New economic development agency aims to avoid pitfalls

A new public-private partnership that could take the reins of Iowa's economic development efforts as early as next month is expected to avoid the snags that have beset similar agencies in other states.

That's the plan, at least. Similar bodies in other states have met with charges of misuse of funds and excessive executive bonuses.

The Iowa Partnership for Economic Progress will be composed of the Economic Development Authority, a state-funded agency, and the Economic Development Corp., a not-for-profit organization that will be financed by the private sector and possibly federal grants.

The Authority will perform the same duties and responsibilities as the Iowa Department of Economic Development, according to IDED Director Debi Durham.

“All of the current staff will transfer to the Economic Development Authority, with their existing seniority and pensions,” Durham said. “The authority will have a director and an 11-member board appointed by the governor and confirmed by the Iowa Senate. The board also will have seven ex-officio members from the Iowa Legislature.

“The Economic Development Corp. will have a chief executive officer and a seven-member board initially appointed by Gov. Branstad. After that, the board will be self perpetuating, with the exception of two seats that the legislature says will be filled with Senate confirmation.”

Durham said the Corporation will not be involved in approving economic development grants, loans, tax credits, enterprise zones, job training or any other state-funded financial assistance for businesses.

“It will raise its own funding from either the federal government or the private sector,” Durham said. “Although it technically does not have to disclose the source and use of its funds, in the interest of transparency the Economic Development Corp. will be audited each year. The audit will list the sources and amount of funding as well as how the money was used.”

The Corporation will operate as Iowa's innovation intermediary, she added.

“The intention right now is for the Economic Development Corp. to create a for-profit arm that will set up a $100 million seed capital fund for early stage start-up businesses,” Durham explained. “The Economic Development Authority will contract with the Economic Development Corp. for certain functions, like marketing and promotion activity, policy research, economic analysis and expansion of international markets for Iowa products.

“We can do that right now with non-profit organizations. There is nothing that prevents the Iowa Department of Economic Development from contracting with either a for-profit corporation or a non-profit organization.”

When Branstad announced plans during his campaign for governor to replace IDED with a public-private partnership, organizations such as the Iowa Citizens for Community Improvement (ICCI) and Good Jobs First, a Washington, D.C., research group, attacked the proposal.

“Branstad's proposal to allow big-moneyed special interest groups to make tax deductible donations to a shadowy foundation that will then be doled out alongside public subsidies to corporations without any kind of accountability, oversight or transparency is akin to legalized money laundering,” said Adam Mason, a policy organizing director for ICCI, a statewide grassroots advocacy group.

Greg LeRoy, executive director of Good Jobs First, called turning over Iowa's economic development program to a public-private partnership “fool's gold.”

“What really matters is business basics: strategic public investments in skills, infrastructure and innovation - not privatized smokestack chasing,” LeRoy said.

In its report, “Public-Private Power Grab: The Risks in Privatizing State Economic Development Agencies,” Good Jobs First cited problems that developed at public-private partnerships in Florida, Indiana, Michigan, Rhode Island, Virginia and Wyoming.

The 24-page report noted that:

•  Rhode Island, Florida and Wyoming experienced misuse of taxpayer funds.

•  Excessive executive bonuses were approved in Florida, Michigan, Virginia and Wyoming.

•  Michigan and Rhode Island determined that some financial awards to businesses were inappropriate.

The report also faulted some of the states for inadequate transparency in terms of disclosing the source of private funds and potential conflicts of interest.

Durham said Bill Monroe, former executive director of the Iowa Newspaper Association, was asked to review the proposed Iowa Partnership for Economic Progress and recommend needed changes.

“We agreed to do things that are not required by state law or the IRS code because we really want people to be comfortable with this,” Durham said. “If we're able to prevent the abuses that have occured in other states and eliminate push back from the public by being more transparent about our finances, we're more than willing to do that.”

Monroe said the final bill signed into law this past month by Branstad incorporated all the changes recommended by the Des Moines Register editorial staff.

“Any money that the non-profit corporation spends or any meeting of that group that deals with spending public funds is subject to open meetings and open records,” said Monroe, who was appointed by Branstad as an unpaid special adviser on transparency in government. “The annual audit that details what money the non-profit corporation raised and how it was spent will be a public record.”

A third part of the proposed organizational structure for the Iowa Partnership for Economic Progress - labeled the Economic Progress Partnership and stripped out by the Legislature - was established by Branstad through an executive order. It will be chaired by the governor or lieutenant governor and have a seven-member board appointed by Branstad.

That board, comprised of individuals from the private sector or those with expertise in economic development, will develop a comprehensive economic development strategy.

“When the governor and his staff analyzed what was wrong with the Department of Economic Development, they found that it had to reset every four years, unlike the Department of Agriculture or any other department,” Monroe said. “They're constantly reinventing the wheel, which is time-consuming and confusing to anyone who needs to deal with them.”

Durham said the legislation creating the Iowa Partnership for Economic Progress did not set a specific date for the changeover to occur.

“When the Economic Development Authority board is established and seated, the new agency structure will come into being,” she said. “At this point, we think that's going to happen next month."