Ed note: Evidence now proves to be untrue, claims the loophole fixed the problem. The loophole fabrication, focusing on the topic of using borrowed money. The issue was, and still is the money is never invested.
Bill to end 'shell game' goes to governor
Associated Press, May 28, 2006
Oklahoma CITY - A bill to stop what Gov. Brad Henry describes as "a shell game" by venture capitalists that is costing taxpayers tens of millions of dollars won final passage Friday in the Oklahoma House.
Sen. Ted Fisher, D-Sapulpa, led the effort to stop a venture capital scheme that has estimated state costs of $66 million for 2005 alone.
The measure to correct problems in two state tax credit programs was passed on an 88-0 vote in the House, where it was sponsored by Rep. Ray Young, D-Yukon.
The programs were intended to create jobs, but officials doubt they many jobs have been created. Under the two programs, public disclosure of the the startup companies was not required.
There was no on the bill in the House. It passed the Senate on Thursday and now goes to the governor.
Fisher has said the state will likely suffer more losses in 2006 year under the projects already under way in which investors make millions of dollars without any risk and without necessarily creating any jobs.
Details of the scheme were first disclosed in an Associated Press story on March 8.
Action on the bill came quickly after it was released from a joint conference committee late Wednesday by House conferees.
Fisher had threatened to pass a moratorium on the tax credit programs as a last resort.
One of the programs allowed a tax credit of 20 percent for investors in urban projects. The tax credit was 30 percent in a program designed for rural projects.
Officials said the program had been abused because investors were collecting an instant return of 100 percent or more by creating a layer of companies and getting a tax credit on a bigger pool of borrowed money that was not at risk and not invested in startup businesses.
Venture capital, by definition, is money placed at risk on speculative businesses.
Under one example given by Fisher, five people could put up $5 million for a business venture, create a second company with the same five people as the board of directors, borrow $95 million and buy a certificate of deposit with those funds.
Then the investors would get a 30 percent tax credit on $100 million, receiving $30 million, with only $5 million going to the startup business.
The bill sent to the governor drops from 10 years to three years the tax liability investors can have wiped away under the program.
The measure prohibits borrowed money from being used in venture capital projects unless the money is required to be paid back and is put into a business.
Fisher said that without the bill, Oklahoma would be on its way to losing perhaps , about the amount he said Louisiana lost under a similar scheme. He said Missouri also has suffered heavy taxpayer losses and Florida Gov. Jeb Bush had to issue an executive order to stop abuses of that state's tax credit program.
He said officials won't know the full impact of Oklahoma tax losses under the scheme until October 2007.