Two bills to be considered bright and early by the House Finance Committee Thursday morning beg the question – should government pick winners and losers or allow the free market to work?

Senate Bill 943 increases the tax credits to film companies.  Joe explains there is no best of both worlds for the film industry and the taxpayer in this Spotlight report. 

And another of interest….Senate Bill 580 creates the NC Life Sciences Development Corporation. The LSD Corporation would guarantee returns with state tax credits for investors in selected start-up companies. There is no official estimate what it will cost the state to guarantee the financial health of designated investors in the LSD Corporation.

The Bill:
Senate Bill 580, “N.C Life Science Development Corporation Act,” would create a special loan fund and create a new taxpayer-funded benefit for targeted biotech companies.

The bill creates a new mechanism to provide financing to life science businesses for new and expanded permanent production facilities in North Carolina. It establishes a new 501(c) (3) to administer the fund, the North Carolina Life Science Development Corporation.  Norris Tolson, as the president of the NC Biotech Center, would name the first 9 member Board of Directors.  Tolson and the Secretary of Commerce would serve as chair and vice-chair respectively.  The board would decide how much, when and who gets loans.  The maximum loan would be $30 million.

Equity certificates would be issued to investors. In the event that there will be a shortfall, the designated investor will be issued a tax credit allowed against their franchise tax.  If the tax credit is greater than the taxes owed, a refund is issued. The burden of proving eligibility for a credit and for what amount rests with the taxpayer.

Cost to taxpayers:
There is no official estimate what it will cost the state to guarantee the financial health of designated investors in the LSD Corporation, who the investors are or how much money will be available.

Oversight:
There is very little oversight, accountability or transparency with only a reporting requirement that the Dept of Revenue publish an annual report showing the number of taxpayers who claimed a credit, the amount of each credit and the total cost to the General Fund.

NC Biotechnology Center?s Financial Return on Investments:
Triangle Business Journal reports indicate the Biotech Center has a less than stellar investment record.  In 2005, they lost 41 percent of the value of their investment portfolio over the previous two years. During the same time period, the Dow Jones U.S. Biotechnology Index rose by 26 percent and Standard & Poor?s index rose by 15 percent. In 2007, a $10 million NC Biotechnology Center investment with taxpayer money through a private venture fund was worth only $1.3 million when the fund finally closed down.

Government funding:
Since 1984, the Biotechnology Center has received more than $200 million from North Carolina taxpayers. Undeterred by state budget shortfalls, in 2005 the Center asked for a $6.2 million increase in government money even as the state faced a $1.1 billion deficit.  It receives at least $12 million in annual appropriations from the General Fund.

Other States:
Established in 1984, the NC Biotechnology Center was the first government funded biotech organization in the nation.  At least six other states (Massachusetts, Maryland, Pennsylvania, Washington, Georgia and Missouri) have created some kind of life science centers, with many supported by funds from the Tobacco Settlement Agreement.  

Questions:
1. Given the NC Biotechnology Center?s record with investments, is this a good use of taxpayer money?
2. If there is no appetite to assume the risk of investments in the biotech industry in the private market, why should NC taxpayers take the risk?
3. If funding the biotech industry is a proper role of government, why not set it up under the Golden Leaf Foundation instead of creating a new entity and yet another layer of government?
4. Would you invest your money in this?
5.  Should government pick winners and losers or allow the free market to work?