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Oklahoma venture capital board headed out, must make good on $20 million

State lawmakers wanting to do away with the Oklahoma Capital Investment Board say they must unravel a dicey situation that could leave taxpayers with a hefty bill.

Newsok.com, May 4, 2012
Megan Rolland

A quasi-state agency tasked with investing millions of taxpayer dollars in high-growth, high-risk startup companies has run its course and is headed out of business.

But first, lawmakers wanting to do away with the venture capital investment board say they must unravel a dicey situation that could leave taxpayers with a hefty bill. The Oklahoma Capital Investment Board was created by legislation roughly 20 years ago in an effort to stimulate the state's economy following the energy bust. The state gave the board $100 million in tax credits.

The board used those tax credits as collateral to acquire loans from banks, and then in turn invested that cash in venture capital opportunities.

"We were given $100 million in contingent tax credits with the hope that we wouldn't use or have to sell those credits," said Devon Sauzek, president of the investment board. "When the returns come back on our investments, which is a 10- to 12-year process, we pay down that debt. If the investments return a lot and it is sufficient to pay down the line of credit, we don't have to sell those tax credits."

To date, the board has had to sell a little more than $30 million in tax credits to make good on loans where the investment didn't pan out. Sauzek said that was because of the economic downturn in 2008.

He said the board has an additional $20 million in debt.

"The expectation is that as those investments have time to mature, which we're getting good dues and distributions on a regular basis now, and the value of the portfolio will pay off the balance on the debt," Sauzek said.

But if it doesn't pan out as expected, the board will have to sell tax credits.

And on the hook to buy those tax credits are four companies that signed agreements in the beginning to buy tax credits in the event the board needed to make good on notes. Oklahoma Gas and Electric Co., ONEOK Inc., AT&T (formerly Southwestern Bell) and Public Service Co. of Oklahoma (formerly AEP) agreed to buy the tax credits at a dollar for dollar rate if the board needed cash to make good on debts, Sauzek said.

"There was a possibility that if you just shut it down a bank may call some of the notes; well, then we have the utility companies that years ago agreed to ... as good corporate citizens, that if they needed to call to generate cash that the utility companies would purchase the tax credits," said Rep. Earl Sears, R-Bartlesville.

The utility companies have enough tax credits and don't want any more, Sears said. And ultimately, it would mean that money would be lost from state coffers when the utilities claim their tax credits.

So Sears co-authored Senate Bill 1159 with Sen. Tom Adelson, D-Tulsa, that, among other things, extends the life of the investment board by five years. It was set to expire in 2015.

"That's why we extended it, to make sure that as this program unwound no one would get hurt," Sears said.

The bill passed the House and Senate during this year's legislative session and is in a conference committee.

Rep. Mike Reynolds, R-Oklahoma City, said the state should shut down the investment board immediately and not wait another five years.

"They've squandered $60 million of Oklahoma taxpayer money, and taxpayers are continuing to fund the salary of the individuals who run the board," Reynolds said.

Sauzek said the investment board contracted with the private company Institutional Equity Associates for $360,000 a year to manage the investments. He said that money is not state appropriated, but is paid for out of the board's financial holdings, which include loans and returns on investments.

Sauzek said the board has invested more than $135 million in 33 Oklahoma companies.

The returns on those investments have been roughly $80 million over the past 20 years, he said, including $8 million in just the past two years.

Figures questioned

Reynolds questions those numbers and said that many of the investments were in out-of-state companies.

Sears said he doesn't think the board has done anything nefarious.

"I don't think they've mismanaged their money," Sears said.

"There is no question there are some venture projects that have created programs and wealth, but some of them have not created the programs we wanted. This could be a program in Rhode Island or Maine."

He said it's time for the state to get out of the venture capital business.

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