One of the most popular programs on television today is also one of the most educational regarding the risky nature of venture capital investing. The show is called Shark Tank, and involves a very simple yet ingenious format where five wealthy investors listen to business proposals by aspiring entrepreneurs and then decide whether or not to invest their own money into the venture.
Now what if I told you that Arizona had its own version of the Shark Tank, except that in our version it was bureaucrats that determined which ventures to support and then gave tax credits to “qualified” investors? We do, except ours is called the Angel Investment Tax Credit Program. Under our version, wealthy investors apply to receive tax credits for making investments into “qualified” small business, as determined by the Arizona Commerce Authority (ACA). Since the tax credits go to the investor and not to the entrepreneur, the investor benefits regardless if the business succeeds or not.
Subsidizing investor risk is a really bad deal for taxpayers, but that has not stopped advocates from introducing HB 2011, legislation that will greatly expand the size of the Angel Investment program. The main argument in favor of expansion is that good ideas have a hard time finding investors and thus need the extra incentive. Often proponents will try to point to Angel Investment “success stories” where a qualified business has flourished after receiving an influx of venture capital.
Upon closer examination none of these arguments hold merit. The reality is that if a good idea exists, it will attract venture capital regardless of any tax credits provided by taxpayers. This is nothing more than ‘found’ money for the investor.
Arizona taxpayers subsidizing the investment risk of good ideas is the best case scenario for the program. Then there is the worst case scenario—tax credits flowing to investors who put money into bad ideas that should have never made it out of the starting block. These could be proposals that initially appeared be a good investment but over time failed due to poor strategy, management or implementation. Or taxpayers could be subsidizing the worst pitches in Shark Tank history—that is up to the ACA to decide.
It is simply not true that wealthy investors need additional taxpayer assistance or that the government is better at determining “qualified” venture capital investments than the private sector. Additionally, as Shark Tank has proven, there are already private sector solutions for attracting venture capital. Arizona should get out of the venture capital business and reject HB 2011.
The taxpayers of the City of Phoenix – proud owners of a failing hotel, $1.5 billion in deficits over the next two years, and $3 billion in unfunded pension debt – are likely to see their sales tax nearly doubled to pay for $30 billion in transportation projects that are already losing money.
You read that right.
Phoenix’s current transportation tax – Transit 2000 – will expire in five years, and the Phoenix City Council is preparing to nearly double it – from .4% to .75% – to raise $30 billion for a hodgepodge of projects that the city neither needs nor can afford in the first place. What’s more, the Council is being asked to do away with any pretense of making the new taxes temporary or subject to review. They will simply make them permanent.
Keep in mind that Arizona still has one of the highest sales tax burdens in the nation, even after letting the 2010 sales tax hike expire.
However, the bulk of the new taxes would be spent on the further expansion and maintenance of light rail. In fact Phoenix mayor Greg Stanton has plans to triple the size of the system. As we approach the ten-year anniversary of breaking ground for light rail, it’s worth noting that it has never, ever operated in the black. Instead it’s operating losses amount to tens of millions each year, which the City of Phoenix has to absorb. For example, Phoenix spent roughly $22 million to operate light rail last year, but only recovered $8 million.
So – drowning in debt, facing over $1 billion in new deficits, and faced with the reality that taxpayers spent $1.4 billion to build a slow moving trolley that loses $14 million a year – the Phoenix City Council is poised to double your sales taxes to triple it. All while police and fire continue to be dangerously underfunded.
Don’t let them get away with it. We encourage all Phoenix residents to call their councilmember, write letters to the editor, and show up to the City Council for the debate over this irresponsible tax hike – and let your voice be heard.
Arizona is in a difficult budget situation. The projected deficit is close to a billion dollars, and revenue and growth projections remain anemic. In response to these financial difficulties, Governor Ducey has proposed a responsible, sound fiscal plan to balance our budget. There is still work to be done, but Ducey’s budget blueprint has given lawmakers a good place to start.
Then along comes a bill that is completely oblivious to all of this, proposing to spend billions of dollars the state doesn’t have. It’s OK, the legislator argues, it’s not really spending – it’s an “investment” that will create jobs and generate revenue for the state.
That bill is House Bill 2033, sponsored by Rep. Bob Robson. HB 2033 proposes to spend over $2 billion on public university research facilities over the next 30 years–$68 million in FY 2017-18 and $72.8 million per year for through FY 2047-48. Of course successful private universities like Grand Canyon University, which actually pay state income and property taxes while still keeping tuition low, won’t see a dime of it. So not only do we spend billions, but we pick winners and losers in the process.
Some lawmakers will never realize that you can’t spend your way out of fiscal crisis. More deficit spending only creates more debt, and the rate of return on all these investments the state couldn’t afford in the first place turn out to be far less than promised. It has happened over and over again, and is a big reason why Arizona is now on its second major budget crisis in less than five years.
Nevertheless, for those familiar with the failure of President Obama’s 2009 stimulus package, HB 2033 should feel like déjà vu. After all, “this is a jobs bill,” Robson claimed. No word on whether those jobs are “shovel-ready.”
If there is truly a need for capital improvements in higher education, they should have no trouble raising the funds from the private sector and alumni to pay for it. But to propose spending $2 billion of taxpayers’ money, right in the middle of a budget crisis, is simply unwise. Lawmakers need to reject this proposed “investment” and focus on the real issue, getting our fiscal house in order.