NC Budget and Tax Center

Final Commerce privatization bill still a bad deal for taxpayers

Sharon DeckerThe unfortunate quest to privatize the state’s business recruitment and job creation efforts took a big step forward yesterday, when the Senate agreed to a House proposal creating a new nonprofit partnership to oversee much of the state’s economic development efforts.

This misguided proposal is a bad deal for North Carolina taxpayers, businesses, and workers—schemes for privatizing economic development have repeatedly proven to be ineffective at job creation, wasteful of taxpayer dollars, and prone to financial mismanagement, conflicts of interest and pay-to-play incentive granting, and the inability to raise private funds in many of the states where they’ve been tried.

The only good news is that the General Assembly finally ended up supporting the House-passed measure, which includes somewhat better taxpayer protections than the original Senate measure.

Perhaps most importantly, the House bill did not include a new incentive program for the film industry, an extra policy tacked onto the Senate version two weeks ago. Given ongoing controversy over the effectiveness of film incentives, the Commerce privatization bill was just not the appropriate place for creating an entirely new incentive program.

A second important improvement over the original Senate measure involves the inclusion of new ethics rules. While the Senate suggested allowing the new nonprofit to develop and implement its own code of ethics—potentially creating legal loopholes for problematic ethical behavior—the final House bill requires that all board members, officers, and staff members remain subject to the existing state ethics act, just like all other state appointees and employees. This will protect taxpayers from the kinds of ethics scandals that have plagued other states’ privatization efforts, as in Wisconsin, Florida, and Texas.

Lastly, the final House bill does a much better job than the Senate of protecting taxpayers by requiring a higher level of private donations before granting any public dollars to the new partnership. Under the original Senate proposal, the partnership needed to raise just $250,000 in the first year before the state would provide any funds.

Fortunately, the final House version raised this threshold to require $3.5 million in private donations before a single dollar of taxpayer money can be granted, and requires $1 in private funds raised for every $5 of public appropriations given over the next five years, or else the nonprofit’s contract with the Department of Commerce is cancelled.

Unfortunately, the House version still doesn’t go far enough in banning pay-to-play incentive granting. No business should be allowed to get a leg up on receiving a state incentive grant solely because it donated private dollars to this new nonprofit partnership, but sadly, the latest proposal leaves this loophole wide open.

Just because the new partnership won’t officially make incentive recommendations doesn’t mean pay-to-play won’t happen. We all know how business recruitment works in this state—it is absolutely certain that Commerce officials will be in the room when the business recruiters from the partnership are wining and dining prospective businesses. This opens the door to preferential treatment and consideration of those businesses that gave donations to the new partnership.

Given these concerns, the House proposal for privatizing the Department of Commerce is marginally better than the Senate’s plan, but both represent a bad deal for state efforts to promote job creation and economic growth.

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