Public money spent on private business can be a gamble
One year after retiring from Major League Baseball, former Boston Red Sox ace Curt Schilling threw his most daring pitch yet.
As founder and chairman of video game developer 38 Studios, Schilling convinced Rhode Island officials in 2010 to give his company a $75 million loan guarantee in exchange for relocating from Massachusetts.
It was a public-private partnership that was supposed to bring in 450 new jobs and kick start a new industry that Rhode Island could grow. Two years later, the state's taxpayers find themselves on the hook for millions of dollars after 38 Studios filed for Chapter 7 bankruptcy in June.
The spectacular rise and collapse of 38 Studios serves as a cautionary tale about what can go wrong when public money is used to support private enterprise.
It's a lesson that could be significant for states such as Nevada, which has set aside millions in public dollars for new funds that invest in the private sector, in an effort to give its economy a boost while also generating a higher return on investment.
An example is Nevada's Catalyst Fund, a $10 million program created by the Legislature to help with economic development efforts such as company relocation and expansion.
The initiative, and others like it, have received kudos from supporters such as Dave Archer, president and CEO of Nevada's Center for Entrepreneurship and Technology.
"The biggest challenge facing Nevada is that we have very little in (the) way of risk capital," Archer said. Our funding capacity is only a fraction of what our actual funding needs are."
But Occupy Reno member Paul Lenart worries about losing precious public money to the kind of ethical lapses and private-sector shenanigans that led to the housing crisis and near collapse of the financial system.
"I don't expect the dog not to be a dog," Lenart said. "All I can say is, you better have a leash handy."
The risk for such programs becomes evident on closer examination of similar efforts in other states.
Texas, which boasts a large cache of funds for use in economic-development programs, has had its share of public-private fiascos and missteps. Its $440 million Texas Enterprise Fund, which works in a similar way to Nevada's Catalyst Fund, has been criticized for inflating the number of jobs created through the program and has been accused of rewarding companies with ties to Republican Gov. Rick Perry.
In North Carolina, computer company Dell closed its plant near Winston-Salem five years after being awarded a $280 million incentives package in 2004 by state and local governments to lure it to the state. The closure led to the loss of 905 jobs.
In some cases, jobs produced by companies being incentivized do not match expectations, said Thomas Cafcas, a research analyst who tracks Mid-Atlantic and Midwestern states for national policy resource center Good Jobs First.
In designing some of its funds, Nevada has looked to the example of Utah. Of special interest has been the Utah Science Technology and Research initiative, also known as USTAR. Created in 2006 by the Utah Legislature, the program invests in research teams and facilities to create new technologies that can be commercialized into successful businesses. It also provides seed funding to support start-ups.
