Back in the old days, a breed known as “rainmakers” would travel rural, unsophisticated areas of the country promising that — for an upfront fee of course — they could bring rain to drought-stricken farmland. If you read Sunday’s story by the AJC’s James Salzer, you might come to the conclusion that the breed has never gone away entirely. It has merely changed its sales pitch.
As Salzer reports, out-of-state companies have come to Georgia pitching what they call CAPCOs. It works like this:
1.) Thanks to a new law, insurance companies are given the right to contribute up to $125 million to private CAPCOs that otherwise would have been paid to the state. (The insurance companies are later repaid a share of that $125 million as an inducement to participate).
2.) CAPCO operators — the people pushing the plan in Georgia — use the $125 million to invest in local small businesses. They get paid management fees for handling the money. Even though it’s not their capital at risk, they get whatever profit the investment produces. In the end, they even get to keep the $125 million investment capital.
3.) By funneling state revenue into the hands of private investors, the state supposedly gets jobs and investment but no share of the profit. The jobs, however, are notoriously difficult to count. And as Salzer recounts, several states have tried the CAPCO approach, often producing more disappointment than employment:
“If they sold deals like this to naive little old ladies, they would go to prison,” said Republican state Sen. Glenn Grothman of Wisconsin, where a similar program has drawn criticism. “I don’t know what should happen to you if you sell deals like this to naive legislators.”
… Julia Sass Rubin, an associate public policy professor at Rutgers University and a leading critic of the CAPCO model, said states have much more cost-efficient ways to invest in small businesses to create jobs.
“The CAPCO is the classic $200 million toilet,” she said. “You don’t ask, ‘Does it flush?’ You ask, ‘Why did you pay $200 million for a toilet?’ ”
CAPCO promoters have an advocate in state Rep. Ben Harbin of Augusta, one of the more influential members of the House. The chief Georgia lobbyist for the plan, former state senator Pete Robinson, is a longtime friend of Gov. Nathan Deal and served on Deal’s transition team. Deal also backs the CAPCO approach.
The plan passed the state House on the next-to-last day of the 2011 session. When the Legislature reconvenes in January, it will be one Senate vote away from Deal’s signature.
Once that happens, the rains will start falling from the heavens, and the crops will rise green and lush from the moist Georgia earth. Or so we’re promised.
– Jay Bookman