On January 20th, 2011, Governor Kasich released additional details of his JobsOhio plan to privatize certain functions of the Ohio Department of Development. Governor Kasich boldly promised that he, as Governor, would be directly involved with economic development in the State, a slap at Governor Strickland and other past Governors that allowed others to run the Ohio Department of Development’s efforts. Kasich also boldly promised that JobsOhio would be “self-funding” in that it could rely on private funding sources from the business sector alone and would eliminate the need for sustained State funding. More importantly, John Kasich said it was an organization that would “move at the speed of business.”
Naturally, there were the skeptics, such as myself, who opposed HB 1–the legislation that was railroaded through legislature despite the fact that there were serious constitutional concerns even by Republicans like House Speaker Bill Batchelder.
JobsOhio is based on that irrefutable principle proven time after time in human history that human beings are their most altruistic when they are controlling millions of dollars in virtual secrecy with little to no public accountability. How could JobsOhio as Kasich introduced it fail?
I. Kasich’s path to self-funding runs into a constitutional dead-end.
No statewide privatized economic development agency has ever been able to go entirely private. Indiana’s “private” entity reported only raising $800k from private donors in its 2009 Annual Report (see, p. 17.) Despite that, Mark Kvamme, with the entire Kasich Administration messaging apparatus behind him, publicly touted JobsOhio as becoming an entirely privately funded economic development entity. With discussions of a major change in funding needed in the State’s budget due to the end of the federal stimulus, Republicans touted the promise of JobsOhio becoming entirely self-funding as a budgetary miracle.
In my prepared remarks to the House Finance Committee within days after HB 1 was introduced, I stated (p. 4):
The Administration has claimed that eventually JobsOhio will be “self-funding.”But that claim is based on Director Kvamme’s hope that JobsOhio could actually get an equitable stake in the companies it helps. At least one Ohio constitutional law expert agrees with me that this would seem to violate Art. VIII, § 4 of the Ohio Constitution.
Shouldn’t this body take some serious time exploring this issue now, rather than finding out later that the Administration’s path to self-funding is unconstitutional?
These constitutional warnings were ignored, as was the abundance of objective economic data that suggests privatized economic entities are no cure for a State’s economy especially since three of seven States with such entities are leading the nation in unemployment.
What was not ignored what the lawsuit filed by ProgressOhio, State Representative Dennis Murray (D-Sandusky), and State Senator Michael Skindell (D-Lakewood) that challenged JobsOhio on a number of fronts, but particularly on Kvamme’s repeated claim that JobsOhio could become self-funding by taking equity into the companies they invested in (which would raise other ethical issues such as what if a competitor to such companies sought the State’s assistance?)
Recently, the Administration has had to admit it was abandoning their plan to have JobsOhio to take an equitable stake in the companies they invested in because… it was likely illegal.
We decided we’re not going to do investments,” said Mr. Kvamme, who is JobsOhio’s chief investment officer. “What we will be doing is loans, very similar to what (the Department of Development) has done in the past, to create a recurring revenue source” as businesses repay their debts.
He also alluded to the legal difficulties that could arise in creating an investment vehicle that would allow state money — the liquor profits that will fund JobsOhio — to be used for equity investing.
Yes, instead of a self-funding venture capitalist firm, Jobs Ohio instead is dependant upon the sale of Ohio’s liquor profits for twenty years and Third Frontier money so that it can make the same kind of financial deals that the Ohio Department of Development can already make.
In other words, Jobs Ohio as a “private” entity is as dependent on State funding as the Ohio Department of Development has been.
II. Kasich’s direct involvement in JobsOhio.
It was widely reported during the budget debate, but not fully appreciated that Kasich sought to remove himself largely from having any involvement with JobsOhio beyond appointing its Board of Directors. Again, a large motivator in these changes was ProgressOhio’s suit regarding JobsOhio.
Another reason was Kasich claimed he just simply didn’t want to be that involved in the organization as much:
“I’m like, I don’t think I could be chairman and run Ohio at the same time,” he said. “…We just want to get it right. This is not about, you know, the vision was to get this thing going and you fill it in and you listen to smart people.”
Yeah, that’s the full quote from Kasich in the Dayton Daily News. No, I don’t know what he was trying to say either. Yes, the guy that attacked Ted Strickland for not being in charge of the Ohio Department of Development had the legislature put him in charge of JobsOhio, and then had the legislature take him entirely out of the organization except to appoint its Board of Directors, whom he cannot fire.
Kasich hammered Ted Strickland during the campaign for letting Lee Fisher and others head the State’s economic development office. Since being elected, Kasich’s already on his technically fourth Ohio Department of Development Director.
Under the JobsOhio proposed plan released last month by the Ohio Department of Development, which was required under HB 1 and requires legislative approval, JobsOhio doesn’t even report to the Governor, but the director of the Ohio Department of Development who, like the Governor, has no authority to fire anyone from JobsOhio. So it’s a report with virtually no accountability except that, arguable, the Director could termination JobsOhio’s contract. But there appears to be nothing short of that nuclear option to keep JobsOhio accountable.
Yes, you read that correct. The State budget took away even what little public accountability there was in HB 1 between the Governor’s office and JobsOhio.
III. A more responsive agency?
I don’t know what “moving at the speed of business” means, nor do I imagine the focus group that apparently gave its blessing to the trite phrase Kasich has worn into the ground.
Here’s what I do know: never has anyone become more responsive by adding more layers to the process while making the parties harder to reach, and yet, that is the design offered by the Kasich Administration for Jobs Ohio, Part II.
Again, from the plan released by the Kasich Administration just a few weeks ago:
The Small, Minority Business, and Export Assistance Office will unite several divisions that had sometimes previously worked in silos, creating synergies and providing business customers with a more focused point of contact. Additionally, this office will work with the Innovation and Investment Office to reduce and combine the numerous regional centers that had grown to more than 45 throughout the state. These Small Business Development Centers, Minority Business Assistance Centers, International Trade Assistance Centers, Manufacturing and Technology Small Business Development Centers, and Procurement Technical Assistance Centers had been developed with the goal of providing specialized support to businesses with unique needs.
However, the reality is that small businesses likely need services from several or all of these centers. Therefore, they will be brought together and co-located in approximately eight centers covering the state, which will provide more of a “one-stop shopping” experience for small businesses in need of assistance.
Under the current system, the Ohio Department of Development has different divisions for small businesses, minority businesses, and businesses seeking export assistance. As a result, the combined divisions have some forty-five centers throughout the State. The divisions were created because each division requires an unique set of knowledge and customer challenges. Kasich proposes combining the three divisions into one and then consolidating their forty-five locations into eight. Meaning there will be one center for these business interests for every eleven counties in Ohio. In other words, some business communities are going to find it particular difficult to be served under this plan by the Ohio Department of Development.
As for JobsOhio, the State’s tax credit granting authority remains with the State. The loan writing authority doesn’t even stay with JobsOhio but goes to its regional “partners” that are entities that just happen to have very close ties to the Chambers of Commerce that Kasich is seeking to openly support Issue 2. Want a loan and tax credit package? Then you get your loan approved by the regional partner who then notifies the State of the tax credit application. If you think this might be more bureaucratic than what already exists under the Ohio Department of Development, you’d be right.
It’s been seven months since JobsOhio was signed into law, but it’s still not operational. In fact, according to the Kasich Administration, they expect to be fully operation sometime in early 2012. It’s taking the non-profit business JobsOhio longer to get itself up and running than it took the legislature to create it.
Then there are the questions of exactly how did the Administration come to look at the State’s liquor profits as a funding mechanism? The fact that Kasich appointed two executives who just got ridiculous corporate handouts (Bob Evans and Marathon Oil) just happened to get appointed to the Board of Directors doesn’t inspire much confidence.
Kasich used to talk about how programs like Home Weatherization needed to be moved away from the Ohio Department of Development to other agencies. Guess what? It stays.
But at least the people involved in JobsOhio believes the emphasis on a regional approach will stop the kind of stuff like Bob Evans pitting New Albany and Columbus against one another simply so companies get massive tax breaks, right?