Economic development bill moves forward; lawmakers drop ethics law rules and lower private fundraising

Update: Both the Senate and House passed versions of the bill Thursday on second readings, with the House tacking on language placing the economic development partnership back under state ethic rules. The proposals will be back next week for final passage in each chamber.

Parallel bills to privatize pieces of the state’s economic development work is on the path to approval at the state legislature, with changes emerging Tuesday that lower the private fundraising requirements and restrict some of the transparency measures.

The Senate is supposed to consider the bill on the floor today.

N.C. Commerce Sec. Sharon Decker

N.C. Commerce Sec. Sharon Decker

The most reason versions of the 19-page House Bill 1031 and Senate bill 743 would also reduce the required amount the Economic Development Partnership of North Carolina must raise from private funders, leaving the group to raise $6 million from private funders over the next five years.

(To read the entire bill, click here.)

Taxpayers are expected to contribute $90 million over that same period. That’s if Gov. Pat McCrory’s request to transfer 67 positions and an estimated $18 million next year to the new group from the Commerce Department is endorsed by lawmakers in budget negotiations.

Draft legislation had initially put the group on the hook to raise $10 million from private sources immediately, but the language endorsed by House and Senate committees will lower that to $6 million over five years, a move that Republican sponsors is more realistic for a startup group.

The privatization proposal would set North Carolina on a path of its economic development that a dozen other states have embarked on, with mixed results. The public-private partnerships, sometimes referred to as PPPs, have come under fierce criticism in other states with accusations that the private setups have wasted taxpayer money, exaggerated job claims and been used to reward political campaign donors and supporters.

The current form of the bills also remove provisions putting members of the nonprofit’s board and top employees under state ethics rules, which require an annual public disclosure of financial interests as well as put in varied prohibitions on accepting gifts and performing favors. The ethics law also attaches criminal penalties for accepting money or gifts from those looking to s curry favor from public servants. (Click here for a background story).

Boards that fall under the ethics rules range from the powerful State Board of Education and UNC Board of Governors to lesser known boards like the Agricultural Hall of Fame and Board of Refrigeration Examiners. The Golden Leaf Foundation, an economic development group funded  with North Carolina’s portion of tobacco settlement money, also is not a covered board under state ethics rules.

The nonprofit economic development group will have to develop conflict of interest policies that prevent board members from participating in discussion of projects that would have personal financial benefits, or benefits to family members and associates.

State Sen. Harry Brown, a Jacksonville Republican and sponsor of the Senate bill, said that ethics provision was removed at the request of the state Commerce department because it feared the financial disclosures would prevent people from joining the economic development board.

“You’ll get a lot of people saying, ‘I’m not going to serve,’” he said.

N.C. Policy Watch published an investigation this week that found Richard “Dick” Lindenmuth, the Raleigh businessman hired on a $120,000 contract to steer the McCrory administration’s privatization efforts, had no economic development experience and a business background that included a 2011 bankruptcy of his consulting company and a federal judge rebuking him for tacking on $117,000 in inappropriate fees in a separate case.

N.C. Commerce Secretary Sharon Decker, who came to the legislature Wednesday to promote the bill, reiterated her support for Lindenmuth, saying that she was aware of the bankruptcy issues and still had confidence in Lindenmuth, who has the title of interim CEO of the economic development partnership.

“I felt like the issues were dealt with appropriately,” Decker said.

She said he was still her choice to the leader the partnership, but “that ultimately is the board’s decision.”

Lindenmuth did not accompany her on Wednesday’s visit to the legislature because of other obligations and in line with the group’s prohibition on lobbying, she said.

Decker told lawmakers moving the state’s job recruitment and marketing resources to a private group would allow for recruiters to lure companies to the state without being hampered by administrative rules.

She acknowledged that other states have had problems, and said that’s allowed North Carolina to develop a plan with built in accountability and transparency measures.

Other provisions of the current bill would:

  • Give the governor 9 appointees (including chair) to the 17-membver partnership board, and four apiece to House and Senate leaders
  • Create an oversight board to monitor audits, complaints and performance of economic development partnership
  • Leave decisions about financial incentives with state Commerce officials, though the private partnership would make recommendations and handle the recruitment of the company up to that point
  • Subjects nonprofit group to most of state’s public records law but new language prevents disclosure of records about the recruitment of companies that ultimately don’t decide to move to North Carolina, or turn down or aren’t offered financial incentives. Records related to projects where public incentives are offered are public.
  • Limit  $120,000 in public funds for an individual’s salaries, but allows for supplements through private funds.
  • Require the disclosure once a year of private donors to the partnership and requires the Commerce Secretary to log all fundraising efforts
  • Create eight “prosperity zones” for regional economic development offices

But some Democratic lawmakers pushed back Wednesday on parts of the bill, saying that carving out exemptions in the public records law could leave the public without the ability to see if their funds are being used wisely.

“The public has a right to know what’s going to be done in its name,” said state Sen. Josh Stein, a Raleigh Democrat.

 Note: An earlier version of this post incorrectly stated the day lawmakers discussed the economic development proposal in committees. It was discussed Wednesday, not Tuesday.

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