The Certified Capital Companies bill would offer the tax breaks to insurance companies that invest in a fund used to help Rhode Island companies grow.
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PROVIDENCE – A plan to give insurance companies $50 million in tax breaks so they could make speculative investments in small Rhode Island businesses has resurfaced in the final legislative push of the season.
The Certified Capital Companies, or CAPCO, bill would give insurance companies the tax breaks – over 10 years – if they invest in a fund that would be used to help Rhode Island companies grow.
Versions of the bill last year and earlier this session called for $100 million in tax breaks, but a group of private investment companies pushing the legislation has scaled back the amount as part of an effort to quell the state Economic Development Corporation’s concerns.
But Giovanni Cicione, a lobbyist for the Economic Development Corporation, told the House Corporations Committee yesterday that the concessions did not appear to be enough to make this a good deal for the state.
Cicione said the Economic Development Corporation and the investors were “still very far apart.”
Insurance companies in Rhode Island pay a 2-percent tax on the premium payments they collect from Rhode Islanders. The legislation says that for every dollar the companies put into the CAPCO fund, they would receive a $1 credit on that premium tax.
Venture capitalists that have been approved by the state – otherwise known as certified-capital companies – get the money from the insurance companies. And those money managers are responsible for investing it in local businesses.
The insurance companies stand to gain a lot from the legislation and lose nothing.
If they invest poorly and lose all of their venture capital, it still would not be a loss because that money otherwise would have gone for taxes.
But if they only lose a portion of the venture capital or invest wisely and make money on their investment, they are well ahead of what would have been spent on taxes.
The state only gains if the companies that receive the much- needed venture capital are successful, create more jobs and pay taxes. The state would also get a share of the insurance companies’ investment profits.
Originally, the state was set to get 10 percent of the profits, but only if the investment fund saw a return of 15 percent or greater. Under the proposal submitted yesterday by Richard Licht, lobbyist for four out-of-state companies that want to manage such investments, the state would now get 25 percent of any profits.
Rep. David A. Caprio, D-Narragansett, told the committee yesterday that the state is taking too large of a risk and there is no guarantee that these funds will show a profit.
Licht told the committee that venture capital is desperately needed in Rhode Island and that similar arrangements have been successful in Alabama, Colorado, Florida, Georgia, Louisiana, Missouri, New York, Texas and Wisconsin.
Although the legislation aims to raise $50 million, the insurance companies could use only 10 percent of their tax credits annually. Insurance companies couldn’t start using the credits for two years while they would have to put up the money up front.
In order to apply to the state to be a certified-capital company, a firm must have $500,000 and four years of venture capital experience.
Gingee M. Prince, the director of Enhanced Capital Partners LLC, of New York, and Licht said that additional venture capital would pour into the state after the insurance companies put up their money.
Last year, the Senate approved a CAPCO bill, but objections to the way the money would be raised stopped it from moving forward in the House. Licht said yesterday that there are still issues to resolve with the Economic Development Corporation. The House committee did not take any action on the bill yesterday.
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CAPCO PROPONENT: Lobbyist Richard Licht testifies before the House Corporations Committee yesterday in favor of a bill that would give insurance companies $50 million in tax breaks.
JOURNAL PHOTO / CONNIE GROSCH
