COLUMBUS, Ohio - Republicans seeking governorships in Ohio and Iowa have proposedputting corporate executives rather than government in charge ofluring business to their states, a setup that's had controversy inother places.
Nearly identical proposals by former U.S. Rep John Kasich ofOhio and former Gov. Terry Branstad in Iowa call for scrapping thestate agency that's in charge of economic development in favor of apanel of business leaders overseen by the governor.
While some states laud successes from the approach, suchsemiprivate economic development boards have been criticized inseveral states for awarding big bonuses to executives, exaggeratingjob numbers, favoring businesses with a vote on projects andkeeping information from the public.
Earlier this year, the tax authority overseen by the nonprofitMichigan Economic Development Corp. came under fire for lackingadequate accountability after it awarded $9.1 million in taxcredits to convicted embezzler Richard A. Short while he was onparole.
In Indiana, Democratic House Speaker B. Patrick Bauer has calledfor reforming the Indiana Economic Development Corp. after anIndianapolis TV station found abandoned factories and idlecornfields where the corporation said it had created new jobs.
In an election laser-focused on the economy, Kasich and Branstadargue that a body that capitalizes on the experience of businessleaders and cuts red tape can do better at producing jobs than agovernment agency.
Both say they can combat problems encountered elsewhere throughthe rules they write for the panels.
Kasich, a former Lehman Brothers managing director, said therewould be "no more bureaucrats, no more bungling, no more trippingover one another." He advocates keeping the amounts of bonusessecret if it means luring good talent.
The government-run economic development departments Branstad andKasich targeted for closure have had their share ofcontroversy.
Mismanagement in the Iowa Department of Economic Development'sfilm 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 developmentdirectors, including one who stepped aside after a report that heowed
$150,000 in federal and state taxes.
Strickland recently acknowledged that Ohio's developmentdepartment could have moved more quickly to keep businesses in thestate, though he defended its performance in a tough economy.
John Finkle, president of the International Economic DevelopmentCouncil, said there's little evidence that a business-led nonprofitis superior to a government-run development department. "There isthis belief that these private sector guys all have this expansiveRolodex and they'll be able to pick up the phone and all theirfriends are going to start making investments in the state," saidFinkle, who worked in the Republican administrations of PresidentRonald Reagan and Ohio Gov. James Rhodes. "In fact, it's not thatsimple."
John L. Krauss, director of the Indiana University PublicPolicy Institute, believes Indiana's semiprivate development board-- put in place by Republican Gov. Mitch Daniels -- is the bestapproach despite its recent troubles. He said some of theundelivered job promises were a result of the economic downturn."Everyone realizes you have to put your best foot forward, you haveto show off the state, you have to entertain prospectivebusinesses, you have to put up collateral," Krauss said. "Buttaxpayers are saying, 'Don't spend money, period' -- so anot-for-profit allows you to attract private contributions thatwill help government market Indiana in a way it doesn't haveavailable with tax dollars."
Other states also have encountered challenges. In 2000, thetwo-year-old Wyoming Business Council came under fire for givingfree plane rides to spouses of its staff and sizable bonuses to itsexecutives, including $30,000 to its then-CEO John Reardon, basedon exaggerated estimates of the job growth it had achieved. Themoney came from donations from private companies.
A 2006 investigation by the St. Petersburg Times found thatabout a fifth of the organizations that had joined the board ofEnterprise Florida Inc. in its first decade of existence had landedas much as $43.8 million in state-authorized incentives. That wasin addition to other government perks such as local property taxbreaks, federal grants, free land and county building fee waivers,the newspaper found.
Representatives of both the Wyoming and Florida nonprofitsacknowledge past problems. But they say the positives of theirsystems have outweighed the negatives. "Essentially, that was justearly growing pains organizationally for the (Wyoming) BusinessCouncil," said
spokesman Scott Balyo. "I don't think it had anything to dowith the economic development effectiveness of theorganization."
He said the council has created 6,200 jobs and assisted manyhundreds of businesses and communities with economic development
efforts. The program, Balyo said, has become a model
forother states during the past decade.
Arizona replaced its Commerce Department with a semiprivatepanel of business leaders just last month, and California joinsOhio and Iowa in considering the option.
Don Cardon, president and CEO of the new Arizona CommerceAuthority, said his organization is a hybrid of good ideas fromother states, especially Florida, Texas and Virginia. "There is anunderlying belief that we want to minimize government to thegreatest degree possible, but not so much that you dilute the rolethat the state is wanting to play," he said.
Enterprise Florida Inc. has put safeguards in place since theearly days to assure accountability, said spokesman Stuart Doyle --
including running all development deals through a publicoffice. Of 56 board members, 40 are business people.
Like similar organizations, Enterprise Florida rewards employeeswho land the jobs, based on performance goals. Bonuses for about 60
employees, paid from private funds, totaled $350,000 lastyear, Doyle said.
Performance-based incentives can present a temptation toexaggerate job numbers, especially if the organization's recordsare less than transparent, critics say.
Michael LaFaive, director of fiscal policy at Michigan'sMackinac Center for Public Policy, said spotty access toinformation hinders the public's ability to monitor such privatedevelopment councils. "It sets the taxpayers up to have to wagebattles for greater
transparency instead of less," said LaFaive, whose instituteopposes government-run development programs. "It has been ourexperience that this (Michigan development) corporation has dug inits heels and thrown up a Berlin Wall around itself to preventinformation from escaping."
The Kasich and Branstad campaigns say their job-seekingoperations would be held accountable. "While we can't speak forwhat other states have done,(Branstad is) going to have atransparent administration from the top to bottom, and thispublic-private corporation is part of
that," said his spokesman, Tim Albrecht.
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