NC Senate innovation spending plan splits state conservatives. Investment or overreach?
In the budget they proposed last month, North Carolina Senate Republicans set aside a substantial sum for a single nonprofit.
The nonprofit is NCInnovation, an organization that hopes to make grants that turn research conducted at UNC System schools into thriving businesses. Launched in 2020, the group has to this point been sustained by private donations totaling less than $23 million.
But the Senate looks to drastically change the organization’s trajectory by granting it $1.425 billion, or nearly 5% of the total proposed budget. In contrast, the budgets from Democratic Gov. Roy Cooper and the Republican-controlled House each only give the group $50 million.
The Senate plan would create an endowment, managed by a third-party investment firm, with the goal of making NCInnovation self-sustaining.
“Other states have been spending what is billions of dollars in this general sort of innovation arms race,” said Pat Ryan, a spokesperson for NCInnovation who formerly headed Senate leader Phil Berger’s communications team.
The NCInnovation website highlights similar public-private partnerships in five other states, including Ohio’s $2.3 billion “Ohio Third Frontier” program. Underneath these state profiles, NCInnovation asks, “At the speed of innovation — will NC be left behind?”
“Below a certain funding level, this whole model just doesn’t work,” Ryan said.
A recent economic report commissioned by NCInnovation found the state “has fallen behind other innovation leaders in its ability to commercialize its world-class research base.” And according to data from the state Office of Science, Technology & Innovation, North Carolina ranks 20th in the country for commercializing its homegrown innovation.
“It makes little sense to me for North Carolina to allow our researchers to leave for other states when we have the resources to compete, and in ways that protect the state’s interest at every turn,” said NCInnovation CEO and President Bennet Waters.
Waters noted that the plan calls for an emphasis on funding economic development in rural areas of the state.
In a statement heralding the Senate budget proposal in May, NCInnovation noted the measure includes “substantial reporting requirements and clawback provisions.”
John Locke Foundation calls it government overreach
But the Senate’s spending plan has come under recent fire from some fellow conservatives for its largess. On June 9, the right-leaning think tank John Locke Foundation criticized the funding as government overreach.
“By providing such a significant amount of funding, the government is picking winners and losers in the technology sector, which can create market distortions and stifle true innovation,” read an online post coauthored by John Locke President Donald Bryson.
If the budget allocation proceeds despite its opposition, John Locke leaders are asking legislators to consider six changes to the structure of NCInnovation, including subjecting the organization to stricter transparency laws and changing the fact that eight of NCInnovation’s 13 board members would be appointed by the legislature.
“Legislative Republicans may feel confident that conservatives will maintain power in the legislative branch, but that is never guaranteed, and dispersed power is preferred to concentrated power,” the post read.
This week, Sen. Jim Perry, a Kinston Republican, also criticized NCInnovation for how its funding mechanisms have shifted in recent years. Writing on Twitter, Perry said, “I’ve lived the Private Equity world. If an organization changed their business model multiple times in the middle of the road show, I would’ve called that a big red flag.”
Berger backs the Senate plan
But on Thursday, Berger said investing in NCInnovation is a worthwhile use of the state’s current revenue surplus.
“It’s a program that would help facilitate some of the transition from research to production of some of the ideas that come out of our universities in our communities,” Berger told reporters. “The request was $250 million a year for 10 consecutive years. Our feeling was that we have a fairly robust amount of one-time money, and if we could go ahead and just get that funded on the front end.”
NCInnovation has been championed by the likes of JPMorgan Chase CEO Jamie Diamond and Truist Bank CEO Bill Rogers. In a statement announcing the “historic” funding proposal last month, Senator Majority Leader Paul Newton said the organization “has a bold model to accelerate applied research and commercial outputs statewide, helping create jobs and secure our state’s future.”
According to a recent economic report commissioned by NCInnovation, the state “has fallen behind other innovation leaders in its ability to commercialize its world-class research base.”
House and Senate top Republicans are still negotiating the final version of the budget. Both sides have expressed optimism a deal could come before the start of the fiscal year on July 1, though it’s more likely to occur after.
Republicans have a veto-proof supermajority in both the House and Senate, so Republicans are also the head budget writers. Once the two chambers agree on a budget, the final spending plan will be sent to the governor.
This story was produced with financial support from a coalition of partners led by Innovate Raleigh as part of an independent journalism fellowship program. The N&O maintains full editorial control of the work.
This story was originally published June 16, 2023 at 3:46 PM with the headline "NC Senate innovation spending plan splits state conservatives. Investment or overreach?."
