Commerce department to act more like private marketing firm
Posted May 8, 2013
Raleigh, N.C. — Top advisers encouraged Gov. Pat McCrory to move toward privatizing the Commerce Department's job recruiting operations in a white paper drafted a month before the Republican took office.
Key among the advantages of a public-private partnership is the ability to pay job recruiters based on performance and reward those who recruit businesses to the state, wrote the authors, who now occupy top policy jobs in McCrory's administration.
McCrory publicly rolled out those plans in early April, although emails and documents obtained by WRAL News show plans to push for a conversion continued nonstop from his transition team through the early months of his administration.
"The stagnant and reactionary nature of traditional government economic development efforts provides a unique opportunity for North Carolina to gain competitive advantage by developing a model that adapts to anticipate and meet the demands of the changing corporate landscape," reads one line from the December 2012 document co-authored by Tony Almeida, McCrory's senior adviser for jobs and the economy.
The paper explores what several other states, including Florida, Indiana and Virginia, have done to change their job recruitment process. All have developed something akin to what North Carolina is considering.
In an interview last week, Almeida said a remodeling of the Commerce Department would help establish "role clarity" by more closely knitting together the activities of state, regional and locally funded job recruiters.
"We need a greater focus on the customer," Almeida said. Instead of having any one of a half-dozen points of entry into the state's economic development system, he said, a business could deal with one recruiter from start to finish.
Those recruiters would be paid based on how well they do in landing new businesses and keeping existing ones. Successful recruiters would earn bonuses; unsuccessful ones may be winnowed from the payroll.
"A key thing is moving toward performance-based compensation," Almeida said. "I think that will help us with a culture of customer service."
Looking at a wholesale approach
Two pieces of the Commerce Department would almost certainly remain squarely under a government agency in any scenario. The department oversees the Division of Employment Security, which distributes benefits to unemployed workers and handles millions of dollars in federal funds. The department also oversees the distribution of grants and tax credits used to build affordable housing and redevelop blighted communities.
But virtually every other piece of the department, from promoting the state's wineries and coastal tourism to persuading Fortune 500 companies to relocate here, would be put in the hands of a public-private partnership if the state follows through with plans outlined by the December white paper. Almeida terms this the "wholesale" approach, although there is not yet a specific plan.
"We're looking right now at what is the best way to do it," he said. "I'm not sure we've got a definite model."
However, Blainne Chang, another McCrory adviser, sketched out at least one version of the plan in a February memo.
"To improve upon the existing model for effective sales and high-quality customer service, the new model would be restructured into five primary departments: (i) Business Development, (ii) Workforce Development, (iii) Tourism, Film & Sports, (iv) Finance and (v) Policy," the memo said.
The memo shows a proposed organizational structure.
This isn't the first time North Carolina has considered moving job recruitment to a public-private partnership.
"It was pretty brief," said Keith Crisco, who served as commerce secretary under Gov. Bev Perdue.
Crisco said the Democratic administration abandoned the idea because there were other problems on which he wanted to focus. At the time, he said, there were rivalries among the state's various job recruiters, with local governments competing against one another for projects.
In the 2000s, it wasn't unusual to see neighboring cities bidding against one another to bring the same company to a different section of the same county.
"It didn't matter how we organized it," Crisco said. "If everybody hated each other, it wouldn't work."
While he was in office, Crisco did work with the nonprofit Friends of North Carolina, a foundation that pays for recruitment events and travel aimed at job recruiting. Sill, that nonprofit only played the role of facilitator, not active recruiter.
He said the idea of "performance-based compensation" raised by Almeida makes sense. During his tenure, Crisco said, there were "a couple of developers" who were key to landing big projects.
"You couldn't pay them one more penny of bonuses," he said. A private organization would have that flexibility.
The governor as CEO
As described in documents and interviews, the new public-private partnership would run much as a public business would, with a board chaired by the governor and filled by a mix of government appointees and executives from the private sector. Incentive grants would still have to be approved by a public body, but its unclear if or how open meetings and open records laws would attach to the new public-private entity.
Private companies would be able to pitch in toward economic development efforts, either to help pay staff salaries or toward incentives used to land new companies.
Why would a business chip in to help bring their next potential competitor to the state?
"There are a number of businesses that have their market share increased based on greater population growth and greater GDP in the state," Almeida said.
Banks, law firms, power companies and other organizations that serve people and businesses would do better having more people and businesses here. "They've got a great opportunity to increase their customer base," he said.
The February memo includes organizations to manage an angel investor fund, incentives funds and venture capital.
There is already legislation pending at the General Assembly to move the Commerce Department toward a public-private model, although the bill will undergo a significant rewrite before moving forward. In interviews and emails, those backing the transition say they want to move forward before the legislative session ends this year. That means they likely have until the middle of June to push forward the reorganization plan.
There are already public-private partnerships carrying out job recruitment in North Carolina. Seven regional economic development partnerships are funded partly by local businesses and governments and partly by the state.
"I'm one that believes that if you have more people shooting at a goal, you're more likely to have some baskets go in," said Charles Hayes, president and chief executive of the 13-county Research Triangle Regional Partnership.
That said, Hayes said, there is no doubt recruitment efforts could be better coordinated. The heads of the regional partnerships meet regularly with state officials and often come up with good ideas and plans, he said, but nobody is in charge or making sure anyone follows through on those ideas.
Still, one of the concerns about moving toward a partnership that consolidates responsibility for job recruitment in Raleigh is that regional perspectives would be lost. As well, specialty agencies such as Golden LEAF, which gives money from the 1990s-era tobacco settlement to projects in rural North Carolina, and the Rural Economic Development Center would likely be brought into the new partnership's hierarchy.
The question, Crisco said, is would the state maintain its focus on helping those distressed rural communities.
"What concerns me is you don't have the focus of all those separate groups," he said. "The rural center gets up every morning and thinks about what it can do for that particular part of the state."
Commerce Secretary Sharon Decker said it is precisely the need to focus on particular areas of the state that will make the public-private partnership valuable. Rather than having separate organizations focus on rural communities or blighted urban areas, she said, the state would be able to bring all its resources to bear on a particular problem.
"In a government setting, we are less likely to prioritize because it might mean that an area gets something that another area doesn't get," she said.
This need to meet the demands of various constituents can end up sending economic development resources to Charlotte and Raleigh, the two fastest-growing areas of the state, at the expense of rural communities.
Decker said those most distressed communities would be remade into "economic opportunity zones" under the new partnership. Resources and recruitment strategies particular to their needs could be deployed by a private corporation that doesn't need to worry about the political push and pull of lawmakers looking to bring home the bacon for their districts.
"We've just got to wake up and recognize that we need to focus our attention on those communities that need the most help," she said.