There’s something odd about the so-called CAPCO scheme and at the very least it deserves the scrutiny that a committee formed by state Treasurer Mike Coffman is going to give it.
The $200-million CAPCO, or Certified Capital Company, program was launched by the legislature in 2001. In theory, it is supposed to provide more venture capital to Colorado companies, and thus create more jobs.
It was funded by money the state’s insurance companies would have otherwise paid in taxes. In those palmy times the state was taking in more money than it could legally spend under TABOR. Using the money for job creation sounded like a good idea to lawmakers. If they didn’t understand it, they could take comfort in the fact the bill was jointly sponsored by then-Republican Speaker of the House Doug Dean, and then-Democratic President of the Senate Stan Matsunaka.
But it doesn’t seem to be working out quite the way supporters thought it would. The economy has soured, and many are wishing the state could get its tax money back for use on programs that have been cut or eliminated. That’s one of the reasons Coffman formed his committee, which will hold its first meeting Tuesday.
Insurance companies pay taxes on premiums collected, not profits earned. The CAPCO program allows them to take a dollar-for-dollar tax credit, up to $10 million a year for 10 years, with the money going to the venture companies instead of the state. The first $100 million in credits was allocated in April 2002; the next $100 million will be distributed in April 2004.
But the law requires only that half the money be invested. And the CAPCOs themselves make their money not so much off investments as from the 5 percent fees they are entitled to collect for management and operations. As business reporter David Milstead wrote in Saturday’s News, there is little chance for the state to retrieve any of the profits or even the capital it is giving up.
Ironically, one of CAPCO’s strongest critics is the program’s administrator, Bob Lee, director of the state Office of Economic Development. “The program is structurally flawed, and it needs to be fundamentally changed, or it needs to be abolished,” he told Milstead.
When an administrator is down on his own program, we should all be suspicious. Lee’s boss, Gov. Bill Owens, was similarly unenthusiastic about the bill. He let it become law without his signature.
The legislation was in fact proposed by the venture capital companies themselves, patterned on programs in other states. That in itself should have raised eyebrows among lawmakers.
Defenders say it at least produces some capital for new ventures, which otherwise would not be funded by insurance companies. But is it enough to justify tax losses to a cash-strapped state? If the state really needs more venture capital, shouldn’t it simply reduce taxes on all companies, not just insurance firms?
If the Coffman committee – composed of both CAPCO friends and foes – doesn’t issue a ringing endorsement of them, or at least agree on specific reforms, the program should be axed by the legislature before more money is siphoned away.
