By J.B. Smith

Tribune-Herald staff writer

The city of Waco has cut off funds to Downtown Waco Inc. pending a financial investigation at the agency, which has closed its doors this week.

The city contract that supplies three-quarters of Downtown Waco Inc.’s budget expired Saturday, leaving the 50-year-old economic development agency in a financial lurch.

“We have been advised that Downtown Waco is investigating some financial problems,” City Manager Larry Groth said. “We’re awaiting a full accounting.”

In executive session tonight, the council is expected to discuss the contract that pays Downtown Waco Inc. more than $300,000 a year to promote and improve the city’s center.

Downtown Waco chairman Scott Felton said the agency’s interim executive director, Toni Herbert, has done a preliminary review of the records. Felton, who also is president of Wells Fargo Bank, said the agency soon will hire a third-party firm to investigate what he called “financial irregularities.” He said he has also met informally with McLennan County District Attorney John Segrest to “keep the DA apprised” of the situation.

“Our board was adamant for full disclosure to the appropriate entities,” he said.

Felton said Herbert and the other three staff members are not under suspicion, but he would not say who is. He said staffers were told to take this week off and return next week to the agency’s offices at 801 Washington Ave.

Herbert, a former city councilwoman who also is executive director of the Business Resource Center, took the Downtown Waco position in July, succeeding Margaret Mills. Mills resigned abruptly after leading Downtown Waco for 18 years and winning praise for helping to resurrect a downtown that some had written off as hopeless.

Felton said the board had questions about the agency’s books even before Mills stepped down, but he declined to comment on whether those questions had anything to do with her departure.

“That’s a personnel issue,” he said.

Mills, contacted at home Monday, said she left of her own free will and had been talking about leaving for more than a year. She said she didn’t know the details of the investigation but didn’t fault Downtown Waco leaders for seeking answers to their questions.

“I know they are re-evaluating their priorities and structure and looking into their finances,” she said.

Felton said Downtown Waco Inc. is not in a financial crisis, at least in the short term.

“As of Friday, all of our bills are paid, and we have some money in the bank,” he said.

He said that Downtown Waco gets support from dues and other sources but that losing city funding would be a major setback. Several major projects are on the drawing board for downtown, including a mixed-use development around City Hall and a new high-end hotel to help attract the Bush Presidential Library.

“Our capacity to be able to respond to economic development needs does have limitations in regard to financial support,” Felton said.

Downtown Waco Inc. gets a city economic development grant to promote the central city and has a contract with the city to market the Brazos River Corridor for development.

Downtown Waco Inc. also gets $80,000 to $100,000 a year from the downtown Public Improvement District, which Mills pioneered in 1988.

The city collects an extra tax of 10 cents per $100 valuation on downtown properties, then gives the money to Downtown Waco Inc. to spend on downtown services, such as extra trash collection, alley maintenance, landscaping and added security.

The most recent IRS documents showed that in the year ending Sept. 30, 2005, Downtown Waco got $315,587 in city funds, $68,252 in membership dues and $18,447 from fundraising events, for a total of $402,286. Mills’ salary was $63,695.

Felton said Downtown Waco Inc.’s books are subject to a “limited” audit each year, but he said the agency probably should request a more comprehensive audit.

Downtown Waco Inc.’s 15-member board is heavy on bankers and financial professionals, but that doesn’t necessarily mean board members spend much time scrutinizing the agency’s books, Felton said.

“For most members of a board of a nonprofit, their total focus is on the mission of the organization,” he said.

jbsmith@wacotrib.com

757-5752