How US allowed pandemic relief to go to NC companies involved in politics and lobbying

For three years, North Carolina lobbyist Brian Lewis said he has worried that the federal government would come knocking on his door asking for its money back.

He doesn’t believe he did anything wrong when he applied for the Paycheck Protection Program loan, but there has been enough water-cooler talk in North Carolina politics about who should or shouldn’t have taken the money that it has always made him uncomfortable.

“To be honest, I was a little nervous about the whole thing,” Lewis said. “I had some ambivalence about taking the loan.”

Lewis is part-owner of New Frame Inc. — one of the many North Carolina firms involved in lobbying and politics that landed PPP loans, then had them forgiven, at the start of the pandemic.

For more than two decades, the Small Business Administration excluded those primarily engaged in lobbying or political activities from applying for agency loans. It was believed that federal tax money should not be invested into those activities.

When Congress authorized the PPP loans through the U.S. Small Business Administration to help companies harmed by shutdowns as COVID-19 spread, those rules still applied.

The rules allowed some firms in those industries to apply, but only if lobbying or political activity were not their “primary” lines of work.

The Department of Justice launched a task force to investigate possible fraud involving PPP loans, which has led to charges against people around the country. The agency just settled for more than $500,000 with a think tank out of Washington, D.C. Investigators said the nonprofit falsely claimed it was not primarily engaged in lobbying or political activity.

Of firms involved in North Carolina politics and lobbying that received PPP loans, none have publicly come under federal scrutiny. And several whose representatives spoke to McClatchy don’t share Lewis’s ambivalence; they said they clearly qualified for the loans.

Trying to survive

Lewis told McClatchy last week that as COVID-19 first hit North Carolina in March 2020, he had real fear over whether his business would survive. He lobbies for the North Carolina Travel Industry Association, a group hit hard by the pandemic.

He also lobbied for the Professional Fire Fighters and Paramedics of North Carolina, a group that seems like it would survive almost anything. But even they used proceeds from a twice-yearly concert to pay New Frame’s lobbyists for their work, and without being able to hold a concert, they couldn’t pay.

Lewis said his accountant told him that the state of his clients made him a strong candidate for the money, and she filled out the application for him.

“I was sitting there thinking, ‘Is my business going to circle the drain?’” Lewis said. “But then I think as we moved past March, April and May I started realizing that we’re not going to have the best year; but we’re not going out of business.”

He didn’t apply in the second round of PPP loans.

But it wasn’t long after Lewis received his $38,535 loan, later forgiven, that he began hearing talk about who in North Carolina should or shouldn’t have applied. He still believes, based on what his accountant told him then, that he didn’t do anything wrong, but said that’s been hanging over his head for three years.

The SBA considers a business primarily engaged in political activities or lobbying if it derives more than 50% of its gross annual income from that type of work.

Attorney Jason Torchinsky, who represented political consultants and lobbyists in a lawsuit against the SBA that unsuccessfully attempted to loosen the rules, said the agency’s restrictions left a lot of room for interpretation.

Which NC firms got PPP loans?

Martin & Blaine, also known as The Differentiators and based in Raleigh, received a $59,620 loan on April 15, 2020, according to a database maintained by ProPublica. Jim Blaine and Ray Martin, who both previously worked for state Senate leader Phil Berger, own the firm.

In 2020, the two worked together on a lieutenant governor’s race, a congressional race and with an organization raising money to ensure that Republicans maintain control of the North Carolina House and Senate.

Martin told McClatchy that very few of their revenue streams come from politics.

“Our business has diverse revenue streams — very few of them involve political campaigns and zero of them involve lobbying,” Martin said. “Like many small businesses, we lost work when the pandemic hit and we were concerned about the future.”

Bob Hall, a longtime elections watchdog and analyst of North Carolina politics, told McClatchy that The Differentiators get a “huge amount of money” for political work.

“Maybe they also get a huge amount of money through corporate work,” Hall said. “But there’s no question that they’re a substantial political force in North Carolina. They remain behind the scenes but they’re still well known and well paid.”

He added that the same goes for those working at Nexus Strategies on the Democratic side of the aisle.

On April 27, 2020, Nexus Strategies received an $82,747 PPP loan, later forgiven with interest. Scott Falmlen and Morgan Jackson, partners at Nexus Strategies, that year worked with campaigns in North Carolina for Democratic candidates such as Joe Biden, Gov. Roy Cooper and failed U.S. Senate candidate Cal Cunningham.

Jackson said most of their business is based in public affairs, not politics.

“I’m not sure how you differentiate from advising a sitting governor, and politics,” said Jane Pinsky, director of the North Carolina Coalition for Lobbying and Government Reform.

Hall added that Nexus does a lot of compliance work for Democratic campaigns.

A company run by Tom Apodaca, a state senator turned lobbyist, took out a $61,200 loan. Apodaca told McClatchy in a written statement that his firm, Vista Strategies & Solutions Group Inc., used the loan to backstop salaries. He said he was eligible because his business centers around economic development consulting and state-level advocacy.

All three organizations applied for the PPP loans in the early months of the pandemic in the midst of the 2020 election cycle. The legislative session ran through early spring and through the summer.

“They’re business people like anybody else,” Pinsky said. “But the election went on. The legislature went on, so I’m not quite sure if you’ve looked at their books, whether it made a difference or not.”

By August 2020, North Carolina companies had received around $12.3 billion from the federal loan program. The average loan size, at that time, nationwide was $101,000. As of October 2022, 10.5 million PPP loans were forgiven.

The McClatchy Co LLC, owner of The News & Observer and The Charlotte Observer, received a $10 million loan tied to 500 jobs, which was forgiven with interest.

Democratic consultants

In 2019, Nexus Strategies was registered with the North Carolina secretary of state’s office as doing “Political/Government Affairs Consulting.” After 2019, the company registered as “Political/Public Affairs Consulting.”

The firm received its PPP loan after listing the company under the category of “all other professional, scientific, and technical.” Nexus Strategies said in its application that it employed four people. Three of the four employee profiles on its website highlight their work in politics.

On the Nexus website, Falmlen’s profile states he is active in public service and advising elected officials and policy makers at the federal, state and local levels.

Jackson’s profile lists him as “a veteran of a number of high profile political and public policy efforts” and that he has served in senior roles for presidential, gubernatorial and congressional candidates. It also states that he advises government officials from the governor to legislative leaders and everyone in between. He stresses that he’s a longtime adviser to Cooper.

Jackson said his organization was within its rights to apply. “We qualified due to the fact that the majority of our business is derived from public affairs and communications and not from political consulting,” Jackson told McClatchy.

Jackson had told The Charlotte Observer for a story in May 2020 that the company would not be applying for the loan.

“I was unaware at the time of the original story that our firm had applied,” Jackson said. “When I later became aware I informed the reporter and corrected the record.”

Republican consultants

Blaine and Martin classify their company as “consulting” in filings to the Secretary of State’s office, publicly available on the agency’s website.

“We received professional advice, followed the SBA’s rules and met the PPP loan requirements,” Martin said in a written statement. “We chose not to apply for a second loan once we saw our business had stabilized.”

Blaine is the former chief of staff to Berger, the state Senate leader, and Martin is Berger’s former spokesman. Currently, they are advising U.S. Rep. Dan Bishop, a Republican living in Waxhaw, on his campaign for state attorney general. They also work closely with Club for Growth Action, a conservative super PAC.

Blaine and Martin’s firm was also hired beginning in 2019 with a contract that ran until earlier this year to provide policy advice for the UNC system, making $15,000 a month. Blaine was recently appointed to the UNC-Chapel Hill Board of Trustees.

In its loan application, The Differentiators said they had four employees. Two employees were listed as working for the company on its website in 2020, but Martin said he wouldn’t get into the inner workings of the company.

A former company of Blaine’s, Blaine Consulting, LLC, also received a $20,832 PPP loan and had the loan and interest forgiven.

When Blaine Consulting submitted its annual report for 2005, it described the nature of its business as “political”on secretary of state forms. The business was dissolved in 2013 after it failed to keep up with annual reports.

When the business relaunched in 2017, it listed the company type as “consulting,” reports state.

When asked for clarification on the type of work Blaine Consulting did and why it needed the loan, Blaine sent back a bullet-pointed statement that simply read:

• Eligible for a loan

• Met the terms of loan forgiveness set forth by the SBA

• Had loan forgiven

He provided no further information.

The company failed to file annual reports to the secretary of state’s office in 2019 and 2021 and was notified each year that it could be dissolved, according to the Secretary of State website. Each time, it turned in the proper documentation to prevent that from happening, the website stated.

However, Secretary of State Elaine Marshall dissolved the corporation this past February after it was delinquent in filing 2022 annual reports.

Lobbying and more

Vista Strategies & Solutions Group Inc., which has offices in Raleigh and Hendersonville, received its loan on April 15, 2020, later forgiven with interest.

The company, founded by Apodaca, applied for the loan as a public relations agency.

In its annual filings found on the secretary of state website, the company has been listed since its inception as a “government relations and economic development consultant.”

The company reported in its 2020 application having five employees in Hendersonville. Currently, employees include Joey Nichols, Madison Shook Downing, Hannah Tedder Nye, Tate Apodaca and Dan Gerlach, according to the company’s website. All five employees, and Apodaca, are registered lobbyists whose portfolios currently include 31 clients, according to the firm’s lobbying disclosures.

In 2020, at the General Assembly, they represented clients such as the American Bail Association, Blue Cross Blue Shield of North Carolina, Rex Hospital, UNC Asheville Foundation and Sky Boat NC LLC, the group behind the Catawba Two Kings Casino.

“The economic downturn surrounding COVID was a highly uncertain time for all small businesses,” Apodaca said. “I relied on professional direction in the application for my small business which centers around economic development consulting and state level advocacy. The funds back-stopped the salaries of my employees to guarantee their jobs during that period.”

The company website last week described Vista Strategies as a “public policy firm” that has raised funds for campaigns at the national and state level, offers lobbying services and serves as advisors to a governor, legislative leaders and members of Congress.

Who was eligible?

From early in the pandemic, North Carolina’s political consultants and lobbyists had differing takes on the loan program and whether they should take the money.

In 2020, North Carolina lobbyist Brad Crone told The Charlotte Observer that he received a $6,000 PPP loan but after applying, learned he was ineligible and didn’t accept the money.

“I’m a registered federal lobbyist,” Crone said this month. “We were very discreetly told that you cannot apply for the loan…”

Despite that, Crone said he doesn’t begrudge his colleagues who took the loan, saying he knows the program helped a lot of businesses and people stay afloat. His business had been around long enough that he felt he would be OK. And he also believes people like Blaine, Martin, Apodaca, Jackson and Falmlen most likely qualified.

“I don’t think you can fairly delineate between who needs it and who qualifies for it,” Crone said. “They were able to get it — I’m glad that they were able to get it.”

Dee Stewart and Chris Sinclair, who both have public affairs companies that work in politics, told The Observer they would be applying for the loan. Sinclair stressed his concerns about making payroll.

The Stewart Group received a $64,300 loan, fully forgiven including interest. Sinclair’s company, known then as Cornerstone Solutions, received a $34,000 loan.

But Dan McCorkle, a Democratic consultant, told The Observer then that he saw the 2020 election as an opportunity and couldn’t figure out why his colleagues felt they would need the loan.

Fetzer Strategic Partners took out two loans at $62,400 and $62,500, Kairos Governmental Affairs took out $68,112, Capitol Advantage Associates took out $36,458 and Public Policy Polling received $102,480.

Officials with Fetzer Strategic Partners and Public Policy Polling did not respond to inquiries about their loans.

“Kairos Government Affairs was aware of the parameters of the program, and our services are appropriately aligned with those parameters,” said Betsy McCorkle, managing partner of Kairos Governmental Affairs, in a written statement Monday.

Theresa Kostrzewa, president of Capitol Advantage Associates, said in a written statement Saturday she consulted with her accountant who advised that because the majority of the firm’s income was derived from work the company does on business development for clients, she qualified. She added that the sales and business development clients are not the ones she lobbies for.

Not all companies’ financial statements are public record, so it’s impossible to see how much of their business comes from the corporate world and how much is political.