An ambitious and controversial state-backed investment group, which last year won major financial backing from the North Carolina General Assembly, is now facing criticism from its own leadership.
NCInnovation is a public-private partnership backed by $500 million dollars in government funding, which Republican lawmakers approved in the 2023 state budget. Now one of its board of directors members — Art Pope, who for years has been among the most influential Republican Party insiders in North Carolina — has called for a state audit into its finances.
The group’s goal is to identify and fund research projects at North Carolina’s public universities that have the potential to boost the state’s economy but which aren’t yet at the level where they’d be able to compete for private sector investments.
Pope, however, is questioning whether NCInnovation should’ve been eligible to receive any state funding in the first place. He also says he was prevented from looking at financial records and other internal data — despite being a board member with fiduciary duties to the group.
Pope declined to comment on his audit request last week. On Sunday, after this article was published, he sent a written statement: “NCInnovation has never been audited. Which is why I request the state auditor to conduct an audit.”
The state auditor’s office, which is run by Democratic Auditor Jessica Holmes, declined to comment. NCInnovation declined to make its chief executive, Bennett Waters, or board chairman Kelly King available for an interview. But the group defended its work in a written statement.
“In the six months since the state budget became law, NCInnovation has met its legislative requirements ahead of schedule and is right now reviewing research grant proposals from truly brilliant North Carolina university researchers working on groundbreaking discoveries with commercial potential,” NCInnovation spokesman Pat Ryan said.
Public records obtained by WRAL show that, contrary to Pope’s concerns, the North Carolina Department of Commerce and a private accounting firm have looked at the group’s finances and found nothing of concern.
NCInnovation could only receive its initial round of state funding if it was found to be in compliance with nine relevant state laws. In December the state commerce department certified that it was.
NCInnovation hired Durham accounting firm Thomas, Judy & Tucker to look over its books. In January the firm reported back that “we are not aware of any material modifications that should be made in order for the records and accounts of NCInnovation to be in accordance with accounting principles generally accepted in the United States of America.”
Those reports came in before Pope asked the state auditor to get involved. In a letter to Holmes, he took issue with how those reviews were performed and questioned whether they were conducted in accordance with generally accepted accounting practices, or GAAP.
“I cannot say with certainty whether NCInnovation is GAAP compliant as of today because the management of NCInnovation has denied most all my requests for documents and refused to answer most of my questions in regard to NCInnovation’s accounting, despite the fact that I am a member of the NCInnovation board of directors,” Pope wrote.
In his statement to WRAL, Pope said the accounting firm’s review only came after NCInnovation made adjustments to some of its financial records. He added that “a ‘not aware’ statement after a review is not the same as an affirmative ‘fairness opinion’ that an organization is in compliance.”
As the specter of Pope’s allegations looms overhead, the group continues to push forward with its goals.
It announced just days ago that it had exceeded its $25 million goal for private fundraising — months ahead of its July 1 deadline — which the legislature mandated as a condition for receiving public funds. And the board of directors is expected to approve the first of its grants as soon as next month.
“The campus-to-industry research pipeline has underpinned American innovation for 80 years, and NCInnovation is executing on its legislative mandate to support that pipeline at North Carolina’s world class universities,” NCInnovation wrote in a statement.
The group’s biggest donors include Duke Energy, Blue Cross Blue Shield of North Carolina, Bank of America, Martin Marietta and RTI International. Capitol Broadcasting Company, the parent company of WRAL, is among others that have donated.
Funds approved amid political fights
The financial allegations Pope lays out in his letter to Holmes, obtained by WRAL in a public records request, make several claims about bad bookkeeping. The group appeared to be recording money that had been pledged in the future as part of its current revenue and assets, Pope said. He also alleged that the organization had recorded the wrong years for some pledges and donations.
“The net effect of the failure to maintain records and accounts according to generally accepted accounting principles was to materially overstate the revenue and assets of NCInnovation in the financial reports” during 2023, Pope wrote.
That was the same year the legislature was debating how much support to give the group. And it was a sharply divided debate. Although both chambers of the state legislature are led by Republicans, they had vastly different views of how much to support NCInnovation. The state House voted to give it $50 million. The state Senate wanted to do nearly 3,000% more, voting to give the group $1.425 billion.
In the end they settled in the middle, with half a billion dollars split over two years. The first $250 million has already been appropriated, due to the commerce department’s sign-off in December. The other $250 million is set to be transferred once the new fiscal year begins in July.
But skepticism about the group appears to have lingered among House leadership. Lawmakers also gave themselves the power to appoint most of the group’s board of directors, split between House and Senate. One of House Speaker Tim Moore’s appointees was Pope, who had been publicly critical of NCInnovation well before Moore named him to the board of directors.
Moore’s chief of staff, Neal Inman, said Moore remains supportive of NCInnovation and its state funding — as long as “appropriate safeguards” remain in place. “The speaker chose four very qualified board members to help NCInnovation succeed while protecting the taxpayers’ interest,” Inman said.
Adding to the intrigue is the legislature’s 2024 session, which kicked off just days ago with a primary goal of making tweaks to the new state budget that starts in July.
Critics of NCInnovation — on the left and the right — are hoping the $250 million that hasn’t yet been transferred to the group will be spent on other purposes, as lawmakers make changes to the budget plan.
“The idea of whether or not it should have access to public money is a little undercooked,” said Donald Bryson, president of the John Locke Foundation, a conservative think tank in Raleigh.
Ryan, the NCInnovation spokesman, noted that state law largely prohibits NCInnovation from directly spending its state funding. Instead that $500 million will be put in reserve and invested, and NCInnovation can use any income from those investments to fund its grants. If the investments return 8% in a single year, for example, that’s $40 million the group can invest.
“In this way, the State can spend budget dollars on important priorities like education while state reserves earn money that can fund NCInnovation research grants,” Ryan said.
Bryson isn’t convinced. He’d rather see lawmakers use the NCInnovation money to fund shortfalls in the Opportunity Scholarship Program, which gives publicly funded tuition vouchers to private school families. Moore recently told reporters that the program is facing a $300 million shortfall. The state has a budget surplus of more than $1 billion for next year, but Bryson said that surplus could be put to use elsewhere if next year’s $250 million in NCInnovation funds were to be spent on vouchers instead.
“My personal opinion is that we should cut it off entirely,” Bryson said. “But I think reasonable minds can come together and say, ‘Let’s hold off and see how the audit plays out.’”
Bryson’s group is largely funded by Pope’s family foundation. But Bryson said he’d be opposed to NCInnovation even if Pope wasn’t paying the bills: “We have, for a long time, been opponents of corporate welfare schemes,” he said.
The skepticism isn’t only coming from the right. Democratic Gov. Cooper released his own budget proposal on Wednesday and, like the John Locke Foundation, he recommends cutting the group’s $250 million in the next fiscal year and instead spending it elsewhere. Cooper’s budget calls for 8.5% raises for teachers and state workers, on average, compared with the average 2.8% raises that Republican lawmakers previously approved for this coming budget.
Cooper spokesman Ford Porter said pro-innovation investments can be beneficial, but they need accountability.
“When legislators give $500 million to a group they appoint, and pass a law that gives them authority to shield their records from public view, eyebrows should be raised,” Porter said. “The allegation that NCInnovation staff knowingly disregarded the law when getting access to taxpayer money, then hid financial records from one of their own board members, is deeply disturbing.”
