RALEIGH — The North Carolina House Oversight and Reform Committee held a hearing July 10 looking for more details on the activities of the nonprofit NCInnovation.
In the most recently passed state budget, NCInnovation (NCI) received $500 million in the form of two endowments of $250 million each to fund and support the commercialization of public university research conducted in the state. The appropriation was put forth for inclusion by the Senate for $1.4 billion. The Senate and House later agreed to $500 million.
NCI CEO J. Bennet Waters testified before the committee for approximately three hours, explaining the organization’s mission and use of funds in his prepared remarks. He also spent time addressing committee members’ issues arising that drew from a concern over a lack of vetting by committees in either chamber prior to the appropriation.
Waters outlined that NCI plans to use only investment returns from the $500 million corpus to fund grants, not the principal itself. Waters also said NCI has fulfilled its statutory responsibilities and awarded initial grants without spending state funds.
“Having received $250 million in state funds in January, we immediately invested those dollars with an independent third party to generate high-interest income,” Waters told lawmakers. “With the receipt of the second tranche of funding, the NCInnovation corpus will stand at just over $506 million. In other words, the endowment is working exactly as we committed.”
The organization is required to raise $25 million in private funds for administrative expenses, which Waters said was successfully done “without spending a single state dollar.” He also said solicitation for private philanthropic donations is an ongoing task.
Eight projects have been selected in the first round of grants. Funding will be released in tranches along an agreed-upon timeline once contracts are finalized.
In his remarks, Waters also addressed the selection criteria and multiphase review process for the pilot grant program as “carefully designed to ensure rigorous evaluation and prioritization of projects with the highest potential for commercialization.”
He went on to say projects that “met or exceeded the established criteria” were then forwarded on to the NCI board for approval. Waters told lawmakers the grant recipients will receive their funds “in tranches provided they meet specific project milestones” that are outlined in cooperative agreements, and that regional directors regularly monitor the projects.
Some committee members expressed doubts about NCI’s projected investment returns and whether this is the best use of state funds given other priorities.
Rep. Maria Cervania (D-Wake), among other committee members, questioned the grant awards.
“We are having a problem with the separation of the private and the integrity of awarding money,” Cervania said. “So I’m going to ask: When the information out of the outcomes of these review processes are complete and presented to your board, do they have the right, the board members or the board, to change that outcome and decision in awarding a grant?”
“I want to be clear, the separation of the private and the public money,” Waters replied. “So the private money is all philanthropic contribution under 501, and it funds only administration and overhead. None of those monies go into grants. None of those monies can be invested in anything. And we have absolute firewalls between any of our benefactors and the future outcomes.”
The NCI CEO found himself defending the mission of the organization and explaining multiple times that North Carolina was behind other states in this type of research acceleration funding.
Waters described a situation he termed the “valley of death,” in which, without adequate funding, projects that could be brought to market either stall out or are taken to other states where they can get funds for development.
Some of the questioning turned toward the 13-member NCI board, with Rep. Carla Cunningham (D-Mecklenburg) questioning if there was information that was not being given to board members or processes that would keep information from those members.
“We have provided timely and accurate information to reasonable requests of every board member,” Waters told Cunningham, “and I am not aware of broad concerns by the board.”
Cunningham’s line of questioning about the board tied in with Waters’ earlier remarks addressing tensions between NCI executives and some board members appointed by the legislature, particularly regarding oversight and information requests. Waters did not name names but was likely referring to the audit request controversy involving NCI Board Member Art Pope.
North State Journal later learned Pope sent his request by email to the auditor while he was sitting in a February NCI board meeting presentation explaining financial statement corrections and NCI’s compliance with GAAP.
In his opening remarks, Waters had also addressed critics of NCI.
“Some have suggested that public funding of public university applied research is tantamount to corporate welfare, and I’d like to address that claim head-on,” Waters said. “NCInnovation’s research grants only go to public universities that support research that has actual real-world impact. That is exactly what universities should be focusing on. Some of the most important discoveries in the modern era were born on university campuses and then commercialized by the private sector.”
Of the 13 NCI board members, eight were appointed by the legislature; four from each chamber. House Speaker Tim Moore (R-Kings Mountain) appointed Pope. The other five are private appointees elected via the bylaws of NCI.
As the hearing stretched on, Waters told committee members, “I’m here as long as you’d like to ask us questions because we’ve got nothing to hide.”
“We are here for the benefit of the regional residents of this state and the researchers that are counting on us to assist them in bringing their life’s work to fruition,” added Waters.
Co-chair Rep. Harry Warren (R-Rowan) closed out the meeting by saying he thought private dollars funding public university research was a “better solution” and doubted “whether or not this is really the best use of taxpayer dollars” with other state priorities on the table like transportation, education and health care.
