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| Illustration by Adrian Palomo. |
Two weeks ago I wrote a column blasting a proposed bill to fund certified capital companies, or CAPCOs, as a complete scam that claims to help raise venture capital but is actually a huge handout to lobbyists and the companies who hire them.
I’m happy to say the Milwaukee Journal Sentinel has followed up with a strong story on the proposed program by Pulitzer-prize winning reporter Kathleen Gallagher. The story repeated my central point, that the law allows the CAPCOs to keep all the money invested in them by the state, plus 80 percent of the profits generated. Critics have called it a “massive corporate giveaway,” she writes.
One new point in her story is a Minnesota study of Wisconsin’s earlier CAPCO program, which found that rather than increasing it may have actually displaced the total amount of venture capital funding in Wisconsin.
“They tried to peddle this snake oil in Minnesota, but Minnesota didn’t pass it,” Julia Sass Rubin tells me. Rubin is the Rutgers University professor of public policy who is perhaps the foremost academic expert on CAPCOs. She has testified either in person or through written testimony in four states and the District of Columbia on proposed CAPCO legislation.
The JS story notes that five lobbyists have been hired by the CAPCOs to lobby Wisconsin. “The same CAPCOs go from state to state to push for it,” Rubin says. “They don’t make money from investments, but by selling state legislatures on funding CAPCOs.”
The language of the bill is quite convoluted, and most legislators never understand it. I’d love to hear a detailed explanation of the Wisconsin bill by its sponsors, Sen. Randy Hopper (R-Fond du Lac) and Rep. Gary Tauchen (R-Bonduel).
The CAPCOs have a set game plan and typically grab all the state funding before any real venture capital companies can get a dollar of it. “Local venture capital people often support the bill because they think they’ll get the money,” says Rubin. “But they never do. It’s a con.”
The IRS sees just how lucrative the deal is. “The IRS recognizes the state funding as profit as soon as it goes to the CAPCOs,” Rubin says.
Rubin cites an earlier law passed in Wisconsin, a 25 percent tax credit for angel investors, as a far more sensible way to go. “It’s just enough money to encourage investment, but you’re not screwing up the market and becoming the only reason they invest.”
Meanwhile, the JS ran yet another op-ed column promoting the CAPCO program on Sunday by Tom Still, the president of Wisconsin Technology Council, which is promoting the bill. I understand the rationale for running a column by a business advocate in the Sunday business section, but Still is hopelessly conflicted on this issue and shouldn’t be writing about it. Still concedes that critics of CAPCO legislation “say such funds are at best an inefficient way to create jobs and a raid on the state treasury at their worst.” But then he goes on to suggest that the bill could be fixed with a little tinkering.
Sorry, Tom, a little tinkering will just make the snake oil slightly less bitter.
Sullivan for the U.S. Senate?
Perhaps the most interesting possible candidate to succeed U.S. Sen. Herb Kohl is Tim Sullivan, the CEO of Bucyrus International. Why?
He presents the possibility of another campaign ala Ron Johnson or Kohl himself, as the stalwart businessman, job creator and non-politician. Like them, he is wealthy and could afford to spend untold millions on a campaign. Like them, he will have no political record, leaving little for an opponent to attack.
But here’s the most interesting part. Sullivan hasn’t said if he will run as a Republican or Democrat. Most CEOs, of course, are Republicans and would immediately go with that party. The fact that Sullivan hasn’t almost suggests he might be a Democrat.
Perhaps we’ll see the two parties battling for his favor, as happened with Gen. Dwight Eisenhower, who was quite unaffiliated before going with the GOP in 1952.
The Buzz
I have really been enjoying JS reporter Craig Gilbert’s stories analyzing electoral data, and his latest analyzing the prospects of Tommy Thompson for the U.S. Senate is another good one. A central question in the story is whether Thompson was actually a conservative. For his time, he was, but he was a conservative who passionately believed in government. Many of today’s conservatives don’t. And that makes all the difference.
