Yesterday I analyzed the venture capital context of local news corporation SouthComm and I argued that the context was not necessarily consistent with priorities of covering local news. In this post I take a look at the dilemmas of the state subsidizing SouthComm's venture capitalism. The Governor's office has perfected the art of giving tax money away to corporations. Phil Bredesen's latest plan, TNInvestco, stands to benefit local media mogul SouthComm by giving tax breaks to insurance companies that invest in its parent venture capital company Solidus, which the state chose as a finalist in the TNInvestco competition. With the spoken intention of producing "the state's next top business models," the Governor's new law provides $120 million to insurance lenders who invest in Tennessee venture capital
But those business models are not simply successful because they provide people with the proverbial widgets that they demand, for which they are willing to pay. The new law minimizes the obstacles that stand in the way of success by providing government subsidies to private businesses. They eliminate risk and complexities of other tax credit programs for insurance companies. They are a form of corporate welfare. Given that Governor Bredesen has always sweetened private deals with tax dollars, TNInvestco cannot be spun into an exceptional exercise in stimulus. But the jeopardy of investment doesn't simply disappear with the new tax credits, it is foisted on tax payers.
In the case of Solidus and SouthComm tax credits are welfare for a media conglomerate that has a readership as large as that of Gannett Corporation's Tennessean. SouthComm also staffs publications in Louisville and has plans to expand to "other cities." Meanwhile, TNInvestco is marketed by its legislative supporters as a means to help small businesses and eventually support the state's "Rural Development Fund." It looks to me like another version of the tale of enough wealth to spread around to everybody. But that is only if the TNInvestcos succeed. There is also no data I've been able to find on how much of a return Middle Tennesseans will see to public programs and services from Solidus, especially if we assume that there may be other forms of tax credits that limit venture capitalists' obligations to Tennessee.
SouthComm reporter E. Thomas Wood described the selection of TNInvestco finalists as, among other things, a judgment about "strength of character," as if investment and speculation are now among the civic virtues. More reliable tests of character in my opinion involve the question of whether SouthComm reporters are transparent by providing disclaimers that Solidus is competing for the dollars on which they report and the matter of how those journalists report the news of Solidus' bid itself. Framing a bid for money as a test of character is itself biased. But reporter Wood acknowledges only one criticism of TNInvestco: the boiler plate corporate sideswipe that government bureaucrats may not be up to the task of evaluating business beauty queens.
Indeed, most venture capitalists say they rely more on "gut feelings" than objective financial metrics to evaluate investments. Since there is no way to operationalize "gut feelings" for the benefit of bureaucrats, the potential for conflict between state and business is clear. Yet, the onus for reform is not put on investors, but on government. The wealthy get their exemptions from reform lest their fragile pocketbooks be disturbed. Investors both want money from the government and want money without strings but with unchecked trust in their judgment.
Should they win the TNInvestco competition, Solidus will be enjoying tax breaks at the expense of tax payers, since some of the financial risk will be passed along to tax payers. The state's justification is that if subsidiaries like SouthComm expand and hire more employees, the new hires will spend disposable income, part of which will come back into state coffers in the form of taxes. Essentially, the state is willing to compel less powerful future employees to pay taxes while excusing powerful investors from meeting their obligation to support public works. Tax payers are tools in the TNInvestco trade.
However, reporters don't seem to be willing to question the TNInvestco double standard. Nor do they seem willing to challenge the attempts by market forces to open government revenues to private interests. But if the costs of expanding start-up businesses like SouthComm are too high to encourage investment, then perhaps the problem is with the market and not the government. Will SouthComm reporters and editors have the will to dissect TNInvestco deficiencies on the market side if SouthComm paychecks hinge on a TNInvestco win?
SouthComm's adopted motto, "Our passion is designing and producing magazines that truly tell your story," seems at odds with the high finance/quasi-government race for money and influence. I'm not convinced that they can ever tell the story of the hundreds of thousands of common Middle Tennesseans who may be jeopardized because TNInvestco removes some of the risks of consolidating newspapers, launching online news services, and making promises to expand local coverage while working to expand to other cities. But even if they could do so, the question remains: is it right to expose Tennesseans to such risk?