QUOTE:
State capitalism is unconstitutional in Maine. Article IV, Section 14 of the Maine State Constitution states “Corporations shall be formed under general laws, and shall not be created through special acts of legislature”. Notwithstanding the Maine State Constitution, state capitalism has expanded, through special acts of legislation, during the last fifteen years with the creation of The Small Enterprise Growth Fund and the more recent “Fund of Funds”. The legislation, which charted these two investment corporations, evades the Constitution by replacing the signifier “corporation” with the signifier “fund”. However, a corporation, by another name, remains a corporation. When a government creates capital investment funds through special acts of legislation, the form of government can fairly be described as “state capitalism”.
There has been no resistance to the growth of state capitalism in Maine. The media reports only glowingly on the jobs created by these newly formulated bureaucracies. The private economy is taxed so that the government can “invest” in the Small Enterprise Growth Fund, but the 10% taxpayer portion of that fund always “rolls over” to reinvest in the fund, while the private investor demands an “exit strategy” in order to realize a profit. This is what I learned and what first caught my attention when I attended a “pitch session” at the Juice conference last fall.
Wherever state capitalism exists, there exists an over-seeing bureaucracy, which picks winners and losers and attempts to execute a design of man’s making over the economy. In Maine, this bureaucracy refers to itself as “the creative economy”. Privately, I refer to it as “The House of Lords”.
Presented here, in chronological order, are the articles that were published in the former Augusta Insider. These articles were not included in the archives when the Augusta Insider “merged” with Pine Tree Politics.
Who Benefits and Who Pays for Maine's Big Government Management of Our Economy?
by mackenzie andersen on 14. Mar, 2010 in Commentary
An Open Letter to Senator David Trahan (R- Waldoboro),
Dear Senator Trahan,
I wrote to you in the past about The Small Enterprise Growth Fund, an investment corporation created by the Maine State legislature for the purpose of attracting high growth venture capitalists to Maine.
At the time I suggested that “the Fund” should “roll over” to invest in the micro-economy, which you thought was a good idea. I am now writing to say that I think it is a terrible idea. It is redundant and wasteful, as it requires an expensive government bureaucracy to select which small businesses in the micro economy will be the beneficiaries. Given Maine’s deficit, it would make more sense to eliminate the taxpayer investment in the Small Enterprise Growth Fund, allowing the micro economy to retain more of their self-generated profits, which is the primary source of capitalization within the micro-economy.
You said the Small Enterprise Growth Fund is one government program that is working quite well. I have heard this before. I read such statements in the Small Enterprise Growth Fund’s email updates, but those statements leave me wanting for more information. Information about The Small Enterprise Growth Fund is difficult to uncover because the legislation that created it states that the SEGF will report to the legislature, bypassing the general public.
I am on the mailing list for the Small Enterprise Growth Fund and The Office of Innovation, The email newsletters read like advertisements and political slogans. I use them as a starting point to uncover the real facts. However I have yet to find the annual report of the Small Enterprise Growth Fund. It may be publicly available, but if so, it is certainly not well publicized- and so fundamental facts such as the identity of the private investors with whom the Maine state taxpayer is in partnership, through the SEGF, remains a mystery. Since the taxpayer portion of the profits always “rolls over to re-invest in the fund, while the private investor demands an “exit strategy” (selling the business), I submit that the tax payer contribution to the Small Enterprise Growth Fund is functioning as a bribe to attract the “high growth” private investor. A “roll over investment” has no “exit strategy”. It just keeps rolling over to reinvest in” the Fund”. The private investor requires an “exit strategy” in order to realize a profit.
Why would the legislation call this partnership “the Fund”? The answer may lie in the Maine State Constitution, Article IV, which describes legislative powers. Section 14 of Article! V states:
Section 14. Corporations, formed under general laws. Corporations shall be formed under general laws, and shall not be created by special Acts of the Legislature, except for municipal purposes, and in cases where the objects of the corporation cannot otherwise be attained; and, however formed, they shall forever be subject to the general laws of the State.
I submit that the formation of The Small Enterprise Growth Fund through an act of legislation, is unconstitutional, – short of the argument that is premised on the belief that the State of Maine cannot attract high growth investors without bribing them. To that end I submit that the recently passed LD1666 is yet another bribe to attract “high growth” capitalization to Maine. This legislation, combined with LD1, provides “tax credits” for investments in Maine businesses that are approved by FAME. Who does it allot these tax credit to? First to government employees who get a credit of 80 % of their investment, and then, a tax credit of 60% of the investment, to private entrepreneurs, who, as stated in the legislation need not be Maine residents paying Maine taxes in order to qualify for a Maine state tax credit. The LD1666 legislation also states that the same 60% tax credit is available to non-profit organizations, which for the purpose of the tax credit will be treated as taxpayers. The reason this needed to be stated is obvious.
The legislation also identifies who is not eligible for this tax credit, and that would be primarily small business owners of the micro-economy who not only invest their “roll over capital funds” created by their self-generated profits, but also their time and energy and soul in their businesses. Also excluded are any persons related to the owner of the business. It is a long standing tradition that one of the primary sources of micro-economy investment are friends and family, and so this legislation, by offering a carrot for investment in businesses favored by our government, thus stacks the deck against the micro-economy, whose resources are already being taxed to fund the sector which our government has pompously designated as “the creative economy”.
LD1666 was submitted by the president of the Senate and Gubernatorial candidate, Libby Mitchell. I am hoping that gubernatorial candidates will emerge that will campaign on reducing the size of our indebted state government by getting the government out of the business of managing our economy and picking and choosing who gets the benefits and who gets taxed to pay for those benefits. I see no guarantee that investments that are lured to Maine through bribes and which demand ‘exit strategies” are actually here for the long term. “High growth” investors have their personal profits in mind when the business is sold, as is the meaning of the “exit strategy”. A high growth investor will sell to the highest bidder. To my knowledge the 10% taxpayer investor has little say about the “exit strategy”, any more then they have easy accsess to the annual report or the identities of the other investors.
I believe that Maine is capable of attracting investors without bribing them and taxing those lower down on the economic scale to pay for it. Can we bring back honor into our system?
I pay attention to the grass roots political movement, which is against big government and to that end, the focus, is on welfare reform. The legislation that created the SEGF is designed to insure that it’s business takes place behind close doors away from the view of the general public. Every one knows about the welfare system but the general public, by design, is left unaware of the goings on in our Maine State governmental business management system. I hope that in the up-coming election season. This will change.
Sincerely,
Susan Mackenzie Andersen
East Boothbay, Maine
An “Essential Government Function” ?
Saturday, March 27, 2010 at 9:32am
I am a new contributor to Augusta Insider but my voice is from outside the corridors of power in Augusta, from a sector of the economy, which is, for the most part, excluded from the “creative economy”, as that term is used by Richard Florida, the popular economic guru, whom Governor Baldacci enthusiastically promoted, when he first took office.
Upon hearing the term “creative economy”, I welcomed it. Naively, I took it to mean “thinking creatively about our economy” and I thought that meant the whole economy, as identified in the economic profiles of geographical regions, that I was taught to memorize as a grade school student in rural Maine. My first thought was that a creative economic approach would begin by taking stock of Maine’s existing economy and from there analyze and visualize the potential of Maine’s economy.
As it turned out, my “bottom up” approach is the diametrical opposite of the Richard Florida model, which is premised on using the arts to lure the wealthy and geographically independent citizen to re-locate to one’s city or state. During that time, Richard Florida had published a creativity template, complete with creativity scores, which was being used by the administrations of numerous states, following the Richard Florida model of success.
There is a fundamental disconnect between the signifier and the signified of this model. The signifier is “creative”, while the signified policy implies repetition of a pre-formulated model.
In the Richard Florida model there is one type of desirable citizen, which every state and city should seek to attract, and there is a singular community model of an environment desirable tothe newly imported citizen.
This approach occludes all value of Maine as a unique location, a uniqueness that is defined, in part, by Maine’s relatively recent emergence from a one hundred year recession. Our slow economic development resulted in an environment distinctly different from that of the rapidly expanding megalopolis.
Baldacci’s economic policy was focused on importing a “creative class” to Maine. One of the identifiers of that class is wealth. In fact it is primarily the possession of wealth that makes this class desirable. In short, “the creative economy” is a “trickle down” economic theory incorporating an Ayn Rand class philosophy. It taps into the established historical role that artists play in gentrifying dilapidated neighborhoods. However Governor Baldacci’s creative economy movement did little for the poorer areas of the state, it focused on where ever wealth is concentrated, be it a geographical location, or non-profit organization, (which, for the government’s purposes function as channels for procuring wealth), or in luring the “high growth” capitalist to Maine. To justify this claim, I need only to point to the class of citizens and non-citizens who are granted tax credits in the recently submitted LD1666.
A recent Email newsletter from The Small Enterprise Growth Fund promotes a new elevator pitch session. An “elevator pitch” is so named because it is premised on the belief that one should be able to pitch a business plan in the length of time that it takes to ride an elevator in a tall building.
As I described in my first Augusta Insider post, The Small Enterprise Growth Fund was created by an act of legislation in 1995, and is funded in part by a 10% “roll over” fund financed by the Maine state taxpayer.
10 §383. FUND ESTABLISHED
1. Creation of fund. There is established the Small Enterprise Growth Fund, which is a revolving fund Used to provide funding for disbursements to qualifying small businesses in the State seeking to pursue an Eligible project. The fund must be deposited with and maintained and administered by the Finance Authority of Maine and consists of appropriations provided for that purpose, interest accrued on the fund balance, funds received by the board to be applied to the fund, all funds remaining in the Pine Tree Partnership Fund and any funds received from repayment, interest, royalties, equities or other interests in business enterprises, products or services. The fund is a no lapsing fund. (Copyright disclaimer published at end of this article. I do not know that one has to publish this disclaimer for merely quoting from the legislation and so if I err, I err on the side of caution. Note that the section that heads the copyright disclaimer also includes a decree that the SEGF is considered to be a performance of an essential government function)
The other 90% of the SEGF funds come from “anonymous” private investors- and this portion of the fund does not “roll over” but, conversely, places a strong emphasis on the “exit strategy” (selling the business), which is how the private investor realizes a profit.
Below are the categories that the SEGF identified in its recent newsletter as eligible to deliver pitches:
· Alternative Energy
Medical Devices
Clean Technology
Social Networking
Health Food Snacks
These categories define the economic sector that is favored by the “creative economy”. The selected categories dovetail the agenda promoted by our current federal government. It does not include general manufacturing and this fact, alone, excludes categories upon category of small bootstrap capitalized businesses, which I submit is the real economic resource in this historic time of tumbling national economies.
To be perfectly clear I am not promoting that these small businesses be included as beneficiaries of this government-run investment corporation; I am submitting that the resources of the general economy of Maine, should not be tapped to finance government–management of our economy. This is nothing short of the inseparability of the state and business interests.
How do we identify American Exports?
Recently President Obama explained to Americans that we were going to reduce our deficits by “doubling our exports”.
What kind of exports does America have? The United States is capable of technological innovation, but when it comes to technological manufacturing, we are faced with a rapidly increasing cost of doing business in the United States, and we must compete with countries with low labor cost, accountable to almost non-existent worker rights laws or environmental regulations.
The SEGF investors in Maine technology innovation are identified only as “ high growth entrepreneurs”. Is it reasonable to anticipate that this investment class will remain loyal to Maine or the United States, rather than relocating to a country with low labor costs and higher profitability once the “exit strategy” (selling the business) kicks in?
While there are numerous regulations in §383. governing the business policies of those that receive investment capital through “the fund”, there are few, if any, regulationsgoverning the private “high growth” investor. It is worth noting that the legislation provides that members of the board can also be investors in “the fund”
3. Ownership interests. The board may hold an ownership interest in a private enterprise when it is determined by the board that such an interest is necessary or desirable in order for the fund to obtain a reasonable return on its investment in the private enterprise
What kinds of products can America manufacture?
I can only speak of what I know and see from my rural Maine perspective and my involvement as a small American craft manufacturer. I propose that the answer to this question needs articulation from the people of Maine and the United States. Instead of using exterior models of success, true creativity emerges from the unique potential of our unique state.
The importance of capital is understood, but we are entering an era when capital is in short supply and we need to shift from a model based on procuring capital to one based in creating capital, which I submit, is the hidden value of our bootstrap economy. In the archetypical American dream one arrives with nothing and pulls one’s self up the ladder of success by one’s bootstraps. Under our current economic policies the capital that the bootstrap economy self-generates is being tapped to fund capital procurement programs. I submit that this is a mistake that needs to be corrected. I am waiting for our gubernatorial candidates to address this issue, which is concealed from public view by the act that created this newly defined “essential government function”
10 §392. GOVERNMENTAL FUNCTION
The board shall administer and exercise the authority granted to it by this chapter. The carrying out of its powers and duties is considered the performance of an essential governmental function. [1995, c. 699,§3 (NEW).]
SECTION HISTORY1995, c. 699, §3 (NEW).
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Augusta Insider: Socializing the Risk and Privatizing the Gain
Wednesday, April 14, 2010 at 4:33pm
I recently wrote about two pending legislative bills, LD1 and LD166.
LD1666 grants tax credits to venture capitalists and non-profit organizations, regardless of their status as taxpayers. The appropriations committee declined LD1666, but that is of little consequence since the ability to provide tax credits to venture capitalists and non-profit organizations is granted by the latitude extended in LD1. The bill allows for loans procured by the newly created “Fund of Funds” to be secured by “tax credits” but the lenders need not be qualified Maine State taxpayers. LD 1 includes an assertion that the tax credit used to secure the loans is not a security but fails to provide substantiation for that claim. Given our lawmakers level of awareness of the Maine State Constitution, is it justified to accept their claims about whether the “tax credit” is, or is not, a “security” without any further input from outside opinions?
The legislation repeatedly inter-mixes the words “security” and “tax credit” in the definition of other terms
5. Lender. “Lender” means an entity that lends capital to the fund in exchange for a return on the lender’s investment that conforms to the conditions of certificates issued as security for the debt.
2. Certificate. “Certificate” means a document executed by the board extending the State’s guarantee to a lender by means of a refundable tax credit.
6. Refundable tax credit. “Refundable tax credit” means the credit authorized by Title 36, section 5219-DD that the State shall redeem for cash if the holder has no tax liability against which to apply the credit. A refundable tax credit may be owned and redeemed by the system. ( Title 36,section 5219-DD is a credit applicable to dentists practicing in underserved areas. It is perplexing how the same statute is transposed to the venture capitalist investor, who, by the parameters stated in the legislation can invests anywhere in the world using the Fund of Funds as a conduit. The tax credit issued to dentists is not refundable)
§ 399. Refundable tax credits
The board may issue to one or more lenders certificates for up to $80,000,000 in refundable tax credits as provided by Title 36, section 5219-DD (The tax credit in Title 36,section 5219-DD , issued to individual dentists is not to exceed $15,000 )
Redemption. Refundable tax credits may be redeemed only as necessary to offset a shortfall in scheduled payments on debt incurred to capitalize the fund. The rate of return, whether fixed or variable, must be determined by a formula stipulated in the certificate used as security. Refundable tax credits may not be redeemed for any default occurring after December 31, 2031. No more than $10,000,000 of refundable tax credits may be redeemed per calendar year.(The credit issued to dentists in Title 36,section 5219-DD, is not refundable. In the declined LD1666, The Tax credit for venture capitalists and non-profit organizations was capped at 60% )
4. Not securities. The refundable tax credits allowed or transferred pursuant to this section are not securities under Title 32, chapter 135. (You can read that definition by clicking on the link and judge for your self )
LD1, now enacted into law, is a far-reaching peice of legislation, expanding outward to partake in the limitless opportunities existing beyond Maine’s borders and backing up investments with tax payers dollars in the form of a guaranteed refundable State of Maine tax credit. The creation of “the Fund of Funds” is arguably in violation of Article IV. — Part Three. Section 14 of the Maine State Constitution, which states:
Corporations shall be formed under general laws, and shall not be created by special Acts of the Legislature, except for municipal purposes, and in cases where the objects of the corporation cannot otherwise be attained; and, however formed, they shall forever be subject to the general laws of the State
One need only to measure the rules, regulations, and guidelines presented in this bill against any standard definition of a corporation to judge for one’s self whether the words, “the fund of funds”, used in the legislation are cloaking the reality that the bill is in fact a charter for a new corporation. Even if one could argue exceptions to the rule which prohibits the creation of a corporation, through a special act of legislation, there is no general law in this state that grants corporations the right to back up investments with taxpayer dollars.
LD1 identifies the preferred lender as “the system” and defines the “system”, for the purposes of the legislation as “the Maine Public Employees Retirement System”. It states that the purpose of the “fund of funds” is to make a profit for the lender. It identifies the board as the Small Enterprise Growth Fund and at the same time itreduces the requirements that the funds be invested in the Maine Economy to a required token investment.
Were it not for the fact that mutual funds offer no guarantees, LD 1 reads like the creation of a mutual fund by the government and for the government. To confirm this for your self, read LDI side by side with the definition of a Mutual Fund.
Lawmakers and citizens of Maine should be familiar with Article IX, Section 14 of the Maine State Constitution, which begins with the following words:
Section 14. Authority and procedure for issuance of bonds. The credit of the State shall not be directly or indirectly loaned in any case, except as provided in sections 14-A, 14-B, 14-C and 14-D. The Legislature shall not create any debt or debts, liability or liabilities, on behalf of the State, which shall singly, or in the aggregate, with previous debts and liabilities hereafter incurred at any one time, exceed $2,000,000, except to suppress insurrection, to repel invasion, or for purposes of war, and except for temporary loans to be paid out of money raised by taxation during the fiscal year in which they are made
LD 1 places the limit at not exceeding $10,000,000.00 in a single year.
In the charter creating “The Fund” and “The Fund of Funds”, it is stipulated that the administration costs are to be derived from the funds themselves. In the case of The Small Enterprise growth Fund, there is a 10% taxpayer investment for which any profits derived always roll over to re-invest in the fund. It is arguable that the legislative charter that created The Small Enterprise Growth Fund enables the administration costs to be paid by the taxpayer. If the annual report were publicly accessible one would be able to make a comparison between administration costs and the 10% roll-over tax payer investment. The SEGF website is not a government website, and so it is reasonable to conclude that the SEGF is legally structured as a separate private economy entity.
“The Fund of Funds” does not rely on a 10% investment from the taxpayer. Instead It uses the taxpayer to provide security for that which, by another name, is a mutual fund.
The words of Elliot Spitzer, former Attorney General of New York, you cannot “socialize the risk and privatize the gain”, but this is exactly what the “Fund of Funds” achieves.
The charter (Ld 1) creating the “Fund of Funds” extends the reach of The Small Enterprise Growth Fund, while LD 1659 directly applies this expansion to include The Small Enterprise Growth Fund, authorizing it to invest in a “side” fund for which there are no defining parameters. It also permits the side funds to be structured as a “revolving fund”, which is the structure used for taxpayer investments in The Small Enterprise Growth Fund. The charter also permits side funds to be structured as “as a fund in which the investor will have funds drawn and returned over an agreed time period.” in other words to have an “exit strategy” which is a demand placed on “the fund” by the unidentified venture capitalists who account for the other 90% of The Small Enterprise Growth Fund’s resources.
“The Fund” and the “Fund of Funds’ is justified by it’s creators with the end of attracting capitalization for the Maine economy, and focuses special attention on investments in technology. This is an “end justifies the means” validation for the betrayal of sworn oaths to uphold the Maine State and United States constitutions. The founding fathers of the United States Constitution had the wisdom to consider the spectrum of human character in creating a constitutional system of checks and balances. The charter establishing the “Fund of Funds”, at best, assumes that only the best of human character will ever administer this fund, while it leaves the door wide open for exploitation and corruption.
We have heard of similar investment strategies in recent history. Iceland, Harvard University and Bernie Maddoff come to mind. Like our lawmakers, the investors in these “financial vehicles” believed in the assured wisdom of their investment strategies.
There are no parameters within the legislative charters that limit the scope of investments outside of the Maine state economy. Given this lack of definition, an investment or lender in China is authorized. Investments in China and third world economies are attractive to high growth investors due to nearly, absent labor rights laws and minimal environmental regulations making it substantially less expensive to do business in those economies than in the United States.
The charter that created the Small Enterprise Growth Fund, included “public good” mandates. The new legislation deregulates the fund from the original parameters and so negates the “public good” used to justify the creation of the SEGF.
Whenever a loan is guaranteed by a refundable tax credit, Maine taxpayers carry the risk, but there are no benefits for the general taxpayer to compensate for their contribution and/or the risk, other than the vaguely defined phrase that it “benefits the economy”- but so do those funds if they are retained by the original creators of the underlying wealth through lower taxes and the latter option does not violate our constitution.
LD1 A Transference of the Power of Taxation?
by mackenzie andersen on 07. May, 2010 in Featured, Policy
This is a continuation of an examination of LD1, started in my recent article Socializing the Risk and Privatising the Gain. LD 1 provides for the use of unrestricted taxpayer funding for the Small Enterprise Growth Fund, and grants it administrative power over the newly chartered mutual funds investment corporation, simply called “The Fund of Funds” in the legislation that created it. Ld 1 passed unanimously by both the House and the Senate and signed into law by Governor Baldacci.
The Maine Chamber of Commerce describes LD1 as “An Act To Stimulate Capital Investment for Innovative Businesses in Maine”. LD1 is marketed by the Small Enterprise Growth Fund with the following words “This program creates incentives for 20 Million Dollars in the Public Employee Retirement System that have already been targeted for equity investments to be placed in funds that are seeking to invest in innovative Maine businesses.”
I am not a legal expert but such expertise is not required to have general knowledge that when it comes to the law, it is the letter of the law that counts and not external promises or descriptions. When one reads LD1, one will find that Section 6. Investment goals & guidelines, begins with the words
“The purpose of the fund is to invest in a series of high-quality venture capital funds managed to produce a favorable aggregate return among diversified investments, to secure repayment of the amounts borrowed and to minimize the risk of tax credit redemption. Consistent with these investment goals, the board shall give preference to fund managers whose strategies include:
A. Maintaining at least a periodic presence in the State;
B. Actively prospecting for investments in the State;
C. Creating or retaining jobs in the State; and
D. Bringing to fruition the ideas, technologies and intellectual property produced by citizens and institutions of the State. “
The language is vague and suggestive, avoiding specificity and allowing great latitude in interpretation and application. In the phrase “Maintaining at least a periodic presence in the state”, the terms “periodic” and “presence” are left undefined, while the use of the words “at least” permits the “presence” in Maine to be a mere token. The non-existent parameters for retaining jobs in the state can be satisfied by the bureaucratic jobs within the SEGF. As for “bringing to fruition the ideas produced by Maine citizens”, there are no specifics about where and how these ideas will be brought to fruition. Since the current government management of Maine’s economy is invested in technological development and since LD1 Is very arguably a charter for a mutual funds corporation, the language of this bill all too easily enables ideas to be developed in Maine and brought to fruition in countries with low labor costs and minimal environmental restrictions, which produce that “quality” investment in the context of the profit motivation of mutual funds
The bill defines “lender” in such terms as would be otherwise be signified by the term “investor”. The preferred “lender” is The Maine Public Employees Management Fund, which, at first glance, has stricter investing requirements than are written in LD1. If the Maine Public Employees Management Fund declines to invest, “the Fund of Funds” can seek other investors.
In section 9, Audits and Reports, LD1 is suddenly written in very specific terms. Section 9 deals with the relationship between the director of “The Fund of Funds” and the SEGF . Section 9 leaves nothing to interpretation when it specifically defines the length of time that constitutes a period, showing clearly that the writers of this law know how and when to be specific.
One instance in which LD1 is very specific is in Section 7, Investment Restrictions, where the exact words are “The fund may not invest directly in individual businesses but only in venture capital funds…” And yet in promoting this bill it is specifically described as a bill to create funds for “innovative” Maine businesses. Other than a requirement to invest 30,000.00 annually in the Maine Patent Fund, there is no specific wording in this bill that requires more than a token investment in businesses located in Maine.
The SEGF promotes this government chartered mutual fund as a means to take the burden off the Maine taxpayer, when in fact it takes the burden of failure off the SEGF and the individual or institutional investors in ” the Fund of Funds” and places it on the Maine Taxpayer in the form of a “tax credit”, which has no specific relationship to “tax payer”. The “tax credit” is guaranteed by a certificate, for which the letter of the law provides no specific requirements or caps, leaving it solely to the discretion of the SEGF. The tax credit will be used to cover any shortfalls that the Fund of Funds runs up against and is said to be legally binding according to Article One, Section 11 of the Maine State Constitution.
I have to question whether the certificates can be legally binding on the Maine state taxpayer because LD1 states
“The board (The SEGF) may raise capital for the fund by offering as security certificates issued by the board.”
The SEGF does not have a government website, which suggest that it is a private corporation which has been enabled by our legislature to advance it’s causes using taxpayer dollars to it’s advantage. Section 9 of the Maine State Constitution- Power of taxation, states
“ The Legislature shall never, in any manner, suspend or surrender the power of taxation.”
A private corporation cannot make binding agreements for the Maine State taxpayer. By obligating the taxpayer to cover shortfalls within the SEGF with “tax credits”, it is implied that taxes will have to be raised as a means of financing the “tax credits”- as needed.
The language of LD1 is very murky about identifying the authority that is granted power to define the terms of the “certificates” backed up by “tax-credits”. It is the job of the legislature to establish the terms of contract, but in the case of LD1 these terms are left undefined- or worse deferred to the SEGF in the following:
“1. Credit allowed. A lender to the Maine Fund of Funds as defined in Title 10, section 396, subsection 5 is allowed a refundable credit against the taxes imposed by this Part in an amount certified by the Small Enterprise Growth Board as established under Title 10, section 384 as equal to the shortfall in scheduled payments on debt incurred to provide capital to the Maine Fund of Funds.”
In the above direct quote from LD1, it is all too revealing that the “tax credit” is suddenly described as merely a “credit”, as though the authors of the bill have intentionally ommitted the word ”tax” which is used repeatedly throughout the legislation, perhaps because they are required to be fully aware that it is constitutionally prohibited to transfer the power of taxation.
If the authority to define the terms of agreement remains with the legislature, then the legislature has granted itself the authority to negotiate business contracts, which belongs to the executive branch of government. The Maine State Constitution, Article IV, Section 14 states:
“Corporations shall be formed under general laws, and shall not be created by special Acts of the Legislature…”
Our legislature seems to believe that it can get around the Maine State Constitution through carefully parsed language and that a corporation by another name is not a corporation.
Article IV, Section 18 of the Maine State Constitution outlines the process by which the people of Maine can veto bills passed by the legislature. There is a 90-day window of opportunity after the close of the legislative session. In LD1. the taxpayer carries the risk but not does not share in the gain. I have created a Facebook page, “Maine Citizens Against Government Chartered Corporations” to find out if there is enough support among the Maine people to warrant initiating a People’s Veto.
An additional effect of mobilizing a People’s Veto is that it would force government-chartered corporations as an election campaign issue. We know that all incumbents are supporting government chartered investment corporations but thus far, to my knowledge, none of the other candidates for state positions have spoken out on this issue, offering no guarantee that electing a non-incumbent would have any effect on moving back toward a constitutional separation between the state and the capitalistic corporation.
I hope that there will emerge an open dialogue about what the actual letter of the law legitimizes and that the citizens of Maine will become more actively involved in reading the bills being passed by our legislature rather than accepting the promotional words about said bills at face value, without further examination or debate. The Maine State constitution needs to be included in that debate.
The term “State Capitalism” is frequently used in two different ways: first, as an economic form in which the state performs the role of the capitalist employer, exploiting the workers in the interest of the state. The federal mail system or a state-owned railway are examples of this kind of state capitalism. In Russia, this form of state capitalism predominates in industry : the work is planned, financed and managed by the state; the directors of industry are appointed by the state and profits are considered the income of the state. Second, we find that a condition is defined as state capitalism (or state socialism) under which capitalist enterprises are controlled by the state. This definition is misleading, however, as there still exists under these conditions capitalism in the form of private ownership, although the owner of an enterprise is no longer the sole master, his power being restricted so long as some sort of social insurance system for the workers is accepted."
Source: State Capitalism and Dictatorship which credits its source as Kurasje Council Communist Archives
State capitalism is unconstitutional in Maine. Article IV, Section 14 of the Maine State Constitution states “Corporations shall be formed under general laws, and shall not be created through special acts of legislature”. Notwithstanding the Maine State Constitution, state capitalism has expanded, through special acts of legislation, during the last fifteen years with the creation of The Small Enterprise Growth Fund and the more recent “Fund of Funds”. The legislation, which charted these two investment corporations, evades the Constitution by replacing the signifier “corporation” with the signifier “fund”. However, a corporation, by another name, remains a corporation. When a government creates capital investment funds through special acts of legislation, the form of government can fairly be described as “state capitalism”.
There has been no resistance to the growth of state capitalism in Maine. The media reports only glowingly on the jobs created by these newly formulated bureaucracies. The private economy is taxed so that the government can “invest” in the Small Enterprise Growth Fund, but the 10% taxpayer portion of that fund always “rolls over” to reinvest in the fund, while the private investor demands an “exit strategy” in order to realize a profit. This is what I learned and what first caught my attention when I attended a “pitch session” at the Juice conference last fall.
Wherever state capitalism exists, there exists an over-seeing bureaucracy, which picks winners and losers and attempts to execute a design of man’s making over the economy. In Maine, this bureaucracy refers to itself as “the creative economy”. Privately, I refer to it as “The House of Lords”.
Presented here, in chronological order, are the articles that were published in the former Augusta Insider. These articles were not included in the archives when the Augusta Insider “merged” with Pine Tree Politics.
Who Benefits and Who Pays for Maine's Big Government Management of Our Economy?
by mackenzie andersen on 14. Mar, 2010 in Commentary
An Open Letter to Senator David Trahan (R- Waldoboro),
Dear Senator Trahan,
I wrote to you in the past about The Small Enterprise Growth Fund, an investment corporation created by the Maine State legislature for the purpose of attracting high growth venture capitalists to Maine.
At the time I suggested that “the Fund” should “roll over” to invest in the micro-economy, which you thought was a good idea. I am now writing to say that I think it is a terrible idea. It is redundant and wasteful, as it requires an expensive government bureaucracy to select which small businesses in the micro economy will be the beneficiaries. Given Maine’s deficit, it would make more sense to eliminate the taxpayer investment in the Small Enterprise Growth Fund, allowing the micro economy to retain more of their self-generated profits, which is the primary source of capitalization within the micro-economy.
You said the Small Enterprise Growth Fund is one government program that is working quite well. I have heard this before. I read such statements in the Small Enterprise Growth Fund’s email updates, but those statements leave me wanting for more information. Information about The Small Enterprise Growth Fund is difficult to uncover because the legislation that created it states that the SEGF will report to the legislature, bypassing the general public.
I am on the mailing list for the Small Enterprise Growth Fund and The Office of Innovation, The email newsletters read like advertisements and political slogans. I use them as a starting point to uncover the real facts. However I have yet to find the annual report of the Small Enterprise Growth Fund. It may be publicly available, but if so, it is certainly not well publicized- and so fundamental facts such as the identity of the private investors with whom the Maine state taxpayer is in partnership, through the SEGF, remains a mystery. Since the taxpayer portion of the profits always “rolls over to re-invest in the fund, while the private investor demands an “exit strategy” (selling the business), I submit that the tax payer contribution to the Small Enterprise Growth Fund is functioning as a bribe to attract the “high growth” private investor. A “roll over investment” has no “exit strategy”. It just keeps rolling over to reinvest in” the Fund”. The private investor requires an “exit strategy” in order to realize a profit.
Why would the legislation call this partnership “the Fund”? The answer may lie in the Maine State Constitution, Article IV, which describes legislative powers. Section 14 of Article! V states:
Section 14. Corporations, formed under general laws. Corporations shall be formed under general laws, and shall not be created by special Acts of the Legislature, except for municipal purposes, and in cases where the objects of the corporation cannot otherwise be attained; and, however formed, they shall forever be subject to the general laws of the State.
I submit that the formation of The Small Enterprise Growth Fund through an act of legislation, is unconstitutional, – short of the argument that is premised on the belief that the State of Maine cannot attract high growth investors without bribing them. To that end I submit that the recently passed LD1666 is yet another bribe to attract “high growth” capitalization to Maine. This legislation, combined with LD1, provides “tax credits” for investments in Maine businesses that are approved by FAME. Who does it allot these tax credit to? First to government employees who get a credit of 80 % of their investment, and then, a tax credit of 60% of the investment, to private entrepreneurs, who, as stated in the legislation need not be Maine residents paying Maine taxes in order to qualify for a Maine state tax credit. The LD1666 legislation also states that the same 60% tax credit is available to non-profit organizations, which for the purpose of the tax credit will be treated as taxpayers. The reason this needed to be stated is obvious.
The legislation also identifies who is not eligible for this tax credit, and that would be primarily small business owners of the micro-economy who not only invest their “roll over capital funds” created by their self-generated profits, but also their time and energy and soul in their businesses. Also excluded are any persons related to the owner of the business. It is a long standing tradition that one of the primary sources of micro-economy investment are friends and family, and so this legislation, by offering a carrot for investment in businesses favored by our government, thus stacks the deck against the micro-economy, whose resources are already being taxed to fund the sector which our government has pompously designated as “the creative economy”.
LD1666 was submitted by the president of the Senate and Gubernatorial candidate, Libby Mitchell. I am hoping that gubernatorial candidates will emerge that will campaign on reducing the size of our indebted state government by getting the government out of the business of managing our economy and picking and choosing who gets the benefits and who gets taxed to pay for those benefits. I see no guarantee that investments that are lured to Maine through bribes and which demand ‘exit strategies” are actually here for the long term. “High growth” investors have their personal profits in mind when the business is sold, as is the meaning of the “exit strategy”. A high growth investor will sell to the highest bidder. To my knowledge the 10% taxpayer investor has little say about the “exit strategy”, any more then they have easy accsess to the annual report or the identities of the other investors.
I believe that Maine is capable of attracting investors without bribing them and taxing those lower down on the economic scale to pay for it. Can we bring back honor into our system?
I pay attention to the grass roots political movement, which is against big government and to that end, the focus, is on welfare reform. The legislation that created the SEGF is designed to insure that it’s business takes place behind close doors away from the view of the general public. Every one knows about the welfare system but the general public, by design, is left unaware of the goings on in our Maine State governmental business management system. I hope that in the up-coming election season. This will change.
Sincerely,
Susan Mackenzie Andersen
East Boothbay, Maine
An “Essential Government Function” ?
Saturday, March 27, 2010 at 9:32am
I am a new contributor to Augusta Insider but my voice is from outside the corridors of power in Augusta, from a sector of the economy, which is, for the most part, excluded from the “creative economy”, as that term is used by Richard Florida, the popular economic guru, whom Governor Baldacci enthusiastically promoted, when he first took office.
Upon hearing the term “creative economy”, I welcomed it. Naively, I took it to mean “thinking creatively about our economy” and I thought that meant the whole economy, as identified in the economic profiles of geographical regions, that I was taught to memorize as a grade school student in rural Maine. My first thought was that a creative economic approach would begin by taking stock of Maine’s existing economy and from there analyze and visualize the potential of Maine’s economy.
As it turned out, my “bottom up” approach is the diametrical opposite of the Richard Florida model, which is premised on using the arts to lure the wealthy and geographically independent citizen to re-locate to one’s city or state. During that time, Richard Florida had published a creativity template, complete with creativity scores, which was being used by the administrations of numerous states, following the Richard Florida model of success.
There is a fundamental disconnect between the signifier and the signified of this model. The signifier is “creative”, while the signified policy implies repetition of a pre-formulated model.
In the Richard Florida model there is one type of desirable citizen, which every state and city should seek to attract, and there is a singular community model of an environment desirable tothe newly imported citizen.
This approach occludes all value of Maine as a unique location, a uniqueness that is defined, in part, by Maine’s relatively recent emergence from a one hundred year recession. Our slow economic development resulted in an environment distinctly different from that of the rapidly expanding megalopolis.
Baldacci’s economic policy was focused on importing a “creative class” to Maine. One of the identifiers of that class is wealth. In fact it is primarily the possession of wealth that makes this class desirable. In short, “the creative economy” is a “trickle down” economic theory incorporating an Ayn Rand class philosophy. It taps into the established historical role that artists play in gentrifying dilapidated neighborhoods. However Governor Baldacci’s creative economy movement did little for the poorer areas of the state, it focused on where ever wealth is concentrated, be it a geographical location, or non-profit organization, (which, for the government’s purposes function as channels for procuring wealth), or in luring the “high growth” capitalist to Maine. To justify this claim, I need only to point to the class of citizens and non-citizens who are granted tax credits in the recently submitted LD1666.
A recent Email newsletter from The Small Enterprise Growth Fund promotes a new elevator pitch session. An “elevator pitch” is so named because it is premised on the belief that one should be able to pitch a business plan in the length of time that it takes to ride an elevator in a tall building.
As I described in my first Augusta Insider post, The Small Enterprise Growth Fund was created by an act of legislation in 1995, and is funded in part by a 10% “roll over” fund financed by the Maine state taxpayer.
10 §383. FUND ESTABLISHED
1. Creation of fund. There is established the Small Enterprise Growth Fund, which is a revolving fund Used to provide funding for disbursements to qualifying small businesses in the State seeking to pursue an Eligible project. The fund must be deposited with and maintained and administered by the Finance Authority of Maine and consists of appropriations provided for that purpose, interest accrued on the fund balance, funds received by the board to be applied to the fund, all funds remaining in the Pine Tree Partnership Fund and any funds received from repayment, interest, royalties, equities or other interests in business enterprises, products or services. The fund is a no lapsing fund. (Copyright disclaimer published at end of this article. I do not know that one has to publish this disclaimer for merely quoting from the legislation and so if I err, I err on the side of caution. Note that the section that heads the copyright disclaimer also includes a decree that the SEGF is considered to be a performance of an essential government function)
The other 90% of the SEGF funds come from “anonymous” private investors- and this portion of the fund does not “roll over” but, conversely, places a strong emphasis on the “exit strategy” (selling the business), which is how the private investor realizes a profit.
Below are the categories that the SEGF identified in its recent newsletter as eligible to deliver pitches:
· Alternative Energy
Medical Devices
Clean Technology
Social Networking
Health Food Snacks
These categories define the economic sector that is favored by the “creative economy”. The selected categories dovetail the agenda promoted by our current federal government. It does not include general manufacturing and this fact, alone, excludes categories upon category of small bootstrap capitalized businesses, which I submit is the real economic resource in this historic time of tumbling national economies.
To be perfectly clear I am not promoting that these small businesses be included as beneficiaries of this government-run investment corporation; I am submitting that the resources of the general economy of Maine, should not be tapped to finance government–management of our economy. This is nothing short of the inseparability of the state and business interests.
How do we identify American Exports?
Recently President Obama explained to Americans that we were going to reduce our deficits by “doubling our exports”.
What kind of exports does America have? The United States is capable of technological innovation, but when it comes to technological manufacturing, we are faced with a rapidly increasing cost of doing business in the United States, and we must compete with countries with low labor cost, accountable to almost non-existent worker rights laws or environmental regulations.
The SEGF investors in Maine technology innovation are identified only as “ high growth entrepreneurs”. Is it reasonable to anticipate that this investment class will remain loyal to Maine or the United States, rather than relocating to a country with low labor costs and higher profitability once the “exit strategy” (selling the business) kicks in?
While there are numerous regulations in §383. governing the business policies of those that receive investment capital through “the fund”, there are few, if any, regulationsgoverning the private “high growth” investor. It is worth noting that the legislation provides that members of the board can also be investors in “the fund”
3. Ownership interests. The board may hold an ownership interest in a private enterprise when it is determined by the board that such an interest is necessary or desirable in order for the fund to obtain a reasonable return on its investment in the private enterprise
What kinds of products can America manufacture?
I can only speak of what I know and see from my rural Maine perspective and my involvement as a small American craft manufacturer. I propose that the answer to this question needs articulation from the people of Maine and the United States. Instead of using exterior models of success, true creativity emerges from the unique potential of our unique state.
The importance of capital is understood, but we are entering an era when capital is in short supply and we need to shift from a model based on procuring capital to one based in creating capital, which I submit, is the hidden value of our bootstrap economy. In the archetypical American dream one arrives with nothing and pulls one’s self up the ladder of success by one’s bootstraps. Under our current economic policies the capital that the bootstrap economy self-generates is being tapped to fund capital procurement programs. I submit that this is a mistake that needs to be corrected. I am waiting for our gubernatorial candidates to address this issue, which is concealed from public view by the act that created this newly defined “essential government function”
10 §392. GOVERNMENTAL FUNCTION
The board shall administer and exercise the authority granted to it by this chapter. The carrying out of its powers and duties is considered the performance of an essential governmental function. [1995, c. 699,§3 (NEW).]
SECTION HISTORY1995, c. 699, §3 (NEW).
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All copyrights and other rights to statutory text are reserved by the State of Maine. The text included in this publication reflects changes made through the First Special Session of the 124th Legislature, and is current through December 31, 2009, but is subject to change without notice. It is a version that has not been officially certified by the Secretary of State. Refer to the Maine Revised Statutes Annotated and supplements for certified text.
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Augusta Insider: Socializing the Risk and Privatizing the Gain
Wednesday, April 14, 2010 at 4:33pm
I recently wrote about two pending legislative bills, LD1 and LD166.
LD1666 grants tax credits to venture capitalists and non-profit organizations, regardless of their status as taxpayers. The appropriations committee declined LD1666, but that is of little consequence since the ability to provide tax credits to venture capitalists and non-profit organizations is granted by the latitude extended in LD1. The bill allows for loans procured by the newly created “Fund of Funds” to be secured by “tax credits” but the lenders need not be qualified Maine State taxpayers. LD 1 includes an assertion that the tax credit used to secure the loans is not a security but fails to provide substantiation for that claim. Given our lawmakers level of awareness of the Maine State Constitution, is it justified to accept their claims about whether the “tax credit” is, or is not, a “security” without any further input from outside opinions?
The legislation repeatedly inter-mixes the words “security” and “tax credit” in the definition of other terms
5. Lender. “Lender” means an entity that lends capital to the fund in exchange for a return on the lender’s investment that conforms to the conditions of certificates issued as security for the debt.
2. Certificate. “Certificate” means a document executed by the board extending the State’s guarantee to a lender by means of a refundable tax credit.
6. Refundable tax credit. “Refundable tax credit” means the credit authorized by Title 36, section 5219-DD that the State shall redeem for cash if the holder has no tax liability against which to apply the credit. A refundable tax credit may be owned and redeemed by the system. ( Title 36,section 5219-DD is a credit applicable to dentists practicing in underserved areas. It is perplexing how the same statute is transposed to the venture capitalist investor, who, by the parameters stated in the legislation can invests anywhere in the world using the Fund of Funds as a conduit. The tax credit issued to dentists is not refundable)
§ 399. Refundable tax credits
The board may issue to one or more lenders certificates for up to $80,000,000 in refundable tax credits as provided by Title 36, section 5219-DD (The tax credit in Title 36,section 5219-DD , issued to individual dentists is not to exceed $15,000 )
Redemption. Refundable tax credits may be redeemed only as necessary to offset a shortfall in scheduled payments on debt incurred to capitalize the fund. The rate of return, whether fixed or variable, must be determined by a formula stipulated in the certificate used as security. Refundable tax credits may not be redeemed for any default occurring after December 31, 2031. No more than $10,000,000 of refundable tax credits may be redeemed per calendar year.(The credit issued to dentists in Title 36,section 5219-DD, is not refundable. In the declined LD1666, The Tax credit for venture capitalists and non-profit organizations was capped at 60% )
4. Not securities. The refundable tax credits allowed or transferred pursuant to this section are not securities under Title 32, chapter 135. (You can read that definition by clicking on the link and judge for your self )
LD1, now enacted into law, is a far-reaching peice of legislation, expanding outward to partake in the limitless opportunities existing beyond Maine’s borders and backing up investments with tax payers dollars in the form of a guaranteed refundable State of Maine tax credit. The creation of “the Fund of Funds” is arguably in violation of Article IV. — Part Three. Section 14 of the Maine State Constitution, which states:
Corporations shall be formed under general laws, and shall not be created by special Acts of the Legislature, except for municipal purposes, and in cases where the objects of the corporation cannot otherwise be attained; and, however formed, they shall forever be subject to the general laws of the State
One need only to measure the rules, regulations, and guidelines presented in this bill against any standard definition of a corporation to judge for one’s self whether the words, “the fund of funds”, used in the legislation are cloaking the reality that the bill is in fact a charter for a new corporation. Even if one could argue exceptions to the rule which prohibits the creation of a corporation, through a special act of legislation, there is no general law in this state that grants corporations the right to back up investments with taxpayer dollars.
LD1 identifies the preferred lender as “the system” and defines the “system”, for the purposes of the legislation as “the Maine Public Employees Retirement System”. It states that the purpose of the “fund of funds” is to make a profit for the lender. It identifies the board as the Small Enterprise Growth Fund and at the same time itreduces the requirements that the funds be invested in the Maine Economy to a required token investment.
Were it not for the fact that mutual funds offer no guarantees, LD 1 reads like the creation of a mutual fund by the government and for the government. To confirm this for your self, read LDI side by side with the definition of a Mutual Fund.
Lawmakers and citizens of Maine should be familiar with Article IX, Section 14 of the Maine State Constitution, which begins with the following words:
Section 14. Authority and procedure for issuance of bonds. The credit of the State shall not be directly or indirectly loaned in any case, except as provided in sections 14-A, 14-B, 14-C and 14-D. The Legislature shall not create any debt or debts, liability or liabilities, on behalf of the State, which shall singly, or in the aggregate, with previous debts and liabilities hereafter incurred at any one time, exceed $2,000,000, except to suppress insurrection, to repel invasion, or for purposes of war, and except for temporary loans to be paid out of money raised by taxation during the fiscal year in which they are made
LD 1 places the limit at not exceeding $10,000,000.00 in a single year.
In the charter creating “The Fund” and “The Fund of Funds”, it is stipulated that the administration costs are to be derived from the funds themselves. In the case of The Small Enterprise growth Fund, there is a 10% taxpayer investment for which any profits derived always roll over to re-invest in the fund. It is arguable that the legislative charter that created The Small Enterprise Growth Fund enables the administration costs to be paid by the taxpayer. If the annual report were publicly accessible one would be able to make a comparison between administration costs and the 10% roll-over tax payer investment. The SEGF website is not a government website, and so it is reasonable to conclude that the SEGF is legally structured as a separate private economy entity.
“The Fund of Funds” does not rely on a 10% investment from the taxpayer. Instead It uses the taxpayer to provide security for that which, by another name, is a mutual fund.
The words of Elliot Spitzer, former Attorney General of New York, you cannot “socialize the risk and privatize the gain”, but this is exactly what the “Fund of Funds” achieves.
The charter (Ld 1) creating the “Fund of Funds” extends the reach of The Small Enterprise Growth Fund, while LD 1659 directly applies this expansion to include The Small Enterprise Growth Fund, authorizing it to invest in a “side” fund for which there are no defining parameters. It also permits the side funds to be structured as a “revolving fund”, which is the structure used for taxpayer investments in The Small Enterprise Growth Fund. The charter also permits side funds to be structured as “as a fund in which the investor will have funds drawn and returned over an agreed time period.” in other words to have an “exit strategy” which is a demand placed on “the fund” by the unidentified venture capitalists who account for the other 90% of The Small Enterprise Growth Fund’s resources.
“The Fund” and the “Fund of Funds’ is justified by it’s creators with the end of attracting capitalization for the Maine economy, and focuses special attention on investments in technology. This is an “end justifies the means” validation for the betrayal of sworn oaths to uphold the Maine State and United States constitutions. The founding fathers of the United States Constitution had the wisdom to consider the spectrum of human character in creating a constitutional system of checks and balances. The charter establishing the “Fund of Funds”, at best, assumes that only the best of human character will ever administer this fund, while it leaves the door wide open for exploitation and corruption.
We have heard of similar investment strategies in recent history. Iceland, Harvard University and Bernie Maddoff come to mind. Like our lawmakers, the investors in these “financial vehicles” believed in the assured wisdom of their investment strategies.
There are no parameters within the legislative charters that limit the scope of investments outside of the Maine state economy. Given this lack of definition, an investment or lender in China is authorized. Investments in China and third world economies are attractive to high growth investors due to nearly, absent labor rights laws and minimal environmental regulations making it substantially less expensive to do business in those economies than in the United States.
The charter that created the Small Enterprise Growth Fund, included “public good” mandates. The new legislation deregulates the fund from the original parameters and so negates the “public good” used to justify the creation of the SEGF.
Whenever a loan is guaranteed by a refundable tax credit, Maine taxpayers carry the risk, but there are no benefits for the general taxpayer to compensate for their contribution and/or the risk, other than the vaguely defined phrase that it “benefits the economy”- but so do those funds if they are retained by the original creators of the underlying wealth through lower taxes and the latter option does not violate our constitution.
LD1 A Transference of the Power of Taxation?
by mackenzie andersen on 07. May, 2010 in Featured, Policy
This is a continuation of an examination of LD1, started in my recent article Socializing the Risk and Privatising the Gain. LD 1 provides for the use of unrestricted taxpayer funding for the Small Enterprise Growth Fund, and grants it administrative power over the newly chartered mutual funds investment corporation, simply called “The Fund of Funds” in the legislation that created it. Ld 1 passed unanimously by both the House and the Senate and signed into law by Governor Baldacci.
The Maine Chamber of Commerce describes LD1 as “An Act To Stimulate Capital Investment for Innovative Businesses in Maine”. LD1 is marketed by the Small Enterprise Growth Fund with the following words “This program creates incentives for 20 Million Dollars in the Public Employee Retirement System that have already been targeted for equity investments to be placed in funds that are seeking to invest in innovative Maine businesses.”
I am not a legal expert but such expertise is not required to have general knowledge that when it comes to the law, it is the letter of the law that counts and not external promises or descriptions. When one reads LD1, one will find that Section 6. Investment goals & guidelines, begins with the words
“The purpose of the fund is to invest in a series of high-quality venture capital funds managed to produce a favorable aggregate return among diversified investments, to secure repayment of the amounts borrowed and to minimize the risk of tax credit redemption. Consistent with these investment goals, the board shall give preference to fund managers whose strategies include:
A. Maintaining at least a periodic presence in the State;
B. Actively prospecting for investments in the State;
C. Creating or retaining jobs in the State; and
D. Bringing to fruition the ideas, technologies and intellectual property produced by citizens and institutions of the State. “
The language is vague and suggestive, avoiding specificity and allowing great latitude in interpretation and application. In the phrase “Maintaining at least a periodic presence in the state”, the terms “periodic” and “presence” are left undefined, while the use of the words “at least” permits the “presence” in Maine to be a mere token. The non-existent parameters for retaining jobs in the state can be satisfied by the bureaucratic jobs within the SEGF. As for “bringing to fruition the ideas produced by Maine citizens”, there are no specifics about where and how these ideas will be brought to fruition. Since the current government management of Maine’s economy is invested in technological development and since LD1 Is very arguably a charter for a mutual funds corporation, the language of this bill all too easily enables ideas to be developed in Maine and brought to fruition in countries with low labor costs and minimal environmental restrictions, which produce that “quality” investment in the context of the profit motivation of mutual funds
The bill defines “lender” in such terms as would be otherwise be signified by the term “investor”. The preferred “lender” is The Maine Public Employees Management Fund, which, at first glance, has stricter investing requirements than are written in LD1. If the Maine Public Employees Management Fund declines to invest, “the Fund of Funds” can seek other investors.
In section 9, Audits and Reports, LD1 is suddenly written in very specific terms. Section 9 deals with the relationship between the director of “The Fund of Funds” and the SEGF . Section 9 leaves nothing to interpretation when it specifically defines the length of time that constitutes a period, showing clearly that the writers of this law know how and when to be specific.
One instance in which LD1 is very specific is in Section 7, Investment Restrictions, where the exact words are “The fund may not invest directly in individual businesses but only in venture capital funds…” And yet in promoting this bill it is specifically described as a bill to create funds for “innovative” Maine businesses. Other than a requirement to invest 30,000.00 annually in the Maine Patent Fund, there is no specific wording in this bill that requires more than a token investment in businesses located in Maine.
The SEGF promotes this government chartered mutual fund as a means to take the burden off the Maine taxpayer, when in fact it takes the burden of failure off the SEGF and the individual or institutional investors in ” the Fund of Funds” and places it on the Maine Taxpayer in the form of a “tax credit”, which has no specific relationship to “tax payer”. The “tax credit” is guaranteed by a certificate, for which the letter of the law provides no specific requirements or caps, leaving it solely to the discretion of the SEGF. The tax credit will be used to cover any shortfalls that the Fund of Funds runs up against and is said to be legally binding according to Article One, Section 11 of the Maine State Constitution.
I have to question whether the certificates can be legally binding on the Maine state taxpayer because LD1 states
“The board (The SEGF) may raise capital for the fund by offering as security certificates issued by the board.”
The SEGF does not have a government website, which suggest that it is a private corporation which has been enabled by our legislature to advance it’s causes using taxpayer dollars to it’s advantage. Section 9 of the Maine State Constitution- Power of taxation, states
“ The Legislature shall never, in any manner, suspend or surrender the power of taxation.”
A private corporation cannot make binding agreements for the Maine State taxpayer. By obligating the taxpayer to cover shortfalls within the SEGF with “tax credits”, it is implied that taxes will have to be raised as a means of financing the “tax credits”- as needed.
The language of LD1 is very murky about identifying the authority that is granted power to define the terms of the “certificates” backed up by “tax-credits”. It is the job of the legislature to establish the terms of contract, but in the case of LD1 these terms are left undefined- or worse deferred to the SEGF in the following:
“1. Credit allowed. A lender to the Maine Fund of Funds as defined in Title 10, section 396, subsection 5 is allowed a refundable credit against the taxes imposed by this Part in an amount certified by the Small Enterprise Growth Board as established under Title 10, section 384 as equal to the shortfall in scheduled payments on debt incurred to provide capital to the Maine Fund of Funds.”
In the above direct quote from LD1, it is all too revealing that the “tax credit” is suddenly described as merely a “credit”, as though the authors of the bill have intentionally ommitted the word ”tax” which is used repeatedly throughout the legislation, perhaps because they are required to be fully aware that it is constitutionally prohibited to transfer the power of taxation.
If the authority to define the terms of agreement remains with the legislature, then the legislature has granted itself the authority to negotiate business contracts, which belongs to the executive branch of government. The Maine State Constitution, Article IV, Section 14 states:
“Corporations shall be formed under general laws, and shall not be created by special Acts of the Legislature…”
Our legislature seems to believe that it can get around the Maine State Constitution through carefully parsed language and that a corporation by another name is not a corporation.
Article IV, Section 18 of the Maine State Constitution outlines the process by which the people of Maine can veto bills passed by the legislature. There is a 90-day window of opportunity after the close of the legislative session. In LD1. the taxpayer carries the risk but not does not share in the gain. I have created a Facebook page, “Maine Citizens Against Government Chartered Corporations” to find out if there is enough support among the Maine people to warrant initiating a People’s Veto.
An additional effect of mobilizing a People’s Veto is that it would force government-chartered corporations as an election campaign issue. We know that all incumbents are supporting government chartered investment corporations but thus far, to my knowledge, none of the other candidates for state positions have spoken out on this issue, offering no guarantee that electing a non-incumbent would have any effect on moving back toward a constitutional separation between the state and the capitalistic corporation.
I hope that there will emerge an open dialogue about what the actual letter of the law legitimizes and that the citizens of Maine will become more actively involved in reading the bills being passed by our legislature rather than accepting the promotional words about said bills at face value, without further examination or debate. The Maine State constitution needs to be included in that debate.
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