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Businesses reassess role after development pick

by Glen Chase | April 18, 2015 at 2:44 a.m.
Mike Preston, executive director of the Arkansas Economic Development Commission, said he hopes to meet with development foundation leaders next week.

Arkansas' business leaders are beginning to sort out what role the private sector will play in future economic development after Gov. Asa Hutchinson called on the nonprofit Arkansas Economic Development Foundation to expand its place in attracting new business.

Hutchinson emphasized the need for private-sector help during a March 26 speech at the foundation's annual luncheon, where he introduced Mike Preston as the new executive director of the Arkansas Economic Development Commission. The foundation supports the activities of the publicly funded commission.

"The foundation has had an important role but a limited role in recent years," Hutchinson said. "I want to accelerate and elevate the role of the foundation for the state of Arkansas in supporting economic development."

Hutchinson said that the private sector's influence has played a "major role" in other states, including Florida, Texas and Louisiana, in supporting business recruitment efforts.

Preston was vice president of government affairs for Enterprise Florida Inc., a public-private partnership whose employees work outside state government. Preston said that since it used taxpayer dollars, the agency still had the same transparency and accountability imposed on regular state agencies. It's also overseen by a 63-member private-sector board that also contributes additional funding.

On Friday, Preston said he hopes to meet with foundation's leaders sometime next week after hearing the governor's call for it to be more active in economic development.

"We couldn't do today what we do without the support of foundation," he said. "Without having that business leadership at the table, we'd be stuck in a rut and not moving forward."

Discussions on the direction Arkansas will take are just beginning, foundation President Gus Vratsinas said Friday.

"I think it's past time that we need to be doing some of these innovative things that other states are doing, vis-a-vis, the public partnership-type scenarios, especially where our new director Mike Preston is coming from in Florida," said Vratsinas of Bailey Construction & Consulting LLC.

Vratsinas said one of the first things the foundation members can help with is emphasizing the need to expand the AEDC's budget, which has seen little growth in recent years.

Lawmakers "need to do their part and we certainly, under proper scenarios, need to do more as well," to adequately fund efforts to market the state, Vratsinas said. "It takes all of us to make these things happen."

The commission has 83 employees and an operating budget of about $10.7 million, according to spokesman Scott Hardin. Of that, about $1.1 million is spent on marketing, an amount that hasn't changed in several years, Hardin said. The agency also oversees about $52 million in federal Community Development Block Grant funds, which target low-to-moderate areas throughout the state.

Hutchinson, who took office in January, is taking a fresh look at the AEDC, the state agency charged with attracting new businesses to Arkansas.

On Feb. 10, Hutchinson sent a letter to the Arkansas Legislature's Joint Budget Committee requesting that the annual appropriations bill for the commission be amended to authorize the foundation to "make additional payments" to the commission's director from private funding sources.

The committee approved the amendment Feb. 12, and it became part of Senate Bill 111, which is now Act 985 after being passed by the Legislature and signed into law by the governor.

The act set the state's share of Preston's salary at $139,700. The new director's salary, however, is $167,706 -- the difference to be paid by the foundation. Preston will also be eligible for a performance bonus of up to 30 percent of his base salary, which will also be funded by the foundation. The bonus would be awarded at the governor's discretion.

J.R. Davis, the governor's spokesman, confirmed the governor decided to involve the foundation in increasing the new Arkansas Economic Development Commission director's pay.

However, Davis said in an email Thursday that Hutchinson has no immediate plans to adopt the public-private economic development model used by Enterprise Florida to give the private sector a greater role and influence over state-funded incentives to attract businesses to Arkansas.

"There is no specific plan for change at this time," Davis wrote. "However, the governor recognizes the vital role the foundation has in the economic development of our state and will utilize them as such."

Currently, the Arkansas Economic Development Foundation is a 501(c)(6) private nonprofit according to its 2013 990 tax form filed with the IRS.

It reported revenue of $238,656 that year, and expenses of $166,422. The form said the expenditures "organized several events to attract prospective businesses, and promote economic development in Arkansas."

The foundation has a 13-member board of directors that includes Vratsinas and Treasurer Tom Schueck. The director of the AEDC also serves on the foundation's board.

Preston said those who served on Enterprise Florida's board developed ideas that helped shape how the state recruited new businesses and retained existing ones. He said they also provided budget and spending oversight.

"With a foundation board, you have that same level of talent," he said. "We want to use their help in talking about Arkansas to businesses around the world."

He said the agency's staff -- not its board -- worked on any incentive deals offered by Florida. Any incentives had to be approved by the state Department of Economic Opportunity, he said, and reviewed by the governor's office. And, if deals were above a certain size and scope, then the Florida Legislature would have to be involved.

In Arkansas, the AEDC staff determines a project's eligibility for state incentives for investment and job creation, which can include financing help, grants, income and sales tax credits.

The push by some states toward public-private partnerships has drawn some criticism.

Enterprise Florida, for example, was accused in early 2013 of failing to meet legislative expectations for job creation and private-sector support by Integrity Florida, a nonprofit group that monitors government programs in that state. However, Enterprise Florida responded that the report made incorrect assumptions in these areas, noting that the number of new jobs created annually rose by 73 percent from 2010 to 2012 and capital investment rose 94.8 percent over the same period, reaching $1.7 billion in 2012.

Another new program in Wisconsin ran into problems in 2012 in its use of federal Community Block Grant funds, according to the Wisconsin State Journal. That state's Department of Administration and its economic development program, the Wisconsin Economic Development Corporation, were criticized by the federal Department of Housing and Urban Development for not properly monitoring the standards used to distribute and monitor aid given to companies.

A spokesman for the Department of Administration told the State Journal at the time that the state "for the most part" agreed with HUD and was taking steps to fix the problem.

Samuel Staley, managing director of the DeVoe L. Moore Center at Florida State University's College for Social Sciences and Public Policy, said public-private partnerships create tension between public accountability and businesses' desire for privacy.

"There's a tension between the transparency we want in government and the discretion necessary to make a deal happen," said Staley. "I don't see that going away."

Staley said part of the problem is how to measure the effectiveness of any economic development group. He said in states with larger economies, such as Florida, many businesses are already creating networks to expand their operations. "The private sector knows what is working and what is not," he said.

The role of marketing is unclear, he said. "But, if you don't advertise, don't market, you don't sell."

Schueck, the foundation's treasurer, is chairman and chief executive officer of Lexicon Management Group, which includes Schueck Steel. He said the role of the private sector in economic development depends on the nature of the industries being recruited. He also said there are times the effort needs to be left in the hands of professionals.

Until now, he said, the foundation has played a support role for the AEDC. But, he added that if Preston did take the foundation in the same direction as Enterprise Florida and it succeeds, "that'd be a great thing for the citizens of this state."

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