Owens OKs taking CAPCO funds
The Gazette, (Colorado Springs), Mar 5, 2004
DENVER - Gov. Bill Owens put down the beleaguered CAPCO program Thursday with the stroke of his pen,
labeling the $200 million economic development tool a complete failure.
Owens signed two bills that strip funding from the Certified Capital Company program, which was supposed to create jobs and spur investment in promising Colorado startup companies.
A state audit last year found there was no way to verify the CAPCO program had created jobs. It called CAPCO inefficient and highlighted loopholes that allow taxpayer dollars to be wasted.
"I think we are taking a significant step in these two bills to make better use of taxpayer dollars," Owens said. "It is a better investment for the state of Colorado and reformsa program that has... simply failed."
House Bill 1206 diverts $50 million to CoverColorado, which helps struggling Coloradans pay for medical insurance.
Senate Bill 106 creates a state run venture capital pool, giving an independent panel authority to invest $50 million in Colorado companies that need a financial boost to bring a product to market.
"We were able to fix a broken system of corporate welfare and replace that with two programs that create the ability to spur job creation and also help small businesses afford and maintain the jobs that they already have," said Sen. Mark Hillman, R-Burlington, sponsor of HB1206.
The CAPCO program was created in 2001, issuing $100 million in tax credits right away. Insurance companies receive the tax credit when they give money to venture capital-style firms, called CAPCOs, which are supposed to invest the money in startups.
That initial $100 million cannot be rescinded, and CAPCOs do not have to invest all of the money. They have not.
Only $15.6 million has been invested in 18 companies -- all established firms, not startups.
In addition, 50 percent of the funds were taken out immediately to guarantee returns to insurance companies over and above the tax credit.
CAPCOs also keep a 5 percent-a year management fee. Traditional venture capital firms charge a 2.5 percent management fee.
Once the fees were taken out, the state audit found $44 million of the $100 million had been set aside for investment in Colorado firms.
The amount of money available for investment could fall even lower -- to about $31 million -- because CAPCOs receive a credit from the state when they invest in rural businesses.
CAPCO representatives have insisted continually that the audit's findings were misleading and inaccurate.
"The facts clearly show that the CAPCO program has brought jobs to Colorado, spurred investment and has promised to continue to do so," said Eric Anderson, a spokesman for the six Colorado CAPCOs.
An investigation by The Gazette, however, found CAPCO programs lost more than 130 jobs in Florida and created fewer than 50 jobs in New York. Both states had CAPCO programs in place longer than Colorado.
CAPCO representatives didn't get in the way of either bills, which steamrolled through with little opposition.
"I think those can be good programs," said Jim Kenyon, who manages the Colorado Springs office of Murphree Colorado CAPCO. "It is the direction the governor wants to go. That thing has a life of its own."
Kenyon said his firm will continue to invest its share of the initial $100 million.
Lawmakers are trying to tighten the regulations on CAPCOs and the way they invest the original $100 million. The Legislative Audit Committee recently issued subpoenas for CAPCO records to determine whether the companies were hiding information from auditors.
Kenyon said he would cooperate with the subpoenas.
Some critics of the Senate bill said the state would not do a good job investing in startup companies, going as far as to call it "CAPCOlite."
The bill, though, is dramatically different than CAPCOs. It requires investments be repaid to the state and mandates the state receive a percentage of profits made from an investment.