Earlier this month, GBPI released a report evaluating a tax credit proposal called CAPCO that nearly passed the Georgia legislature last year. A poorly-designed piece of “model legislation” with a dismal track record in other states, CAPCO thankfully seems to have lost momentum. Although despite the fact the Senate voted down CAPCO this week, it isn’t technically dead—it could still reemerge in a conference committee later on.
The thing is, CAPCO was supposedly designed to solve a program that’s actually important for Georgia’s lawmakers to address—the state’s lack of a strong venture capital (VC) market. VC is a vital source of financing for entrepreneurs and startup companies, especially those in technology sectors, and there’s evidence to suggest Georgia needs more of it. Some states have implemented attractive programs to confront similar shortfalls, but in Georgia any discussion of sound “venture capital policy” has been minimal. CAPCO effectively sucked the oxygen from the room.
Until recently that is. A few days after we released our report,we learned that Representative Allen Peake (R-Macon) had an alternative proposal on VC that actually embraces many of the guiding principles we articulated. As we describe in our new analysis of HB 718 , the bills looks to be a thoughtful and well-designed method for pursuing its goal. Modeled heavily on a best practices program in Maryland, the new “Invest Georgia” initiative would be transparent and accountable, entitle Georgia taxpayers to the same returns enjoyed by normal VC investors, and prevent state money from being given away for nothing in return (like CAPCO).
But as with most things, there’s a catch. As written the program would cost $200 million spread over four years, with the fiscal impact rising from $35 million in FY 2014 to $65 million in FY 2017. Given the tight times we’re in, we have to ensure every dollar counts. The proposed program comes on the heels of four years of aggressive budget cuts, with additional cuts to key job creators like technical colleges already included in the FY 2013 budget. Additionally, the governor’s projected shortfall of $320 million for FY 2014 means legislators still have years of tough spending choices ahead of them.
Georgia’s ongoing fiscal crisis demands that any new spending bill, including well-designed ones like HB 718, must be judged within the context of competing priorities. Georgia needs additional VC, sure, but don’t pay for it by cutting from education, job training or other essential investments. Tax expenditures like HB 718 should always be revenue neutral, because otherwise they’re essentially robbing Peter to pay Paul. Georgia’s economy needs new investments in several key areas, ranging from infrastructure to public safety, and we can’t afford them all. The Great Recession and jobless recovery require us to set an especially high bar for choosing where we spend.
There’s a strong case to be made that strengthening Georgia’s VC market could bolster our economy over time, and HB 718 is a well-designed bill based on best practices in other states. Its authors deserve credit. But if lawmakers wish to proceed, they must ensure the program’s paid for by either eliminating other tax breaks on the books or increasing revenue through other means.