A Look Inside the Privatization of NC’s Regional Economic Development Partnerships

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In the 2013 State Budget Act, the State of North Carolina voted to defund North Carolina’s regional economic development partnership and to dissolve the four “rural” public partnerships, including the NC Eastern Region, Advantage West, the Southeast Regional Economic Development Partnership, and the Northeast Commission. These four partnerships were dissolved as of July 1, 2014, and now each is finding a way to reinvent its business model to continue providing services to its member counties. (See news on the transition from around the state.)

John D. Chaffee, CEO of the NC East Alliance – the new private non-profit that’s succeeding the NC Eastern Region, provided an update on this transition. 

History: Local Funding

The NC Eastern Region (NCER) was founded in 1993, inspired by the creation of the Research Triangle, Charlotte, and Triad regional economic development partnerships, which had the new idea of pooling public and private resources to market regions over individual counties. The majority of NCER’s funding was generated locally – the counties in the partnership agreed to implement a 5-year $5 vehicle registration fee, adding up to start-up capital of $15 million for NCER, supplemented with a $7.5 million grant from the State. Of these funds, 85% of the vehicle registration fees went toward a trust fund from which NCER could make economic development loans, and 15% supported the operations of NCER.

Shortly after NCER was founded, the State adopted the regional economic development partnership structure for every county in the state, so that even regions where the counties couldn’t agree to pass a regional economic development tax could benefit from a regional marketing approach.

Privatization and Competition for Funding

Although NCER generated the majority of its trust fund locally and was not dependent on state funding for its survival, it was considered a publicly funded entity by the State and was therefore dissolved along with the three State-created partnerships. (The three “metropolitan” partnerships were already public-private partnerships, so they are continuing in their current forms – although each is also losing state funding.) The biggest impact of privatization for NC East Alliance has been the loss of the NCER trust fund, which was distributed proportionately to the counties in the partnership to spend on economic development projects.

Now, counties are also free to choose whether they want to belong to a regional economic development organization, and if so, which one. In the Eastern region, belonging to the partnership will now mean an annual contribution from the county, so NC East Alliance must sell member counties on the value added by the regional approach. To avoid the complication of annual appropriations, original NCER member counties can also opt for the NC East Alliance to hold their portion of the trust fund pay-out, which covers the county’s annual contribution for several years.

NC East is also marketing its value to private partners, including both companies and grant-making organizations. Companies and grant-makers with a state-wide footprint are receiving, or expecting to receive, requests for funding from partnerships across the state, as well as from the new state-wide public-private economic development entity. Therefore, NC East is primarily focusing on regional-level stakeholders – although many of these also support county-level economic development commissions and local Chambers of Commerce. “We can’t look at it as robbing Peter to pay Paul,” says Chaffee – NC East must convince new partners that investment at the regional level has benefits in addition to those generated by partners’ existing local commitments.

Programming and Governance Impacts

NC East Alliance has had to streamline the programming offered by its predecessor. In particular, through the trust fund, NCER was able to support capacity-building activities in its local communities as well as regional workforce development. Now, NC East Alliance has had to streamline that programming and is focused in primarily on investing in cluster-based economic and workforce development programs, which Chaffee calls “the most important locational factor for companies.” (See NCWorkReady and STEMEast for more information on NC East Alliance’s workforce development investments.)

Two benefits of privatization have been the removal of cumbersome accountability requirements and the ability to reinvigorate NC East Alliance’s governance. Because NCER received a start-up grant from the State, several of its board members had been State-appointed, and it was required to undergo annual State audits and submit annual reports to an array of governing bodies. Now, NC East Alliance has the freedom to craft a board that strongly supports regional-level economic development investment – those counties that have opted to remain in the region are ardent supporters of a regional approach to problem-solving and marketing. “We have a great core board right now,” says Chaffee, and he is also using board membership as a recruiting tool for private partners – any partner who invests $25,000 or more per year is eligible to have their representative elected to the board. Companies that are able to come in at that level, Chaffee says, have a regional footprint and therefore will value regional-level investments. He’s also looking forward to a increasing the diversity of perspectives on the board by adding more members with a business background.

Looking Ahead

This year, NC East Alliance is focused on a fundraising goal of $500,000 per year to fund its ongoing operations and the organization seems to be moving quickly to achieve that goal through grants and investments. With an eye toward the increasingly competitive landscape, Chaffee is also beginning to explore ways that NC East Alliance can generate revenue while continuing to create value for its members. In the end, Chaffee’s goal is for NC East Alliance to be “the very best partner we can be” for both its local partners and the new state economic development entity.

Julianne Stern is a Development Finance Initiative Fellow and a dual degree candidate in the Department of City and Regional Planning and the Kenan-Flagler Business School at UNC-Chapel Hill.

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