3 questions that Governor McCrory needs to answer about his privatization scheme

Later today, Governor McCrory will announce his proposals to convert the Department of Commerce into a public private partnership that administers at least some of the state’s economic development programs.  North Carolina taxpayers should be concerned.

Although we won’t know the specifics of this privatization scheme until the Governor’s announcement, we do know from previous public statements that the plan will likely involve the creation of a nonprofit economic  development authority that receives financial support from both taxpayers and corporate donations in exchange for overseeing a range of activities related to industrial recruitment, existing industry support, and possibly small business development. This may also include administration of the state’s incentive programs—the Job Development Investment Grants (JDIGs), the OneNC Fund, and the Jobs Maintenance and Capital program for large employers.

Privatizing economic development isn’t new—a number of states have experimented with this approach over the past two decades, and the results are not encouraging. According to one recent report, states that have adopted public private partnerships for their economic development efforts have seen the misuse of taxpayer dollars, questionable incentive awards to failing companies, the appearance of pay-to-play incentive granting to those companies providing financial support to the partnership, and frequent lack of transparency and accountability with how the partnership spends taxpayer dollars.

And to top it all off, many of these partnerships haven’t proven to be very effective in generating the job creation results promised. 

For example, a recent report by Americans for Prosperity found that despite offering $1.7 billion in incentive grants from 1995 to 2005, Enterprise Florida (the Sunshine state’s public private partnership) could only report 103,000 jobs created—less than half the original target. Additionally, Wisconsin’s first experiment with privatizing economic development in the 1990s was so plagued by scandal and ineffectiveness that the partnership was dissolved and economic development functions were moved back into state government.  Moreover, the job creation results generated by partnerships in other states have also been disputed in states ranging from Florida and Indiana to Utah and Wyoming.

Given the poor track record of privatizing economic development in other states, Governor McCrory needs to answer several important questions about his own privatization scheme:

Question #1.  How will you avoid the ethical breaches that have dogged other states who have pursued privatization, especially the conflicts of interest and pay-to-play problems that seem inherent in this approach?

Question #2.  Why do you think this will be more effective than our current system, when so many other states have seen poor results with their own privatization efforts?

Question #3.  What happens to the Division of Employment Security (which taxpayers just paid millions of dollars to merge with Commerce in 2011)? What agency will administer the federal funding associated with workforce development and the Community Development Block Grant?

Governor McCrory should be applauded for seeking to promote job creation across North Carolina in the midst of a difficult economic recovery, but his proposal to privatize the Department of Commerce is a road other states have traveled with few positive results. Before North Carolina starts down this road as well, the Governor needs to explain why his privatization scheme will produce better results than those in other states.