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ROI: NC Innovation spent big on lobbying, staff bonuses, before receiving $250 million in taxpayer funds

By Jeff Moore

Carolina Journal

Among the many big ticket items funded by the 2023 biennial state budget was a significant commitment to a recently established private nonprofit to the tune of $500 million over two installments.

According to documents obtained by Carolina Journal in response to a public records request, the nonprofit, NC Innovation (NCI), spent at least $288,000 on lobbying state lawmakers during critical budget negotiations in the summer of 2023. Subsequently, NCI was written in to the state’s two-year spending plan as one of its largest line items.

The lobbying effort represented a full-court press in the final minutes of state budget talks. Nine contract lobbyists registered with the NC Secretary of State were deployed by NCI to convince lawmakers of financing the private nonprofit with millions in taxpayers funds.

The return on investment was quite high: NCI was awarded a total of $500 million in taxpayer funds, to be delivered in two $250 million tranches over the two-year budget cycle. The NC Department of Commerce has already certified NCI’s initial compliance and has officially requested the first $250 million tranche be disbursed to NCI.

Further, management notes reveal the NCI executive committee approved and paid staff bonuses totaling $175,000 in September 2023, before the state budget bill became law.

NCInnovation was created by some of the state’s business leaders in 2018. The aim of the nonprofit is to provide grants to further applied research at select UNC-system universities in order to fill an observed gap in the local commercialization of public university research. The entity was originally requesting $1.4 billion in taxpayer funds to finance the leaders’ personal vision for an improved research-to-retail ecosystem.

NCI CEO Bennet Waters told WRAL that $1.4 billion was the “minimally acceptable amount” of state money because they planned to spend $106 million yearly on grants.

While the enabling legislation provided significantly less taxpayer funds than the original request, the eventual $500 million appropriation was indeed deemed acceptable. The reduced amount still represents one of the largest single outlays in the latest two-year state spending plan.

For comparison, NCI’s taxpayer award represents 135% of the total two-year budget appropriation for the expanded Opportunity Scholarship Program. Recently opened to all students regardless of household income, only $369 million over two years was appropriated to the monumental universal school choice program. At $177 million for the 2023-2024 school year, and $192 million for the 2024-2025 school year, it still might not be enough.

While the initiative to further capitalize on North Carolina’s robust research output from its diverse array of public universities has garnered enthusiasm, the use of taxpayer funds to finance the endeavor has been met with criticism.

“NCInnovation is just another example of a government program using taxpayer dollars to tip the scales in favor of select companies,” said Brian Balfour, Vice President of Research for the John Locke Foundation. “If these tech startup companies want capital, they should solicit private investors, not leverage a government program for taxpayer funds.”

NCI plans to use the taxpayer money to fund an endowment, the investment proceeds from which will in turn be used to fund grants NCI will award to specific public university research projects. It is unclear how NCI will determine which particular public research ventures will be awarded funds, and which will not.

The nonprofit will not take equity stakes in targeted research ventures. Instead, NCI plans to offer grant capital to specific ventures in hopes of sustaining them across the research and development “Valley of Death,” where university funds and private venture capital often dry up for all but the most promising startups.

For its part, NCI’s grand venture isn’t fueled entirely by North Carolina taxpayers. In order to receive the second $250 million tranche of taxpayer funds the nonprofit must raise at least $25 million in private capital donations within a defined time period. The enabling legislation also stipulates NCI must adhere to specific accounting practices to remain in compliance.

Documents show NCI has employed multiple accounting firms to handle its books in its young history. Records further show accounting methods were changed and some funds, particularly the treatment of donor restricted pledges, required reclassification in order to remain in compliance with the General Assembly’s accounting mandates. NCI took over its own bookkeeping in November 2023.

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