January 27, 2006
PUBLIC-PRIVATE ECONOMIC DEVELOPMENT PARTNERSHIPS
By: John Rappa, Principal Analyst
You asked us to identify and describe “public-private partnership” organizations states have created to plan and implement economic development policies and programs and discuss their performance.
At least eight states have economic development organizations that are generally characterized as public-private partnerships: Enterprise Florida, Inc., Indiana Economic Development Corporation, Kansas, Inc., Michigan Economic Development Corporation, Team Pennsylvania Foundation, Rhode Island Policy Council, Virginia Economic Development Partnership Authority, and Wyoming Business Council. The boards of directors governing these organizations include public officials, business leaders, university presidents, and private citizens.
The titles of these organizations suggest that they are private nonprofit organizations, but only Pennsylvania and Rhode Island's were established as such. The legislature in six states created the organizations to fulfill a public purpose. They also required the governor to chair or co-chair their boards and to appoint most or all of their members (Florida, Indiana, Kansas, Michigan, Virginia, and Wyoming). All of the organizations receive or plan to receive state appropriations.
The organizations vary in the type and range of services they provide. Some concentrate on marketing (e.g., Florida) or planning (e.g., Kansas), while other help businesses find sites, obtain permits, access loans, and engage in international trade (e.g., Michigan).
The Florida, Indiana, Michigan, and Wyoming legislatures created the partnership organizations after abolishing commerce departments. All appeared to have done so on the belief that a business-like organization could respond faster than traditional state agencies to businesses and communities seeking economic development aid.
The Kansas, Rhode Island, and Wyoming organizations were created to address state agencies' apparent lack of systematic, long-term planning and policy analysis.
Legislative reports and public audits for Florida, Kansas, and Wyoming suggest that partnerships may not produce the results legislatures expect. For example, an evaluation found that Florida's partnership did not attract many businesses to that state's distressed communities as the law requires. A post-audit report found that Kansas' partnership did not coordinate and evaluate economic development agencies as the legislature expected. And an audit found that Wyoming's partnership is not doing strategic planning as the legislature expected.
ENTERPRISE FLORIDA, INC. (EFI)
The legislature created EFI in 1992 to promote high technology industries and jobs (Fla. Stat. Ch. 288.901). In 1996, it abolished the Department of Commerce and assigned some of its programs to EFI. EFI mostly markets and promotes the state to life science, information technology, aerospace, homeland security, and financial service businesses. It also prepares strategic plans, helps businesses export their goods and services, and recruits businesses to distressed areas.
EFI is a non profit corporation, but its web page and legislative reports characterize it as a “public-private partnership” and “the state's principal economic development organization” (Office of Program and Policy Analysis and Government Accountability (OPPAGA), Program Review Report No. 01-62, December 2001). But several factors suggest that the Governor's Office for Tourism, Trade, and Economic Development (OTTED) oversees EFI:
1. EFI operates under a contract with OTTED.
2. OTTED's director's duties include overseeing EFI and several authorities, boards, and commissions. The director is also “the principal authority on allocation of key [economic development] incentives, loans, and bonds” (http://www.myflorida.com/ myflorida/government/governorinitiatives/otted/director.html).
3. While OTTED primarily manages contracts with EFI and other public-private partnerships, OTTED jointly manages economic development incentives with EFI and runs several community development and advocacy programs (http://www.myflorida.com/ myflorida/government/governorinitiatives/otted/economic_dev.html).
Governance and Funding
EFI's governing board and funding source reflect its public-private character. By law, the governor chairs its 19-member board, which includes legislators, state officials, and business executives. The governor and legislative leaders appoint the latter. EFI can receive funds from state and private sources, but gets most of its revenue comes from the state ($10.5 million in FY 2003-04, versus $1.6 million private).
OPPAGA reports found that:
1. EFI needed to increase its services to economically distressed rural and urban communities. In FY 1997-98, EFI's performance measures showed that it delivered most of them to counties with effective economic development organizations.
2. EFI spent too much time trying to deliver services by itself instead of coordinating, networking, or brokering the services that were already available from other public and private agencies.
3. EFI did not measure the degree to which its services contributed toward a business' decision to stay, expanded, or relocated in Florida.
4. EFI's reports on matching funds did not distinguish between those it received to support its operations and those going to specific programs and services.
5. EFI's activities appeared to have little effect on increasing venture capital investments in Florida businesses (Report 01-62, p.4).
INDIANA ECONOMIC DEVELOPMENT CORPORATION (IEDC)
IEDC's creation appears to have addressed the perceive limitations of Indiana's former Commerce Department. In 2005, the legislature abolished the department and created IEDC in its place (HB 1003). It did this as part of a larger reorganization that included transferring several Commerce Department programs to the Lieutenant Governor's Office and consolidating several quasi-public development finance authorities in a single authority.
In creating IEDC, the legislature turned to an organizational form it believed would respond faster to a business' needs than a state agency. Placing economic development administrators in a corporation would free them of state government rules and regulations that constrain their actions. According to its web page, IEDC runs like a business “in order to respond quickly to the needs of businesses” (http://www.in.gov/iedc/).
IEDC helps businesses identify sites for new facilities and obtain licenses and permits. It also funds new infrastructure and awards tax incentives for many different purposes, including job creation.
IEDC is an “independent instrumentality exercising essential public functions.” Although the law specifies that IEDC is not a state agency, it places IEDC under the governor's direct control.
Governance and Funding
A 12-member board governs IEDC. The governor chairs the board, appoints all the members, and appoints IEDC's chief executive officer and its president. The president reports to the chief executive officer, who also serves as the governor's commerce secretary.
IEDC can request state appropriations for administrative and program costs. It can also solicit private funds, which it must deposit in a designated fund.
Comments recorded on a private attorney's Indiana Law Blog suggest the kinds of issues a legislature may confront if it considers creating a public private partnership (http://indianalawblog.com/archives/ 2005/01/indiana_governm_55.html). The issues center on the factors that set these organizations apart from traditional state agencies.
A key factor is the degree to which the partnership must comply with the same rules and regulations as state agencies. Doing so could increase the time it takes to hire a consultant, evaluate a proposal, or approve a loan. Proponents argue state government must respond quickly to a business that wants to relocate or expand in the state or risk seeing that business relocate to another state, which may also be courting the business.
Critics see a public-private partnership's latitude differently. They see rules and regulations as the means for holding public officials accountable for achieving public goals, such as investing state dollars in projects that create jobs and produce other public benefits. When the legislature debated the IEDC bill, state representative David Orentlicher expressed concerns about the power concentrated in IEDC's board and “a lack of accountability and public involvement on simple rules” (Fort Wayne Journal Gazette, January 5, 2005).
The legislature created Kansas, Inc. in 1986 to research, plan, and oversee economic development policies and programs. It specifically required Kansas, Inc. to:
1. develop a strategic economic development plan;
2. evaluate economic development policies and programs;
3. coordinate the way the state implements its economic development strategy; and
4. advise the legislature, economic development agencies, private organizations, and other stakeholders about economic development.
Kansas Inc. is a body politic and corporate and a public instrumentality performing essential government functions (Kan. Stat. Ann. § 74-8001).
Governance and Funding
A 17-member board governs Kansas, Inc. By law, the board consists of the governor, the commerce secretary, the top legislative leaders, and nine other members appointed by the governor with the Senate's consent. These members represent business, labor, and universities. The governor co-chairs the board with a private sector representative elected by the board.
Kansas, Inc. receives public and private funding. State appropriations cover its operating costs and money from a dedicated fund pays for research studies. Kansas, Inc.'s FY 2003-04 budget was about $405,000, 40%o of which came from private sources. The budget supports a three-member staff.
Although Kansas, Inc. has produced many studies and updated the state's economic development plan, it has not “emerged as the strong coordinator and evaluator of economic development programs the statutes seem to envision,” the Legislative Post Audit Committee concluded in 2001 (Performance Audit: Economic Development in Kansas: A K-Goal Audit Reviewing Coordination and Effectiveness of Programs, January, 2001). The committee reviewed Kansas, Inc. as part of a broader study concerning the extent to which the state's economic development agencies were fulfilling their statutory roles.
The laws governing Kansas, Inc. and the other economic development agencies do not clearly delineate their respective roles and duties. Although Kansas, Inc. is supposed to evaluate the Department of Commerce and Housing and the quasi-public Kansas Technology Enterprise Corporation, the law does not specify how often it must do so.
The committee found little coordination among the three agencies, the reasons for which seem structural. The agencies compete against each other funds, pursue different ideas about how to develop the state's economy, and lack clear statutory authority to coordinate the other agencies' actions.
MICHIGAN ECONOMIC DEVELOPMENT CORPORATION (MEDC)
The state and several municipalities created the MEDC in 1999 under a constitutional provision allowing them to jointly perform any function they can perform separately. They did so to provide “a one-stop resource for business retention, expansion, and relocation projects” (http://www.michigan.org/). MEDC replaced the Michigan Jobs Commission, which was the state's economic development agency.
MEDC provides a wide range of technical services to municipalities and businesses. For example, it provides grants to municipalities for developing infrastructure and helps them prepare downtown revitalization plans, access funds, and implement them. It also helps businesses obtain state permits and licenses, find sites for their facilities, and engage in international trade.
MEDC appears to be a government agency with a private, corporate structure. According to its web page, MECD “is a corporation, not a traditional government agency. That means we put our commitments and deadlines in writing, with service guarantees. In addition, we use performance measures and continuous improvements to assure the highest quality of service to our business customers” (http://medc.michigan.org/aboutus/).
Governance and Funding
MEDC has a 94-member board of directors, but a 17-member executive committee oversees the corporation. The board consists largely of business people, local economic development administrators, and educators. The governor appoints the executive committee. State appropriations fund MEDC's 10-member staff.
MEDC's recent experience suggests that public-private organizations are not immune from political changes. In 2003, Michigan's new elected governor issued an executive order consolidating the economic and workforce development functions in a new department of Labor and Economic Growth (Executive Order 2003-18). MEDC was placed under
the new department and its president now reports to the department's director (Poole, et al., Benchmarking Arizona Economic Development: Creating More Strategic Governance and Investment Policies, 2005).
TEAM PENNSYLVANIA FOUNDATION
Businesses leaders established Team Pennsylvania and the Team Pennsylvania Foundation in 1997 to provide a place where business leaders and economic development officials could collaborate on shaping public policy. Business leaders took the lead in establishing these organizations because they were frustrated with the state's inability to compete in global markets. “They wanted a place at the table—real face time with Pennsylvania's policy makers” (http://www.teampa.com/foundation/fdnInfo.aspx).
The foundation runs several programs. Its Business Resource Center provides facilities where government and business leaders can collaborate on formulating economic development policies and make multi-media presentations to businesses that want to relocate or expand in Pennsylvania. The foundation's Business Resource Network provides information businesses need when selecting sites for new facilities. Its Ambassador Program's business mentors counsel students while showing them the benefits of living and working in the state.
The Team Pennsylvania Foundation is a private, nonprofit organization. In 2001, it and a sister organization, Team Pennsylvania, were merged to form a single private nonprofit organization.
Governance and Funding
A 46-member board of directors governs the foundation. The governor and a business leader co-chair the board, whose members include business executives, labor leaders, university presidents, and state officials.
The foundation raises private funds to finance it operations. Its 1997 Team Pennsylvania Partners campaign raised almost $5 million, which the foundation used to leverage an additional $23 million in other private and public funds. Its new campaign—Team Pennsylvania Partners II
seeks to raise almost $10 million in FYs 2005-08; it expects to raise $4 million from public sources (Team Pennsylvania Partners II, February 2005).
RHODE ISLAND ECONOMIC POLICY COUNCIL
The governor and business leaders created the council in 1996 to analyze the state's economy and advise policy makers about how to develop it. The council operates independently of the state's quasi-public Rhode Island Economic Development Corporation, an arrangement that allows the council to focus on analyzing long-term trends and problems, developing realistic policy options, and mobilizing groups to support those options.
The council appears to be a hybrid organization. Business leaders established it as a private nonprofit corporation. But it also has a public character, given its purpose and the fact that the governor separately established the council by executive order.
Governance and Funding
A 25-member board governs the council, which is co-chaired by the governor and a business executive. Its members include business leaders, public officials, and university presidents. Its annual $500,000 budget supports a four-member staff. The state and private sources split the funding.
VIRGINIA ECONOMIC DEVELOPMENT PARTNERSHIP AUTHORITY (VEDP)
The legislature created VEDP in 1995 to attract businesses to Virginia, collect and provide information on potential sites for new facilities, and promote international trade. VEDP does these things by assigning a project manager to each business requesting its services, which include helping business access loan programs administered by the state's other economic development agencies—the Department of Business Assistance and the Virginia Small Business Finance Authority.
VEDP is a political subdivision performing an essential governmental function (Va. Code Ann. § 2.2-2234). But it has some of the characteristics of an executive branch agency, which we discuss below.
Governance and Funding
VEDP is governed by a 21-member board, which consists of the Finance and Commerce and Trade secretaries and 19 members appointed by the governor and legislative leaders (Va. Code Ann. § 2.2-2235). The board elects the chairman.
Several Virginia laws seems to circumscribe VEDP's independence. While the board governs VEDP, it falls under the Commerce and Trade secretary's jurisdiction, which includes several other economic development related departments and authorities (Va. Code Ann. § 2.2-204).
Unlike Connecticut's quasi-public development authorities, VDEP is funded entirely with state appropriations. Its FY 2005 budget was about $16 million.
WYOMING BUSINESS COUNCIL (WBC)
The legislature established WBC in 1998 to develop a clear and comprehensive economic development strategy. It did so because the state's small population and unique reliance on mining made it difficult for policy makers to identify and address the forces affecting the state's economic growth. Consequently, the legislature expected the WBC show how the state should invest its resources in order to expand and diversify the economy (Wyoming Business Council, Management Audit Committee, June 2005).
When it created the WBC, the legislature abolished the Commerce Department and transferred its programs to the WBC. The WBC:
1. trains and counsels farmers and businesses;
2. helps them obtain the licenses and permits they need to operate;
3. brings businesses on foreign trade missions and helps them obtain export financing;
4. helps businesses bid on government contracts;
5. advises inventors on how to market their products and obtain federal funding;
6. provides information to businesses on sites for new facilities;
7. funds local economic development projects, community facilities, and public infrastructure; and
8. administers several housing and community development programs.
The legislature established the WBC as a “body corporate operating as a state instrumentality operated solely for the public benefit” (Wyo. Stat. § Ann. 9-12-103; i.e., a quasi-public agency). According to its web page, the WBC is a new organization that “has more of a corporate structure, incorporates private business practices in order to drive programs and has instituted regional offices throughout the state” (http://www.wyomingbusiness.org/).
Governance and Funding
The WBC is governed by a 15-member board that consists mostly of business executives. The governor co-chairs it and appoints its members with the Senate's advice and consent. But he cannot vote. The board elects the other co-chair from among its members and hires the council's chief executive officer, who serves at its pleasure.
The WBC receives all of its funding from state appropriations. Its $85 million FY 2006 budget covers administrative and program costs. The legislature increased the WBC's budget by over 200% since FY 2000. It allocated almost 63% of the FY 2006 budget to specific programs or pass-through funds. The WBC has a 26 member staff (WBC).
The WBC does not seem to have met the legislature's original expectations, the 2005 Management Audit Committee report suggests (p. 49). The legislature expected “WBC to be a dynamic, independent, and
aggressive policy-making agency that would help shape and improve Wyoming's economy.” Instead, WBC seems more focused on achieving narrower program goals and addressing the needs of different groups.
WBC's quasi-public status seems to have made little difference in the way the state invests its economic development resources. “The importance of its status may have more to do with perception than with measurable results. That issue aside, WBC does operate much like an agency of the state, and it uses General Fund appropriations” (p.49).