Taxpayers to Subsidize Risks of Venture Capitalists

As the Republican-led Pennsylvania General Assembly considers a “compromise” version of Gov. Ed Rendell’s so-called “economic stimulus” package, The Commonwealth Foundation declared it to be another step backward for the Commonwealth’s already-strapped taxpayers and struggling economy.

“Things have gotten so bad in Pennsylvania that our elected officials are choosing to subsidize venture capitalists with taxpayer money,” said Commonwealth Foundation Senior Policy Analyst Grant Gulibon. “Instead of addressing the real problems hindering the Commonwealth’s economic climate, the General Assembly and governor are going to continue throwing good taxpayer money after bad to the tune of another billion dollars.”

Included in the Republicanized version of the Rendell plan is $250 million in “guarantees to venture capital partnerships for investments” and $60 million in “loans to venture capital partnerships for investment in Pennsylvania-related companies.”

“Now think about this for a minute,” said Gulibon. “Gov. Rendell and the General Assembly are actually proposing that taxpayers provide venture capital to venture capital companies! In other words, they want to force Pennsylvania taxpayers to take on risks that no private business apparently will. Looks like the slot machine plans aren’t the only gambling legislation moving forward in Pennsylvania.

In addition to taxpayers subsidizing the risks of venture capitalists, Gulibon noted that the bulk of the “economic stimulus” plan continues and amplifies the same failed approach to economic development that Pennsylvania has used over the past decade. From 1993 to 2003, the Department of Community and Economic Development (and its predecessors) redistributed more than $7.4 billion of taxpayer money to, in part, subsidize certain businesses (like the soon-to-be publicly traded Cabela’s outdoor store chain, which received $27 million in state and local taxpayer subsidies for their new Berks County facility). Yet the Commonwealth’s economic results have been at the opposite end of the spectrum in job and income growth from other states not heavily involved in such redistributionist schemes.

“Pennsylvania has led the nation in the use of taxpayer money for ‘EcoDevo,’” noted Gulibon. In 1996, for example, Pennsylvania alone accounted for one-sixth of all state-based economic development spending in the nation, and as recently as 1998, Pennsylvania outpaced every other state in terms of state-based economic development funding. And by 2000, according to the National Association of State Development Agencies, Pennsylvania ranked 5th overall in economic development spending from all sources.

“Pennsylvania’s business climate has not improved because it is characterized by high taxes on income and capital, still-onerous regulations, and the lack of a voluntary union law,” said Gulibon. “Even with these kinds of so-called ‘investments’ of taxpayer money in corporate welfare, Pennsylvania’s bad economic policy will continue to ‘outFORCE’ our job creators and young entrepreneurs to more hospitable states.”

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Grant R. Gulibon is senior policy analyst with the Commonwealth Foundation (, an independent public policy research and educational institute based in Harrisburg, PA. Permission is hereby granted to reprint in whole or in part, provided the author and his affiliation are cited.