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"It's a scam," said Colorado state Treasurer Mike Coffman, when ask about the CAPCO program in Colorado.

More comments by others

"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," Bob Lee, head of the Colorado Office of Economic Development. More

"We can't mend this program. We must end this program." Colorado Governor Bill Owens. More

As is always the case in politics few if any lawmakers are willing to challenge or question the details of programs protrayed as benefiting everyone. In this case boosting the economy and creating jobs.

In return states would give modest tax credits to induce insurance companies to invest their money in the more risky areas.

Each state tailored its version to satisfy legislative personalities. These were more cosmetic than substantive

Oklahoma officials took the most drastic measures by denying the public access to all information about a program costing $100s millions per year.

When the real data started showing on public records, the public learned

  1. The insurance companies were only loaning the funds and the states were backing the loans. Plus the states were giving the insurance companies tax credits to be used to reduce state income tax for other insurance arms operating in the states. States were typically giving tax credits worth 10% of the loaned amount per year for 10 years. In the end the states would repay twice the loan value.
  2. The CAPCOs would own 100% of the business and take 50 to 66% of the insurance company loan as profits disguised as management fees on the front end. Leaving the new businesses with little money to succeed.
  3. If the business venture failed the CAPCOs kept their 50 to 66% profit, the insurance companies kept all the tax credits they received and the states repaid the loans.
  4. If the business was successful the CAPCOs still owned the business and would receive 100% of the profits.
66% of state guaranteed funding was skimmed for profits. Leaving only 34% for the business venture to succeed on. According to a Missouri state CAPCO study.

Oklahoma adopted a more egregious variation that eliminated the out of state CAPCOs and insurance companies in favor of local acting as CAPCOs. Allowed the local CAPCOs to take and sell tax credits worth 200% of the amount to be invested. Use one-half to fund the investment and the other have as profits disguised as management fees

Note: The area of the law addressing the 200% limitations is ambiguous leaving it unclear, what, if anything, is in fact limited to 200%.

In addition Oklahoma added a secrecy clause that prevents the public from learning how much and who

While the other states make major revisions or shut their programs down after learning they had been taken for $100s million, Oklahoma's is still operating under the cover of state officials guarded secrecy.

Program has been improved and is being used for a wider variety of tax evasion schemes.

States that adopted the above program and amount scammed before they learned and acted.

State officials benefiting?

Key media news articles discussing this tax credit abuse scheme.

Learn more about the CAPCO scam

Solication letter verify loophole was still open in September 2007 - Whitewashing the solication letter.

In a nutshell the CAPCO group was described as venture funding managers who had insurance companies willing to provide financing for new business in states that would give the insurance companies 10% tax credits. The unfortunate assumption or misunderstanding was the state was taking no risks yet would benefit from new business growth. Once the program got rolling some folks started examining exactly how the program worked. Here is what they found.

  • The insurance were not investing, but only loaning the money.
  • The states were backing the loans, and had to pay back the loans if the businesses were not successful enough to payback the loans.
  • The 10% tax credits were only interest on the loans, until the business was successful or failed.
  • The CAPCOs were taking as much as 50% of the loan on the front end for its management fee. Leaving the business venture with only 50% of the loan as the investment.
  • The CAPCOs got to keep the 50% even if the business ventures failed.
  • The CAPCOs got all of the profit if the business was successful.

In summary the taxpayers funded the venture and took all of the risk yet never received one dime of the profit. The CAPCO invest no money, took no risk, was guaranteed a huge profit up front and got all of the profits.

Some folks in Oklahoma used the CACPO scheme and create their own version. If you can imagine, made it even better. Then they got state officials to wrap it in secrecy, to prevent what happened in the other states, the public learning what was going on. These folks were doing so well more wanted in and over time the program, become even better, and better and better.

We will show how the basic Okie scheme is the same as the CAPCO, with even more lucrative angles, and better protection from being discovered. Has now taken over $1 billion


Explain using OtherStates.cfm

Comparing economic development programs
Program Traditional
Venture Capitalist
Other states
Who provides funding Investors Lenders Taxpayers
Who assumes the risks Investors Taxpayers Taxpayers
Who gets any Profits Investors Capco Capco

Comments on Oklahoma's sister scams

"It's a scam," said Colorado state Treasurer Mike Coffman.(1)
66% skimmed for profits. Leaving only 34% going to the intended purpose. A state study in Missouri. (1)
"It's a crummy deal for the taxpayers," said Julia Sass Rubin, a Rutgers University professor of public policy. (1)
The CAPCO program is fatally flawed. Daniel Sandler, Faculty at Law, University of Western Ontario. (2)
"We don't know who is getting the credits, what they're doing, or how much money they're getting." Paul Brewbaker Chief economist at the Bank of Hawaii.(3)
"Expensive and inefficient" A study commissioned by the state of Louisiana. (1)
"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. (4)
"They're feeding at the public trough." Lowell Kalapa, president of the nonprofit Tax Foundation of Hawai'i. (3)
There is nothing to prevent a company which meets the requirement for the funding in Colorado from using that money to leave the state and build elsewhere. Rocky Mountain News. (4)

References:    1   2   3   4


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