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Caddo venture capital attempt violates trust of citizens

There’s a problem in logic here: if Shreveport is such a great location for site selection of a business concern, then why is Caddo Parish spending $7.5 million more in taxpayer funds to lure to it a manufacturer rejected elsewhere?

Earlier this year, Elio Motors declared it was coming to Shreveport to build its three-wheeled vehicle, coveting the former General Motors plant in the southwest of the city. The state stated it was in line for hundreds of millions of dollars in incentives when production got rolling, and the Caddo Parish Commission jumped in with $1 million guaranteed up front to back bonds to be issued through the parish government’s subsidiary Industrial Development Board.

This, of course, after the federal government, Michigan, and its city of Pontiac turned down similar overtures over concerns that the concept would not be profitable. The CPC subsequently got the same financial information – which makes a host of questionable assumptions and leaves unanswered questions – and oddly then decided earlier this month, with only Commissioner Stephanie Lynch in opposition, to up the ante.

Elio and real estate investor Stuart Lichter and his corporation were buying the plant from the trust holding it, but needed to make a payment in early September. Indicating that they otherwise would come up short, the CPC became their white knight by having the IDB become the buyer and then leasing back the facility to them. As a result, Lynch has embarked, with the first court hearings set for this week, upon a quixotic quest to sue to stop the sale, which seems doubtful given there is nothing legally prohibiting the parish from making this kind of deal.

But also having little merit appears to be this mystifying decision to commit more of the people’s money to an outfit with a shaky business plan and in the face of common sense. If the concept seems so good as to plunk down public dollars, why hasn’t the startup had success with private sector lenders or venture capitalists? Why was it rejected in Michigan? Why wouldn’t Lichter, who has a history of turning around formerly-used sites, including another GM ex-production facility, become the buyer and lease to Elio?

Parish officials argue that the deal, complicated in that it passes parish money to a subsidiary which then leases to administrators that receive money from Elio with a repayment schedule that can be modified by a determination of jobs created, that some extra land unconnected to the deal is involved along withe the mineral rights, and that the parish anticipates some salvage value to the assets, promises a return commensurate to the risk taken. They point out that the only other interested buyers want the land only, so this is deal is preferable.  However, these miss the point. 

The defining argument here isn’t whether the parish will give itself a chance to flush money down the toilet over a venture with a number of red flags, or that it could knock the ball out of the park in terms of job creation thus tax revenues, or at least in a fashion break even or better. It’s that being a venture capitalist simply is not what government is about. Even though the parish in a sense possibly actually might make money under a lease arrangement, that risk exists that it would not – and as foretold by the negative reaction of other entities to financing the operation, eerily similar to what has unfolded regarding the money-losing Cyber Innovation Center costing Bossier City and Parish taxpayers – makes this kind of deal an inappropriate action of government that violates the trust of citizens.

The commissioners in agreement to this demonstrate they have no clue as to what the proper scope and purpose of government is. Simply, you spend only on the core activities of government (which, by definition, do not make a "profit") and not on what the private sector can properly assess and perform. You do not put taxpayer dollars at any risk in business deals, no matter what the return could be, whether the deal involves buildings, financial derivatives, or sports teams.

Unfortunately, just as in the case of the CIC in Bossier, the CPC appears to have come down with a malady all too common for politicians tempted with money and fueled by hubris. As in Bossier’s case with gambling revenues beginning almost two decades ago, a few years ago the Haynesville Shale boom dropped a significant amount in the coffers of the parish. Despite Caddo’s budget increasing about a quarter since then while most other governments were at standstill positions or less, still the parish has banked away tens of millions of dollars.

At which point politicians tend to become more concerned about vanity than sense. Surrounded by instruments of power and the flattering classes, fueled by excess bucks, it’s tempting to act like a big fish in a small pond and to dispense what is not theirs but only of which they are custodians. Thus, they use government to pick winners and losers and bleat about this being “economic development,” when in fact true attempts to stimulate that would include using these surplus funds to lower taxes parishwide, which will do more to create jobs and increase a tax base than anything to carve out an advantage to a special interest.

Or at least keep the money in reserve and use its earnings in the future to fund appropriate government expenditures and/or to keep tax increases at bay. For the last thing government needs to do is to expend it on an illegitimate purpose and on a dubious scheme, which violates the trust of the people. Now perhaps we know why Shreveport ranked so highly as a site selection location – because of a lack of wisdom by parish commissioners in their willingness to treat public money like Carnival throws when favored entities come calling. Voters need to keep this poor judgment in mind come the next set of Commission elections in 2015.

1 comment:

Anonymous said...

How about when your hero governor ran around touting that new car company in Monroe. His people even helped promote a tax increase in the parish.

Has a car been built yet? V-vehicle it was supposed to be called last time I checked?