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Commerce Authority: State pays, but has little say

When the Arizona Department of Commerce becomes the Arizona Commerce Authority, the quasi-private agency will be free of much of the oversight and regulations that accompany being a fully public part of state government.

The Commerce Authority will have leeway and latitude available to few, if any, state agencies. Its personnel will not be state employees. Annual appropriations for its massive deal-closing fund are out of the Legislature’s hands. It won’t have to abide by the same financial-reporting requirements as most departments. And the authority will have the power to hire its own outside legal counsel.

Some in the Legislature are wary of the Commerce Authority’s independence. Of the four Republicans who voted against HB2001, formally titled the Arizona Competitiveness Package but dubbed the jobs bill by Republican backers, three cited concerns that it created an agency unaccountable to the Legislature.

“Apparently, they want them to be able to do whatever they want to do,” Sen. Ron Gould said of Gov. Jan Brewer and legislative leaders who insisted on minimal oversight for the Commerce Authority. “They’re exempt from almost every form of structure that would be put upon a government agency.”

Chief among the critics’ concerns is the way the Commerce Authority sidesteps the Legislature’s budgeting authority.

The $25 million Arizona Competes fund — a deal-closing treasure chest meant to pay for job training, infrastructure improvements and other final incentives sought by companies that are promising to create jobs in Arizona — is paid for through withholding taxes on employee income and money from the Arizona State Lottery.

The deal-closing fund is the bulk of the authority’s proposed $31.5 million budget for the fiscal year 2012, which begins July 1.

But while the Legislature must approve agency budgets each year, that annual

$25 million goes directly into the Commerce Authority’s coffers without legislative approval.

“It doesn’t go through the appropriations process,” said John Arnold, director of the Office of Strategic Planning and Budgeting, the governor’s budget office.

To such skeptics as Rep. Eddie Farnsworth, the only House Republican to vote against HB2001, the automatic appropriation is a violation of the Legislature’s authority over appropriations.

“I don’t believe that there’s really any legislative oversight,” the Gilbert Republican said. “Essentially, it becomes their slush fund to decide how it’s going to be spent.”

To qualify for money from the deal-closing fund, companies must meet a set of criteria based on employee wages, health-insurance coverage, and an analysis showing that the state will recoup the incentive money from taxes the companies pay.

The deal-closing fund is controlled by the Commerce Authority’s chief executive officer, who is not subject to legislative approval. The CEO is hired by a 17-member board of directors made up of executives from many of the biggest companies in Arizona.

Here is where state government will have some control: The governor appoints nine of the board members, while the House speaker and Senate president appoint four each. The governor and CEO also co-chair the board of directors.

However, the authority will enjoy the luxury of state assistance without the burdens of state control. Under HB2001, state agencies will help the authority, though that assistance is not spelled out or required. The authority, in turn, will be able to ignore many of the rules and restrictions those agencies must follow.

“This is being equated to an agency, but in fact it is not. It’s a commission,” Farnsworth said. “(There are) a lot of exemptions. Basically what they’re doing is they’re saying we’re going to put all of our eggs in one basket, and those eggs are going to be controlled by one person.”

Department of Commerce Director Don Cardon, whom Brewer named the Commerce Authority’s first CEO, disagreed that the new public-private agency will be unaccountable. He said Commerce personnel are working with the Arizona Department of Administration to draw up policies in such areas as procurement, rule-making and accounting.

“It’s not going to be exactly the same as the state agencies are, but again, we’re going to try to adhere to the spirit of those things,” Cardon said. “Whatever we’re exempted from, we’re going to not just say, ‘We’re exempt, therefore we’ll do what we want.’ We’re saying, ‘We’re exempt, but in the spirit of the exemption, what are we going to do to fulfill that?’”

Cardon said there is oversight as well. The Commerce Authority must submit a budget to the Legislature and must submit an annual audit of its public funds to the state’s auditor general. The authority also must provide an annual report to the House speaker, Senate president and Joint Legislative Budget Committee on grants issued from the Arizona Competes fund, which Cardon said will abide by strict criteria for grant recipients.

But Cardon defended the automatic appropriations for Arizona Competes. Companies want stability, and they want to know that the state will stand by the commitments it makes, he said. But when the Legislature sweeps funds or eliminates job-training programs, as it has in the past several years, Cardon said businesses become wary.

“It’s very difficult to do what we’ve done the last two or three years, where at any time you can have a job-training program (and) the next year you have no job-training program,” he said.  “You want to try to shoot for consistency and stability.”

Brewer spokesman Matthew Benson said lawmakers can rein in the Arizona Competes fund if they don’t like the way the money is being spent or the Commerce Authority is operating. The annual appropriation is automatic, but in the future the Legislature can change the way Arizona Competes is funded so that lawmakers must approve the money each year.

“They are going to have to make … an annual report to the Legislature,” Benson said. “If they feel that the deal-closing fund is being misused or that the authority itself is ineffective, they can always de-fund it at that point.”

Cardon said the Commerce Authority is committed to openness and transparency. Despite the concerns of many detractors, Cardon said, the Commerce Authority will adhere to Arizona’s open meetings and public records laws, except when such adherence would reveal trade secrets or jeopardize deals with businesses looking to open up shop in the state.

And the Commerce Authority will draw up ethics guidelines, including conflict-of-interest policies, for board members, which Cardon said will provide transparency and accountability.

“I understand there have been a lot of examples of where public trust has been violated by a movement to the private side,” he said. “I don’t think you stay with the status quo in fear of the many assets and benefits that are created through privatization. You just need to make sure that the integrity of the system is in place and people are accountable.”

How the commerce Authority differs from a state agency

The public-private Arizona Commerce Authority is distinct from most state agencies in a number of ways, including multiple exemptions from guidelines that nearly all other government agencies and entities must follow. Examples:
• Under statute, $25 million is automatically appropriated to the Commerce Authority’s Arizona Competes fund.
• Commerce Authority personnel are not state employees, and are not subject to the same hiring guidelines as other state employees. Some employees will be paid more than their state employee counterparts, though ACA Director Don Cardon said their benefits will not be as generous.
• The board of directors, not the governor, selects the Commerce Authority’s CEO, who does not require Senate confirmation.
• Except in cases of collaborations with other agencies, the Commerce Authority is exempt from state procurement guidelines. The ACA will draw up its own procurement guidelines with the assistance of the Arizona Department of Administration.
• The Commerce Authority is exempt from statutory rule-making guidelines and will create its own policies with ADOA’s assistance. Only the Arizona Department of Corrections has a similar exemption in statute, though other agencies have partial exemptions.
• The Commerce Authority is exempt from finance and accounting rules that apply to most state government entities, except for the Arizona Board of Regents and the legislative and judicial branches. The ACA will draw up its own financial and accounting policies with ADOA’s assistance.
• The Commerce Authority can hire its own legal counsel and is not required to use the Arizona Attorney General’s Office as its counsel.
• The Commerce Authority can purchase and maintain its own fleet of vehicles, separate from the state’s motor vehicle pool.
• The state’s prohibition against state-government entities’ competing directly with private enterprise does not apply to the Commerce Authority.

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