Gov. Pat McCrory and state economic officials remain strongly committed to their goal of privatizing economic development in North Carolina next year.
However, a nonpartisan Washington research center, Good Jobs First, offered a warning last week 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.
The report is an update on a 2011 study that focused on four states.
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 public-private initiative was featured in a five-page segment that shows McCrory and Commerce Secretary Sharon 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.
For example, McCrory and Decker have said that 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.
Good Jobs First claims that Ohio and Wisconsin, in particular, have fallen short of the accountability, ethics and transparency standards they set when their partnerships began.
Potential conflicts of interest?
The Partnership for Prosperity plan presented by McCrory and Decker is based on their insistence that change is necessary in how the state markets itself economically, as part of McCrory’s overarching theme that state government is broken and must be mended swiftly and decisively.
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.
The nonprofit also will direct export initiatives on products made or produced in North Carolina, as well as travel and tourism efforts currently overseen by Commerce.
Even though the General Assembly did not approve legislation creating the partnership in its 2013 session, it did provided $1 million in funding that Decker can use to assist in setting up the eight “prosperity zones” that will include Winston-Salem as a key economic hub for its zone.
Decker and McCrory have said that North Carolina has lost projects because the state didn’t respond quickly enough to companies’ questions, though they did not provide an example.
North Carolina’s board would include representatives selected by McCrory, legislative leaders, business leaders and economic developers. It would receive the bulk of its funding from the state’s General Fund, but also depend on private funding that includes donations by companies represented on the board of directors.
Critics have said the proposed partnership could face conflicts of interest regarding board members and competitors of their companies pursuing economic incentives. Another concern is that the board could find it difficult to turn down incentive requests made through McCrory’s representatives.
Criticism of other states
Good Jobs First said it chose to study the public-private partnerships after newly elected governors in several states, most notably Wisconsin and Ohio, “decided that the best way to create jobs was to transfer economic development business-recruitment functions to the partnerships.”
“These experiments in privatization have, by and large, become costly failures,” the group 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.”
The group cited as examples:
• Enterprise Florida has been criticized about shortfalls in the job-creation performance of the companies it has recruited;
• The Wisconsin Economic Development Corp. is accused of spending millions of dollars in funds from the U.S. Department of Housing and Urban Development without legal authority, failed to track past-due loans, and hired an executive who owed the state a large amount of back taxes; and
• JobsOhio is accused of receiving a large transfer of state monies about which the legislature was not informed, intermingled public and private monies, refused to name its private donors, and then won legal exemption from review of its finances by the state auditor.
“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.
LeRoy said the public-private initiatives “have gotten demonstrably worse in the past three years. We conclude that privatizing a state development agency is an inherently corrupting move that states should avoid or repeal.”
“Taxpayers are best served by experienced public-agency employees who are fully covered by ethics and conflicts laws, open-records acts, and oversight by auditors and legislators.”
Existing issues in N.C.
Good Jobs First has praised past N.C. economic development efforts.
For example, in December 2011, the state was one of only four to get better than a C grade (a B-minus) on how strictly corporations were held to job-creation pledges they made to qualify for multiyear incentive packages.
Good Jobs First has listed two of North Carolina's high-profile incentive offerings – the William S. Lee Act and the One North Carolina Fund (given by the governor) – among the center’s top-eight strategies. The state's Job Development Investment Grant (JDIG) was ranked sixth related to the average hourly wage requirements. North Carolina also was ranked third in transparency of its incentive disclosures.
“Nothing has changed or will change as we transition the sales and marketing functions to the public-private partnership,” Commerce spokesman Josh Ellis said. “We’ll still have a high standard of accountability to ensure that companies meet job creation and investment targets before any payments are disbursed.”
Ellis said all final decision on economic incentives will be made by government entities, such as Commerce, the Economic Investment Committee or the N.C. Rural Infrastructure Authority. He said transparency is provided through Commerce oversight and annual performance reports by recipient companies.
However, the N.C. State Auditor’s Office said in a July report that state monitoring of JDIG might have been lax in some cases, with corporations potentially receiving more grant payments than they qualify.
The key to JDIG incentives is that, to qualify, companies must be verified as considering out-of-state sites.
From the inception of JDIG in 2003 through March 2012, Commerce’s Economic Investment Committee has awarded 145 grants for a combined $600 million.
The report by State Auditor Beth Wood determined that incorrect grant payments might be occurring because job-creation information is not independently confirmed by the state. The format has been relying primarily on tax withholding records filed with the state Revenue Department.
Companies are required to submit annual reports to Commerce, but the workforce numbers can be almost two years old when released to the public. Companies say they have proprietary and competitive reasons for keeping the workforce numbers close to the vest.
Although the report covers the Easley and Perdue administrations oversight, its findings has implications for the McCrory administration because it also has made extensive use of JDIG incentives as project sweeteners.
Planned safeguards in NC
Good Jobs First said the N.C. partnership proposal includes more potential financial and oversight safeguards than most of the eight states.
That includes having violations of the nonprofit group’s contract with Commerce enforced by the N.C. Attorney General’s Office, limiting public funding used in management salaries, making the group subject to public record laws, and adhering to the same records laws and ethics laws as the state.
“All private donations will be disclosed,” Ellis said. “The public-private partnership will not make any decision about grants involving public dollars. It would recommend that a company receive a grant.
“However, all final decisions will be made on the public side. The partnership will not negotiate the terms” of state incentives.