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Friday, August 22, 2014

Government handout critic Marilinda Garcia authored NH law handing out federal money to private firms

Republican congressional candidate Marilinda Garcia of Salem is an unapologetic, free-market conservative who says it’s not government’s role to “pick winners and losers” and says she abhors the “crony capitalism” that marked some federal job incentive programs.

“Outside this important but limited role, though, government needs to get out of the way,” Garcia wrote in her jobs plan posted on the campaign’s website. ...

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Republican congressional candidate Marilinda Garcia of Salem is an unapologetic, free-market conservative who says it’s not government’s role to “pick winners and losers” and says she abhors the “crony capitalism” that marked some federal job incentive programs.

“Outside this important but limited role, though, government needs to get out of the way,” Garcia wrote in her jobs plan posted on the campaign’s website.

“Prosperity, growth and jobs come from the private sector, not government. Government ‘stimulus’ spending, tax credits and so-called ‘investments’ in politically-connected companies and industries distort the market and impose costs on the many to the benefit of the few.”

But one of Garcia’s signature accomplishments in the New Hampshire Legislature did just that – directing taxpayer money to private firms – by leveraging more than $4.5 million in federal grants to create a state-approved, venture capital fund that then invested in select private companies.

Unlike any New Hampshire program before it, federal taxpayers remain on the hook for the first 15 percent of losses from these investments.

That’s in contrast to state loan
guarantees or bonds to private firms where state taxpayers are fully insulated from losses right behind lending institutions.

Nearly three years after it began, the fund’s investment group is still trying to raise enough private capital, and no one in state government can quantify how many jobs the program has created.

Meanwhile, all documents regarding the companies that got federal money backing and the decision-making behind why they got picked are claimed to be private and not subject to the state’s Right-to-Know Law.

A Telegraph investigation uncovered that five of the seven firms the Granite Fund has placed government money into have executives who made campaign donations to President Obama, U.S. Sen. Jeanne Shaheen and other prominent Democrats from New England.

During a telephone interview, Garcia stressed that creation of the state’s Innovation Job Growth Program in 2011 was to use federal money, which if turned down, merely would have gone to spur venture capital investment in some other state.

“This is an exact example of what a failure it was, there was money floating around and we were trying to make sure it was something of value here and even still in this pragmatic way, we were hoping for it to be a very useful thing,” Garcia said. “Obviously, it has fallen far astray of what it was supposed to do, I guess. It is really unfortunate and I am glad it has no affect on New Hampshire taxpayers except for the what came from the federal government.”

Republican primary opponent Gary Lambert of Nashua said the program was a state experiment into what’s wrong with most Washington programs that try to generate private investment.

“To me, it is crony capitalism. They took this government money and put it on some risky companies with no accountability,” Lambert said.

“Government shouldn’t be picking winners and losers.”

Support until the end

At the time Garcia authored her bill (HB 605) that became law in 2011, Lambert was in the state Senate and that body approved every version of it on a voice vote.

“The only recollection I have is I remember not liking it,” Lambert said. “I don’t remember how it came out; maybe myself and others expressed our opposition in caucus and that’s why it ended up going through on a voice vote.”

Garcia’s legislation sailed through the GOP-dominated House of Representatives until the very end of the process. While House GOP leaders were all on board, 101 House members opposed its final passage including several who chaired committees under then-Speaker William O’Brien.

“I remember thinking this just wasn’t state government’s role to be getting so heavily involved in this activity,” said ex-Rep. Will Smith, R-New Castle.

Not a single Democrat in the Legislature voted against the bill and Gov. John Lynch signed it into law.

Leaders from the venture capital industry, the Business Finance Authority and other quasi-public groups all promoted this as the solution to a growing problem in New Hampshire – a lack of early seed capital.

Mark Galvin is managing director of the New England Innovation Center in Portsmouth and played a major hand in writing the law.

“All viable research confirms it’s new and small companies that create the jobs in this innovation economy and even as some die, new and better products emerge which then create the next wave of growth,” Galvin said.

“When Boston venture capital dried up in the last decade, money literally stopped coming to New Hampshire for early stage stuff.”

Enter the federal, State Small Business Credit Initiative of 2010, one of several small, targeted bills offering private company support that moved forward after there was no support on Capitol Hill for a second stimulus.

Shaheen was instrumental in getting $13 million in incentives including these grants for any state-created venture capital fund.

Full autonomy

Garcia’s law put the state Business Finance Authority in charge of monitoring the program and selecting the venture capital group that would decide how to dispense the federal money.

Jack Donovan is the longtime executive director of the BFA and said the program has been a learning experience for a state that has not ever been involved in directing venture capital investment.

“My goal would be to have something self-sustaining and extricate the state from it,” Donovan said.

“We would like to show this model works and get ourselves out of it.”

The BFA chose Borealis Ventures of Portsmouth and Hanover to receive the federal money and choose the companies to invest in.

Executive Jesse Devitte told The Telegraph his group has used $4.5 million to invest in seven companies and still intends to identify five more companies before all its initial work is done by the end of October.

As for private capital, Devitte said it’s reached about $25 million in commitments and by year’s end believes it will attract $30 million.

“Our primary investment target is potential, high growth technology companies where there is lots of intellectual property there which tend to be creators of high value jobs,” Devitte said.

“We primarily have done early stage start ups.”

As for job growth, Devitte said two of the companies, Dyn and Newforma, each added at least 50 additional jobs in the state over the past six months.

“The highest risk is those first 18 months as new companies try to put together a portfolio of customers to make their dream go. We are on the other side of that,” Devitte said. “It’s early and you can’t be sure for years, but we are optimistic about all of these.”

Donovan stressed none of the companies have suffered losses which would have caused the loss of federal money invested in those firms.

“What’s different about this program has been there is high upside if the investments pay off but high, downside risk on our end,” Donovan said.

The law broadly gave the investment fund full autonomy to direct the dollars which would explain why Donovan at BFA knew far less than Devitte about what’s actually gone out.

Donovan said nine companies had already been chosen and more than $6 million in federal grants went out in support of the program.

Devitte said it’s seven firms and not much at all in federal money beyond that initial, $4.5 million stake.

Political connections

As for political connections with those high up in these selected firms, there are some notable examples:

n Avitide Inc.: Co-Founder and Chairman Tillman Gerngross was a maximum donor to Obama’s 2008 primary and general election campaigns and to his re-election in 2012; he also gave $4,800 to Paul Hodes in his bid for the U.S. Senate in 2010.

n Dyn: Chief Operating Officer Gray Chynoweth is a former president of New Hampshire Young Democrats and national co-chair of Hillblazers for Hillary Clinton for President in 2008.

Chynoweth played the part of then-U.S. Sen. John E. Sununu in a 2008 Shaheen campaign television ad that mocked the GOP incumbent.

After leaving office as governor, Democrat John Lynch joined Dyn’s board of directors.

n Newforma Inc.: Executive Vice President Dave Plunkett gave $250 to Obama’s campaign in 2012 and since 2007 board member Joseph Esposito has donated seven times to Obama’s campaigns totaling $2,000.

And Devitte was a prominent, Republican fund raiser, a central, financial figure in Craig Benson’s successful run for governor in 2002.

He’s made no donations in five years, the last $4,400 to now-Sen. Kelly Ayotte, R-N.H.

n A chief executive and board chairman with one of the chosen firms, SustainX, Thomas Zarella, gave $2,500 to the re-election campaign of MA Sen. Scott Brown in 2012.

At the same time, two of SustainX’s other board members donated heavily to Massachusetts Democrats in the past decade including to Mass. Sen. Ed Markey and for John Kerry’s run for President in 2004.

Galvin said he wasn’t surprised that executives and board members with these firms overwhelmingly preferred to donate to Democrats.

“You’re talking for the most part about venture capital guys and women out of the Boston market who are either liberal in their beliefs or they just live in a state where Democrats dominate,” Galvin said.

Garcia’s campaign got a big lift last month when the fiscally-conservative, Club for Growth’s political action committee, made a six-figure TV advertising buy promoting her candidacy and the PAC endorsed her.

But the Club for Growth has for years railed against similar government incentives at the federal and state levels, which are said to spur private job investments.

In 2012, the group’s chairman wrote in a newspaper op-ed, “Why is taxpayer-backed money being wasted on companies that should be able to seek capital from private lending institutions? And if banks decide against providing some of these companies with loans, shouldn’t that tell us something?”

But that doesn’t mean the group is dumping their candidate. Despite Garcia’s authorship of this law, Garcia is still a far better candidate than her best known GOP opponent, Gary Lambert, said Barney Keller, the group’s communications director.

“Marilinda Garcia has a long record of protecting taxpayers and fighting for economic freedom. She’s currently being attacked by Gary Lambert for supporting pro-growth corporate tax reform that would eliminate special-interest loopholes and lower rates,” Keller said.

“We probably just wouldn’t agree with her on this bill. That’s why only one or two members of Congress get a 100 percent on our congressional scorecard every year – because almost nobody’s perfect.”

Former state Rep. Jim Lawrence of Hudson is also seeking the GOP nomination.

Kevin Landrigan can reached at 321-7040 or klandrigan@nashua Also, follow Landrigan on Twitter (@Klandrigan).