Branstad pushing for public-private partnerships

DES MOINES - Gov. Terry Branstad's proposed reforms of the state's economic development and education programs both include creation of “innovation funds” in which private dollars support public proposals.

“Innovation” is a buzzword in the Branstad administration, heard almost as frequently as the phrase “predictability and sustainability.” Both proposed funds are a good representation of the administration's desire to bring the expertise and capital of the private market into the public realm.

But they face increased legislative scrutiny now that the governor has called for tweaks to the tax benefits offered to private investors in one program and made the creation of the other part of the massive education reform plan.

And as states, cities and counties continue to invite a greater role for the private sector, questions remain on how clear the lines delineating the public and private spheres really are.

“Both of these are examples of what's sometimes called the ‘extended state' or the ‘shadow bureaucracy' where states enter these partnerships with private enterprise,” said Chris Larimer, a political scientist at the University of Northern Iowa and co-author of “The Public Administration Theory Primer.” “These partnerships are becoming increasingly common ... How they should operate, the level of disclosure, all of that is open for discussion.”

Branstad spokesman Tim Albrecht said in an email that it is incumbent on government to seek help from the private sector.

“The reason the private sector is stepping up to support important public programs is because they recognize that there is a limit on how many public funds will be available in the future,” he said.

Economic Innovation Fund

Last year, the Legislature created the Iowa Innovation Corp., a non-profit, tax-exempt organization that can accept tax-deductible donations. That corporation is expected to set up the Innovation Fund, a for-profit legal entity that will seek private investment.

Investors in the fund can receive tax credits for their investments. In the initial legislation, they would get 20 cents' worth of tax credits for every dollar they invest, with a limit of up to $1 million invested in any year; tax credits are capped at $8 million.

This session, however, legislation is moving through the Senate that changes the tax credit to a dollar-to-dollar benefit. Investors in the fund may be named, but the amounts they donate likely won't be because it would involve revealing private tax information.

Tina Hoffman, spokeswoman for the Iowa Economic Development Authority, said the innovation fund is modeled after a South Carolina program called SC Launch that also entices investors with tax credits in exchange for their capital.

Bill Mahoney, CEO of the South Carolina Research Authority, which administers the program, said SC Launch focuses on technology startups and has a track record so good that when a company gets SC Launch money “it's almost like a Good Housekeeping Seal of Approval.”

Like the Iowa program, SC Launch issues a limited amount of tax credits on a first-come, first-issued basis. Investor contributions aren't disclosed and investment decisions are made by an investment board.

“We do pick winners, but we're not the government,” Mahoney said.

Sen. Bill Dotzler, D-Waterloo, vice chairman of the Senate economic development committee, said he expects the governor's request for a 100 percent write-off won't fly.

“We don't know what it will be, but it won't be 100 percent,” he said. “To have it at 100 percent eliminates the risk. I think the investors who are going to get the benefit have to shoulder some of the risk.”

Education Innovation

Another innovation fund is outlined in the education reform proposal the Iowa House is expected to debate this week.

The education fund creates a pool of money that the director of the Department of Education can distribute to schools or districts to underwrite new programs.

It's modeled on a Tennessee Department of Education program called the Innovation Acceleration Fund, which distributed close to $10 million last year to four Tennessee school systems.

The key difference is the Tennessee money comes from federal Race to the Top funds. Iowa's program, Department of Education spokeswoman Staci Hupp wrote in an email, “would turn to other sources for funding (state, philanthropies and foundations, and the business sector)” because it does not have Race to the Top dollars.

Hupp said any contribution to the fund would be considered a gift and reported to the Iowa Ethics and Campaign Disclosure Board.

Rep. Sharon Steckman, D-Mason City, ranking Democrat on the House Education Committee, said Democrats likely will offer an amendment to remove the authority of doling out the money from the director's office and put it with area education agencies.

“Otherwise, all of the programs (that receive money) could be from the Des Moines area,” she said. “We think innovation is happening all over the state.”

Rep. Royd Chambers, R-Sheldon, floor manager of the education reform bill in the House, said Republicans don't intend to change the governor's proposal. Still, he continued, they might accept an amendment on who makes the call where the money goes.

“Whether it's a task force or the AEAs, all of that is open for discussion,” he said.

Regardless of what happens legislatively, the continued blurring of lines between the public and private sectors is expected to continue, here and elsewhere.

“Taxpayers and governments are coming to grips with the fact that there is only so much public money available and that in order to do some of the programming we want to do, we are reaching out to find alternative ways to accomplish our goals,” Albrecht said. “Public-private partnerships are the wave of the future in terms of better coordinating the activities of government with its private-sector partners and recognizing the interrelationship between the two.”