I previously posted on the proposed new legislation for the venture capital incentive program that the Governor and Scott Fitzgerald were extolling in recent press releases. This was the legislation that Sen. Randy Hopper (R - Fond du Lac who is soon to face a recall election), had co-authored. My focus was on how it was exactly the kind of stimulus effort about which the Republican Party has been hammering President Obama and the Dems. I also questioned whether it would distort the capital markets and cause bad investment decisions in capital formation.
While I was critical of the legislation, I was probably not critical enough. Kathleen Gallagher of the Milwaukee Journal Sentinel wrote an excellent article published in today's J-S on what a complete give-away by tax-payers to out-of-state businesses the program is likely to be, and how ineffectual such programs have proven in the past.
Legislation that Gov. Scott Walker says will create jobs would provide hundreds of millions of dollars in tax breaks to insurance companies, while giving control of a $250 million fund to out-of-state financial management companies that would not have to pay back the fund's principal and would keep up to 80% of its profits.
Opponents say the proposal to give tax credits that guarantee the insurance companies will recoup at least 80% of their investment is no more than a handout from taxpayers. Sen. Glenn Grothman (R-West Bend) said the legislation mirrors an unsuccessful proposal in 2003 by then-state Sen. Ted Kanavas, who led discussions about Walker's venture capital strategy.
"The bill ... is the most dubious giveaway I've seen since I've been in the legislature," said Grothman, who has been in the Legislature for 17 years. Grothman was the only one of 26 people who testified at a joint committee hearing in Madison last week to voice objections to the plan.
In written testimony submitted for the hearing, Tom Hefty, the former chief executive of Blue Cross/Blue Shield of Wisconsin, called the program "the largest special interest Wisconsin tax cut in history masquerading as an economic development initiative."
The $200 million in tax credits would never have to be repaid to the state. The payback, supporters say, would come from the job creation and business growth that would result from the investments.
Under the proposed Jobs Now program, the state would get 20% to 25% of any profits from the capital companies' investments, but it would never get back the $200 million it put up in the form of tax credits. The capital companies would get to keep the principal at the end of the life of the fund, and also would collect management fees (capped at 2%) and as much as 80% of any profits.
"The bottom line is this is a $200 million toilet Wisconsin is buying," said Julia Sass Rubin, an assistant professor of public policy at Rutgers University. "The question is not 'Does it flush?' It's 'Why the hell are you paying $200 million for a toilet?'"
Rubin and other critics say capital companies run expensive, inefficient programs that they sell to states with aggressive marketing and intense lobbying efforts - and some point out that better, less-costly alternatives exist.
"The state can serve a facilitating role and provide incentives, but here they're just providing cash. I don't think that's the role of the state," said Kenneth U. Johnson, managing director of Kegonsa Capital Partners LLC, Madison.Thank god Senator Erpenbach saved Senator Grothman from harm from Capitol protestors!
It was obvious that the Republicans put out a big press release campaign on this venture capital legislation bearing Senator Hopper's name in an effort to help him look like someone with great ideas for job creation. He faces a recall election in July, and needs all the help he can get. Unfortunately for Senator Hopper, having Senator Grothman say this is stupid legislation is like Newt Gingrich calling Paul Ryan's Medicare privatization plan "right wing social engineering."