NC Budget and Tax Center

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.

14 Comments

  1. Alex

    April 8, 2013 at 10:00 am

    What we were doing in the past wasn’t working very well. Change is not bad Allan !

  2. Doug

    April 8, 2013 at 11:00 am

    We do need to try other things. We know for a fact that when the government gets involved you get less of the item, it costs more, and is significantly lower quality. As far as these questions, #1 and #2 apply to the government run Medicad product as well since there are the same issues in our current poorly run program that was >$400 million over budget last year.

  3. James Protzman

    April 8, 2013 at 11:28 am

    What we know for a fact is that privatization in economic development doesn’t work. More to the point, if we are to believe all of McCrory’s happy talk about the power of the free market, why not just shut down the department of commerce completely and let the private sector do its thing.

    The McCrory administration has already proven it is in the business of giving out corporate welfare, and there is scant evidence that this model works effectively over the long haul.

    Close the Department of Commerce. Get government out of business entirely.

  4. Doug

    April 8, 2013 at 1:23 pm

    So we are in a quandry…..neither way works very well.

    When all else fails, go with the version that gets government away from the product. That way you are less likely to have less (or shortages) of an inferior product that costs significantly more. It is as simple as that. All you have to do is look at how Obamacare is turning out to see that….I know my medical is going up by 17% this year, while doctors are retiring in ever increasing numbers, and according to the leftists the US not a world leader in the quailty of care/outcomes.

  5. James Protzman

    April 8, 2013 at 4:14 pm

    Obamacare has nothing to do with your medical expenses going up. That’s the free market doing its thing, pure and simple, and has been for many years.

    http://money.cnn.com/2011/05/11/news/economy/healthcare_costs_family/index.htm

    Regarding the US sucking in terms of quality of care, that’s not a matter of propaganda from leftists. That’s a matter of fact. You’re paying more and getting less in health care than any citizen in any other civilized country in the world.

    http://www.nejm.org/doi/full/10.1056/NEJMp0910064

  6. Alex

    April 8, 2013 at 8:32 pm

    The article you cite James is old news way back in 2011 when Obamacare was not even operating. There are plenty of articles out right now lamenting about the huge increase in private insurance premiums some as high as 33%, all due to Obamacare . Other articles point out the corresponding loss of jobs in small companies.No amount of lipstick can cover this pig up !

  7. jimmy

    April 9, 2013 at 5:50 am

    How is the state coming out on the Spirit Aero deal? As I recall the Golden Leaf Foundation started the ball rolling by writing one check for $100,000,000 to lure Spirit to the Global Transpark. I believe the other incentives would make the total incentive package around $240,000,000 if Spirit reached a 1,000 jobs.

    How we doing on that one? It must not be too good because you never hear anything about the Global Transpark. Never has been much transparency on that count.

  8. Rip Woodin

    April 9, 2013 at 10:22 am

    I urge skeptics to visit the Carolinas Gateway Partnership in Rocky Mount that is a unique public-private partnership serving Nash and Edgecombe Counties. Multiple municipalities and private business fund this non-profit that has done an incredible job for our region. It all depends on the people running the organization. See http://www.econdev.org/

  9. Allan Freyer

    April 9, 2013 at 10:29 am

    Rip, thanks for the comment! You are absolutely right that many counties (and municipalities) use these kinds of nonprofit partnerships for their economic development activities–and that many of them are effective. I’d love to learn more about Carolinas Gateway.

    The research shows, though, that privatizing *state-level* economic development in this way is much, much more problematic from a cost-effectiveness and accountability standpoint.

  10. Mark

    April 9, 2013 at 10:30 am

    Obviously the progressives are concerned now that there will be a need to show benefits for economic development and their slush fund will dry up when (if) they get back into office.

  11. Doug

    April 9, 2013 at 10:45 am

    James,
    Here is just one article (actaully recent unlike your old news) on the increase due to Obamacare. Not to mention all the taxes in the law. Don’t forget this year you are limited in the amount you contribute to an FSA….one more tax increase that ordinary people in NC have to bear.

    http://www.forbes.com/sites/sallypipes/2013/01/07/obamacare-guarantees-higher-health-insurance-premiums-3000-higher/

  12. gregflynn

    April 9, 2013 at 12:18 pm

    Article? An op-ed written by the CEO of a right-wing think tank whose latest book is called “The Top Ten Ways to Dismantle and Replace Obamacare”.

    Referencing the IRS cap on employee contributions to Flexible Spending Accounts (FSAs) is an obscure way to claim a tax increase. Employers can still set the cap below $2500, and there is no cap on employer contributions to these use-it-or-lose-it accounts. The average employee contribution has been around $1500 anyway. Most “ordinary people in NC” will not be affected. The few creative enough to plan more that $2500 in unreimbursed medical expenses a year ahead will find other tax vehicles or payment structures.

  13. John Carter

    April 9, 2013 at 4:17 pm

    Just wait. You haven’t seen anything yet. This scheme that Gov. Multi-National Corporation has started only helps huge corporations at the expense of NC taxpayers. Privatization for the sake of privatization is all what
    Gov. Multi-National Corporation is about. It really doesn’t matter that it has not worked in the past, just privatize. Both parties are so concerned about Wall Street instead of Main Street that you get decisions like this. As I said before Gov. Multi-National Corporation has just started.

  14. Doug

    April 9, 2013 at 10:10 pm

    greg,
    I am an ordinary person in NC, I contributed more than $2500 and used it al l….plus some due to the exponential increases in health costs. I am now taxed on the amount that is over $2500. I have no other “vehicles” as you reference in order to reimburse me for the expenses on my family of four that will incedenly use the current amount by say August if we are very healthy. If you do know one of these vehicles, let me know on that too so I can start driving one. It will save me having to pay an additional $250 or so

    Also if you can let me know of these employers that contribute in addition to the employee I might just apply since their other benefits will probably be as rich (then come under other Obamacare taxes though). I currently work for a company with one of the better benefits packages in the state, we dont contribute employer money so I am very interested in who does this.