Dear Gov. Deal: Go broad with plan to spur Georgia economy

Not yet a year into his term, Gov. Nathan Deal already has faced several issues that will still resonate whenever he leaves office. Reforming the HOPE scholarship in light of revenue realities and signing the controversial HB 87 illegal immigration bill are two from last year. Pursuing the deepening of the Savannah port, the building of new reservoirs in North Georgia, and the revamping of the state’s criminal justice system are three still in progress.

That’s a lot to bite off in 360 days. But with the state still lagging even the lackluster national economy, there might be nothing more important in Deal’s first term than the proposals he’s due to unveil next week to boost Georgia’s competitiveness. For better, or for worse.

The Deal team is keeping its plans under wraps so far. Should there be any last-minute internal debate, let me suggest: Go big, but most of all, go broad.

Georgia’s economic problems are not merely cyclical. It’s no secret that our state, and particularly metro Atlanta, has been overreliant on the real estate development that accompanied our population boom: new housing, new retail and office spaces, and all the things that go with them. The challenge now is to replace that growth engine.

It won’t be done simply or even mostly with big subsidies to lure companies here from the Rust Belt and beyond. Taxpayers can’t fund enough of this kind of job creation for us to get ahead that way. And eventually our existing businesses, peeved from watching — and paying for, with their taxes — all this flirting, will get wandering eyes of their own.

I know other states are doing it, and that many of them are our neighbors. (Many of them, it must also be said, are poorer and more desperate than we are.)

But we should focus on preserving or enhancing those broad conditions that make the business climate favorable for companies wherever they are currently located. Keep the burden of government light, for example, and make it more rational by reforming the tax code — all of it — to make it broader, simpler and flatter. The model is the proposal made last year by the special council on tax reform.

In any event, corporate welfare is not a sustainable strategy.

Nor is it sustainable to keep watching our homegrown startups migrate elsewhere in search of the capital they need to grow. We should do what it takes to develop our own sources of angel and venture capital. But here again, we ought not venture into Solyndra-like bets that pick winners and losers.

I hear encouraging indications that the worst idea on this front — the CAPCO model in which the state essentially hands out money for insurance companies to invest without any claim to the principal or profits — has fallen out of favor. That’s as it should be, and legislators and the governor alike should be on guard against any attempts to tuck the idea into a seemingly innocuous bill in the session’s final moments.

As I’ve written before, however, there are other ways to pursue this good goal the wrong way. The best way is to put a small portion of funds that are going to be invested anyway — say, 1 percent of the state pension fund’s portfolio — into a top-shelf VC or private equity fund, with the stipulation that the fund open an office in Georgia. Let the fund’s managers choose its investments, whether they’re here or elsewhere, but give our companies a better chance at attracting the attention of those managers.

Going about it by having state officials try to select the investments or put parameters on them, on the other hand, is a much riskier proposition.

You may have noticed a common theme here: The point should be not to decide exactly how Georgia should move forward, but to make it easier for Georgians to move ourselves forward. “Bold” does not mean “hands-on.”

All of this ought to come naturally for lawmakers who fancy themselves the conservative leaders of one of the nation’s most conservative states. We’ll find out within the week.

– By Kyle Wingfield

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47 comments Add your comment

Ayn Rant

January 5th, 2012
6:42 am

Right objectives but wrong approach, Kyle! Private equity funding is not the proper function of government, and should be left to private investors in a free, competitive market.

The proper investment for government is Infrastructure: transportation, communications, education, civil and criminal law, and water management. Good infrastructure promotes private equity investment in industry and commerce. “Build it, and they will come!” Clogged highways, bad public transportation, slow communications, high crime rates, ineffective civil law proceedings, and unreliable water management discourage private equity investment in Georgia.

Atlanta has the unrealized potential to become a hub of innovative and creative modern industry, like Austin, Boston, the San Francisco peninsula, and Seattle. We have some advantages: notable universities, an efficient airport, heavy rail public transportation, a large workforce, and a good climate. We are limited by clogged highways, underused public transportation, bad primary schools, shaky water supplies, unexceptional electronic communications, backlogged criminal and civil courts, and total lack of regional and state leadership.

Our comical state government is no help at all. The hot legislative issues of 2011 were Arizona-style measures to harass and run off farm workers, and belated permission to allow the public to vote on Sunday alcohol sales. Now we hear that Governor Deal is formulating a plan to shower his corporate campaign contributors with public money.

DeborahinAthens

January 5th, 2012
7:00 am

Ditto, Ayn Rant! Capitalism thrives when the private sector is paid for taking risks. You do not want the government in that process. If you even hint at having investors raking in profits, but the government taking the loses, you are doomed from the get go. I agree with Rant…our Republican dominated government that spends time on trying to push their religious, social agenda makes us a joke. I, for one, do not want “In God we trust” on my license plate. What arrogance. I don’t believe in creationism and do not want it taught in school. I think women should have access to birth control without having a pharmacist making judgement calls. Yet this type of garbage is what our “lawmakers” spend their time on. I ask you, do none of you step back and look at how asinine we
appear to the rest of the developed world? If I were younger and could move, I would leave this backward state. But, Kyle, you keep on supporting these useless pieces of humanity, and then keep whining about the sorry mess we’re in. The only good thing is that they surely can’t blame this shipwreck of a state on the Democrats!

Gimme Gimme Gimme

January 5th, 2012
7:18 am

Deborah,.

It’s pretty easy to move, people do it every day. Please try harder.

ByteMe

January 5th, 2012
7:34 am

Kyle sounds like a corporatist this morning instead of a libertarian.

Bad idea, Kyle. Giving money to a VC and hoping they invest it here is just … ridiculous.

Ayn Rant is correct: invest in infrastructure to make it easier and desirable for businesses to operate here.

Oh, and I see you mention Solyndra, but not our own home-grown Perdue-driven mistake, Range Fuels.

detritusUSA

January 5th, 2012
7:36 am

“Corporate welfare is not a sustainable strategy”. That’s the first intelligent statement by a conservative that I’ve read in a long, long time.

ragnar danneskjold

January 5th, 2012
7:50 am

Good morning Kyle, sorry, you will find no support from me on the Rick Perry-esque VC fund investment. The best good our overlords can accomplish is to minimize the government imprint. Repeal about half of our criminal laws, and abolish the remaining economic restrictions, and reduce taxation otherwise. We need only two economic laws: (1) a law punishing fraud, and (2) a law punishing collusion (essentially the same thing, “fraud on the market.”) Not laws creating bureaucracies with the purpose of “preventing” those criminal acts, but laws that punish them when they occur. And punish, not with corporate fines – which allow the actual criminal to go free, and punish only those who invested in the entity – but with true prison sentences.

Eric

January 5th, 2012
8:27 am

Ayn Rant makes sense on the proper role of government. But we don’t anymore “Build it, they will come” philosophy. We already have too many people in metro Atlanta to be sustainable. Why do people still think we need to “grow”? Why can’t we live with what we have?

JF McNamara

January 5th, 2012
8:54 am

Congratulations to Ragnar Danneskjold for calling out Kyle. He is actually a true limited government conservative.

The free market is currently deciding which projects get funded. By Capcoms/VCs or any interfering agency, we are influencing the free market. The only methods that meet the conservative criteria for spurring growth are lowering taxes and reducing regulation. Anything else is big government interference.

Also, what is with the constant badgering on Solyndra? If you’ve ever invested in anything, then you have probably lost money. The government has good and bad investments, just like any other investor. Focusing on one bad investment does more harm than good in the public discourse. It just make people less risk averse and makes it harder to invest when we really need to.

TBone

January 5th, 2012
9:00 am

It appears when government tries to pick winners and losers; it almost always loses. This means that taxpayers will be on the hook when the doors fly off the outhouse. Just look at the failed ethanol project that Georgians will now be bailing out. Government needs to get out of the way and slim down if we are to recover.

clyde

January 5th, 2012
9:06 am

So we all agree.Government keeps us safe,builds roads,and stays out of the way of private enterprise as much as possible.Pretty much the reverse of what’s going on presently.

sean Smith

January 5th, 2012
9:23 am

But the only way to invest in Infrastructure is to raise taxes. Roads, bridges, reservoirs aren’t free. How is that going to happen in this state????

clyde

January 5th, 2012
9:39 am

Tolls are a direct taxation of road users.All taxes are passed on to the consumer.That’s a broad base.

JF McNamara

January 5th, 2012
9:45 am

“Tolls are a direct taxation of road users. All taxes are passed on to the consumer.That’s a broad base.”

1. All taxes are passed on to the consumer anyway through taxation.
2. What about the shared cost of commerce? If an 18 wheeler delivers a shipment to Wal-Mart on the road I paid for via toll, will I have funded the road for everyone else to get the shipment? Why, they benefited from it?

If its a perpetual toll, will Wal-Mart pass the cost on to everyone?

Kyle Wingfield

January 5th, 2012
9:56 am

ByteMe @ 7:34: Yep, that’s me: the corporatist who…doesn’t want to give any money directly to any company.

I have no brief for Range Fuels, but I assume most of my readers are more familiar with Solyndra. Thus the mention of the latter.

The Anti-Wooten

January 5th, 2012
9:56 am

On another topic, Kyle you lied yesterday in saying that Santorum didn’t make his statement about black people. Not that I’m surprised.

http://www.cbsnews.com/8301-503544_162-57350990-503544/santorum-targets-blacks-in-entitlement-reform/

jconservative

January 5th, 2012
10:01 am

This years General Assembly will spend most of its time on changing the tax code and little of its time on reducing the size of government.

retired early

January 5th, 2012
10:07 am

We do have an effective leader in this state, Jack Hill, chairman of the Senate Appropriations Committee. He believes that because of our triple AAA bond rating, combined with historically low interest rates that Georgia is in a perfect position to repair and rebuild the state’s infrastructure. That would surely stimulate the state’s economy while making it more attractive to companies to move here.
That is the kind of common sense leadership we need in this state. Jack is a Republican…I am a Democrat, but I still like his ideas. I just wish more in his party were like him.

Kyle Wingfield

January 5th, 2012
10:10 am

ragnar @ 7:50: I think you misunderstand me. I am expressly not advocating the Perry/Texas model, which, as I understand it, involved the state making direct investments in Texas start-ups. What I am advocating is that we diversify our pension-fund portfolio by directing a very small amount of it into an established, world-class VC or PE fund. Then, unlike in Texas, we don’t tell them where to invest it. We just want the pension fund to make money from it, the same way we want it to make money from other investments.

The only market interference here, and it is minimal, is to stipulate that we will only invest in a fund if it will open an office here. The state cannot create enough venture capital on its own. What it can do is entice VC firms here and seek to build a critical mass of private money to go into local start-ups. Those local start-ups are quality ventures; the best of them have no problem attracting capital. The problem is that they attract capital from elsewhere, and the providers of that capital in return want the start-ups to relocate closer to them. If we can use a little of the money we’re already investing to bring them here, I think that’s worthwhile.

The Anti-Wooten

January 5th, 2012
10:13 am

To assume that most of your readers don’t have the mental capacity to be knowledgeable of both national and regional issues (Range Fuels and Solyndra) says a great deal about you and/or your readers.

Road Scholar

January 5th, 2012
10:24 am

Kyle:”It won’t be done simply or even mostly with big subsidies …”

The last time I looked, you weren’t elected to office. This statement states that not doing this is an absolute truth,but you do not control their actions. By adding the word “probably” after “It”, states the condition that the legislature MAY go. If you are so certain about the future and can predict the future accurately, I just need a few good numbers for the lottery!

Retired Early: So the legislature will buy bonds to fund what is suppose to be funded with taxes, and these bonds and interest will be paid for how? Remember that is what slipped the GDOT into the present funding morass it is in…About $2 B/yr in revenue ( which has slipped recently due to less gas tax revenue and Fed funds) with a $400M dollar debt for 20years? Reducing your possible yearly funding for the future by 20% w/o additional revenue? And then complain they aren’t doing anything?

Don’t get me wrong. The cost of money and projects will be cheaper now than in the future…history has made that statement true. But bonding projects w/o additional revenue to retire the debt is just stupid!

Kyle Wingfield

January 5th, 2012
10:25 am

And your reductio ad absurdum, suggesting this is a matter of “mental capacity,” says a lot about you, Anti.

Don't Tread

January 5th, 2012
10:26 am

I, for one, do not want “In God we trust” on my license plate.

Don’t look at any US currency, then.

Maybe Cuba, NKorea, Russia, or China would suit you better.

Kyle Wingfield

January 5th, 2012
10:28 am

Road @ 10:24: I am not predicting what they will try to do — they might well go for the big subsidies. I am warning against the ineffectiveness of such an effort. “Done” = “achieved” here. Sorry for any confusion.

retired early

January 5th, 2012
10:32 am

Roads Scholar

“But bonding projects w/o additional revenue to retire the debt is just stupid”
You are “preaching to the choir”. I was in agreement with Senator Hill that “now is the perfect time to invest”. The problem with the GOP leadership is their inability to recognize this opportunity and raise the revenue to make it happen.

Road Scholar

January 5th, 2012
10:36 am

“In God We Trust” is a nice bumper sticker. What about the need to have the vehicle owners county of residence on the license tag as a means of the police determining if the vehicle is “out of place”? That was the reasoning given for mandating that a vehicle owner place the county sticker on their tag in the first place. I realize most police cars have computers and can identify the vehicle, and owner, but the county sticker won,t waste their time of typing in the plate number…esp while driving behind it, which reduces the officers attention and safety.

Will using the “IGWT” sticker on your tag reduce the likelyhood of being stopped by the police? Because you are a “good” Christian? What is its need other than being a “bumper sticker”?

Road Scholar

January 5th, 2012
10:38 am

re: Agreed. Unfortunately our politicians respond to “immediate gratification” versus doing long term planning. ie the state’s immigration law.

retired early

January 5th, 2012
10:38 am

Don’t tread

A typical “Christian” response that says you are an arrogant, self serving, self centered and closed minded bigot. If people like you populate “heaven”, then it would be “Hell” for people like me.

carlosgvv

January 5th, 2012
11:14 am

Deal, like all conservative politicians, has a “what’s good for General Motors is good for the country” kind of mentality. So, look for corporate welfare to be at the top of the list and the welfare of working Georgians to be at the bottom.

ByteMe

January 5th, 2012
11:14 am

ByteMe @ 7:34: Yep, that’s me: the corporatist who…doesn’t want to give any money directly to any company

Nah, you just want to give it to a VC to do it for you. Disingenuous much?

K4

January 5th, 2012
11:17 am

Our State legislature and Gov. Deal ran off thousands of workers (yes, many were illegal I am sure… but who is replacing them? No one.) which cost our agricultural businesses $10 million in losses… and you expect them to fix this State’s economic woes? Please… they are knee jerk reactionaries who are more fixated on pleasing their extremist right wing base than they are fixing anything. Because they know if they placate the far right, their cushy jobs are secure.

UGA 1999

January 5th, 2012
11:25 am

Good morning all.

UGA 1999

January 5th, 2012
11:26 am

carlos….If GM has gone under. How many Americans would have lost their jobs?

Road Scholar

January 5th, 2012
11:39 am

UGA1999: I don’t have an answer, but also include all the jobs that would have been lost for suppliers, transportation (got to get the cars to the market) , advertising, etc. as well as restaurants, food stores, etc. “Just in time” warehousing has decentralized the effect from just the GM plant. Also, what would the cost have been for unemployment, food statmps, etc.

Those that supported their failure were making a knee jerk reaction w/o facts…something many do that can’t see past their noses.

JDW

January 5th, 2012
11:41 am

Welcome back Kyle.

I agree that Georgia’s economic issues are not cyclical, they are in a word systemic. The housing boom you mention was not so much the engine but the reaction to good growth. If people had not been moving into the area there would have been no boom. They were moving in for, mostly, other opportunity.

That opportunity was in large part spawned by the ability to support growth and occurred in spite of ongoing educational issues. Fact is that if you give companies a great workforce, good climate, superior transportation and other infrastructure they will come. As mentioned earlier we have been severely negligent over the last 10 or more years in maintaining our infrastructure. We have significant water/sewer issues, transportation, education and in some cases attitude issues that preclude our competitiveness in many cases. I believe these are the issues that need the most attention.

As for taxes, if low taxes and limited government were the secret sauce we would be thriving. According to the Tax Foundation we already have the eighth best corporate tax environment in the country…not a lot of opportunity there. http://www.taxfoundation.org/files/bp60.pdf

In fact one might postulate that all the time and energy wasted on the subject might be put to better use.

As for the state in the investment business…they already are. Tax incentives are investments by another name and we do that all day long. Access to capital is a big issue for startups and to really compete we need a big-time strategy. I will admit that I am leery of the current crop of Georgia politicians, what with their penchant for cronyism and outright corruption driving that strategy.

UGA 1999

January 5th, 2012
11:46 am

Road…..that was exactly my point.

td

January 5th, 2012
11:54 am

The Anti-Wooten

January 5th, 2012
9:56 am
On another topic, Kyle you lied yesterday in saying that Santorum didn’t make his statement about black people. Not that I’m surprised.

Go watch the Bill O’reilly interview with Santorum last night. This issue was discussed and he explained what happened. He also talked about how he brought historically black college leaders every year to DC and used his influence and lobbied for them.

You my friend are plan and simple a race baiter.

td

January 5th, 2012
12:12 pm

Road Scholar

January 5th, 2012
11:39 am

That is a false argument. GM would have filed for chapter 11 protection the same way that Delta did. Its debts would have been consolidated and the Union workers would have had to make major concessions. The Government (Obama) stepped in to protect the union under the pretense of “saving the company”. The whole bailout was nothing more then the Obama administration payback to the unions for getting him elected. GM would probably be in a more secure place to today if I had filed the chapter 11. Now the union is the majority stockholder in GM and all the original investors (401 k accounts, teacher and public sector retirement plans) have lost all their investments.

UGA 1999

January 5th, 2012
12:21 pm

td……GM DID FILE BANKRUPTCY!!!

I agree with you on most things but in 2009 GM filed for bankruptcy.

yuzeyurbrane

January 5th, 2012
12:26 pm

Kyle, you are an expert in Republican politics but a novice in economic analysis. Stick to your strengths. The economic proposals you endorse, especially the so-called tax “reform”, would either have no material impact, if not an outright negative impact, on Georgia’s dismal economic performance. Tell me why lower corporate taxes would work when Georgia already has 1 of the lowest? Tell me how sucking $500 million out of the pockets of low and middle income Georgians with a renewed sales tax on groceries would increase consumer demand and spur the economy? This column is truly one of the . . . no, I can’t think of a better word. . . stupidest you have ever written.

UGA 1999

January 5th, 2012
12:33 pm

yuzeybrane……I can answer all of your questions. I work closely with the Gwinnett Chamber of Commerce (as well as Clarke County and Hall County). Over the past couple of years Gwinnett and Hall Counties have seen a surge in the number of large corporations moving their headquarter facilities to these areas. There are many factors involved in corporation making the decision to move to Georgia. However when meeting with the CEO/CFO’s they all say their number one reason was low taxation.

This in turn creates jobs for Georgians as well as increases tax revenues overall into the Georgia Government. It is a win-win.

So you are saying that only the middle class and lower class buy groceries? WOW!

Mary Elizabeth

January 5th, 2012
1:22 pm

“The best way is to put a small portion of funds that are going to be invested anyway — say, 1 percent of the state pension fund’s portfolio — into a top-shelf VC or private equity fund, with the stipulation that the fund open an office in Georgia.”
—————————————————————————-

Kyle, I know the trend nationally is to take money from state employees’ pension funds for VC investments, but is there not a better way for the state to get money for Venture Capital start up businesses, without taking money from retirees’ pension funds, into which retirees had paid all of their working lives?

If a law such as this is passed in Georgia, I hope that there will, also, be a provision within that law that will state: “If 1% is taken from state employees’ pension funds for VC start up businesses, and if those VC businesses were to fail, then no further money will ever be taken from state retirees’ pension funds because VC risky venture has been shown to be a failed risk.” Those pension funds were meant for retirees in their old age, when they are no longer able to work.

Surely, as large as the state’s monetary resources are, a little creative exploration will find start up money for VC business endeavors through means other than state retirees’ pension money.

td

January 5th, 2012
1:27 pm

UGA 1999

January 5th, 2012
12:21 pm

You are correct but they did not complete the process because it was circumvented by the US government and the US government handled the transition. You can technically call it a bankruptcy but it really was not.

JDW

January 5th, 2012
3:09 pm

@TD…”You are correct but they did not complete the process because it was circumvented by the US government and the US government handled the transition. You can technically call it a bankruptcy but it really was not”

That’s just plain ignorant…GM completed the bankruptcy process on July 10. Nothing was circumvented and the government did not handle the transaction. The government made an investment that provided capital and in return was granted stock in the new company. The losses by the prior stakeholders were exactly the same as the would have been if KKR had provided the investment capital.

http://www.washingtonpost.com/wp-dyn/content/article/2009/07/10/AR2009071001473.html

Hillbilly D

January 5th, 2012
5:24 pm

Sounds to me like somebody will make a lot of money out of all this. It won’t be the taxpayers, though.

Dumb and Dumber

January 5th, 2012
7:33 pm

Here is why you should never hire a UGA Grad “UGA 1999″ wrote:

“So you are saying that only the middle class and lower class buy groceries?”

No read the post right above that. It says nothing of the sort. UGA 1999 = another failed student.

Don’t hire UGA grads — where I work we prefer Georgia State, Georgia Southern, Emory, Oglethorpe, Morehouse, etc., anything but dullards from Athens.

Truth Squad

January 9th, 2012
4:04 pm

Clearly the state needs to diversify it’s economy. We could sure use a push for more high-tech manufacturing and other knowledge-driven industries.

Of course that would also mean bringing in more people with advanced degrees and we know those types vote Republican less than those with just high school diploma or some college in their background.

It’s a shame that our great state has elected people who don’t believe much in science.

hatorade drinkers

January 10th, 2012
1:30 pm

come back and inform me when cooper tire in findlay,OH resumes paying for the city water and sewage services they have been using for free since 2009. then we can talk about going broad on jawja economy.

in case you didn’t know, the city of findlay passed on the $300K bill from cooper tire onto the residents of findlay,OH. the ceo of the company made $4.7m last year. there are hundreds of such deals going on in jawja, and not a word from kyle wanker.