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The Nation's Capital Needs CAPCO

March 30, 2009 - Washington Examiner by Ben Dupuy

Imagine you are a 32-year-old employee who works hard every day. Yet, you dream every night about opening your own business to create your own wealth.

In today’s economy, in which our unemployment rate is at a 25-year high of 8.1 percent and Fortune 500 companies have to beg for funds to preserve jobs and stay in business, where can you find startup money to realize your dreams?

It’s a question that’s asked time and time again by those in the District’s entrepreneurial community. Fortunately, there’s an answer. The District’s Certified Capital Company, or CAPCO, Program is an effective public-private partnership that uses tax credits to encourage private capital investments in District-based small businesses.

The District Council launched CAPCO to generate economic development and to grow small businesses. Starting in 2005, it has made financing available to District-based entrepreneurs unable to access capital from traditional sources, such as banks.

Many states have successful CAPCO programs. Nationwide, 26 CAPCO programs have created 21,000 jobs and $6 billion in follow-on investment of private capital.

A flawed report on the District’s CAPCO program was recently released. This report demonstrates a fundamental misunderstanding of the basic mechanics of the program. It failed to acknowledge the program’s current benefits to the District and the businesses that have been funded, as well as the potential for significant long-term economic gain for the District.

It also didn’t include an economic impact study. While on-target in advocating for more oversight and transparency, the misinformation in this report threatens the dreams of District entrepreneurs. Even worse, this report does not give the City Council an accurate picture to make an effective assessment of the program’s benefits.

The report’s biggest mistakes are its analysis of the CAPCO program’s cost to the District so far and the program’s impact on jobs to date. The District’s statutory commitment to the program is $50 million in tax credits spread out over 10 years.

The first portion of tax credits can’t begin to be redeemed until later this year. This report erroneously claims the program has already cost the District $76 million. But the fact is, during the three-year period reviewed in the report, the CAPCO program provided $22 million of private capital investment into District-based small businesses and has, thus far, not cost the District a dime.

In addition, the report ignores the CAPCO program’s efforts to preserve and attract jobs from other jurisdictions. During the three years reviewed, the CAPCO program created and preserved 318 jobs, which is ten times the 31 jobs sensationalized in the report.

Consider, for example, the report’s treatment of Create Hope, an innovative small business that provides support services to non-profits. Private capital investment made available through the CAPCO program allowed Create Hope – which was based in another state – to move over 40 jobs into the District, finance the preservation of those jobs in the District, and significantly contribute to the District’s tax base. The report neglects to credit the CAPCO program with adding these jobs to the District’s economy.

The report also contradicts itself. On one hand, the report makes judgments about the jobs created in the past three years. But it then cites an expert who states, “legislators are advised to ‘expect no measurable impact for at least five years and do nothing to compromise the integrity of the investment process.’”

CAPCO has taken the initiative to commission an independent factual economic impact analysis to be released this week that should show that the District’s entrepreneurial community and the District’s coffers will benefit from the promise of this effective public-private partnership.

Every program has its critics, but when City Council members reconvene on April 3 to focus on the CAPCO program, District entrepreneurs hope they will base their opinion on the facts that the CAPCO program is a strong long-term investment for the District that will only become stronger over time.

Ben Dupuy is president of the Washington, D.C. Coalition for Capital.