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CAPCO scammed at least 10 states

CAPCO was pitched, as the magic solution for state economic development programs. Pitched in way that officials were duped into thinking insurance companies were going to fund economic development, and venture capital company (CAPCO members) would manage the investments. The state would do nothing except issue a few tax credits. Then jobs would increase aplenty. As it turns out only a insignificant number of jobs were created, and the venture capital skimmed the money into their own pockets.

  • Wisconsin $50 million and just 157 jobs.
  • Florida $75 million and just 174 jobs.
  • Rhode Island $100 million and no jobs reported.
  • Oklahoma $221 million and just 100 jobs.

Other states and independent experts soon realized, CAPCO, was nothing more than a very clever and lucrative profit mechanism designed to reward those behind CAPCO. Better known as a "Scam! But not until several states had poured $100s million into CAPCO's pockets with nothing to show.

All other states quickly dropped shed themselves of CAPCO, but not Oklahoma. Oklahoma is the only state where officials are still defending the program while refusing to release any information that would allow the public to know what is really happening!

Comments on CAPCO from others state officials and experts

A "raid on state treasuries: George Lipper, who studied similar legislation for the Iowa Department of Economic Development and helped defeat the bill there, called it a "raid on state treasuries." Read complete article
"It's a scam," said Colorado state Treasurer Mike Coffman - "I don't think there's anyone who thinks this is a good deal for Colorado, with the exception of those companies who lined their own pockets." Read complete article
"It's a crummy deal for the taxpayers," said Julia Sass Rubin, a Rutgers University professor of public policy, who has spent five years researching these kind of subsidies. Read complete article
The CAPCO program is fatally flawed - The investors in the program do not put money at risk in venture capital investments. They are secured creditors making a good rate of return on their investment. Daniel Sandler, Faculty at Law, University of Western Ontario. Read complete article

        And, lot's more comments -

We don't know who is getting the credits, what they're doing, or how much money they're getting." - "There's no way to tie (the credits) to any of the activity that's happening," said chief economist Paul Brewbaker at the Bank of Hawaii. "I don't know why it was designed this way with no accountability. We don't know who is getting the credits, what they're doing, or how much money they're getting." ... it is impossible to know how much the credits will end up costing. Ref
"Expensive and inefficient" A study commissioned by the state of Louisiana called the program "expensive and inefficient" and said "the greatest and most immediate beneficiaries of the CAPCO program are CAPCO companies and their owners." Ref
Not being used for the intended purposes - A state study in Missouri found 66% of the funds generated by the venture capital program there "were not being used for the intended purposes of providing capital for start-up or expanding Missouri businesses." Ref
A most inefficient means to raise venture capital - A legislative audit in Colorado noted that "CAPCO programs are a most inefficient means for the state to raise venture capital" and questioned whether any jobs created were attributable solely to that financing. Ref
"The program is structurally flawed, and it needs to be fundamentally changed, or it needs to be abolished." Rocky Mountain News. Ref
"We became convinced the model was flawed, the program wouldn't work, that jobs would not be created and the taxpayers would not be getting a good return on their investment," Lee recalled in an interview Thursday. Bob Lee, head of the Colorado Office of Economic Development. Ref
CAPCOs are "flawed beyond repair." Colorado Treasurer Mike Coffman Ref
"the program amounts to corporate welfare at its worst" and that it is "destined to do little more than soak taxpayers." Mark Hillman, who replaced Mike Coffman as Colorado state treasurer. Ref
An investigation by The Colorado Springs Gazette, 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. Bob Lee, head of the Colorado Office of Economic Development. Ref

Skepticism of the CAPCO model is not limited to Colorado, however. Since Louisiana passed the first CAPCO bill in 1983, the model has been riddled by criticism. Louisiana has revised and restructured its program nearly every year since 1989, after it was determined little impact could be shown for the initial investment.

A 2000 report for the Louisiana state legislature concluded the state had awarded more than $600 million in CAPCO credits since its inception, but had only seen $180 million in CAPCO-related venture capital deals. Proponents for the program contend, however, that the CAPCO act is responsible for nearly all of the state's VC activity.

Last year, the Florida legislature withheld the second installment of its CAPCO tax credits after learning the state had lost more than 150 jobs from its initial $150 million investment. Ref

According to a Feb. 9, 2004, Denver Post article, a 2002 annual report on the New York CAPCO program revealed it had lost 88 jobs, but with a $280 million cost to the taxpayers. Ref

According to a Missouri state study cited in the Milwaukee Journal-Sentinel, 66 percent of funds generated by venture capital programs through its CAPCO legislation were not being used for their intended purpose of providing capital for start-up or expanding state businesses. In Wisconsin, an analysis by the state audit bureau found the $50 million CAPCO program enacted over three years ago had generated only 157 jobs. Ref

A Wisconson audit found the CAPCO credits generated 316 new jobs at a cost of more than $90,000 apiece, other programs created jobs for $556 to $22,727 each. Critics have called the program inefficient because the investments are funneled through the insurance companies. Ref

In addition to the poor job creation figures, a recurring criticism of the CAPCO model in most news accounts and state audits appears to be that all or nearly all of the risk is borne by the state. The CAPCOs receive the full tax credits and management fees regardless of the quality, quantity or success of the investments made. Ref

Taxpayers funds lobbyist and legal costs - The Colorado audit also noted the capital firms had spent $471,503 on lobbyists in Colorado... In addition, said Coffman, the firms' legal costs came out of the state allocation. Ref
"I think this state would be hard pressed to design a program that cost the taxpayers more and delivered less," Bob Lee, the head of Colorado's Office of Economic Development. See article
$50 million and just 157 jobs - In Wisconsin, according to an analysis by the state audit bureau, the $50 million program had generated just 157 jobs by March, more than three years after the allocations began. Ref
$75 million and just 174 jobs - Imagine the state gave you $75 million in tax money to invest in new businesses to create jobs. Imagine that, rather than creating jobs, the companies you invested in lost 174 jobs in the first four years. Imagine you got to keep all the money anyway, without ever having risked a penny of your own. Sound too good to be true? Nothing Ventured, Millions Gained, Palm Beach Post Ref
It's terrible public policy - "It's a heck of a deal," said Florida Chief Financial Officer Tom Gallagher. "I think it's terrible public policy. We've got a lot more needs in this state than funding venture capitalists." Ref
"If you're going to set up something, look at what we did and do the exact opposite." What Mike Williams, of the Louisiana Department of Economic Development, told a reporter investigating the CAPCO program:
Colorado state Treasurer Mike Coffman, said he "sincerely hope(s) that the legislature drives a stake through the heart of this monster and doesn't allow it to come back in some mutated form." Ref
In my view, these programs are a recipe for disaster rather than a catalyst for growth. Daniel Sandler, Faculty at Law, University of Western Ontario. Ref
Re: Rhode Island CAPCO managers get to keep almost all of the profits plus the money that they invest. said Julia Sass Rubin, a Rutgers University professor of public policy, who has spent five years researching these kind of subsidies. Ref
Re: Washington DC "It's a straight transfer from the taxpayer to the Capco [venture firms]. It's one of the biggest rip-offs out there, and there are some real doozies," said Julia Sass Rubin, an assistant professor of public policy at Rutgers University who has studied Capco programs. "It's a very convoluted and complicated piece of legislation. . . . It's difficult to understand why anyone would do this, except that they don't understand it." Ref


More articles on CAPCO

CAPCOs draw more heat

$75 million deal 'scam' - says Colorado critic

CAPCOs v Real Venture Capital

Technology tax credits could cost $1 billion - Hawaii

State-Sponsored Venture Capital: Are CAPCOs a Solution or a Problem

Nothing Ventured, Millions Gained

$100 million transfer from R.I. citizens


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