MEDIA RELEASE: Lawmakers must address potential accountability issues in McCrory's proposal for privatizing the Dept. of Commerce

New report proposes fixes for conflict of interest problems, other accountability challenges with economic development proposal

RALEIGH (July 15, 2013) — North Carolina lawmakers need to address potential conflicts of interest, pay-to-play incentive-granting, and other accountability problems in Governor McCrory’s proposal for partially privatizing the state’s economic development efforts, according to a new report by the Budget & Tax Center, a project of the NC Justice Center.

The General Assembly has considered several different versions of the enabling legislation that would authorize the creation of a new nonprofit economic development corporation known as North Carolina’s Partnership for Prosperity, which would take over the state’s business attraction, expansion, and retention efforts from the Department of Commerce.  As part of this new Partnership for Prosperity, the new corporations would be able to solicit donations from private companies, possibly through voluntary contributions.

While the current version of the legislation (SB 127) takes some very positive steps to provide adequate protection for taxpayer dollars—including a blanket ban on Partnership Board members receiving state incentive dollars—a serious loophole still remains that creates the potential for conflicts of interest and the appearance of pay-to-play incentive granting, the report said.

Although the Department of Commerce formally retains the sole authority to make incentive grants, the Partnership is tasked with identifying prospective firms and making the final recommendation for offering incentives, the report said. As a result, the Partnership will likely exercise almost complete control over the incentive-granting process, meaning that companies could give donations to the very entity in charge of selecting them for incentives.

To address these problems, the report recommends eliminating any conflicts of interest in the incentive granting process. Specifically:

  • The enabling legislation should be amended to prohibit businesses that contribute private funding to the Partnership from also being eligible for state-funded incentives. While the Partnership would continue to exercise influence over the recruitment and incentive process, this prohibition would eliminate the possibility of pay-to-play incentive-granting by severing the connection between business contributions and the possibility of benefitting from public subsidies.

Although the legislation takes some positive steps towards ensuring accountability for the public dollars spent on economic development, more work needs to be done to protect North Carolina’s taxpayers,” said Allan Freyer, Public Policy Analyst with the Budget & Tax Center and author of the report. “No company should be allowed to contribute financially to the very entity that has the biggest say over whether that company should receive public incentive dollars.”

Additionally, the report identifies several accountability challenges that need to be addressed before the new nonprofit begins accepting public funds and administering economic development program.

  • Strengthen accountability requirements for the Partnership’s overall performance. The enabling legislation should amended to require the Partnership to report specific project-level and total economic outcomes beyond job creation—including the wages and benefit levels associated with each project and a range of overall quality of life indicators. All of these evaluative frameworks should be in place prior to the effective date of the start of Partnership operations.
  • Hold Prosperity Zones accountable for fulfilling statutory requirement to promote regional coordination and planning.  Part of the Governor’s proposal involves replacing the current Regional Economic Development Partnerships with eight new regional Prosperity Zones. While these Zones are intended to ensure adequate coordination between state agencies, they must also be held accountable for their statutory requirements coordinating local government efforts.

Read the full report at this link.

FOR MORE INFORMATION, CONTACT: Allan Freyer, allan@ncjustice.org, 919.856.2151; Jeff Shaw, jeff@ncjustice.org, 503.551.3615.
 

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