Shuffling the state’s ineffectual Commerce Department into a public-private economic development collaboration called the Arizona Commerce Authority is an attention-grabbing maneuver that, history teaches, will fall short of propelling Arizona out of its economic doldrums.
Proponents insist that agencies like the Arizona Commerce Authority promote economic growth by giving businesses a main point of contact with the state, by coordinating efforts among companies and various state agencies, and by helping companies navigate a state’s rules and regulations. Such hybrid agencies are more responsive to the needs of the business community, supporters say, and are more efficient than a government department.
The agencies broadcast a signal that a state and the governor are serious about creating a welcoming business climate. (See related story, “Professionalizing Arizona’s economic philosophy,” Page 9.)
But studies show such partnerships in other states often produced disappointing outcomes, and critics find fault with a range of business-wooing tactics, such as ignoring small businesses in favor of landing the one mammoth plant and offering incentives that amount to bribes. (See related story, “Some say ‘incentives,’ others call them ‘bribes,’” Page 9.)
Department of Commerce Director Don Cardon, who was named president and CEO of the Commerce Authority, refused multiple interview requests from the Arizona Capitol Times. Gov. Jan Brewer’s spokesman Matt Benson said the Commerce Authority will streamline the mission of an agency that is bogged down with dozens of extraneous duties and will allow the business community and government to work together toward economic development.
“The idea here is that you bring together interests from the public and the private sector cooperatively who can focus on one single-minded mission, and that is to retain and recruit the highest quality jobs that we can to Arizona,” Benson said.
The public-private label is so alluring, many states are trying it.
In New Jersey, Gov. Chris Christie is trumpeting the merits of quasi-private economic development agencies. Last fall, winning Republican gubernatorial candidates in Ohio and Iowa campaigned on proposals to create such agencies.
And in Arizona, Brewer has made the ACA a cornerstone of her recovery agenda. The Legislature still must approve her plans, but Brewer already has created a board of directors for the ACA and put the new agency’s logo at the Department of Commerce office.
The ACA will usher in an era of economic growth fueled by unprecedented cooperation between government and the private sector — so its supporters say.
But in other states, that renaissance hasn’t come.
Measuring the number of jobs that recruited companies bring to their new states is a matter of fuzzy math, at best, and critics question whether public-private authorities have any quantifiable effect. The tax breaks and incentives they offer have led to a herd mentality in which any state that doesn’t shell out money to prospective new employers loses to another state that will.
Tim Lawless, a former assistant deputy director at the Arizona Department of Commerce, breaks down the numbers.
The Greater Phoenix Economic Council, a public-private economic development agency created in the 1980s, takes credit for attracting an average of about 25 companies a year to the Valley. Tucson Regional Economic Opportunities, Inc., Lawless said, claims about 15 companies annually in Pima County. And when the Department of Commerce still kept statistics on its own job attraction efforts, it claimed about 75 companies per year, Lawless said.
Because the Department of Commerce passes along prospects to the Phoenix and Tucson recruiters, it’s possible that a company arriving in Arizona was counted by two different agencies, thus distorting the numbers.
And compared with the 400,000 companies operating in Arizona, the number reported by the recruiting agencies is a droplet in the desert.
“You’re talking about 50 to 100 companies, at the very most,” said Lawless, who now heads the Arizona chapter of the National Association of Industrial and Office Properties. “This might be good for the 100, 150 that you’re going to attract. But what is it going to do for the 400,000?”
Lawless said GPEC gets a majority of its leads from the Department of Commerce and the Governor’s Office, the first point of contact for many companies interested in opening shop in Arizona. He doesn’t expect things to be any different under the ACA. A GPEC spokeswoman said the number of leads from the state is about 15 percent.
In 2006, the Connecticut General Assembly, while it was considering creating an agency of its own, commissioned a report on public-private economic development organizations. The report found shortcomings in all eight agencies it surveyed. Examples from the report:
• Enterprise Florida Inc., attracted fewer businesses to the state’s “distressed communities” than the law required, and did not measure whether it had any effect on businesses’ decisions to move to the state or stay there.
• The Indiana Economic Development Corporation faced questions over whether it had to comply with the same rules and regulations governing other state agencies.
• The Wyoming Business Council “seems to have made little difference in the way the state invests its economic development resources.”
The report also said: “Legislative reports and public audits for Florida, Kansas and Wyoming suggest that partnerships may not produce the results legislatures expect.”
According to a Jan. 12 report by the Washington, D.C.-based think tank Good Jobs First, the effectiveness of such partnerships often is questionable. Wyoming lawmakers have criticized their agency’s claims as “too anecdotal and not … analytical,” the report said, and a 2005 audit of the Utah Economic Development Corporation showed that it didn’t measure the number of jobs created or companies attracted, and instead used its recruitment activities as the sole measure of its success.
The report also said the partnerships are less accountable and transparent than other government agencies.
Studies of economic development agencies in other states have shown that the jobs they promise don’t always materialize. A recent analysis of the Indiana Economic Development Corporation, for example, showed that from 2005 to 2009, 87 percent of the new jobs that the IEDC announced were actually created.
In 2005, announcements of IEDC-affiliated projects included projections totaling 10,017 new jobs. But by 2009, only 5,885, or 58 percent, of those jobs promised in 2005 had materialized.
Of the additional jobs projected from IEDC efforts in 2006, 82 percent had been created by 2009, and 61 percent of the jobs projected in 2007 had materialized by 2009.
However, job creation exceeded the IEDC’s estimates in 2008 and 2009.
Morton Marcus, who taught economics at Indiana University for 33 years, said he suspects that the number of jobs the IEDC helped bring to the state is significantly lower than the 87 percent figure cited in the report. The problem, he said, is that when a company brings new jobs to the state, it’s nearly impossible to determine what, if any, role the agency had.
“They trumpet all of this,” Marcus said. “My question is, how much of that would’ve happened if we didn’t have the Indiana Economic Development Corporation? They’re very good at issuing press releases. … It all makes (Gov.) Mitch Daniels look better as a presidential candidate.”
Lawless said quasi-private economic development agencies often aren’t subject to the same transparency and accountability laws that govern other state agencies. Many businesses don’t want information about potential relocations or expansions to go public until they’ve made a decision, and releasing that information can jeopardize their plans.
But that leaves the press and the public in the dark about where the partnerships are spending tax dollars.
That can be especially problematic when the partnerships face conflict-of-interest issues.
According to the Good Jobs First report, several Enterprise Florida board members have connections to companies that received state subsidies. The agency’s director, for example, is president of an aircraft company that received $5.5 million from Enterprise Florida’s closing fund and a $1.1 million tax refund.
The Arizona Commerce Authority’s board is made up of CEOs and others from many of the biggest companies in the state. And they will have decision-making authority over a lot of tax credits and other millions of dollars in incentives.
“That brings discretion into the equation,” Lawless said, “and that’s where you can have appearance issues.”
Don Cardon, director of the Arizona Department of Commerce, will head the Arizona Commerce Authority. But here are some differences between the two agencies:
• The ACA will have a president who goes through a competitive hiring process and has a long-term contract. That is designed to eliminate the instability of a department that went through seven directors in 10 years.
• The ACA has a board comprising top business officials from throughout the state.
• The ACA will control a $25 million deal-closing fund to help cover infrastructure needs for businesses, with some of the start-up money contributed by the private sector.
• The ACA will be co-chaired by the governor.
• Most of the 57 statutory mandates given to the Department of Commerce through the years will be transferred to other agencies. One such mandate — a section of the department that compiles employment data for the federal government — has already been transferred to the Governor’s Office.
• The ACA will have a “performance-based funding model” to show what kind of return the state is getting on its money.