Investments ban gets new scrutiny from state group
Posted on Wednesday, August 13, 2008
URL: http://www.nwanews.com/adg/News/234124/
A task force charged with rethinking the state’s economic-development strategies considered on Tuesday the idea of removing the state’s constitutional prohibition against using taxpayer money to invest in private companies.
The constitutional ban of state equity investments in private enterprise has its roots in 19 th-century abuses by railroad companies and Northern “carpetbaggers” who used state money and power to enrich themselves, said Watt Gregory, a Little Rock attorney who is working on a draft amendment to allow for state investment in technology companies.
The consequence then was a state unable to service its bond debt. But today’s state government is more publicly accountable, said Gregory, a member of Accelerate Arkansas, a statewide group of business and education leaders whose goal is to achieve parity with the U. S. average percapita income by 2020.
Gregory told the Task Force for the 21 st Century Economy that allowing the Arkansas Economic Development Commission and other state development entities to invest in small start-up “knowledge-based” businesses would pay off with high-paying jobs unlikely to be moved offshore.
The Legislature would define “technology companies,” Gregory said.
Provisions in the state constitution — Sections 5 and 7 in Article 12 — that prohibit state equity investments are archaic and should be repealed, Gregory said.
He said that state-economic development levers need to be “more nimble.”
The draft amendment should be ready for review within a couple of weeks, Gregory said. If the Legislature approves it next year, it could be on the November 2010 general election ballot for voters to decide on, he said.
Allowing the state to invest in technology companies when they’re just starting out and in need of money can help them avoid perishing in the “valley of death” before their scientific investment yields profits, said John Ahlen, president of the Arkansas Science and Technology Authority, a state agency.
In recent years, the state has spent more money on public school education. More attention needs to be paid to research and economic development, Ahlen said.
Given that education levels are closely correlated to economic development, Ahlen said, it’s worth examining if “those expenditures are in balance.”
Although the state can lend private businesses credit, directly investing in new companies by buying stock, for example, would be a better-coordinated way to approach economic development, Gregory said.
Studies have shown a severe shortage of “seed or other risk capital” available in the state, Gregory said.
The 17-member task force was created by the Legislature in 2007 and is required to present a final report to Gov. Mike Beebe and the House and Senate Committees on Agriculture, Forestry and Economic Development by Oct. 31.