story Blue Sky building sits on town-owned land but was financed primarily with state grant money. It was designed to be a training facility for construction officials. Recently, Southern Shores council members have been holding public meetings in it. But otherwise, the facility - which includes furniture, computers and other office equipment - remains empty. Officials say it is not suitable as a new police station, which is under contract.

``We approved most of the bail-out money purely as a loan. We were told grant money would come in to reimburse the town in 60 to 90 days,'' Beshens said. ``If the town council was guilty of anything, it was that we put too much trust in Cay Cross.''

On top of her town salary, Cross received $1,000 a month to lead Blue Sky. Town engineer Ralph Calfee also was hired as a Blue Sky consultant. Officials said Monday that without going through each Blue Sky check issued over the past three years, they have no way of knowing exactly how much money Calfee or other consultants were paid.

``We want to see who got what out of this,'' Beshens said. ``A large amount of money was paid to Calfee Engineering. But I'm not sure how much of that was for Blue Sky and how much of it was for work with the town.''

One of the major problems with assessing the expenditures, Beshens said, is that Blue Sky funds were completely mingled with town finances - so it is impossible to say how much the project cost local taxpayers.

``Blue Sky did do some good things,'' Beshens said. ``There are six or seven revisions to the state building codes being considered right now that are the direct result of Blue Sky work. We've learned more about building hurricane-resistant homes.

``But basically, the town took a big bath on this,'' said Beshens. ``Our main objective now is to sever Southern Shores' umbilical cord with Blue Sky - especially the financial one. I hope the state will pick up the project as a separate, nonprofit venture.

``And I hope our committee can remove any indication that there's been a cover-up.''

Southern Shores resident John Bradley, who has been following the Blue Sky bailout closely, said he hopes so, too. But the recently released audit didn't help. ``They only looked at 60 items of 1,200 expenditures - so I don't think you can be sure of what really went on in Blue Sky when you just do a 5 percent sampling,'' he said.

``I think it was a vast mistake for the town to get into a project like this in the first place - regardless of its long-term merits,'' Bradley said. ``It was not an appropriate investment for the town of Southern Shores.'' ILLUSTRATION: CALLS

Members of the newly appointed citizens' committee who are studying

Project Blue Sky will hold their first meeting this week. They

welcome questions from the public. Call 261-2394 to submit a

question, or for more information.

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