Where Should Local Economic Development Agencies Sit?

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October 24, 2013; Institute for Southern Studies


The past few years have seen a rash of efforts by governors around the country to privatize many functions that had been in the public sector. Newly elected Republican governors in states such as Ohio, Arizona, and Wisconsin have touted privatization as a way to streamline government, attract new resources, and bolster the creation of jobs. An example of this movement is the effort to privatize economic development initiatives in new nonprofit organizations that are public-private partnerships (PPPs). Despite the fact that these PPPs have had significant problems in states where they have been created, Pat McCrory, the governor of North Carolina, is pushing to create one in his state.

The stated goal behind PPPs is to create a semi-governmental organization that is incorporated as a nonprofit organization and can act more aggressively to attract private investment and turn that around in loans and subsidies to new and growing businesses. The intent, as Governor McCrory stated when announcing the initiative in April of this year, is that “the Partnership will allow us to grow more jobs, and better-paying jobs for North Carolina.” The implication is that traditional government run initiatives are too bulky, bureaucratic, and slow to be able to do the job. A study conducted by Deloitte and Newmark Knight Frank argues the case quite eloquently for the state of Wisconsin.

Generally, the organizations are established as nonprofit organizations with 501(c)(3) status, are supposed to be led by a CEO who has real-world business experience, and overseen by a board of directors that represents the public-private partnership, with representatives of business and the government. In North Carolina, the board president would be the governor himself.

As the Institute for Southern Studies points out in an article on its website, these PPPs have run into significant trouble in almost every state where one has been created. JobsOhio has been criticized for a lack of transparency and confusion over how the state funding has been used. In Wisconsin, millions of dollars in loans have not been tracked, and several ineligible companies were given loans. The Indiana Development Corporation was the target of a television news investigation that led to the revelation that about 40 percent of the jobs promised by companies have never materialized.

A report by Good Jobs First, a Washington, D.C.-based advocacy group, suggests that the issues with these PPPs are numerous and the successes are rare. The report argues that these organizations are a bad idea because they lack the transparency that is inherent in a public agency, they are subject to cronyism and conflicts of interest, and structurally are corporate-dominated. This report, issued in October of this year, is not the first time the organization has come out against PPPs: An initial report had been issued in 2011, just as Wisconsin and Ohio were creating their version.

Despite these warnings, Governor McCrory pushes on with his version of PPPs for North Carolina. Initially, the legislation had included safeguards to prevent some of the problems other states have encountered. However, after a delay in approval, a line in the state budget for 2014 allows money to be used to create and seed a PPP. No accountability safeguards are included.

God Jobs First, quite reasonably, wonders why governors continue to champion PPPs despite their dismal track record. Their conclusion is that it is about governors wanting power, control, and the ability to take credit for anything good that comes out of them. That may be all well and good, but on the flip side, will these same governors accept responsibility for the legal and financial woes the PPPs are facing?—Rob Meiksins