JOHN HOOD: It's Time to Nip Venture-Capital Idea in the Bud
Here's such a bad idea that the right response, as Deputy Barney Fife might put it, is to "nip it in the bud."
According to a report in Triangle Business Journal, a group of Raleigh-based nonprofits and lobbyists skilled at securing state tax dollars for their various economic-development schemes have formed a coalition to encourage State Treasurer Richard Moore to use a portion of the $540 million in escheats funds under his jurisdiction to invest in start-up companies in North Carolina.
Moore -- who, other than hailing from rural North Carolina, is about as far from Don Knotts' immortal character as is imaginable -- should in classic Barney fashion draw in a big breath, twist his jaw firmly to the right (of course), and tell these folks that he is not interested in creating a new source of political corruption in our state.
The coalition, the Capital Access Workgroup, includes Gov. Mike Easley's N.C. Department of Commerce, the Roanoke Electric Cooperative, the Neuse River Development Authority, the N.C. Entrepreneurial Association, and state-funded nonprofits such as the N.C. Community Development Initiative and the N.C. Rural Economic Development Center.
Some of these operations are already engaged in the dubious business of securing taxpayer money and doling it out to favored business enterprises, particularly but not exclusively in the eastern part of North Carolina.
A previous model exists, one step removed, in the Golden LEAF Foundation. This is a nominally private charity whose board is politically appointed and which steers public funds (dollars North Carolina state government received from the national tobacco settlement, purportedly to reimburse taxpayers for the public cost of treating smoking-related illness) to for-profit businesses, often those with the most lobbying heft or political ties.
In the past, in other words, Golden LEAF has acted as a piggy bank for the state's political class. It's a model for the new venture-capital idea, but not a positive one.
To such a sordid and inefficacious mess should not be added one penny of North Carolina's escheats money -- meaning funds that have been left in cancelled bank accounts, uncollected insurance refunds, and the like.
Escheats money is not legally available for use subsidizing the business ventures of the politically savvy. By law, the state treasurer is required to make repeated efforts to return the money to their owners, and in the meantime to use earnings from the escheats fund to finance educational scholarships.
Whether it is the owners of the abandoned escheats or the intended scholarship beneficiaries who benefit from the earnings, the responsibility of the state and its elected state treasurer is clear: to maximize return on investment.
Using escheats for "economic development" is inherently in conflict with that responsibility, just as using the retirement funds of teachers and state employees to finance start-up firms in North Carolina would violate the state's contract with them (though some of these same slicksters have advocated that dangerous idea in the past, too).
There may well be attempts to rationalize the proposal, to suggest that escheats owners or students can still benefit as long as the venture-capital funds are well-managed. That's nonsense. Basic financial principles tell us that placing an artificial restriction on where funds can be invested -- in "deserving" businesses in rural North Carolina, for example, but not in "deserving" businesses in South Carolina or Iowa or anywhere else -- must reduce the investment return in the long run.
There is no investment rationale for limiting the use of the funds to our state, no credible argument that only North Carolina entrepreneurs have promising ideas. The rationale is obviously political, and is just as obviously inconsistent with the state's responsibilities. Sam Taylor of the N.C. Entrepreneurial Association revealed what is really driving the coalition's push for Richard Moore to use escheats money for venture capital by telling Triangle Business Journal that Moore "sure has a lot of money over there."
The governor should say no. The state treasurer, who wants to be the next governor, should say no. The General Assembly, if asked, should say no. Nip it in the bud.
John Hood is president of the John Locke Foundation and publisher of CarolinaJournal.com.
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