One of the sticking points in the state budget negotiations is the $1.4 billion proposed in the Senate version for NCInnovation, a private, non-profit created by some NC business leaders in 2018, aimed at providing grants for applied research at select UNC-system universities. The project has raised $23 million over the last five years, with pledges for more, but now its leadership wants taxpayers to provide the sizable allotment to bridge the gap between North Carolina’s research and development capacity and the state’s ability to increase commercialization of those outputs in the marketplace.
The $1.4 billion would represent nearly five percent of the state’s total $29 billion budget, but under the language in the Senate proposal, would be exempt from public records laws, open meeting laws, and all university chancellors who currently sit on its board would be removed. The Senate proposal says no government employee may sit on its board. Carolina Journal has requested interviews with the UNC-System chancellors involved in the project, but all have yet to do so. There are also pending public records requests on it, which have not garnered a response yet.
While the economic development goals of the project have sparked excitement around the Republican-led state legislature, its governance is raising eyebrows. The John Locke Foundation, the founding organization of the Carolina Journal, has published calls to increase oversight and scale back the taxpayer money for it.
NCInnovation CEO Bennet Waters told WRAL that $1.4 billion is the “minimally acceptable amount” of state money because NCInnovation plans to spend $106 million yearly on grants.
The N.C. House agrees with the concept of NCInnovation, but not that price tag. The House proposed $50 million in its House budget, but the numbers are reportedly far north of that at this point in the negotiations.
The schools included in NCInnovation’s vision are Western Carolina University, University of North Carolina at Charlotte, North Carolina A&T, and East Carolina University. The Senate language prohibits board members and their immediate family members from personally investing in the commercialization projects. The language also requires annual reporting to a legislative committee on NCInnovation’s investments, salaries, and other financial information.
Track record from other states
NCInnovation points to what it says are similar programs seeing success in states like Ohio, Texas, Massachusetts, and Kentucky.
Locke, a long-time opponent of publicly funded corporate incentive programs, has published research on those states. Texas’ program, the “Texas Emerging Technology Fund,” was launched in 2005 for $100 million under former Gov. Rick Perry. It quickly became embroiled in scandal as large percentages of the grants went to companies associated with many of its board members or political donors. The program was ended by a nearly unanimous vote of the state legislature in 2015.
Two-thirds of Massachusetts’ $1 billion Life Science Center program is structured more like a governmental incentive program. The portion set up like NCInnovation’s vision is $25 million for ten years and has the chair of the university system on its board. That program has distributed $22.5 million so far. JobsOhio is a non-profit economic development firm funded through the state’s liquor franchise. At the same time, Ohio’s other program, Third Frontier, spent nearly $1.6 billion in state funds last year and created or retained slightly more than $1 billion in private-sector payrolls. Kentucky just launched its program and returns are not yet available.
“NCInnovation is just another example of a government program using taxpayer dollars to tip the scales in favor of select companies,” said Brian Balfour, Vice President of Research for the John Locke Foundation. “If these tech startup companies want capital, they should solicit private investors, not leverage a government program for taxpayer funds.”
Taxpayer-funded economic development grants are not unusual, as North Carolina has enjoyed an influx of new businesses and headquarters projects over the last decade. For example, the Jobs Development and Investment Grants and Golden Leaf Foundation program each play an important role in the state’s rapid growth, but with extensive oversight from governmental stewards of taxpayers’ money. The state also has private investment vehicles in the state pension plan and the Venture Capital Multiplier Fund, both controlled by the state Treasurer’s office and subject to public records.
State budget negotiations
Still, the plan to capitalize on the robust research coming out of North Carolina’s public universities, particularly those in more rural areas, is gaining traction. Lawmakers, chancellors, and scientists regularly see that work snapped up by venture capital groups outside the state and brought to market elsewhere.
“NCInnovation is seeking to undertake a herculean task that has laudable goals,” said Donald Bryson, CEO of the John Locke Foundation. “However, it is critical to ensure that governance structures are well thought out to ensure transparency, accountability, and public success.”
As lawmakers continue to hash out differences in the state budget, NCInnovation’s lobbying firepower at the state legislature is impressive, with nine contract lobbyists registered with the Secretary of State. Business executives on NCInnovation’s board of directors include former Truist CEO Kelly King, former Waste Industries CEO Ven Poole, Piedmont Triad Partnership CEO Stan Kelly, and Pathalys Pharma CEO Neal Fowler.
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