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Sunday, June 16, 2024

Opinion: Clarifying the Case Against NCInnovation

This is an opinion piece by Donald Bryson of the John Locke Foundation.

Public funding for a nonprofit called NCInnovation has been controversial since the N.C. State Senate proposed giving the organization a $1.4 billion endowment from public funds in a budget proposal in 2023.

Donald Bryson
Donald Bryson

Since that time, the John Locke Foundation has studied NCInnovation and similar programs in other states to better understand this use of taxpayer money. We are skeptical. So, I read, with great interest, Tom Darden’s critique of some of my arguments against public funding for NCInnovation.

I have never met Darden, but I want to address his assertion that I oppose government funding of university research. This is simply untrue, misrepresents my stance, and overlooks key aspects of the debate on this substantial allocation of taxpayer funds. Taxpayer-funded applied research already exists within the University of North Carolina (UNC) System, and I recognize the value and importance of this investment.

My contention lies not with the concept of funding research, but with the scale and structure of the proposed NCInnovation initiative and the fact that similar programs in other states have terrible track records.

The UNC System already benefits from significant taxpayer support, enabling a range of applied research initiatives that contribute to technological and economic innovation. The introduction of NCInnovation, however, with an endowment funded by hundreds of millions — potentially billions — of taxpayer dollars to provide venture capital research grants, is a dramatic escalation in the financial commitment asked of North Carolina’s taxpayers, raising questions about fiscal responsibility and prioritization.

NCInnovation’s current publicly funded endowment of $250 million is larger than the endowment for UNC Charlotte. Receiving a second $250 million, based on last year’s state budget, would make NCInnovation’s public endowment larger than UNC Charlotte and East Carolina University’s endowments combined.

And if NCInnovation receives its stated goal, according to its pitchbook, of securing $2.5 billion in public funds, it would have a larger endowment than NC State University, which is currently $2.03 billion. The amount of public funding being discussed is not insignificant and shouldn’t be treated flippantly, as it was rushed through last year’s state budget.

Darden suggests that NCInnovation is essential for North Carolina’s future, arguing that it will drive economic growth and keep the state competitive. While I agree that fostering innovation is important, the mechanisms and financial prudence of achieving this should receive scrutiny. The track record of similar programs is questionable at best. Previous initiatives, both within North Carolina and in other states, have often failed to deliver the promised economic benefits, resulting in wasted taxpayer dollars, unmet expectations, and, as in the case of Texas, “scandal-plagued.”

Furthermore, it’s difficult to understand what states we are chasing. North Carolina’s current economic standing contradicts the notion that our private sector is lagging. According to the 2023 CNBC rankings for America’s Top States for Business, North Carolina ranked No. 1 overall. The Old North State ranked No. 6 in both the “Technology and Innovation” and “Access to Capital” categories. These rankings do not indicate a state whose private sector is falling behind. On the contrary, they reflect a robust and thriving business environment that is already conducive to innovation and growth.

The premise that NCInnovation will provide venture capital-like grants raises a critical issue that Darden discarded: the role of the government in picking market winners and losers. Venture capital inherently involves high risk, and using taxpayer money to fund such ventures places an undue burden on the public. There are plenty of examples of this type of government influence yielding bad results.

The 2011 collapse of Solyndra, a company producing cylindrical solar cells after receiving a $570 million federal loan guarantee two years earlier, is a prime example of the risks associated with government-funded ventures. Solyndra’s loan came from a federal program for commercially viable technologies but ultimately led to significant financial losses to taxpayers.

This failure underscores the potential for mismanagement and lack of due diligence in government-backed projects, ultimately burdening taxpayers and stifling genuine innovation. Ironically, some of Solyndra’s solar tubes were repurposed for an art display at the University of California — a public research university.

While Mr. Darden and I share the goal of promoting economic growth in North Carolina, our paths diverge on how to achieve it. The proposition of NCInnovation as it currently stands is too great a financial gamble with taxpayer dollars, lacking the necessary oversight, track record, or justification for such a substantial investment. Instead, we should strengthen our existing institutions, ensuring they have the resources and support needed to continue their valuable work without resorting to risky financial endeavors.

Innovation is indeed the key to our future, but it must be pursued with diligence, responsibility, and respect for the hard-earned dollars of North Carolina’s taxpayers.

Donald Bryson is the CEO of the John Locke Foundation, a free-market public policy think tank based in Raleigh.

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