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NC Budget and Tax Center

Partial privatization of the N.C. Department of Commerce took another step closer to reality yesterday when the Economic Development and Global Oversight Committee (or EDGE Committee) reported out updated enabling legislation that authorizes the establishment of a nonprofit corporation to conduct significant pieces of the state’s business development activities. Using last year’s SB 127 as a template, the new version of the bill includes important changes—some for the better, some for the worse, and some that make us go “huh?”

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NC Budget and Tax Center

Earlier this month, the North Carolina Economic Development Board released a new strategic plan for creating jobs and growing the state’s economy over the next decade. The plan listed a number of admirable and important policy goals, including supporting innovation and entrepreneurship, promoting rural prosperity, and strengthening community-level opportunities for economic revitalization.

Unfortunately, last year’s tax cuts and budget cuts have greatly undermined the state’s ability to achieve these goals going forward.

In order to accommodate the $525 million in revenues lost to last year’s tax cut package and still balance the state budget, lawmakers made deep cuts to many core investments—including long-standing state support for nonprofits engaged in economic and community development work.  In the current biennium, the portion of the state budget responsible for these important initiatives—Commerce-State Aid—was cut by $38 million, a 64 percent reduction.

And even this overall reduction masks the true damage to the state’s ability to invest in meeting the new economic development objectives laid out in the strategic plan. The real damage comes from the specific initiatives that were singled out for cuts or outright elimination.

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NC Budget and Tax Center

In good news on the government accountability front this week, Governor McCrory and Commerce Secretary Decker put the brakes on privatizing the state’s economic development efforts, postponing the creation of the new nonprofit development corporation until the start of the new fiscal year in July. Ostensibly, the move is intended to make sure the transition to this new public-private partnership goes as smoothly as possible, given the catastrophic mistakes and complete lack of accountability suffered by other states when trying this approach. And the legislature would like to weigh in as well, given that the authorizing bill for all this never passed last year.

So it’s worth taking advantage of this pause in the rush to privatization to ensure that the state’s economic development efforts remain both effective and accountable. Fortunately, North Carolina has a long tradition of accountability in business development, a point made in a well-timed study released this week by national economic development watchdog Good Jobs First, and this is a tradition the state should continue.

According to the report, the Tarheel State has the third best accountability system in the country in terms of monitoring and disclosing whether companies live up to their promises of job creation.

This is a tradition that the state needs to continue and extend to the activities of the new development corporation, including the private sector donors and the proposed closing fund.

 

NC Budget and Tax Center

Governor McCrory’s Economic Development Board released it’s long-awaited strategic plan for the state’s economic development efforts this afternoon. Here is the Budget and Tax Center statement in response:

We all want to create jobs and grow an economy that works for everyone in North Carolina, and the best way to make sure that happens is to focus on raising family incomes after a decade of decline. While the Governor’s plan includes a number of useful proposals, there is an important contradiction between the plan’s call for additional tax cuts and the resources necessary to achieve the goals related to workforce development, innovation/entrepreneurship, and rural prosperity. These goals will be impossible unless the state provides adequate investment in higher education, community colleges, and rural community development initiatives. Funding for these initiatives are already well below where they were before the recession started in 2008, so it’s unlikely the state will be able to make significant progress on achieving these goals given the steep revenue losses resulting from last year’s tax cuts and any future round of tax reductions.

 

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Richard LindenmuthRemember when racing legend Richard Petty ran for North Carolina Secretary of State back in 1996? There were a lot of reasons that Petty got thrashed by Elaine Marshall, but one of the most important was Petty’s stated intention to keep running his NASCAR team while serving. It seems almost comical now, but that was actually King Richard’s absurdly tone-deaf plan.

You’d think that little incident might have taught wannabe North Carolina public officials a lesson, but apparently some folks missed the memo. Take Dick Lindenmuth (pictured above), the Raleigh businessman recently hired by State Commerce Secretary Sharon Decker to run the state’s new, soon-to-be privatized corporate recruiting efforts.

According to Mr. Lindenmuth, he intends to retain his position as a managing partner of Verto Partners even as he serves in his new full-time, publicly-funded job. This is, in a word, ridiculous.

This morning, Raleigh’s News & Observer put it this way:

“That is not acceptable. This is a new, complex job, and despite Lindenmuth’s assurances that he’ll be on top of it and not involved in the day-to-day operations of his company, there must not be any chance for a distraction or a conflict. Taxpayers need to have those who work for them accountable only to them.”

As the editorial notes, there are lots of other reasons to be very concerned about the mad rush to privatize corporate recruiting, but this one, quite fixable problem can and should be addressed ASAP.