Commerce restructuring raising concerns

by Patrick Gannon, The Insider, published in The Charlotte Observer, December 6, 2013.

A state Commerce Department proposal about the coming privatization of many of the agency’s functions shows that Gov. Pat McCrory’s administration is poised to move dozens of jobs and millions of public dollars to a recently formed private nonprofit early next year.

The speed and sweep of the restructuring have caught some lawmakers off guard, and several are questioning whether the administration has the authority to overhaul the department without further General Assembly approval. A brief and vaguely written provision in the state budget passed earlier this year gave Commerce Secretary Sharon Decker the authority to create the public-private partnership, called the Economic Development Partnership of North Carolina.

State Sen. Harry Brown, an Onslow County Republican who has been at the center of Commerce changes, said his interpretation of the budget provision is that it allows Commerce officials only to create the public-private partnership.

“I think we made it pretty clear to them to get the (public-private partnership) started and no more than that,” Brown said Friday. “I think that was the intent.”

The reorganization plan, obtained by The News & Observer, must first be approved by the Office of State Budget and Management. State Budget Director Art Pope said late Friday that his staff is reviewing the plan, which he received in the past couple of days, and that he hopes to make a decision early next week on whether to approve it.

The plan shows the department requesting to set aside nearly $1.8 million for potential severance payments to 65 Commerce employees, including economic developers, the director of tourism development, the director of film industry development and the director of industrial recruiting. It’s unclear whether those employees would lose their jobs or simply be transferred to the partnership.

Commerce officials weren’t available late Friday to comment on the plan’s contents.

Proponents, critics of partnership

The McCrory administration has touted the partnership as a way to provide a more coordinated, more nimble approach to recruiting new businesses and aiding existing businesses looking to expand, as well as helping boost the state’s exports. Critics say the public-private partnership approach has a mixed record in other states, and that the structure has led to abuses, including misuse of taxpayer money, conflicts of interest, excessive executive pay and little public accountability.

The documents suggest that some state positions would be cut as the process unfolds, but it is unclear how many or when. Commerce officials have previously said the changes would result in fewer overall positions.

“While detailed staffing plans have yet to be finalized, and are ultimately subject to the approval of the Board of Directors for the ‘private side,’ it is anticipated that savings in the range of $1 million to $1.5 million can be realized through potential reductions in workforce size and other operational expenses,” according to the proposal.

Interim board members

The reorganization plan lists five people who have agreed to serve on the partnership’s interim board: John Lassiter, president of Carolina Legal Staffing; Red Hat CEO Jim Whitehurst; Pat Corso, a former president of Pinehurst Resort; Tom Looney, vice president and general manager for Lenovo North America; and John Kane, the developer behind the North Hills shopping center in Raleigh.

‘Prime candidates’ to move

The proposal states that the “prime candidates” for moving to the private organization are the following commerce divisions: Business Development, which is responsible for business recruitment and retention; Marketing; Small Business and Entrepreneurship; International Trade and Investment; and Travel & Tourism, Film and Sports Development, not including welcome center operations.

Under the plan, Business Development and Marketing would be moved first, followed by the remainder of the divisions, with all moved by early in the second quarter of 2014. According to state budget numbers, the plan could end up “privatizing” as much as $18.5 million in what are now public dollars.

Questions raised

Concerns over the speed of the restructuring surfaced at a legislative committee meeting in Raleigh on Thursday, where lawmakers questioned Tony Almeida, an economic adviser to McCrory, about the partnership’s progress.

In an update to the committee, Almeida said the partnership has been incorporated, an interim board of directors is being formed and that the department would begin moving certain Commerce Department divisions into the partnership in the first quarter of 2014.

Almeida also said an announcement about a chief executive officer could come this month.

Sen. Brent Jackson, a Sampson County Republican, then asked Almeida what General Statute commerce officials were using to move the divisions over to the new partnership.

“Is that part of Senate Bill 402?” Jackson asked, referring to the state budget bill. “That's certainly not my interpretation.”

Almeida responded that the department was following guidelines in Senate Bill 127. That bill, which was never passed by the General Assembly, included much more detail about how the public-private partnership was to operate.

“Refresh my memory someone,” Jackson continued. “I don't think Senate Bill 127 passed, did it?” Almeida then acknowledged that it didn't but that commerce officials were using it as a road map anyway.