Commerce Overhaul Draws Scrutiny of Senate, Transparency Advocates
While the McCrory administration is hailing an overhaul of the way North Carolina recruits business, open government advocates worry that the new North Carolina Economic Development Partnership may perpetuate the state’s system of closed-door dealings and secret incentives. The General Assembly has put the brakes on the changes as well.
“There has always been a concern with the Department of Commerce and economic development because they claim they can’t make data available until they clinch the deal,” said Jane Pinsky, director of the N.C. Coalition for Lobbying and Government Reform.
“Unfortunately, there’s a lot of times when things are happening and no one knows what’s going on, and I’m afraid this will follow right in that path,” Pinsky said. “Every time we do something in secrecy it diminishes citizens’ confidence in government.”
The Republican-led state Senate also has expressed its concerns. Senate Bill 127, authorizing the Department of Commerce to establish a nonprofit corporation to handle economic development functions, initially passed the Senate by 33-15 vote. An amended version passed the House in late June 26 by a 76-38 margin. But when the bill was sent back to the Senate for concurrence, it was instead referred to three separate committees, signaling that the chamber’s leaders were in no hurry to approve the measure.
Senate Rules Committee Chairman Tom Apodaca, R-Henderson, mentioned troubles in a similar public-private partnership in Wisconsin as cause for concern. A recent state audit cited a host of problems with transparency and potential lawbreaking by officials at the Badger State’s economic development public-private partnership.
Commerce Secretary Sharon Decker defended the changes. “It will be subject to all of the laws that say we’ve got to be there in full disclosure. And we will publish an annual report like a privately held company would do,” she said.
“If you’re going to spend money on economic development and subsidize selective businesses, it needs to be done openly, it needs to be done accountably, it needs to be done fairly,” said former state Supreme Court Justice Bob Orr, now an attorney with the Poyner Spruill law firm in Raleigh.
“’Jobs’ is the most powerful four-letter word in politics these days, and very few politicians are willing to stand up” to demand that public business be done openly, Orr said.
The North Carolina Economic Development Partnership would do away with the cluster of regional economic development agencies and consolidate them, along with a number of existing economic development-related agencies, under a public-private partnership.
The nonprofit partnership would have a 15-member governing board, consolidate all grant-awarding functions such as Job Development Investment Grants, the One North Carolina fund, and Community Development Block Grants into one streamlined process. It would be authorized to create a venture capital fund for startup businesses, and establish a job-recruitment fund to couple with state incentives to entice companies to move to or expand in North Carolina.
The public would be able to see the nonprofit board’s records and reports as though it were a state agency, said Decker.
“I serve on two public company boards and have a real sensitivity to this issue of transparency, so you’ll see an annual report that will detail what we’ve done, what we’ve been engaged in, and the work we’ve been about,” Decker said.
“We believe in full transparency in terms of making that information available when our projects are publicly announced,” said Commerce Department spokesman Josh Ellis. As an example, Ellis said, “[if} Acme Anvil company says they’re coming to North Carolina, bam!, that’s one trigger.”
If the company announced it was locating in another state, or not moving at all, the Commerce Department would consider that a trigger for a public announcement if the state was continuing to pursue a deal with the business.
Compared with South Carolina and other states, North Carolina has a strong tradition of providing “the level of detail in terms of jobs, the amount of state incentives, what those terms are, what the average wages are, what the investments of the project are, and the records requests [from the public],” Ellis said.
As an example, he said the Commerce Department released 6,000 pages of material requested when insurance giant MetLife announced it was bringing 2,600 jobs to Cary and Charlotte.
“It would not be appropriate to make some of the information on deals public prior to an announcement because it very often jeopardizes a project. You are dealing with companies that are still deliberating on where they will be going, there are other states involved, other countries involved in certain cases,” he said.
“It’s a balancing act” between public interest and private negotiations, he said.
MetLife officials canceled trips to the state when the story was leaked that North Carolina was a possible site, Ellis said. “These types of deals are very hard to work out the details in public … but absolutely, [premature disclosure] can kill deals.”
S.B. 127 outlines some disclosure and conflict-of-interest safeguards.
But Harry Hammitt, editor/publisher of Access Reports in Lynchburg, Va., a freedom of information and privacy law publication, said his experience in other states is that there are sticking points to bringing these types of economic development agencies into the orbit of the public records law.
Often, Hammitt said, “the sorts of records that you think smack of public accountability are the records they won’t disclose.”
For example, there may be an exemption in the law that certain terms of a deal between the state and a company are exempt until the contract is negotiated.
“But unfortunately the temporal exemption may become elastic” as to what constitutes completion of negotiations, Hammitt said. And there might be times when “not necessarily all” terms would be released, hidden under the protection of proprietary information or trade secrets, he said.
When a private entity is created to do essentially what a public agency would do, it is “typically analyzed under what’s know as the functional equivalency test … those bodies are public if they are essentially fulfilling a role that the government would otherwise,” Hammitt said.
However, “There’s typically an exemption that the legislature provides for them,” he said.
One reason the state might want to withhold deal details is because “almost invariably businesses end up getting more from the state than it’s worth,” Hammitt said. “When you find out the state’s actually losing money on the deal that doesn’t sound as good as it did originally.”
“The state I don’t think is ever going to back off the lack of transparency because they all argue that it would impede the deal if people knew in advance who the project was,” Orr said.
He cited the recent example of GE Aviation in Asheville receiving city-approved incentives “and you didn’t even know who it was. It was identified as Project X,” even at public hearings on the awarding of incentives.
“I think it’s fundamentally wrong in the context of the public [not] having a right to know in advance,” Orr said. “You don’t give the public an opportunity to say, ‘Don’t do it,’ or to ask questions. I’m operating on the assumption, giving the governor the benefit of the doubt, that he and his policy people think that it will at least improve the system,” Orr said.
Abolishing the seven regional commissions is a good step. “Certainly one of the greater issues with the regional economic development model has been sort of the free hand and not very well supervised use of the tax money,” Orr said. “You know the Northeast [Partnership] issue coming out of the Randy Parton Theatre is a glaring example.”
The theater was a financial boondoggle shrouded in conflicts of interest, overpriced contracts, wildly ambitious projections, and poor decisions. The $21.5 million project left Roanoke Rapids holding the bag after theater manager Parton, Dolly Parton’s boozy brother, was fired, and the promised huge crowds and spinoff businesses failed to materialize.
“I always learned it was the private sector’s responsibility to create jobs,” Orr said. “Now it looks like it’s government’s responsibility to subsidize that and then claim it was government that created the jobs. They’ve taken sort of the free market economic model and turned it on its head.”
“For those of us who have questioned the use of incentives in the past, I don’t know that this system changes much there,” Orr said. “It’s a system that I see no end to.”
Pinsky questioned whether the 15 members of the partnership board would be required to file publicly available statements of economic interest with the N.C. State Ethics Commission. She said members of the N.C. Rural Economic Development Center, the N.C. Biotech Center, and the N.C. Biofuels Center don’t have to file such disclosures, “so that’s a major concern.”
“If they’re making any votes on public dollars, then yes. If they’re voting on private [funding], I don’t believe that they would,” Ellis said. All the public grant dollars stay subject to State Ethics Commission rules. “There’s no mixing of [money].”
Those pushing economic development projects currently can delay filing lobbying reports and other documents “while they are — ‘quote’ —working on an economic development project,” Pinsky said. In this case it looks like it’s going to be a step further away so we have some concerns about that.”
“I’d love a job, and I’m sure you would, too, where nobody knows what you’re doing and can’t verify the results,” Pinsky said. “If you know nobody’s ever going to know what you’re doing, then if you want to cheat you’re going to cheat.”
Dan Way is an associate editor of Carolina Journal.