CAPCOs draw more heat

October 29, 2003

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The State Auditor provided a report that further arms critics of the state-backed venture capital program.

By John J. Sanko and David Milstead, Rocky Mountain News

The Legislative Audit Committee learned Tuesday that the state has given certfied capital companies, or CAPCOs, $100 million in tax credits for use in the next 10 years. But just over $40 million was available for investment from that money, thanks to the program's dependence on insurance-company investors. The CAPCOs have already taken $3.9 million in expenses.

Also, the report said, Colorado is the most permissive state among all that have CAPCOs when it comes to the type of businesses that can get CAPCO money.

"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, told the committee. Lee's office administers the program.

Lee called for abolishing the program in its present form and setting up a new system that would create jobs and help the economy.

State Treasurer Mike Coffman, who has caled for abolishing the proigram outright in favor of tax cuts that he says would be passed along to consumers, issued a statement that said he "sincerely hope(s) that the legislature drives a stake through the heart of this monster and doesn't allow it to come back in some mutated form."

The CAPCO industry issued its own statement late Tuesday authored primarily by Ryan Brennan of Advantage Capital. "The report compares the results to date with the entire multi-year cost of the program and concludes the program is expensive." With $14.1 million invested by the six Colorado CAPCOs in 18 months, "this is a aggressive return on investment."

The program was created in 2001 to boost the economy by giving insurance companies credits on their state premium taxes if they used the money to fund CAPCOs, which make venture-capital investments.

Colorado already issued the first $100 million in tax credits in April, 2002. The second $100 million is scheduled for allocation next April.

"Fixing the parts of this program are not going to correct the structural deficiencies," Lee said. "The goal ought to be to abolish the second phase of the CAPCO program. The first $100 million we must deal with for the next 10 or 11 years here."

His comments came after state lawmakers were told:

• The CAPCOs claim their programs have created 343 new jobs, but auditors said there was no way to verify that.

• One business, Universal Processing in Clear Creek County, received about 73 percent or $3.3 million of the total designated $4.5 million in rural investments. The investor CAPCO, Wilshire Colorado, made the investment so that Universal Processing could market the business services of Wilshire's parent, Newtek.

• CAPCOs have spent $471,503 of their funds on lobbyists. They also could use the money to sue the state if it changes the current law.

• 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.

• CAPCOs could invest as little as $37.5 million of the money they have received and pocket the rest.

"You'll see as we peel the onion a little more, it may make some of us cry," Lee said as auditors read off a list of problems.

sankoj@RockyMountainNews.com or 303-892-5404 milstead@RockyMountainNews.com or 303-892-2648

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