NC economic development agency quiet on raising private funds

Posted by Patrick Gannon on February 20, 2014 

— State commerce officials aren’t saying much about how they plan to raise private money for the state’s new public-private economic development agency.

The ability to raise such funds was touted as one of the reasons North Carolina is moving to overhaul its corporate recruitment strategy. But much about the private fundraising initiative remains vague, and the lack of details is causing at least one legislator to question the chances of it succeeding.

At the same time, state commerce officials are pushing for a dedicated public funding stream aside from an annual state budget appropriation to help fund the new Economic Development Partnership of North Carolina. Josh Ellis, a former Commerce Department spokesman who moved to Gov. Pat McCrory’s office this week, said such a revenue source could help fund the partnership’s efforts like state lottery revenues support education initiatives.

He stressed that the partnership wouldn’t seek lottery money. Legislation proposed in North Carolina last year would have allocated a portion of the tax revenue generated from hydraulic fracturing, or fracking, in North Carolina to a special economic development fund. That legislation didn’t pass, but lawmakers may consider it again this year.

At a recent legislative committee meeting, Rep. Susi Hamilton, a Wilmington Democrat, asked pointed questions about private fundraising to Commerce Secretary Sharon Decker and Richard Lindenmuth, the partnership’s interim chief executive officer.

“My question is, where’s the private money and why aren’t we talking more about fundraising toward the (partnership) while we’re also talking about bringing public money to the table?” Hamilton asked at a meeting of the Joint Legislative Economic Development and Global Engagement Oversight Committee.

Without substantial private donations, Hamilton said she believed the partnership would simply be a way to spend public money with less oversight. “There’s not a plan out there that we’ve been shown that would make me feel comfortable about a state appropriation being handed over to a private entity,” she said in a phone interview. She added: “It’s not a public-private partnership if only the public is contributing money and resources.”

Expected to open its doors in the second half of 2014, the Economic Development Partnership, a 501(c)(3) nonprofit, will contract with the Commerce Department to receive taxpayer dollars to recruit companies and market the state as a business and tourist destination, functions long handled by the public department.

The partnership also is expected to try to raise private-sector money to support its economic development efforts. But state commerce officials provided little insight into private fundraising in response to written questions. Ellis said in an email that the amount of private money the partnership wants to raise hasn’t been determined.

“The primary focus now is determining what the organization will be and how much it will cost to run,” he wrote. “They won’t begin trying to address this question until the organizational and structural issues are resolved.”

The partnership’s board of directors met for the first time Wednesday in Charlotte. John Lassiter, the board’s interim chairman, said he expects the partnership to be fully operational by July 1.

Limited success elsewhere

Lindenmuth responded to Hamilton’s question at the committee meeting by saying that the partnership hasn’t received the proper Internal Revenue Service approvals to start accepting private donations but that approvals are expected soon. He said he’s heard of “a few” potential donors, adding, “I have no idea how much money we’re talking about.” The Commerce Department has a $7,500 contract with Charlotte law firm Robinson Bradshaw & Hinson to create the nonprofit partnership and obtain tax-exempt designation from the IRS.

Decker said she believed the partnership should finalize its first budget before seeking outside money. “I think it’s not appropriate to raise private funds until we know what we’re asking for,” she told the committee.

Asked whom the partnership would target for donations and what the sales pitch would be, Ellis said it’s too early to say but added that “private companies have an interest in a growing economy.” “For example, more good-paying jobs mean people would have more income to buy homes, shop in stores, use professional services (lawyer, doctor, etc.),” he wrote. Ellis said all donors and contributions would be reported and that private and public money would be kept separate in the organization. Other states with similar economic development agencies have run into problems for not disclosing private donors and mingling public and private funds.

Commerce leaders also don’t know how money raised from the private sector would be spent, Ellis said. He acknowledged that employee bonuses, travel and a special “closing fund” to help lure companies to the state are possibilities.

Private fundraising may not come easily. Patrick McHugh of the General Assembly’s Fiscal Research Division told lawmakers recently that the majority of public-private partnerships for economic development across the country are predominately publicly funded and that some states that have tried to raise private cash haven’t had much success. McHugh used Arizona as an example, saying that state formed a separate foundation to raise money for its economic development agency but that it was dissolved after it raised less than 1 percent of the operating budget for the organization.

“One important step in going down this road is to take a sober look at the realistic expectations about what private-sector donorship is going to look like,” McHugh said.

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