Many Georgia policymakers and business leaders contend the state has a shortage of venture capital, a form of business financing that helps fund early stage companies.  To remedy this problem, some Georgia leaders are considering CAPCO legislation, an expensive tax credit program advertised as a jobs and economic development bill. Georgia’s CAPCO proposal – sometimes referred to as the “Georgia Small Business Investment Company Act, or Senate Bill 203”– would provide $125 million worth of tax credits to “certified capital companies” (CAPCOs), who would then invest in Georgia small businesses. Although strengthening Georgia’s venture capital market could well improve the state’s economy long-term, the CAPCO model is a fundamentally-flawed method for doing so. This policy brief provides an overview of CAPCO and how it works, why CAPCO is bad public policy, and offers alternatives and recommendations. Download the PDF. 

Related blog post:

CAPCO: Trading Your 401K for Nothing

January 10th, 2012 Posted to Home Tab 3, Library, Policy Areas, Reports, State Taxes, Wesley Tharpe | Comments (4)

GBPI Executive Director  Alan Essig is quoted by Walter Jones of the Florida Times-Union on tax reform for the current legislative session. View the full article.

Imagine for a moment a big, out-of-state company convinces you to let them manage your 401K. You hand over the money with the promise of sizable profits, then return home to tell your family about your wise investment. Only after a few weeks or years, you get around to reading the fine print and realize your money manager gets to keep the 401K for himself.

Sound like a rip-off? Well unfortunately Georgia legislators are considering a similar concept under the guise of a so-called “jobs program.” Known as CAPCO, the $125 million proposal nearly became law in 2011 and is likely back on the 2012 agenda. The status of Georgia’s CAPCO bill has been thoroughly documented by the AJC here, here and here.

To understand CAPCO, you have to first know the problem it’s supposedly designed to address:  Georgia’s perceived shortage of venture capital. According to Georgia’s business community, some small businesses, particularly technology startups, struggle to expand and thrive because the state lacks the early-stage financing that companies need. This can sometimes lead them to relocate to places like California, New York, or Boston (where most venture capitalists are found), causing Georgia to lose  jobs and tax revenue that would’ve otherwise been ours.

While there is probably some truth to this concern, CAPCO is absolutely the wrong way to address it. As a piece of “model legislation” that’s already been tried in numerous other states, CAPCO has a long rap sheet to consider. And the findings ain’t pretty.

Most of CAPCO’s strongest critics are from states that experimented with it at one time or another. A state audit in Missouri called it an “inefficient and ineffective tax credit program,” while Colorado’s state treasurer called it “a textbook case on what not to do with economic development.” Wisconsin legislators rejected a CAPCO proposal in 2011 despite an aggressive lobbying campaign, with one retired business leader calling it “the largest special-interest Wisconsin tax cut in history masquerading as an economic development initiative.” Several independent experts have also panned the program, sometimes choosing such colorful descriptions as a “$200 million toilet,” a “scam” or a “raid on state treasuries.”

Why all the criticism? For one, CAPCO programs don’t create jobs. A state report in Colorado called the program “most inefficient” and questioned whether any jobs were attributable to it. In Florida, $75 million worth of CAPCO tax credits resulted in a loss of nearly 180 jobs. And in New York, state auditors found their $400 million CAPCO had netted only 1,059 jobs over ten years—an average of $377,715 per job.

But that’s not the worst part. CAPCO’s highly-complex mechanics, outlined in our report, also ensure that millions of taxpayer dollars are handed over to a few out-of-state firms for essentially nothing in return. Unlike normal venture capitalists who keep only 20% of the profits they generate, CAPCOs keep  almost everything—not only the original principal of taxpayer money but up to 100% of the profits too. In other words, they keep the 401K.

Wanting to strengthen Georgia’s venture capital community is a reasonable goal worthy of discussion, but CAPCO is a special interest giveaway disguised as economic development. Legislators should read the fine print and reject it in 2012.

Related materials:

CAPCO: A Bad Investment for Georgia

CAPCO investment law gets another shot

CAPCOs: Capital idea or a loser for taxpayers?

CAPCO program: Idea that’s for the birds

January 9th, 2012 Posted to Blog, Wesley Tharpe | Comments (2)

GBPI Executive Director Alan Essig presents five key categories for the General Assembly to consider during this session. View the editorial.

GBPI Executive Director Alan Essig is quoted on budget isses for the current legislative session. View the  article.

GBPI Policy Analyst Tim Sweeny is quoted on federal health care law in the Atlanta Journal-Constitution. View the article. 

GBPI Executive Director Alan Essig is quoted on  Gov. Nathan Deal’s  budget process. View the article.

For Immediate Release

ATLANTA (January 6, 2012) – For a second time, Georgia Trend magazine has named Alan Essig, executive director of Georgia Budget and Policy Institute, as one of the “100 Most Influential Georgians.”

The influential business magazine recently released the 14th edition of the 100 Most Influential Georgians, which includes some of Georgia’s most powerful players from elected officials to business and community leaders. According to Georgia Trend, the individuals named are selected for the power and influence they wield and are the people who affect the lives and livelihood of all Georgians in one way or another.

 As head of the independent, nonpartisan institute, Essig leads the effort to help lawmakers – and all Georgians – make sense of the state’s tax and budget policies and find ways to make improvements. He’s an advocate of solutions that further a more transparent, fair and modern tax system that benefits Georgians.

- Excerpt from the Georgia Trends magazine, January 2012

Essig has used his experience and understanding of state government to establish GPBI as the leading nonpartisan, public policy think tank in the state of Georgia. He is a well-regarded tax and budget expert throughout the state of Georgia, having served as a trusted resource for policymakers, members of the media and civic groups.

The 100 Most Influential Georgians list also includes several of the panelist for GBPI’s upcoming policy conference:

• Rep. Stacey Abrams, House Minority Leader, Georgia General Assembly
• Dr. Ricardo Azziz, President, Georgia Health Sciences University and CEO, Georgia Health Sciences Health System
• C. Michael Cassidy , President/CEO Georgia Research Alliance

For more information on the Georgia Budget and Policy Institute, visit www.gbpi.org.

Click here for the complete listing of Georgia Trend’s 100 Most Influential Georgians.

Media Contact:
Utoia Wooten
uwooten@gbpi.org
404.420.1324 ext. 109

# # #

About the Georgia Budget and Policy Institute

GBPI is the state’s leading independent, nonpartisan nonprofit engaged in research and education about the fiscal and economic health of the state of Georgia. GBPI provides reliable, timely analysis of Georgia’s budget and tax policies, and promotes greater state government fiscal accountability, improved services and an enhanced quality of life for all Georgians.

For Immediate Release

ATLANTA (January 6, 2012) -  The Georgia Budget & Policy Institute (GBPI) today announced the addition of four new additions to its Board of Directors.

Heidi Davison
Heidi Davison brings a wealth of community relations and advocacy experience to GBPI. Davison is the former Mayor of Athens, has served on the SPLOST Citizen’s Overview Committee and she also served as President of the Lyndon House Arts Foundation, Inc..  Davison has managed and volunteered for several local, state and national political campaigns. She currently serves on the Alec Little Environmental Award Advisory Committee and the Clute Barrow Nelson Life Foundation. She is also an active member of the Jeannette Rankin Foundation. Davison holds a bachelors degree in elementary education and masters degree in middle school education. Both degrees were earned at University of Georgia.

Patricia Harris 
Patricia Harris is nationally recognized for her achievements in economic development, and has numerous awards and merits to her credit. She is the co-founder and CEO of The Edge Connection, a non-profit entrepreneurial center that assists individuals with small business ventures. Harris serves several organizations in the community including theUnited Way of Metropolitan Atlanta. Patricia holds degrees in organizational development and business management from Augsburg College in Minneapolis, MN, a music degree from the Chicago Conservatory of Music, and is the recipient of an organizational development fellowship whereby she studied in Europe at the Landmark Center. 

 J. Mac Holladay
J. Mac Holladay brings to the board nearly 40 years of community and economic development experience. Holladay, is the founder and CEO of Market Street, speaks across the country on the topics of community and economic development and has been quoted in a wide variety of publications including The Wall Street Journal, The New York Times, and The Atlanta Journal-Constitution. In addition to serving on the GBPI Board of Directors, Holladay is also active with several other boards including Alliance for Regional Stewardship; Southern Growth Policies Board’s Council on the Southern Community; Georgia Chamber of Commerce; and the Editorial Board of the Journal of Multistate Taxation and Incentives. Mr. Holladay is a graduate of Washington and Lee University and holds an honorary doctorate in business administration from Johnson & Wales University.

Russell A. Rogers
Russell A. Rogers is the founder and CEO of Entrepreneurs Virtue, LLC, a full service management consultant firm. He brings over 20 years of financial management experience to GBPI. Rogers is committed to service and served on several boards before joining the GBPI Board of Directors. Rogers served on the United Way of Metro Atlanta Community Investment Committee and the Town Center Area Community Improvement District (2010-2011) in a Public-Private community improvement joint venture. Rogers holds a bachelors degree in business administration and accounting from Towson University in Townson, MD and is pursing a masters degree in business administration at Emory Goizetta Business School.

“We are pleased to have these new additions to our Board of Directors. Each brings a wealth of knowledge and expertise that will help further our discussions of public policy in the state of Georgia,” said Alan Essig, GBPI executive director.

For more information on the Georgia Budget and Policy Institute, visit www.gbpi.org. 

Media Contact:
Utoia Wooten
uwooten@gbpi.org
404.420.1324 ext. 109

# # #

About the Georgia Budget and Policy Institute

GBPI is the state’s leading independent, nonpartisan nonprofit engaged in research and education about the fiscal and economic health of the state of Georgia. GBPI provides reliable, timely analysis of Georgia’s budget and tax policies, and promotes greater state government fiscal accountability, improved services and an enhanced quality of life for all Georgians.

Criminal justice reform is long overdue in Georgia.  Last fall the Governor, Lt. Governor, and Speaker of the House created a Special Council on Criminal Justice Reform. In November the Council released a special report, which contained an analysis of the criminal justice problem as well as recommendations. I was pleased to see that many of the recommendations offered in the Council’s report were similar to the recommendations GBPI proposed four years ago in the report, Tough on Crime and the Budget: The Difficult Balancing Act of Public Safety and Skyrocketing Prison Costs. The GBPI report documented the history of public policy choices that led to the dramatic growth in costs of the state prison system. To bring those costs under control, we recommended sentencing reform, evidence-based alternative sentences, and increased use of drug and mental health courts. 

The criminal justice system has seen unprecedented growth in population and costs during the past 20 years. Not only has the prison population more than doubled, now near 56,000 inmates, the Department of Corrections’ budget grew from $492 million in FY 1990 to more than $1 billion today. Current projections have the prison population increasing by another eight percent by 2016–estimating nearly 60,000 inmates.

With state revenues struggling to keep up with the growth of enrollment and education costs, healthcare and state prisons, the state budget will continue to be under severe pressure. Something has got to give.  The timing is right to make smart changes in criminal justice policy that will result in increased public safety and long-term savings to the state budget.

The Special Council on Criminal Justice Reform made many smart policy recommendations, including expansion of accountability courts (i.e. mental health and drug courts), strengthening evidence-based community supervision programs, and reform of sentencing laws so that expensive prison beds are used for the most serious offenders.In implementing such comprehensive reforms, it is imperative that much of the initial budget savings be reinvested in the proposed courts and community-based alternative programs.

Criminal justice reform will hopefully have strong bi-partisan support because it is both smart public policy and budget policy.

Related materials:

Report of the Special Council on Criminal Justice Reform for Georgians

Tough on Crime and the Budget: The Difficult Balancing Act of Public Safety and Skyrocketing Prison Costs