Thursday, July 18, 2024

3 things to know about Senate’s $1.4 billion plan for economic development

A business-led nonprofit has a plan to help North Carolina’s universities turn more of its research into creating jobs, and the N.C. Senate has proposed giving the group a $1.4 billion endowment to get it done.

“This is the type of opportunity that can transform the lives of generations of North Carolina residents by creating opportunities for them in their own communities,” says Bennet Waters, CEO of NCInnovation, the nonprofit that would receive the money if the Senate plan passes. 

Waters has 20 years senior-level experience in Fortune 500 and privately held companies and is a former part-time professor at UNC Chapel Hill and associate faculty director of the Center for the Business of Health in the Kenan-Flagler School of Business.

The Senate plan is a lot of money. Although not an apple-to-apple comparison, the $1.4 billion proposal is just $82 million less than the Senate proposes spending on North Carolina’s 58-campus community college system in the coming year. 

Kelly King, the retired BB&T/Truist CEO, chairs the NCInnovation 12-member board. He and others started conceiving NCInnovation in 2018, and organized the nonprofit two years later, followed by a consultant’s study and a decision to create a statewide group. Since 2021, the group has undertaken market research, formed a board and raised $23 million in private money from 11 major banks, Duke Energy, Blue Cross Blue Shield of North Carolina and other businesses, including Capitol Broadcasting, Flow Automotive and Martin Marietta.

Other board members include real-estate developer Kirk Bradley of Chapel Hill; retired Wells Fargo banker Stan Kelly of Winston-Salem; former Waste Industries CEO Ven Poole of Raleigh; biotech executive Neal Fowler of Raleigh and Kelly Fuller, a public policy consultant who previously led the NC Chamber Foundation.

There are a lot of fine details to the Senate plan, ranging from accountability measures, ways for the state to claw back the money if necessary and provisions to obligate groups that receive money to keep businesses in the state. NCInnovation would also have to raise $25 million in private donations, which it has almost already done.

The Senate plan is big step up from the N.C. House plan to give the group $50 million to launch.

Here are three things to know to better understand this economic proposa

Endowment funding

The Senate plan would create an endowment, which a third party would then invest.  NCInnovation would use the proceeds from that investment to fund its efforts.

A 5% return payout on a $1.425 billion fund would give NCInnovation $71 million a year at its disposal without touching the principal.

State budget surpluses – including a $3.25 billion budget surplus for the current fiscal year, and more than $5 billion already in reserves – could cover the costs.

“It provides an important path to sustainability rather than having to go back to the General Assembly every two years,” says Waters.

Solution to a problem

North Carolina’s population centers land major economic projects, and the $13 billion spent in annual academic and industry research and development ranks above the national average and most peer states. But the return on that R&D investment lags behind national averages on commercializing that research. North Carolina ranks 20th in innovations nationally, has only half the capital venture dollars as the average state and is not commercializing or patenting on par with its R&D base, according to data from national research firm TEConomy Partners for NCInnovation.

“The numbers are clear,” says Waters.

NCInnovation has identified four challenges the state’s universities need to overcome:

  • 87% of R&D money goes to Duke, UNC Chapel Hill or N.C. State, leaving just 13% for the state’s other universities.
  • Few partnerships exist across N.C. universities to solve marketplace problems.
  • Not enough venture capital spending to fund university innovation.
  • Little regional collaboration between academic, industrial and capital formation networks

Homegrown innovation

NCInnovation proposes creating regional economic networks at four universities – Western Carolina University, East Carolina University, North Carolina A&T and UNC Charlotte.

“We want to provide the ecosystem in those communities,” says Waters. In the case of UNC Charlotte, it would serve as a hub for other communities surrounding the state’s largest city that are not growing as fast.

One of the primary objectives of NCInnovation is to “create economic development in the rural areas of the state that have experienced population declines and use homegrown innovation to do that,” says Waters.

NCInnovation’s plan could particularly help rural areas of North Carolina by not only bringing money, but also business training and mentorships to areas, says Waters. 

House plan

The state House budget would give NCInnovation $50 million in the 2024-2025 budget year, giving the group a Jan. 1 deadline to develop a plan. Gov. Roy Cooper’s budget plan would give NCInnovation the money a year earlier.

NCInnovation had suggested a $250 million investment over 10 years for a total of $2.5 billion. The one-time funding from the Senate accomplishes NCInnovation’s goals at less total cost, Waters says.

NCInnovation continues to work with state lawmakers on funding, but favors the endowment because it means it will not have to return to seek more funding every few years.

“This will put North Carolina on the map, but also in a very competitive position with some other states that are ahead of us,” Waters says.

“If we want to get North Carolina into a competitive position it’s going to take innovative thinking and we believe this could be it.”

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