It's hard to predict who might be indicted for what in the state and federal investigations of financial misconduct in the Governor's Office of Economic Development, SDRC Inc., Northern Beef Packers, and the EB-5 visa investor program. But the GOED/EB-5 scandal is already indicting one core Republican idea: that privatizing proper government functions makes them more efficient.
South Dakota used to operate its EB-5 visa investor program under the Governor's Office of Economic Development. In 2009, the state let its EB-5 coordinator, Joop Bollen, leave the state payroll and operate the EB-5 program as his own private corporation. Most states have followed suit.
Vermont is the only state keeping direct control of its EB-5 program. David Montgomery reports that Vermont's program runs more efficiently than South Dakota's:
For one thing, Vermont’s regional center takes a cut of only $1,500 per investor, which it uses to pay most of its expenses. Raymond said his office has a small taxpayer-funded budget but mostly relies on fees.
Investors in South Dakota projects run by SDRC, on the other hand, paid $10,000 per year per person — a potential revenue of millions of dollars for the private company. It set aside a small portion of that to pay state expenses related to the EB-5 program [David Montgomery, "Northern Beef: EB-5 Can Work in State Hands," that Sioux Falls paper, 2013.11.09].
Vermont's state officials skim much less off the EB-5 visa applicants than South Dakota's private middleman does. That means more dollars per investor going toward the intended economic development projects.
That also means the folks running the program are less worried about drawing more investors to boost their commission (remember: if the project goes belly up, the investors lose their money, but SDRC's Joop Bollen keeps his commissions) and more worried about making sure projects are up to snuff:
“Once we approve a project, we meet with them on a quarterly basis, we actively look and we view the projects, we look for any evidence of improper marketing, any evidence of anything even becoming potentially questionable, and we quickly seek out solutions to immediately take care of any concerns that we have,” [Vermont EB-5 director Brent] Raymond said.
That happened earlier this year, when Vermont canceled EB-5 funding for a retirement home after becoming concerned about the project’s principal partner [Montgomery, 2013.11.09].
That state responsibility and accountability spared EB-5 investors disappointment in Vermont this summer when the state declined to approve a window factory for EB-5 funding. German window maker Menck wanted to include EB-5 money in its portfolio to convert a vacant building to a factory in Newport, Vermont. Menck modified its factory plans to automate production, which would have improved its bottom line but which also reduced the total job count. EB-5 visa rules require specific levels of job creation. Vermont's EB-5 officials saw Menck's factory would fall short and said, no Korean dice.
The state of Vermont runs its EB-5 visa program more efficiently and effectively than its privatized, profiteering South Dakota counterpart. That indictment of privatization is one more reason South Dakota Republicans are struggling to explain why we let a private firm run a government program with no accountability.