By Ray Downs
By Ray Downs
By Olivia LaVecchia
By Lindsay Toler
By Jon Gitchoff
By Lindsay Toler
By Lindsay Toler
By Lindsay Toler
Which would you rather see the state of Missouri give greater priority?
(A) A new program using tax credits to provide seed capital to startup businesses that otherwise might not get off the ground.
(B) An existing program to give large companies tax credits for increasing their research-and-development (R&D) efforts, which otherwise would have to be funded from those companies' profits.
Let's see. Venture capital or corporate welfare? Create new high-tech jobs or protect old high-octane profits?
Sure, innovative small companies are the future of the world economy, and the jobs those companies provide are the future of places like St. Louis. Sure, ours is fast becoming an outpost town for giant corporations -- as opposed to a headquarters town -- and thus can no longer count on manufacturing employment to assure long-term economic health.
And, sure, Missouri was outspent by neighboring Illinois in venture-capital-fund commitments by the slight margin of $460 million to zero in 1997. (This according to the National Venture Capital Association annual report.)
But, hey, what good is state government if it can't siphon taxpayer dollars to the treasuries of large corporations as a token of the public's gratitude for them not moving to another state? You would go for corporate welfare over venture capital any day, wouldn't you?
Well, your state government did, just last week. A proposal to set up a $10 million-per-year venture-capital fund died in the Senate when Monsanto and other large corporations wouldn't agree to "allow" the state to cut in half the R&D program (also $10 million per year) with which it annually reduces its tax bill.
Afterward -- and after Boeing announced 7,000 layoffs in the state -- the Legislature gave the state economic-development department half of what it asked for and set up a $5 million-per-year venture-capital fund.
But, of course, it left the sacrosanct R&D program untouched.
Final score: $10 million for corporate welfare; $5 million for venture capital. At least it wasn't a shutout.
All the high-school civics teachers in the area ought to use this as a case study in power politics. The lesson: You can have all the innovation and good intentions in the world, but taking back a tax break from a giant corporation is like taking raw meat from a growling dog.
Look no further than our Monsanto-friendly daily newspaper for an insight into just how effectively the big dog growled:
"Proposal to provide money to start-up businesses falls through," the Post-Dispatch headlined its back-in-the-B-section coverage of the issue. "Deal with Monsanto to fund the plan can't be reached."
Wait a minute. Why should state government have had to make a "deal" with Monsanto or any other corporation to shift tax credits from one economic-development program to another?
It's bad enough to hand out corporate welfare to companies that don't need it -- presumably because "everyone else is doing it" -- but it doesn't stop with the handouts. Now, it turns out, the Monsantos of the world essentially own these programs, and their state benefactors must have their blessing before daring to shift resources to another purpose.
That, of course, is not exactly how Monsanto and its defenders would characterize it. Dick Fleming, president of the Regional Commerce and Growth Association (RCGA) said the company "bent over backwards" to make the startup-capital program work and that it was not to blame for disagreements that ultimately killed legislation that would have cut the R&D program.
On the other side, Tom Sullivan, policy-development director for the state Department of Economic Development, said, "It became clear that various lobbyists had contacted legislators and we weren't going to get the bill passed. These people would not accept cuts in the (R&D) program."
What everyone agrees on is that a broad coalition of business and academic groups (including the RCGA, which considered the set-up program a top priority) were squarely behind a four-year, $40 million venture-capital program. Then came the bad news from state budget officials, who maintained that it was twice as much as the state could afford.
Joe Driskill, state economic-development director, told me Tuesday he was "forced to make a decision on the economic margin."
"I needed to find $20 million over the next four years, which is why I made the decision to cut the (R&D) program in half," Driskill said. "I had hoped to make the case to (the large corporations) that this would help a lot of startup businesses that arguably could have a very positive impact in the St. Louis area and across the state, and therefore would help the companies themselves. Obviously, they didn't agree."
The big boys apparently were going along with cutting the R&D program, but only if they were allowed to carry credits forward 15 years and, more important, if they were able to receive cash payments for 85 percent of the tax credits if those credits were more than the companies owed the state.
Cash payments? Now that's corporate welfare. And that's where the "deal" fell apart, leaving the R&D program safely intact.
Driskill still defends the R&D program because, he says, "it's an incentive to perform incrementally larger research efforts in Missouri rather than somewhere else." He adds that it is only available to companies that increase their research and only offsets part of the cost of that spending.
Fleming is just as enthusiastic, arguing that "the stimulation of research and development by the Monsantos and Boeings of the world leads very directly to the setup of these smaller entrepreneurial companies. The large and small companies share common interests here."
Well, pardon my free-market capitalism, but why are the taxpayers of Missouri or other states subsidizing research costs that are an integral part of any high-tech company's budget? Are the Monsantos and Boeings willing to donate stock to the government in return?
Here's a telling statistic: In fiscal year 1998, Missouri handed out $16.8 million in "Qualified Research Tax Credits" (a.k.a. corporate welfare) to 63 companies. But just three of those companies -- Monsanto, Texas-based Southwestern Bell and now-Washington-based McDonnell Douglas -- received a staggering 69 percent of that total.
Yes, three of the nation's largest companies paid $11.46 million less than what they legitimately owed in Missouri state taxes last year because Missouri was so grateful that they conducted additional research here. And that doesn't count the $25 million the state chipped in, quite gleefully, to help Monsanto and its partners in the Danforth Plant Science Center.
But don't blame the companies: They don't pass the legislation; they just enjoy the welfare handouts. And who knows -- now that there's "early-stage capital" funds available for baby businesses, they'll probably be knocking on Joe Driskill's door again.