Revised economic development partnership has more transparency
Published May 19, 2014
by Richard Craver, Winston-Salem Journal, May 17, 2014.
Striking a balance between more transparency and the need for millions of dollars in private fund raising is the main challenge facing the second attempt at privatizing economic development in North Carolina, analysts say.
House Bill 1031 and Senate Bill 743, both titled N.C. Economic Development Partnership Modifications, were among the first bills introduced last week for the short session. Each was referred Thursday to a committee.
The primary sponsors are Sen. Harry Brown, R-Jones, and Rep. Tom Murry, R-Wake. Rep. Debra Conrad, R-Forsyth, is listed as a co-sponsor. The legislators could not be reached for comment about their bills.
A similar bill was introduced during the 2013 session. Even though the General Assembly did not approve legislation creating the partnership, it provided $1 million that Commerce Secretary Sharon Decker used to assist in setting up eight “prosperity zones” that include Greensboro and Winston-Salem at the center of one zone.
Gov. Pat McCrory and Decker have said the N.C. Economic Development Corp. will be transparent in its decisions and accountable to taxpayers as it creates and operates a “one-stop shop” for businesses considering operations in the state.
The biggest changes in the 19-page bill address transparency and private funding.
Although the partnership would receive funding from the state’s General Fund, it also would be required to raise at least $10 million in private money to support operations and functions. Previously, there was no set amount of private funding required.
A provision “encourages the nonprofit corporation to seek private funds from businesses and entities that are unlikely to seek economic development incentives from or contracts with the state.”
The partnership is required to have a website that discloses, within 30 days of a project being completed, any contributions, gifts or services of value, related to the project. It also would list incentive payments to corporations.
Board members would be covered by state ethics regulations. They would not be allowed to take action on any incentive request in which they, immediate family, their employer or a business associate could profit beyond that of other individuals in the area of the project.
Allen Freyer, an analyst with the left-leaning N.C. Justice Center, said he felt the reintroduced bill “makes some positive strides with transparency and addressing potential conflicts of interest.”
He said the provision for raising $10 million is significantly higher than those required in other states that have formed public-private Commerce partnerships.
“I would imagine the $10 million requirement comes from legislators who want the partnership to have some skin in the game so that taxpayers will not be on the hook for its costs,” Freyer said.
“However, it does raise the question of ‘Do the provisions make it harder to raise private funding for the partnership? ”
Richard Lindenmuth was hired in January as interim chief executive of the partnership with a personal-services contract of $120,000, plus expenses. Decker expects him to be named as permanent chief executive – at the same salary – once the partnership gets its full funding authority from legislators.
Another concern raised by critics is whether the board could turn down incentive requests made through McCrory’s representatives.
The latest bill says Commerce cannot contract with the partnership regarding the state’s four main economic-incentive tools, including the One North Carolina Fund and the Job Development Investment Grant. It also cannot contract with the N.C. Division of Employment Security related to unemployment insurance benefits.
Decker said the group will be able to present a unified state voice on economic projects compared with a current system that she described as being “too confusing” to the companies being recruited. Local economic officials have said they support the effort to quicken the pace of economic-development recruitment.
“The goals and objectives should not state how the economic targets are to be reached, but rather what the economic conditions will be if they are attained,” according to the bill. “Objectives should be quantifiable and time specific in order to serve as performance indicators.”
Sectors that would be handled by the proposed partnership include economic-development projects, domestic and global trade marketing, small business assistance and tourism.
An oversight committee would consist of Decker as chairwoman, along with the secretaries of Transportation, Environment and Natural Resources, Revenue and three non-legislator appointees by the state Senate and House leaders.
The partnership’s board would include representatives selected by McCrory, legislative leaders, business leaders and economic developers. The following economic sectors would be represented: agribusiness, biotechnology and life sciences, energy, financial services, information technology, manufacturing, military, retail (including distribution and logistics) and tourism.
The partnership has been given a charge to foster enhanced economic development efforts in low-income and rural parts of the state.
A report issued last week by the N.C. Budget & Tax Center found 36 percent of all state incentive money from 2007 to 2013 ($303.6 million out of $840.3 million) went to projects in Mecklenburg County, as well as 16.7 percent ($140 million) to Wake County.
A nonpartisan Washington research center, Good Jobs First, offered a warning in October to North Carolina about the strategy's viability and effectiveness through stark criticism of public-private efforts in eight states.
The states highlighted in the report “Creating scandals instead of jobs” are Arizona, Florida, Indiana, Michigan, Ohio, Rhode Island, Texas and Wisconsin. All but Rhode Island have a Republican governor, as does North Carolina.
Good Jobs First has railed for years against states, including North Carolina, that it says provide millions in corporate tax credits, grants and other subsidies without holding the corporate recipients accountable for their pledges of quality jobs, wages and benefits.
“We found very troubling patterns of abuse when states privatize what is already a corporate-dominated system,” said Greg LeRoy, Good Jobs First's executive director. “Our findings are cautionary for states with and without privatized agencies.”
North Carolina's planned initiative was featured in a five-page segment that shows McCrory and Decker have objectives similar to several of the featured states.
Although Decker said state officials have looked at partnership models in Arizona, Florida, Indiana and Virginia, she's confident that North Carolina will come up with a strategy that best fits its economy.
“These experiments in privatization have, by and large, become costly failures,” Good Jobs First said in the report.
“Privatized development corporations have issued grossly exaggerated job-creation claims. They have created ‘pay to play’ appearances of insider dealing and conflicts of interest. They have paid executives larger salaries than governors. They have resisted basic oversight.”
Public dollars should be controlled by “accountable and transparent public agencies, not handed off to private interests with looser standards and less oversight,” said Donald Cohen, executive director of advocacy group In the Public Interest.
