National group challenges privatization of ‘ED’ agencies

By Patrick B. McGuigan

Published 15-Jan-2011

A new report from “Good Jobs First,” a national group based in Washington, D.C., contends the privatization of state economic development (ED) agencies can undermine processes of integrity and accountability.

The group asserts “Transferring state business recruitment functions from government agencies to private entities is not the panacea that its proponents suggest, and the track record of those few states that have taken the step is filled with examples of misuse of taxpayer funds, political interference, questionable subsidy awards, and conflicts of interest.”

The organization, which characterizes itself as “a non-profit, non-partisan research center,” dubbed its newest analysis “Public-Private Power Grab.” It is available here.

“Rather than making economic development activities more effective, privatization is often little more than a power grab by governors and politically connected business interests,” said Philip Mattera, research director at “Good Jobs First” and principal author of the report.

According to a press release sent this week to CapitolBeatOK, “Interest in economic development privatization has surged recently. It is being promoted by newly elected governors in Wisconsin, Ohio, Iowa and Arizona who are urging that state commerce or development agencies be replaced by public-private partnerships (PPPs).”

Greg LeRoy, executive director at the organization, echoed Mattera’s assertions, saying, “Turning economic development over to PPPs is fool’s gold. What really matters is business basics: strategic public investments in skills, infrastructure, and innovation — not privatized smoke-stack chasing.”

Good Jobs First’s critical review of existing economic development “PPPs” found:

•   The idea is far from new but it is not a common or standard practice. Economic development PPPs date back more than 20 years, but only seven states currently allow private entities to control their business recruitment functions: Florida, Indiana, Michigan, Rhode Island, Utah, Virginia and Wyoming.

•   Several other states previously employed PPPs but abandoned them because of performance problems.

Further, the new study asserts that “Most of the seven states that currently make use of economic development PPPs have experienced a variety of performance problems.”

The problems identified included:

–       Misuse of taxpayer funds (Rhode Island, Florida and Wyoming);

–       Excessive executive bonuses (Virginia, Florida, Michigan and Wyoming);

–       Questionable subsidy awards by the subset of PPPs that have a role in that process (Michigan and Rhode Island);

–       Conflicts of interest in subsidy awards (Florida, Utah and Texas, which makes limited use of PPPs);

–       Questionable claims by the PPP about its effectiveness (Wyoming, Florida, Utah and Indiana); and

–       Resistance to accountability (Florida and Michigan).

The new study concludes that states should work to make existing government agencies “more effective and accountable,” rather than creating public-private partnerships for ED (economic development).

On the other hand, Good Jobs First recommends that for existing PPPs (or when a new one is created), the following accountability standards be imposed:

•   Maximum transparency in decision-making and finances, including adherence to state open records rules;

•   For PPPs that oversee subsidy awards, maximum transparency concerning recipients of those awards and their performance;

•   Strict conflict of interest rules regarding staff members and boards of directors;

•   Strict rules barring favoritism and “pay to play” in connection with companies doing business with the PPP;

•   Appointment of a public ombudsperson to monitor PPP activities and respond to outside complaints; and

•   Respect for the rights of employees to organize a union (or to transfer a representation agreement that was in place when the entity was a government agency).

In governance of PPS, the new report “recommends that a governor not chair an entity’s board and not have absolute power to name all of the directors, among whom should be legislative leaders and representatives of labor, the non-profit sector and other constituencies.”
Further, the report says PPPs should be “funded entirely out of public revenues with full legislative oversight. If private contributions are deemed necessary, they should be in the form of mandatory fees imposed on companies applying for and/or receiving subsidy awards. Barring voluntary contributions will make it easier to avoid the problems of favoritism and pay to play.”