By: Associated PressCOLUMBUS, Ohio - Republicans seeking governorships in Ohio and Iowa have proposed putting corporate executives rather than government in charge of luring business to their states, a setup that's had controversy in other places.
Nearly identical proposals by former U.S. Rep John Kasich of Ohio and former Gov. Terry Branstad in Iowa call for scrapping the state agency that's in charge of economic development in favor of a panel of business leaders overseen by the governor.
While some states laud successes from the approach, such semiprivate economic development boards have been criticized in several states for awarding big bonuses to executives, exaggerating job numbers, favoring businesses with a vote on projects and keeping information from the public.
Earlier this year, the tax authority overseen by the nonprofit Michigan Economic Development Corp. came under fire for lacking adequate accountability after it awarded $9.1 million in tax credits to convicted embezzler Richard A. Short while he was on parole.
In Indiana, Democratic House Speaker B. Patrick Bauer has called for reforming the Indiana Economic Development Corp. after an Indianapolis TV station found abandoned factories and idle cornfields where the corporation said it had created new jobs.
In an election laser-focused on the economy, Kasich and Branstad argue that a body that capitalizes on the experience of business leaders and cuts red tape can do better at producing jobs than a government agency.
Both say they can combat problems encountered elsewhere through the rules they write for the panels.
Kasich, a former Lehman Brothers managing director, said there would be "no more bureaucrats, no more bungling, no more tripping over one another." He advocates keeping the amounts of bonuses secret if it means luring good talent.
The government-run economic development departments Branstad and Kasich targeted for closure have had their share of controversy.
Mismanagement in the Iowa Department of Economic Development's film promotion office led to five state employees losing their jobs
after allegations of sloppy bookkeeping, abuse and fraud.
Ohio's department has gone through a series of development directors, including one who stepped aside after a report that he owed
$150,000 in federal and state taxes.
Strickland recently acknowledged that Ohio's development department could have moved more quickly to keep businesses in the state, though he defended its performance in a tough economy.
John Finkle, president of the International Economic Development Council, said there's little evidence that a business-led nonprofit is superior to a government-run development department. "There is this belief that these private sector guys all have this expansive Rolodex and they'll be able to pick up the phone and all their friends are going to start making investments in the state," said Finkle, who worked in the Republican administrations of President Ronald Reagan and Ohio Gov. James Rhodes. "In fact, it's not that simple."
John L. Krauss, director of the Indiana University Public Policy Institute, believes Indiana's semiprivate development board -- put in place by Republican Gov. Mitch Daniels -- is the best approach despite its recent troubles. He said some of the undelivered job promises were a result of the economic downturn. "Everyone realizes you have to put your best foot forward, you have to show off the state, you have to entertain prospective businesses, you have to put up collateral," Krauss said. "But taxpayers are saying, 'Don't spend money, period' -- so a not-for-profit allows you to attract private contributions that will help government market Indiana in a way it doesn't have available with tax dollars."
Other states also have encountered challenges. In 2000, the two-year-old Wyoming Business Council came under fire for giving free plane rides to spouses of its staff and sizable bonuses to its executives, including $30,000 to its then-CEO John Reardon, based on exaggerated estimates of the job growth it had achieved. The money came from donations from private companies.
A 2006 investigation by the St. Petersburg Times found that about a fifth of the organizations that had joined the board of Enterprise Florida Inc. in its first decade of existence had landed as much as $43.8 million in state-authorized incentives. That was in addition to other government perks such as local property tax breaks, federal grants, free land and county building fee waivers, the newspaper found.
Representatives of both the Wyoming and Florida nonprofits acknowledge past problems. But they say the positives of their systems have outweighed the negatives. "Essentially, that was just early growing pains organizationally for the (Wyoming) Business Council," said
spokesman Scott Balyo. "I don't think it had anything to do with the economic development effectiveness of the organization."
He said the council has created 6,200 jobs and assisted many hundreds of businesses
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