Bill: HB 1574
Short Title: Life Sciences Development Act
Date: May 12, 2010
SUMMARY: The NC House is set to take up HB 1574 on the first day of session. This bill would establish an investment vehicle by which investors can provide capital to startup life sciences corporations, but their risk in investing will be guaranteed by taxpayers. The state of North Carolina would guarantee through tax credits that investors would receive a specified rate of return on their capital.
Socializing risk while privatizing profits
- This bill is no different than the mechanism under which Fannie Mae or Freddie Mac operate, where profits are guaranteed to private entities, but the risk is born by taxpayers. Due to the guarantee, investors place much riskier bets. We’ve all seen what happens when this scenario occurs – taxpayers lose.
- HB 1574 would put at stake up to $100 million in guaranteed tax credits to investors. What happens if these companies fail and the government-assured rate of return isn’t achieved? Taxpayers will have to bailout the entity to pay off private investment bankers, venture capitalists and other investors.
Not Financially Viable
- If these companies need this type of guaranteed investment vehicle from government, it means they are not financially viable entities and have not been able to secure funding from private sources. If banks and the smartest and brightest investors in the world wouldn’t put their money into these companies, why should taxpayers? These companies are so risky that not one member of the General Assembly would put their money at stake, but taxpayers are being asked to do so.
Government ownership of companies
- This bill also takes North Carolina down the slippery slope of government ownership of private companies. In exchange for the guaranteed tax credits issued to investors, the government entity will be issued stock warrants (an ownership stake) in the company.