Today in the General Assembly, the House of Representatives voted unanimously to not consider HB530, the Life Sciences Development Act, on the floor and send it to a conference committee. Do not be fooled, this legislation will be considered in the halls of the General Assembly sooner rather than later and will expose North Carolinians to immense financial risk.
The bill will bring the failed policies of Fannie Mae, the giant mortgage securities firm that caused the housing bubble and subsequent burst, to the Tar Heel State. By insuring investors’ against loss, the legislation will socialize risk while privatizing profit and leave taxpayers exposed to as much as $100 million in losses.
The core of the bill allows investors, likely to be large corporations like Goldman Sachs, to pour money into a government entity with a statutory guarantee that the loan will be repaid plus a set rate of return, no matter whether the investment fails, via either direct payments or tax credits.
Supporters of the legislation will point to the provision in the bill saying that the financial obligations of the government entity making the loan are not obligations of the state but of the entity itself. In other words, supporters will claim that taxpayers, because of this provision, are not on the hook. However, the bill states that should the government entity not be able to pay its investors their guaranteed return, tax credits will be granted in lieu in the amount of the payments.
These tax credits seem innocuous enough but they represent lost tax revenue for the state thus leaving taxpayers on the hook to pay off failed investments made by private entities. Profits from the investments will be paid to private entities while the risk is socialized and failure paid for by taxpayers.
Furthermore, the government entity will make loans the private creditors refuse to make, that is why the bill was drafted, thus rendering the investments at an increased risk of failure. When experts at credit institutions who evaluate risk for a living decide not to invest they do so for a reason and it is likely a smart idea that the taxpayers of North Carolina not risk their resources either.
This type of underhanded socialism represents a dangerous step for North Carolina. Should this legislation become a reality, the state of North Carolina could become, by proxy, the proud owners of the life sciences industry in the state. HB530 represents a significant shift towards the left and away from limited government and free market capitalism.