CAPCO investment law gets another shot

In a state with double-digit unemployment, leaders say small businesses desperately need an influx of capital to grow.

Proponents of the bill argue it would provide the money needed to help companies expand and create jobs. Opponents say that — as with the previous law — the new measure will simply hand piles of taxpayer money over to a few investment firms, which will reap most of the benefit.

Here’s how the current proposal would work: SB 203 would clear the way for “certified capital companies,” called CAPCOs, to operate in Georgia. These are private venture capital companies, several of which already operate in other states. Under SB 203, the state’s insurance companies would receive tax breaks to invest in CAPCOs. The CAPCOs would, in turn, invest in small businesses and startups across the state, enabling them to grow and create jobs. CAPCOs eventually wind up with the principal invested and any profit.

But some venture capitalists in Georgia say the program hasn’t worked in other states, and it won’t work here.

“You can take the same amount of money and put it into other types of funds and get much better results both financially and jobs-wise,” said Sig Mosley, president of Atlanta-based Imlay Investments and one of those who lobbied to kill the previous law.

Kelly McCutchen, president of the free-market Georgia Public Policy Foundation think tank, said, “I don’t know whose idea it was, but it’s a horrible idea. It is a bad deal for taxpayers.”

State Rep. Ben Harbin, R-Evans, who voted for the bill in 2002 and then voted to kill it in 2004, is the sponsor of the new bill in 2011.

“We have seen this work in other states,” Harbin said. “The state should be in the business of helping to create jobs. I know there are going to be questions, but what we are trying to do is use the good things they did in other states and try to avoid some of the pitfalls.”

When the bill stalled in the House earlier this year, Harbin attached it to unrelated Senate legislation that had already been approved by that chamber, and the new measure easily passed the House on the second-to-last day of the session. The amended SB 203 had to go back to the Senate, however, and it stalled there on the final day. The Senate may vote on it on at any time when lawmakers return in January.

Sure thing or scam?

The new CAPCO measure has the backing of some of the state’s top leaders and lobbyists, who are pushing hard in advance of the 2012 session to make sure it winds up on Gov. Nathan Deal’s desk for his signature.

Deal campaigned on the issue last year as part of an economic development proposal to spur job growth. A friend, campaign contributor and adviser, former state Sen. Pete Robinson, lobbies for CAPCO companies.

Some national experts call the program, which has been tried in several states, a scam that benefits a few investment companies that have wound up making tens of millions of dollars from states. The Atlanta Journal-Constitution reported last month that similar programs have been curtailed or shut down in other states.

Supporters, meanwhile, point to Texas, where they say a CAPCO program has saved or create thousands of jobs.

Deal spokesman Brian Robinson said the governor “has concerns” about the new CAPCO bill.

Deal has asked his “competitiveness” council, which advises the governor on economic issues, to vet the CAPCO bill, and the group will be making its recommendation in coming weeks.

“The governor supports the program but is committed to getting it right as he moves forward with the General Assembly,” Robinson said.

Meanwhile, CAPCO backers and lobbyists have been working on Senate leaders to get their support. The Senate could approve the measure early next year without having a committee hearing on the issue.

But it’s more likely that it will be reworked before it reaches Deal’s desk, if it does.

“We are in times when we can’t afford to make a mistake,” said House Majority Leader Larry O’Neal, R-Bonaire.

Enacted, then killed

With Gov. Roy Barnes’s backing, lawmakers passed a $75 million CAPCO program in 2002. Barnes told the AJC he doesn’t remember the CAPCO bill, but he added, “I am not saying we didn’t do it because I was always trying to pump up any venture capital there was into the market.”

Later that year, Barnes was ousted by Sonny Perdue.

Perdue’s revenue commissioner, Bart Graham, said the new governor tasked him with helping to get a group together to lobby to kill the law. He was helped by members of the local venture capital community.

“The governor was facing a $750 million budget shortfall,” Graham said. “We were convinced from the private equity and venture capital community that it was not going to spur any economic development.”

Mosley, the Imlay Investments venture capitalist, said, “When you really looked at it, there was almost no oversight of the CAPCO funds, no direction how it would be invested, a nominal amount of the money was going to get invested, and none of the money would come back to the state of Georgia.

“It was almost like money being put into PR saying we’d done something and there was no guarantee  of jobs or anything.”

Lawmakers first tried to delay implementation of the law but later voted to kill it in 2004. Among those who voted against the law before they were for it was O’Neal, who was Perdue’s floor leader in 2004. In that capacity, he sponsored the effort to kill the CAPCO law. He voted for the new version this year.

O’Neal explained that lawmakers didn’t have access to a lot of information on CAPCOs in 2004. In the years since, O’Neal said, he has seen university studies documenting the programs’ successes elsewhere.

Harbin said he doesn’t remember anything about the Barnes CAPCO bill. But he disagrees with those who consider CAPCOs a waste of state money.

He said CAPCO programs are ideally suited to take money from insurance companies and spread it quickly to start-up businesses. Unlike an upfront investment by the state, CAPCO programs allow companies to get money before the state has to dole out insurance tax credits to pay for the investments.

O’Neal said since the House vote earlier this year, he has learned more about the program — including information in the AJC — and that there may need to be changes in the measure.

Still, O’Neal noted that in recent years, the state has increased tax credits to spur investments and that CAPCOs could be another tool to help spur job growth.

Another way

Mosley, the investment firm president, said there are better solutions to the shortage of capital for start-up businesses.

Venture capitalists have recommended to a Senate panel that the state create an investment program to pump money into Georgia companies.

The state could use insurance premium or corporate income tax credits as an incentive. The state would get the principal and 80 percent of the profits.

Under CAPCOs, the private CAPCO companies get the principal and all the profits.

Mosley said the money could be used go to both help start-up businesses and also to help keep existing businesses from leaving.

Earlier this year, Maryland set up a similar venture capital program involving insurance tax credits. The state will receive all of the principal it invests and 80 percent of any profits.

“You would have much more oversight and reporting back to the government,” Mosley said.

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CAPCO timeline

2002: Legislature overwhelmingly passes House Bill 1441, which creates a CAPCO investment program. The bill is sponsored by Gov. Roy Barnes’ floor leaders and passes the House 10 days after it is filed. Gets final approval in April 2002. Barnes signs it into law in May.

2004: In March, lawmakers overwhelmingly pass House Bill 1507, sponsored by Gov. Sonny Perdue’s floor leaders, to strike the CAPCO law. Bill is signed into law by Perdue in May.

2010: Nathan Deal, then a candidate for governor, campaigns on a platform that includes creating a CAPCO investment program. Deal is elected governor in November and names a CAPCO lobbyist to his transition team.

2011: Rep. Ben Harbin, R-Evans, sponsors CAPCO legislation, House Bill 298, in February. It passes the House Insurance Committee in March. It is then attached to Senate Bill 203 and passes the House on April 12, the 39th day of the 40-day legislative session. It stalls in the Senate on the final day, but is eligible for a vote when lawmakers return in January.

Source: General Assembly website