By Tim Carpenter, Kansas Reflector
PEABODY — The Kansas Department of Commerce made a deal with officials in Peabody to allow completion of a $1.5 million infrastructure improvement project designed to spark economic renewal in the central Kansas town.
The community of less than 1,000 people was deeply shaken six months ago by alleged financial mismanagement of economic development aid and the mysterious death of a local consultant involved in monitoring state grant funding awarded to the Peabody Main Street Association.
“We have worked in every possible way to avoid compounding the tragedy,” said Lt. Gov. David Toland, who also serves as secretary of the Department of Commerce. “It’s my assessment that our best approach is to allow this work in Peabody, that we believe is important and that will be catalytic for that community long term, to get done.”
Half of Peabody’s infrastructure grant was spent rebuilding walls and roofing or replacing electrical and heating systems of architecturally endearing 1880s commercial buildings in risk of collapse. The remainder of the grant to Peabody was frozen when disturbing claims surfaced that interim Peabody clerk Jonathan Clayton, an adviser on economic development projects in Peabody and Mullinville, as well as a former administrator at the Department of Commerce with oversight of $100 million in funding, allegedly embezzled more than $100,000 of Mullinville’s $425,000 state infrastructure grant and reportedly stole $70,000 from a Mullinville cemetery association.
Clayton previously had been ousted from the Department of Commerce when it was discovered that he was simultaneously controlling economic development funding at the state agency while also coordinating a Building a Stronger Economy, or BASE, grant funneled through the state to Mullinville. As that conflict-of-interest controversy percolated, it was revealed the Department of Commerce had hired Clayton in 2020 while unaware he had been sentenced in 2018 to probation for felony theft and forgery after stealing at least $210,000 in Pennsylvania.
Department of Commerce officials said they were worried Clayton may have engaged in criminal behavior while collaborating with Peabody. Clayton repeatedly ignored the state agency’s request for routine documentation intended to hold the Peabody grant recipients accountable, said Bob North, an attorney with the Department of Commerce.
As Department of Commerce officials closed in on Clayton in August 2024, he vanished. His body was found three weeks later in a wrecked truck in Harvey County. Shortly after his disappearance, a letter attributed to Clayton was made public that asserted Toland engaged in malfeasance in deciding who received economic development grants tied to government aid during the COVID-19 pandemic. The lieutenant governor said claims in the Clayton letter were false.
Starting in July 2024, the Department of Commerce sent correspondence to Clayton saying the second-phase grant of $760,000 to the Peabody Main Street Association could be withheld.
The state agency also threatened to compel the Peabody association to repay the $740,000 first-phase grant expended on refurbishing downtown buildings.
Amber Cabrera, an attorney at the commerce department, sent the Peabody association a letter in August that said the agency was “proceeding forward with its right to terminate the agreement … and demands the return of the disbursed grant funds in the amount of $740,000.” Cabrera gave the Peabody association 15 days to complete full repayment or the state would “pursue any and all legal alternatives to collect outstanding amounts due and associated costs, including payment for legal fees and expenses.”
The repayment by Peabody didn’t occur, because the association had about $1,200 in its bank account.
However, Department of Commerce spokesman Patrick Lowry said in December the Peabody association’s failure to comply with requirements of a grant recipient necessitated cutting off the promised funding. He attributed the action to the “ongoing appearance of conflicts of interest” in Peabody and “lingering damage done by Jonathan Clayton in the administration of this grantee’s application.”
“Though this is not the outcome that many would have wanted initially, it is important to realize that $740,000 has been invested renovating historic buildings on Peabody’s Main Street that, thanks to these investments, can now be utilized for new businesses,” Lowry said.
Toland said the Department of Commerce subsequently concluded there was no evidence of fraudulent expenditures related to the Peabody association’s handling of the grant before or after Clayton’s death.
“It’s been audited twice and we’re confident the funds were spent properly,” Toland said.
Toland said the state decided not to seek repayment of the first phase of grant funding and entered negotiations to allow issuance of second-phase funding for benefit of Peabody. Under the approved deal, a third-party organization must administer the Peabody grant rather than leave that responsibility with volunteers at Peabody Main Street Association.
“If you don’t have experience and background for this type of work, it can be quite difficult,” Toland said. “But it needs to be come through an organization that is used to administering large, complex projects.”
The South Central Kansas Economic Development District was selected to manage the remainder of Peabody’s grant. Much of the second phase of the grant has been earmarked for rebuilding Walnut Street surfaces and sidewalks after completion of a project to upgrade water service to downtown businesses.
“We’re glad to get the rest of the money,” said Kelly Penner, of the Peabody Main Street Association. “We’re happy to make our downtown as beautiful as possible.”
It’s unclear what could happen in terms of the Mullinville grant, but the Department of Commerce filed a lawsuit in 2024 to gain access to bank and other financial records related to Clayton’s administration of the $425,000 grant. The Department of Commerce could end up with a court judgment declaring Clayton absconded with tens of thousands of dollars. It’s possible the Mullinville Community Foundation could be ordered to refund a portion of the grant.
“We’ve got records through the litigation process,” said North, the commerce department’s attorney. “We’ve got a pretty good idea of how the money was expended down there.”
Morgan Marler, a Peabody merchant and member of the Peabody Main Street Association, said at the outset Clayton appeared to be a reliable partner in the downtown development project.
She said Clayton had work experience at the Department of Commerce and that Clayton’s spouse, Christopher King, operated CK Vintage in Mullinville before moving the store to Walnut Street in Peabody.
During work on the first phase of the $1.5 million grant, Marler said Clayton complained to association board members that the Department of Commerce sought construction documents for work in Peabody that he had already forwarded to the state agency. Clayton said he complied with the state’s requests in anticipation of Peabody securing the second half of the grant, she said.
“Jonathan was telling us he filed all the reports that were required,” Marler said. “We continued to trust in his judgment on that.”
Eventually, a Department of Commerce official reached out to Penner, who was president of the Peabody Main Street Association, to explain the failure to provide the state agency with expenditure documents on the Peabody projects could jeopardize the $1.5 million grant. Members of the Peabody association scheduled an 11:30 a.m. Saturday meeting in August with Clayton to retrieve all documents he professed to have previously shared with the Department of Commerce, Marler said.
Clayton didn’t show up, Marler said, and “that was the day that he officially went missing.” She was among Peabody residents to be interviewed by the Kansas Bureau of Investigation in the case.
Peabody Mayor Catherine Weems sent a letter to Toland and Gov. Laura Kelly urging them to consider not sidetracking the city’s BASE grant for rehabilitation of downtown buildings. The second bundle of $760,000 was to be used, in part, as a match for a $1 million Kansas Department of Health and Environment grant to improve water service.
“As you can imagine, Jonathan’s disappearance has sent shock waves through our community,” Weems said.
Peabody Main Street Association member Pandea Smith, who runs a tea shop on Walnut Street and owns a separate building that had foundation work done with grant funding, said working with the Department of Commerce to fill the reporting gap left by Clayton was difficult because the state agency staff appeared to be disorganized.
“She would email me saying we were in default for not providing these when it had been sent twice,” Smith said. “I would reply back that it’s been sent on these dates, and here it is again.”
The Department of Commerce continued to raise red flags about potential conflicts of interest because grant funds had been allocated to Peabody association board members involved in downtown businesses. Clayton had told the association these payments were allowed.
In December, Marler said the Department of Commerce demanded the building lease with King, the widow of Clayton, be prematurely severed by the Peabody Main Street Association. The association reluctantly asked King if he would vacate the property by Dec. 27, and he agreed. His store included holiday decorations, and it was important to run a quitting-business sale through Christmas.
“I feel targeted,” King said. “They’re able to get (Clayton) personally through me. And, unfortunately, I think I’m just a casualty of that.”
The Department of Commerce complained to the association that King had to be ousted from the retail space before Christmas. The Peabody Main Street Association received a letter offering full allocation of the second half of its $1.5 million grant if the lease with King at 109 North Walnut was terminated “no later than Dec. 20.” The association hired an attorney and decided not to accelerate King’s exit.
The Department of Commerce terminated the state grant with Peabody Main Street Association before reaching an agreement on restoring the economic development aid, Toland said.
“This has taken some time to figure out how we thread the needle so that the work can be completed in the community in a fashion that allows compliance,” he said.
The lieutenant governor said work to complete commercial redevelopment sought by Peabody residents was complicated by Clayton’s effort to conceal his actions.
“Jonathan Clayton left a trail of wreckage that extended from Mullinville to Peabody, and it ensnared a lot of different people and did a lot of damage to those people who are all engaged in trying to better their communities,” Toland said. “He lied to a lot of people.”
