How a good job-creation idea can go bad for Georgians

You’ve heard of good ideas and bad ideas. Today, meet the bad “good idea.”

Earlier this month, I previewed a job-creation program that Lt. Gov. Casey Cagle and other state leaders are expected to champion next year. The state would use some to-be-determined revenue stream to partner with private investors and pump money into Georgia start-up companies in certain strategic industries.

It’s a variation on an idea I’ve advocated before, on the premise that Georgia creates many promising young businesses — only to watch them move to places like Boston or Silicon Valley, because that’s where the capital they so desperately need is located.

Most of the details of this specific plan are still being worked out, or at least Cagle didn’t share them with me when I interviewed him. On the surface, it might sound like a good idea.

Less than a week later, however, AJC readers learned why it could be one of those bad “good ideas.” That’s when my colleague, Aaron Gould Sheinin, reported that lobbyists representing a for-profit cancer hospital paid $5,000 for Cagle to attend a charity golf weekend last month at The Cloister resort on St. Simons Island.

Now, I have nothing against golf, resorts, cancer hospitals or profits. Nor against lobbyists, per se. But I have a real problem with elected officials who accept golfing trips at resorts on the dime of anyone promoting any interest, regardless of industry or profitability.

So should all taxpayers, especially if said elected officials are thinking of investing public money in a way that might benefit such interests. That’s how a “good idea” turns bad.

Lobbyist-funded junkets are only the public — shamelessly public, you might say — manifestation of the web of special interests that stand to outweigh the public’s interest when taxpayer dollars are involved.

It’s one thing for the state to seek out and choose, very transparently, a VC fund that invests in a wide variety of start-ups and put some money in that fund — asking in return only that the fund open an office in Georgia, potentially leading it to recognize and invest in our homegrown companies. That’s particularly true if the investment is made with money, such as money from a pension fund, that the state is going to invest in equities anyway.

It’s an entirely different matter to launch a new state investment vehicle, make a bunch of rules about which sectors or even companies are eligible for investment, and ask private investors to participate. Who thinks that’s wise, what with Solyndra, the latest federal failure at picking winners and losers, still in the news?

Just for a moment, remove specific personalities such as Cagle or Speaker David Ralston, and the particulars of Cagle’s trip to the coast and Ralston’s journey to Germany this time last year to examine that country’s rail system. Who among us doesn’t see the potential for future politicians, any number of years hence, to treat such a state-led investment program as a slush fund to reward cronies and supporters?

The problem is even more glaring when you consider that today’s politicians in Georgia, before such a temptation even exists, reject even a modest cap on gifts from lobbyists.

Attracting much-needed capital to Georgia and our fledgling businesses is a very good idea. It can be done responsibly. But doing it in a way that invites conflicts of interest would make it a very bad one. Tread carefully here.

– By Kyle Wingfield

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100 comments Add your comment

arnold

November 28th, 2011
5:33 am

The government does not need to be in the venture capital business. Remember, private enterprise? Capitalism? Keep government out?

Which way is it going to be? Do conservatives want it both ways?

DeborahinAthens

November 28th, 2011
6:12 am

And yet you deride every time the Obama administration tries ways to capitalize green energy initiatives. Without government funding a lot of research–especially in the biotech area–would never get done. Republicans are all for venture capital assistance from government sources, until they don’t like what the research is for (stem cell research, anyone??) . As to Casey Cagle, he’s shameless–always has been. But then, so is Nathan Deal. You guys are so funny. You support these ethically challenged excuses for life, then are shocked–SHOCKED–when they follow the money.

Cosby

November 28th, 2011
7:24 am

You are correct. Just look at Solandra by the Obama administration. First and foremost, the Government is suppose to create a stable, peaceful environment that encourages investment and job growth, not take a stream of revenue from the citizens to promote their wish list and potential donars. Nuf said

Poor Boy from Alabama

November 28th, 2011
7:47 am

Using public monies to fund private ventures is always a bad idea. Government lacks the skills to act as a venture capitalist. Remember Solyndra? Opportunities for influence peddling are also a real concern.

Let’s encourage our colleges and universities, through their business schools, to help foster an environment that makes Georgia an attractive place for young companies. Let’s focus on creating a tax and regulatory environment that’s makes Georgia a good place to do business.

Let’s not risk public money on private ventures or do anything that could lead to Crony Capitalism.

Tom da bomb

November 28th, 2011
7:48 am

When you talk about state government setting up a fund to help private investors with startup capital, you’re talking about the government getting into the game of picking and choosing winners. I was under the impression that conservatives opposed this — obviously, I was mistaken.

Also, you’re overlooking one of the main reasons that promising startup companies move to Boston and Silicon Valley — there are better-educated workforces in both of those locales because government devotes more of its resources to and puts more emphasis on good schools and a better system of higher education. If our elected leadership put the money they would “invest” in public companies into upgrading our schools instead, they would see fewer promising countries move out of Georgia.

Tommy Maddox

November 28th, 2011
7:52 am

Yeah – those “green energy initiatives” are really kicking butt – let’s get a bunch of them!

Really?

November 28th, 2011
8:18 am

@Tom da Bomb — you are correct. They move out not because of the tax structure (after all, Massachusetts is known as Taxachusetts) but because of the education (Harvard System, MIT, UMass etc). We need to invest in our children’s education and the R&D done at our research universities. The Research Universities (GT, UGA, GSU and MCG a.k.a. GHSU) have incubator programs done in conjunction with the Georgia Research Alliance and Cancer Coalition, but their State funds are slashed left and right, the professors haven’t had raises in 3-4 years so they are leaving or we can’t attract those we need and in general, the education atmosphere in GA is anti-intellectual. Really!

carlosgvv

November 28th, 2011
8:36 am

Anytime you mix Lobbyists, politicians, Big Business and money the public suffers. Somehow, this never seems to change in America.

Hillbilly D

November 28th, 2011
8:41 am

It’s just another plan to line the pockets of somebody’s buddy. This is why government has no business getting involved in business. If a business is a good idea and will make money, somebody will fund it.

scrappy

November 28th, 2011
8:48 am

They also move because the educated realize how backward this state is, and can’t wait to leave. Backward in education, backward in transportation, backward in laws (at least the alcohol one is no longer)… the only thing forward in the state is the rate at which politicans become corrupt and fund thier cronies, all with the support of the public who keeps voting them back in.

Hillbilly D

November 28th, 2011
8:52 am

Unless one is incarcerated, there are roads leading out of this state in every direction, not to mention the world’s busiest airport. If it’s so bad, there’s nothing keeping you here.

scrappy

November 28th, 2011
9:02 am

There are those of us that are finacially and emtionally tied to this state and just can’t up and leave, even if we would prefer it. So, rather than run, I will do my part, although I am sure it is small, to try and make this state better. First step – get rid of a lot of the incumbants at the local, state, and national level. I continue to have hope that there will be enough people like-minded to sway the polls.

JF McNamara

November 28th, 2011
9:04 am

Tommy Maddox,

I’ll see your green initiative failure and raise you a F-22 program, Osprey Program, a Strategic Defense Initiative (Reagan’s Star Wars for the uninitiated, and a years behind schedule F-35.

If we gave as much scrutiny to failed defense programs as Solyndra, we wouldn’t invest in defense either. Sometimes things run over, cost more than they should, or simply fail. Stop whining about it.

Bart Abel

November 28th, 2011
9:06 am

It’s one thing for the state to seek out and choose, very transparently, a VC fund that invests in a wide variety of start-ups and put some money in that fund — asking in return only that the fund open an office in Georgia, potentially leading it to recognize and invest in our homegrown companies. That’s particularly true if the investment is made with money, such as money from a pension fund, that the state is going to invest in equities anyway.

Recipe for disaster.

On the main topic, it’s true that Georgia politicians reject modest caps on gifts from lobbyists. At least one nearby state doesn’t allow gifts of any value to be given to politicians…not even a birthday cupcake.

We are becoming among the most corrupt states in the nation, but oddly, Georgia voters either don’t know or don’t care. Personally, I’ve called my state senator, state representative, and the head of the ethics committee in each house to complain about lobbyist gifts. But mysteriously, such outrage is limited. This lack of outrage on the part of Georgia voters has already come back to bite us, and it will continue to do so.

very xmas

November 28th, 2011
9:29 am

Is this a good idea or a bad one?

Road Scholar

November 28th, 2011
9:53 am

Kyle, are you telling us that there are no longer “investment potential” in starting a bank in Ga? No oversight, no scruples, no profits, no business! The potential of wrongdoiung is too great, besides why aren’t the rich spending all their profits of making more money on this program?

Now I do like your observations on ethics, or the lack thereof. Why not have NO gifts, NO lobbyists? Is it neccessary to have lobbyist because our leaders are dumb and can’t learn about businesses w/o lobbyist. Ethics reform…er… any ethics in state government should be persued immediately, and funded. The recent cuts to the budget and implanting the governor’s backers into the ethics committee should be reversed. At the pace we’re going all department heads, boards, commissions, etc will be headed by past legislators! Is that what Georgia needs?

Kyle Wingfield

November 28th, 2011
10:04 am

Tom @ 7:48: Our universities are producing the grads who produce the ideas and companies. The problem, as I’ve heard it from multiple people, is that the venture capital they need to keep going or expand isn’t located in Georgia — and the folks where it is located want the start-ups to move nearby so they can monitor/coach them.

sean Smith

November 28th, 2011
10:05 am

Sounds like Crony Capitalism, isn’t this the government selecting winners and losers that the Tea party has its panties in a knot about???? Why aren’t we relying on market forces to determine where to invest venture capital, we cant possibly think GOVERNMENT bureaucrats can make better investment decisions than the market?????

What hypocrites.

Kyle Wingfield

November 28th, 2011
10:07 am

Bart @ 9:06: “Recipe for disaster” — and yet the other 49 states all allow this, and many of them have higher rates of return than our funds do. Is it a “recipe for disaster” for pension funds to put some of their money into other equities? If not, then why would it suddenly be disastrous to devote, say, 1-2% of the invested money into a fund managed by a top VC firm? Or do you think diversification is a bad thing?

DixieDemons

November 28th, 2011
10:10 am

Ga GOP Values

Kyle Wingfield

November 28th, 2011
10:16 am

Road @ 9:53: The potential problem with “NO gifts” is that it becomes an invitation to keep everything off the books, so to speak. I don’t think a politician is going to be bought for a cup of coffee or even dinner. Put a reasonable cap — most suggestions are in the neighborhood of $100 — then increase reporting requirements — for example, requiring more frequent reporting, especially during the session — and put some muscle behind the enforcement of the rules. And then see what, if anything, needs to be done after that.

As for “NO lobbyists” — I don’t have a problem with lobbyists per se. As long as legislators are making laws that affect people and groups of people, those people and groups of people have the right to be heard. (And, trust me, everyone has a lobbyist — meaning, down at the Capitol, there is someone claiming to represent your industry, or your other associations, or your interests as a taxpayer/parent/child/citizen/non-citizen/rich man/poor man/etc.) I have a problem with rent-seekers, and I have a problem with politicians who accept gifts (e.g., golfing weekends and trips overseas) that give lobbyists too much influence with them, real or perceived.

#occupy my desk...

November 28th, 2011
10:17 am

i am always really impressed by the partial understanding of both government and private capital entities of your readers, Kyle. Liberals should be saving whales and protesting furriers; the danger lies when they dabble in macroecon, spitting out stale catch phrases from the ‘08 Hope & Change campaign. yawn.

Remember folks, your best friends Social Security, Medicare and Medicaid are giant trust funds (oooh!) invested by the government (aaaaah!) in the private sector market (crony capitalism!).

Mary Elizabeth

November 28th, 2011
10:50 am

Kyle, here are your words from your May 26, 2011, post with which I have had issue:

“There are a number of factors at play, but it’s inescapable that we are losing these companies while remaining the lone state in America whose public pension funds can’t make VC investments.”

——————————————————–

However, I wish to thank you for the article above. You appear, now, to have serious reservations regarding using public pension funds for Venture Capital investments in Georgia because of the possibility that those funds might be used unethically. You have good reason to have those concerns, and I applaud your courage in making that argument. Please let me make the case even stronger against using public pension funds for Venture Capital endeavors.

(1) As a retired teacher who started teaching 42 years ago, I know that teachers themselves contributed 85% to 90% of their own salary to their retirement funds, which were prudently invested for them by the TRS of Georgia, as was stated to be done in our original contracts with the state of Georgia for “services rendered” to the children of this state.

(2) For legislators, now, to perceive that they can somehow “take” that money – our money – away from elderly stateworkers’ pensions just because they perceive they “can” is egregious in the extreme, and they will be hearing – through their votes – from state workers and their families and their friends, if they attempt this. There is too much risk involved, especially in today’s financial marketplace, which may effect, adversely, the future security of retired teachers and state workers.

(3) During the previous Republican administration in Georgia, retired state workers had a very significant withdrawal of their state health plan reserve monies removed from their SHBP and deposited into the general fund of the state budget. I have yet to know how these thousands, if not millions, of dollars were used within the state’s budget. I do know that, simultaneously, all retired state workers were essentially placed in a Medicare Advantage program – touted by Republicans nationally – from their regular Medicare plan with SHBP. This was done without meaningful input from state workers. Teachers, and other state workers, have yet to know how this huge withdrawal of our health fund reserve money into the state’s general budget will adversely effect our long-term health insurance costs.

(4) It is no secret that the leadership of our state is highly partisan Republican in their ideology. That ideology is to cut state government to the “bone,” and our Republican legislators and governors have done much to effect that plan, already, in Georgia. Now, to move secure pension funds of elderly retired teachers and state workers into the state’s general capital funds for Venture Capital investments, which may not be financially prudent or sound – especially in today’s precarious financial market – is morally reprehensible. I gave my professional life to the children of Georgia. Many nights I stayed at my school until 8 p.m. to inservice parents, or to prepare programs for training other teachers in instructional techniques. That is what my orginal contract stated for me to do: “You spend your time helping to educate Georgia’s children, and we will spend our ( the TRS’) time investing your pension money wisely for you, so that you do not have to spend your time investing your money.” (In other words, place your priority and time into teaching, and not into worrying about your financial portfolio.) That is what I, and others, did and now the latest Republican leaders of Georgia want to take those long-invested funds and use them for their own questionable ideas. That is MY hard-earned money they are taking, even if I was a public servant, from MY former paychecks. My original contract with the state of Georgia did not allow that.

Finally, Kyle, I have a daughter about your age. She is doing well. However, I do not wish to be a financial burden on her into her future, as I age even more. That is how I planned my life. I was prudent. I planned well ahead. I feel certain that your parents have planned, also, not to be a burden to you financially, as they age. Thank you for realizing that some politicians in this state are more self-serving than they desire to serve the public’s interest. I served the public’s interest because that was my talent and within my character. I will not easily see my life’s investment be toyed with now that I am elderly. You just do not change the rules of the game in the 8th inning.

Dusty

November 28th, 2011
10:52 am

Kyle (so glad you are back! Enjoyed your “appreciation ” column.)

First I need a definition of “venture funds” since it sounds like wasted tax money.

I don’t want my tax money going to anybody’s “venture, vacation, vacillations or variations”. I want it to go to education, protection, and humanity. I see no need for lobbyists since ventures should stand on their own values and proof of intent and integrity.

Georgia is a fine state. It does not need to attract fly-by-night industries such as the well know Solyndra. It does not need companies that go bust at the first change of the economy. We want first class companies, not a fly attracted by the honey.

If a company does not like our central southern location, our fine schools, our good climate, our enviable mountains and seashore, our available manpower, our huge airport, our responsive government, they don’t need to come here.

Support our state! Quit begging! Stop anything resembling a lobby! Yaw’l come! We’ll furnish the fine table but bring your own goodies!

One who Knows

November 28th, 2011
11:00 am

the Speaker’s trip to Germany was a “thank you” present. He had already dipped his snout into the trough by then.

Real Athens

November 28th, 2011
11:19 am

Occupy. You shouldn’t dabble in macroecon — cause you’re wrong. This statement is inherently false. But don’t let facts get in the way of a good insult.

“Social Security, Medicare and Medicaid are giant trust funds (oooh!) invested by the government (aaaaah!) in the private sector market (crony capitalism!).”

Rafe Hollister

November 28th, 2011
11:19 am

There is no legitimate purpose to the State getting involved with private business creation. Limit perks to legislators to $250.00 and require all perks and donations to be reported.

We offer gigantic tax breaks to attract large employers, why not offer some modest tax breaks to start ups.

Dusty

November 28th, 2011
11:30 am

Rafe,

“Modest tax breaks” sounds good to me. Much better than venture funds which should be called “adventure” like Alice in Wonderland or “pig in a poke” or “bingo binge” etc.

I think tax money should not be in a gambler’s mode. Know where the $$$ is going and what it is supposed to do. No guessing!

Rick in Grayson

November 28th, 2011
11:47 am

DeborahinAthens November 28th, 2011 6:12 am

“And yet you deride every time the Obama administration tries ways to capitalize green energy initiatives. Without government funding a lot of research–especially in the biotech area–would never get done.”
=================
Deborah, I used to agree with you that government needs to fund more R&D activity.

What I believe happens (and has happened since 1970) is that government funds research which 90% of the time tells us what doesn’t work. The 10% of the time that government funded research delivers, the principal researches take that knowledge and leave universities to start a new company which profits from the government funded research.

You may say that is great, new jobs are being created! However, is it a function of government to provide taxpayer resources that ultimately benefit a capitalist?

Obama funded the Solyndra company which used a manufacturing method for solar panels that was already behind “state-of-art” techniques used in Europe. The DOE knew this in advance and calculated when the company would go bankrupt. Those calculations were correct to within 60 days.

These funds were not even used for RESEARCH. They were used by business people to pay themselves a salary for X number of months and was a total misuse of taxpayer resources.

Bart Abel

November 28th, 2011
11:54 am

Bart @ 9:06: “Recipe for disaster” — and yet the other 49 states all allow this, and many of them have higher rates of return than our funds do.

The implication here is that many of the other states have lower rates of return than our funds.

Of course, I think diversification is good. But pension funds are for retirement and public retirement funds should be invested, and diversified, for capital preservation. Investments in venture capital are not for capital preservation.

As I said, putting public pension money into a venture capital fund is recipe for disaster. Kyle suggests limiting such investments to 1 to 2 percent, but if and when those investment returns don’t pan out, or worse, pensioners or taxpayers have to make up the loss.

While fantasizing that they could reduce the employer’s share of pension contributions by aggressive investing for growth, there are countless public pension funds that went deep in the hole when the economy took a dive. State and local governments should learn from recent history: http://www.nytimes.com/2011/01/06/us/06states.html

Rick in Grayson

November 28th, 2011
11:58 am

If Georgia wants to bring in new business, let them form a partnership with the business where the “state” gets a share of the profits of the corporation. Any monies paid to the business should be recovered with “interest”!

I have a family member who lives near Winston-Salem, NC. The city/state government gave a major “computer” corporation huge tax breaks for a new computer assembly plant. This plant never delivered the number of jobs promised because it relied on robotic equipment to assemble computers. After a couple of years in operation, this plant closed last year and the city of Winston-Salem saw little benefit for all the tax breaks provided.

Mary Elizabeth

November 28th, 2011
12:05 pm

CORRECTION:

I erroneously posted this at 10:50 a.m.”

“. . . I know that teachers themselves contributed 85% to 90% of their own salary to their retirement funds. . . ”

————————————————————–

This is what I meant to have said:

“. . . I know that 85% to 90% of Georgia’s Teacher Retirement System’s funds, before investments, were contributed from teachers’ salaries from their own paychecks. . .”

I Report (-: You Whine )-: Thee Magnificent!!! mmm, mmmm, mmmmm! Just sayin...

November 28th, 2011
12:28 pm

Rep. Barney Frank (D-Mass.) will announce Monday that he is not seeking reelection, ending a 32-year career in the House.

Aahhh, the rats are jumping over the side, what a lovely sight, uh, sorta.

ew

Lil' Barry Bailout (Revised Downward)

November 28th, 2011
1:17 pm

arnold: Remember, private enterprise? Capitalism? Keep government out?Do conservatives want it both ways?
——–

No.

Any other simple questions I can help you with?

Lil' Barry Bailout (Revised Downward)

November 28th, 2011
1:21 pm

Frank is out and Speaker Gingrich is on the rise. Perhaps America can be America again.

sailfish

November 28th, 2011
2:35 pm

“Frank is out and Speaker Gingrich is on the rise. Perhaps America can be America again”

While we are at it, why not bring back tom delay and dick armey? Throw in some jack abromoff and we can stew up another bubble to enrich the few and wreck america even more.

Lil' Barry Bailout (Revised Downward)

November 28th, 2011
2:44 pm

Yeah, cuz we’re really enjoying the 9% unemployment, $1.5 trillion deficits, and record poverty Obozo has produced.

sailfish

November 28th, 2011
2:48 pm

What about president bush? Do you not hold him accountable for any of the failures of our economy or the war of choice? Who inherited the mess yet repubs are demanding all these problems be fixed – now?

Don't Tread

November 28th, 2011
2:49 pm

Apparently it’s too hard for a liberal to campaign in Mass (lol), so Frank decides to retire.

He’s getting out before the house of cards falls around him. Wonder who’s been inviting him to golf outings lately.

Lil' Barry Bailout (Revised Downward)

November 28th, 2011
2:52 pm

Frank retires, but Americans are still suffering the effects of his economy-wrecking housing policy and fascist financial deform bill. More Democrat messes Americans will have to clean up.

sailfish

November 28th, 2011
2:53 pm

By the way, that 1.5 trillion deficit is bcause obama took the cost of the iraq war and put it on the books. Time to move on, I don’t swim with the blowfish…

Kyle Wingfield

November 28th, 2011
3:13 pm

sailfish @ 2:53 is leading the race for most fact-free statement of the day (so far).

sailfish

November 28th, 2011
3:17 pm

Good afternoon mr. wingfield, the war was always being paid for as a supplemental, president obama put it on the books, am I wrong about that?

Disty

November 28th, 2011
3:18 pm

Sailfish,

So the best you can do is to blame President Bush for Obama’s mistakes. Or have you forgotten 9/11 which happened in Bush’s first year. He still had enough experience and perserverence to pull the country together, defend us and then remove a dictator from the Middle East.

Bush saw the economic decline and tried to stop it with TARP. TARP has now been repaid. It is not part of the 13 Trillion debt of the USA. President Obama not only added to the debt, he wants to do more.

All you can say about this situation is to mention Bush. Move on. Bush did his job. Obama must do better with his or he will never have a second term. Americans know when they lack a leader.

Dusty

November 28th, 2011
3:21 pm

Disty is Dusty by the way. I don’t have a new ID.

Lil' Barry Bailout (Revised Downward)

November 28th, 2011
3:24 pm

Bush and Paulson saved the financial system with their TARP, and the recession ended in June 2009.

How Obozo screwed things up since then is on him and the receptacles who voted for him.

Kyle Wingfield

November 28th, 2011
3:37 pm

1. Spending borrowed money adds to the debt whether it’s in the omnibus appropriations bill or other bills, including supplementals. As this chart shows, the number that is most often branded “the deficit” for the year includes all outlays and revenues.

2. Congress hasn’t passed a “budget” of any kind in more than two years. So, in a sense, nothing is “on the books.”

3. The entire cost of the Iraq war hasn’t been $1.5 trillion, much less the annual cost.

Shall I go on?

sailfish

November 28th, 2011
3:44 pm

wingfield

I never said the whole deficit was attributable to the iraq war. I believe when bush left office the deficit was 500 billion. The cost of the war up to that point was roughly one trillion, which obama added onto the deficit. Please…go on-
http://thinkprogress.org/economy/2011/07/20/274217/republican-freshman-blames-obama-for-debt-from-iraq-war/

Dusty

November 28th, 2011
3:46 pm

Keep going, Kyle. You are right on track. Modify the misinformation!

Kyle Wingfield

November 28th, 2011
3:49 pm

sailfish: The deficit is not the same thing as the debt ceiling. And even if it were, no public debt is “off the books” when it comes to the debt ceiling.