States Put Economic Development in Hands of Private Sector

Some cash-strapped states have identified another job they want to shift to the private sector: economic development.

A number of governors are working to turn their development offices into some form of nonprofit private entity, a move that would transfer the task of giving out state grants, tax breaks and other economic incentives from the hands of government.

The idea, which has as much to do with economic philosophies as with saving money, is mainly gaining ground in states with Republican governors, including Ohio, Wisconsin, Iowa and Arizona.

"It's a matter of greater flexibility and the ability to act more like a chamber [of commerce] rather than a state agency," said Wisconsin's new Republican governor Scott Walker, adding that private groups are better equipped to create jobs and attract companies.

As tax revenue has shriveled in recent years, cities and states have moved to privatize various operations, such as state-run liquor stores, local libraries and parking meters.

Seven states, including Michigan and Florida, already have some form of private group filling the economic-development role. Critics say handing this power to a private entity can create conflicts of interest, because the nonprofits usually have boards made up of public officials and private business leaders. This can create conflicts as these boards help steer tax breaks and incentives.