State Politics

A McCrory jobs initiative survived a rocky start and may get money to expand its reach

Fidelity Investments/RTP senior software engineer Jovin Manayath listens in on a conference call while he monitors his system at his standing workstation Oct. 27, 2015. Earlier that day, financial services firm Fidelity Investments had announced that it would create 600 new jobs, mostly in IT and related fields, in its Cary, NC, and Durham, NC, offices within three years.
Fidelity Investments/RTP senior software engineer Jovin Manayath listens in on a conference call while he monitors his system at his standing workstation Oct. 27, 2015. Earlier that day, financial services firm Fidelity Investments had announced that it would create 600 new jobs, mostly in IT and related fields, in its Cary, NC, and Durham, NC, offices within three years. 2015 News & Observer file photo

Republican budget writers are pleased enough with the state’s experiment in a public-private venture to attract new jobs that they propose to spend an additional $5 million on it in the next two years.

The Economic Development Partnership of North Carolina has survived a rocky start and skepticism from the new governor that could have led to the state canceling the contract.

Senate Majority Leader Harry Brown of Jacksonville, who helped launch the partnership, said he credits the CEO, Christopher Chung, with much of the success.

“It took a few years to get people in place, do the work he wants to do,” Brown said. “Moving forward, I think they’re in a better position than they’ve ever been.”

The proposed state House and Senate budgets would boost the state’s annual contribution to the tax-exempt corporation to $22 million at the midway point through its five-year contract. It would continue to be required to raise a bit more than $1 million a year from private sources. More than 70 companies contributed last year, including Duke Energy and Red Hat.

Partnership officials point to a long list of companies that they have helped lure or expand. But credit for those projects isn’t theirs alone, potentially making it difficult to measure success.

The Economic Development Partnership was one of former Gov. Pat McCrory’s biggest priorities. The former Republican governor predicted it would create new, good-paying jobs for North Carolinians at a time when competition to recruit business was increasing and state budgets were shrinking.

The idea was to hand off recruitment efforts that had been done by state workers to a new tax-exempt corporation that could react more quickly to potential deals.

The partnership has been working out of a rented office in Cary, away from the state Department of Commerce – which also recruits business – in downtown Raleigh. It has been marketing the state and helping Commerce decide which projects would benefit from financial incentives or other assistance.

Halfway through its first contract, here are three things to know about the partnership and the obstacles it has faced.

That sort of uncertainty, of course, is never something you want to see when you’re trying to lure a company here to either expand or relocate.

EDPNC CEO Christopher Chung

It faced ‘headwinds’

The partnership’s first yearly report acknowledged it had faced “headwinds since its inception.” It went active while trying to build a new organization just as the legislature questioned the future of financial incentives. The state’s primary incentive, the Job Development Investment Grant, was nearly depleted and legislators were slow to replenish it, raising questions about whether it would continue to be part of the state’s recruitment efforts.

“That was a hard time for a lot of economic developers around the state, because any time we went out there talking about J-DIG to a prospective company we had to put an asterisk by that discussion saying it was subject to this program still being there in a year’s time,” said Chung, the CEO. “That sort of uncertainty, of course, is never something you want to see when you’re trying to lure a company here to either expand or relocate.”

There were also uncertainties about how much public money the legislature would approve and whether it would be enough to keep the partnership running. And the state was embroiled in widely publicized controversies over LGBT rights, through the ill-fated House Bill 2 and banning gay marriage in the state Constitution.

About 30 Commerce staffers followed their jobs as they were transferred to the new partnership, while about 20 lost their jobs in the process. The transfer included people who worked in economic development along with tourism, exporting assistance, aid to startups and helping businesses grow. The staff has grown to about 65.

Supporters pitched the concept as more streamlined and aggressive than state government bureaucracies through the flexibility of private industry, yet with a layer of oversight uncommon in typical state-private contracts.

The agency says it has met its goal of steadily increasing the number of projects, jobs and capital investment drawn to North Carolina.

Its most recent annual report says it helped close deals on 139 business recruitment and expansion projects resulting in nearly 15,000 announced jobs and $3.8 billion in capital investment in 2016. That’s an increase in capital investment from the previous year’s $3.3 billion from 97 projects and about 13,000 jobs. It is required to raise $5.75 million from private sources over the five years of the contract, and has met its annual goals toward that total.

What the partnership can’t do is take credit for all the new activity. Applicants wanting incentives are required to go through the partnership before they ask Commerce for money, regardless of how aggressive the partnership is. And deals are put together with the help of Commerce, the governor’s office, regional economic developers, utilities and construction companies, Chung said.

“We’re never going to say we’re solely responsible for this or that, because we know that we are part of a broader team,” said Chung.

Jonathan Morgan, an associate professor in the School of Government at UNC-Chapel Hill who studied the partnership when it was being formed, said despite its slow start the hiring of Chung and a talented professional staff is “a huge plus.” He said he has heard anecdotally that the partnership has impressed business leaders with its responsiveness.

“I would say so far so good,” Morgan said. “Now that the organization is fully operational, it is possible to begin assessing concrete performance metrics, such as project leads, job creation and capital investment.”

We think the urge to privatize, especially coming out of the Great Recession, is another measure of how politicized economic development has become.

Greg LeRoy of Good Jobs First

It aimed to avoid ethical problems

Brown said North Carolina has learned from the mistakes other states have made, which opened them to criticism over conflicts of interest, excessive pay, and a lack of oversight and transparency in the process of sharing public and private money.

Greg LeRoy, executive director of Good Jobs First, finds public-private partnerships are inherently flawed. The group is a Washington, D.C., research and policy organization that promotes corporate and government accountability in economic development, and says 92 percent of its funding comes from foundations and 8 percent from unions.

“It’s layer on another layer of corporate influence inside the state government that’s supposed to represent the taxpayer in the system,” LeRoy said. “It’s a recipe for corruption.”

LeRoy contends the justification that the structure makes government more nimble has not been proven, neither in North Carolina nor elsewhere, and he says the boards are not structured to protect the public’s interests.

“We think the urge to privatize, especially coming out of the Great Recession, is another measure of how politicized economic development has become,” he said.

North Carolina’s partnership is subject to public-records disclosures and includes other built-in safeguards meant to avoid problems found in other states, including regular state audits. The most recent audit, by the Office of State Budget Management, found no instances of EDPNC not comply with the law, but recommended a formal written policy on lobbying by employees and board members.

EDPNC spokeswoman Mary Wilson said the staff and board know there are limits on lobbying as a nonprofit organization, and a written policy adopted since then makes that even clearer.

It’s been a different story in Virginia, where an audit released in November criticized its economic development partnership for management practices that were so lacking it opened the agency to the potential for fraud. The audit recommended that state’s legislature withhold funding and crack down on oversight.

Chung said there are legitimate ethical concerns with public-private economic development partnerships in general, such as board members benefiting from decisions about incentives that affect their business or a competitor’s. But North Carolina avoids those conflicts, he said, by placing the authority to issue incentives with the Commerce Department and not the partnership.

North Carolina’s board of directors considered Chung a catch. At only 40, he already had led Missouri’s partnership for seven years, and before that was an economic developer with Ohio for 10 years, beginning with a college internship. Board chairman John Lassiter, in his letter of resignation earlier this year, called Chung “the brightest star in business recruitment in the country.”

Chung is paid $230,000 in public and private salary plus bonuses, twice that of the six next highest-paid employees, whose salaries are paid entirely by taxpayers.

It ran into partisan politics

The partnership claims its role is an “apolitical, nonpartisan voice.” But politics have roiled the organization since the election of a new Democratic governor clashed with the Republican-appointed board of directors.

I’m not going to eliminate it just because my predecessor put it in. It’s not going to be a political analysis.

Gov. Roy Cooper

Gov. Roy Cooper made a campaign pledge to make a quick assessment of the partnership, which he thought had taken too long to gear up, left other economic developers in the state confused and spent too much time raising money rather than recruiting jobs.

“Now many local economic developers are frustrated,” Cooper said last year. “They don’t know who to talk to. You have the secretary of commerce, you have the head of the public-private partnership (board), you have the executive director of the public-private partnership and you have the governor’s office. There’s a lot of confusion out there.

But Cooper also promised the assessment wouldn’t be “a political analysis.”

“I’m not going to eliminate it just because my predecessor put it in.”

In December, the partnership’s board rewrote its bylaws to diminish the governor’s ability to make appointments to the board. Then, soon after taking office, Cooper learned that the chairman, Lassiter, was seeking to extend Chung’s contract. Cooper thought that ought to be considered by the new administration.

The governor’s office wanted Lassiter to step down, which he finally did in April.

“As I indicated in my letter, we have brought the EDPNC to a sustainable model that can withstand political transition and changes in our economic climate,” Lassiter wrote in an email to state officials.

Several board members, however, were concerned about the governor’s intentions. One member, Melanie McNamara, appealed in an email to Cooper’s senior adviser, Ken Eudy:

“I encourage you and this administration to continue on the road of strong economic growth by following what Governor McCrory did, by leaving politics out of economic development and allowing this board to do its job.”

Eudy responded “politics is in the eye of the beholder” and said it didn’t help the board’s relationship with the governor when it diminished the governor’s appointment powers after Cooper defeated McCrory.

“If you’re sitting where we sat in December, it sure looked like partisan politics,” Eudy wrote. “And while economic development should be nonpartisan, we all remember seeing campaign ads after campaign ad from Gov. McCrory touting … new jobs that EDPNC helped bring to the state.”

Eudy reminded board members in emails that Cooper’s Commerce Department could cancel its contract with the partnership at any time.

Ultimately, Cooper decided to leave the partnership intact and appoint a new chairman, Frank Emory, a complex-litigation attorney in Charlotte.

Earlier this month, Cooper said he won’t have a problem working with the board, and he praised Chung.

“I think it’s important that we not spend time on the structure of the partnership and Commerce, and that we are out there recruiting jobs and helping to create jobs in North Carolina,” Cooper said. “I think even though it may not be the optimum choice of organization for me, I think the instability of trying to restructure would be more damaging than moving forward. And I think we can make this work.”

Craig Jarvis: 919-829-4576, @CraigJ_NandO

A closer look at the Economic Development Partnership of NC

Recruiting businesses to North Carolina is the main task of the partnership, but it is also organized to boost tourism, help companies export goods, aid startups and work with businesses trying to grow.

“I like to say we’re a marketing and sales organization but our product just happens to be this place called North Carolina,” said Christopher Chung, the CEO. “That’s true whether we’re promoting the state for business or promoting the state for tourism.”

▪ Five percent of its budget came from private funding from more than 70 companies in the year that ended Oct. 5, including:

Duke Energy: $200,000

Red Hat: $100,000

Martin Marietta, ElectriCities, N.C. Electric Membership Corporation, Piedmont Natural Gas: $50,000 each.

▪ Another 5 percent came from federal grants and the rest from the state. Incorporated as a tax-exempt nonprofit corporation, it spends more than half of its budget on advertising and marketing, 27 percent on personnel and 11 percent on fees such as for contracts with foreign trade offices. Travel and hospitality for prospective clients amounts to 5 percent of the budget, at more than $800,000 last year.

▪ Sixteen states have some version of a public-private entity tasked with economic development. The earliest models have proliferated around the country involving city, county, regional and corporate partnerships.

▪ North Carolina’s partnership is headquartered in Cary away from the center of state government in downtown Raleigh. It has a staff of 65, including a team that contracts with international development offices in Japan, China, Korea, Canada, Germany and South Korea.

▪ Its activities are overseen by a 17-member board, whose members are appointed by the governor, president pro tempore of the Senate and speaker of the House. Members generally come from business backgrounds as well as hospitality and economic development, and from a mix of rural and urban counties.

Related stories from Raleigh News & Observer