NC Budget and Tax Center

Budget Preview: NER and The Important Role Played by State-funded Nonprofits in Economic Development

With the imminent release of the Governor’s budget—possibly as soon as later today—this is the last in a series of posts looking at key issues ahead in the FY 2013-15 North Carolina state budget. This post examines the Natural and Economic Resources (NER) area of the budget, the functional area that provides spending for the Department of Environment and Natural Resources (DENR), Department of Agriculture, Department of Labor, the Clean Water Management Trust Fund, and a variety of programs associated with the state’s economic development efforts.  These include the Department of Commerce, the N.C. Rural Center, the N.C. Biotech Center, and about a dozen nonprofit entities that are funded as part of the Commerce-State Aid portion of the budget.

While the main story about NER in FY 2011-13 involved the dismantling of DENR’s regulatory functions and overall 49% cut in funding to the total budget area, the story for this biennium will likely involve the state pass-through funding from Commerce-State Aid to the various nonprofits engaged in economic development efforts on behalf of the state. 

These include organizations like the Support Center, which play an important role in providing loans to small businesses that cannot access capital from traditional banks, the N.C. Biofuels Center, which coordinates the recruitment and expansion of the state’s rapidly growing biofuels industry, and the N.C. Military Business Development Center, which supports the development of defense contractors associated with the state’s defense industries. The Commerce-State Aid line also funds the state’s regional economic development partnerships.

All of these organizations provide critical support for North Carolina’s efforts to create jobs and ensure broader economic growth.  As public-private partnerships, each of these organizations function as a complement to the Department of Commerce by playing roles in the economy that Commerce is less equipped to play—everything from providing small business loans and highly specialized technical assistance to target industries to coordinating regional strategic planning, industrial recruitment, and business retention efforts across multiple counties.

In effect, these groups play an important role—often behind the scenes—in supporting the direct job creation promoted by Commerce and generated by the private market.

In hearings over the past few weeks, the NER subcommittee has displayed special interest in these nonprofits, repeatedly asking for specific outcome and performance measures—most often related to job creation—in an effort to ensure that these groups are in fact producing measurable economic returns that justify state investment.

While it is certainly important to ensure that state-funded initiatives are producing measurable value for the state, the subcommittee should also be mindful that these organizations exist precisely because neither the private market nor state government can provide the specific and highly specialized services the groups provide.  As a result, not every group is oriented around direct job creation, and it is not appropriate to measure them this way.

As we await the Governor’s budget, it’s important for legislators to consider the important role these nonprofits play in the state’s economic development efforts.

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