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Monday, June 18, 2007

Government's Hedge Funds

Capitolwire.com's Pete DeCoursey (subscription) calls Governor Rendell's corporate welfare proposals for what they are - a hedge fund. Talking about Rendell's proposed Jonas Salk Legacy Fund and alternative energy plan - two iniatives to borrow money to fund companies that the administration (or appointment boards) deem relevant, DeCoursey (sounding like the Commonwealth Foundation's Piglet Book) writes:

Rendell's essential idea is twofold: we need to make these investments now, while the time is right, and Rendell can make sure the money is invested in the right places to improve the state’s future.

Rendell is sure he is smarter than his successors will be, so, of course, to him it seems logical for his next three or four successors to be stuck with the debt payments so he can spend $1.85 billion now.

He and his allies argue that both with bio-tech and alternate energy, there is a short time window for the state to become a leader, and that without corporate welfare to dole out to businesses, that won’t happen.


One concern about that theory that you have to pay businesses for them to come here is that if something makes sense, you don’t have to pay someone to do it. You only pay people to do something if they wouldn’t do it otherwise. And if other states are already paying companies to go there, won’t our money just get wasted in a bidding war?

Since we face competition, you have to assess the likelihood of victory before deciding whether to take out a $1.85 billion (or under the Fumo plan, $1.45 billion) mortgage and handing the money over to Rendell’s new state equivalent of a hedge fund.


The second [concern] is whether we trust these new state hedge funds to pick the right recipients for the hundreds of millions these businesses are getting from tax funds.

Well, the structure for both is likely to follow the structure used for the Gaming Control Board and the Commonwealth Financing Authority: The governor appoints some and each legislative caucus appoints one, and until the caucus’ representatives all agree, no decision gets made.

Does that seem to you to be the kind of investment board that will pick the best companies, not the companies most likely to give donations to the legislative leaders who appointed the guys who give out the grants?


Right now, on the Commonwealth Financing Authority, a lot of the votes are traded on the basis of “your caucus got the last one. Now it’s our turn.”

Is that the kind of philosophy that will lead to great investments?

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