Can We Please Stop Saying “We Told You So”?
BY JUSTIN OWEN
Beacon sounded the alarm way back when, arguing that TNInvestco was a risky deal for taxpayers and one that government had no business making.
Beacon often warns government officials when they’re about to step in a mess. Sometimes they listen, other times, not so much. The legislature’s approval of former Gov. Phil Bredesen’s TNInvestco program back in 2009 and 2010 is unfortunately the latter.
TNInvestco is a scheme that worked as follows:
- The state sold $200 million in tax credits to insurance companies. Because no one would pay $1 for a $1 tax credit (they’d just pay the tax), the state sold these credits at a discount. So those insurance companies paid a total of $149 million to receive $200 million in tax credits, causing the state to lose $51 million right off the bat.
- The state then gave that $149 million to 10 investment companies to be used to invest in start-ups. The firms were chosen by Bredesen’s former commissioner of revenue and commissioner of economic and community development behind closed doors using criteria they refused to publicly release.
- Those investment companies took a $29 million slice off the top to manage the funds and cover their costs. They then selected 181 different companies to receive the remaining $117 million, barely half the original amount allocated by the legislature.
- When the start-ups are sold, merge with other companies, or are otherwise liquidated, any profit is split 50/50 between the investment company and the state.
According to a new Comptroller audit, a paltry $10.8 million in profit has resulted from the program in its first six years, leaving taxpayers with just $5.4 million in “returns” on their “investment.” That’s a whopping 2% of what they put in. I couldn’t find any sane person who would take this deal, yet that’s what we’ve just done in Tennessee.
The reason we did it is because, as Milton Friedman said, when I spend someone else’s money on someone else, I’m not concerned about the result I get. Politicians spent your dollar on yet another person, and they got two pennies back. Let that sink in for a minute.
Even the rosiest picture shows TNInvestco has been a raw deal for taxpayers. According to the Department of Economic and Community Development, which oversees the program, TNInvestco had created 1,307 jobs as of 2014. That amounts to taxpayers paying $153,000 per job. The only problem with these numbers? They’re wrong. The department overstated the number of jobs created by more than double. That’s right, the Comptroller’s audit revealed that the program has in reality created just 595 jobs, resulting in taxpayers forking over a staggering $336,000 per job.
Beacon sounded the alarm way back when, arguing that TNInvestco was a risky deal for taxpayers and one that government had no business making. I hate to say we feel vindicated, because that’s a lot of money that taxpayers could have kept in their own pockets and used to pay their mortgage, buy groceries…or maybe even launch a start-up. Go figure.
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