Who Benefits and Who Pays for Maine's Big Government Management of Our Economy?

An Open Letter to Senator Trahan,


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.

Following the Money

I have been following links found at The Department of Innovation and compiling them in one document for the purpose of understanding what is actually going on with our tax dollars. Without further comment I am posting them here.

The Office of Innovation was established in 2004 by the Maine Legislature (5MRSA §13105) to "encourage and coordinate the State's research and development activities to foster collaboration among the State's higher education and nonprofit research institutes and the business community."


What is EPSCoR? Since its origin in 1978 the Experimental Program to Stimulate Competitive Research (EPSCoR) has grown and evolved to the point where it is a highly regarded, government-wide research and development effort.

Established by the National Science Foundation (NSF), EPSCoR identifies, develops, and utilizes a state's academic science and technology resources in a way that supports wealth creation and a more productive and fulfilling way of life for its citizens. EPSCoR benefits states like Maine that have traditionally received small amounts of Federal R&D funding

· DOE's Office of Science is part of the bipartisan competitiveness/innovation initiative and its funding is expected to double over the next few years. The National Academies' study, "Rising Above the Gathering Storm", was highly supportive of this increase in DOE Office of Science funding.

· DOE provides more than 40% of all federal funding for the physical sciences. It also makes substantial contributions to research in computer science, biological and environmental science and energy areas, including biofuels, magnetic fusion, hydrogen fuel cells and clean coal technologies.

DOD DEPSCoR
DOD research accounts for more than one-third of all funding for engineering research and provides 70% of all federal funding for mechanical engineering, 60% for electrical engineering, 42% for materials engineering, 29% for computer sciences and 28 percent for oceans sciences. It also provides funding for research on infectious diseases and injuries associated with battlefield conditions.

DEPSCoR supports research in areas identified by the Air Force Office of Scientific Research (AFOSR), Army Research Office (ARO) and Office of Naval Research (ONR).

National Institute of Health's Institutional Development Award: NIH IDeA

· This important program increases our nation's biomedical research capability by improving research in states that have historically been less successful in obtaining biomedical research funds. IDeA funds only merit-based, peer-reviewed research that meets NIH research objectives in the 24 IDeA states.

· NIH IDeA is comprised of two initiatives: Centers of Biomedical Research Excellence (COBRE) and IDEA Networks of Biomedical Research Excellence (INBRE). COBRE and INBRE programs are flagship examples of successful programs supported by IDeA.

· The COBRE program is designed to increase the pool of well-trained investigators in the IDeA states by expanding research facilities, equipping laboratories with the latest research equipment, providing mentoring for promising candidates, and developing research faculty through support of a multi-disciplinary center, led by an established, senior investigator with expertise in the research focus area of the center.

· INBRE increases the pipeline of outstanding students and enhances the quality of science faculty in the IDeA states by networking research intensive and undergraduate institutions. The INBRE program prepares students for graduate and professional schools as well as careers in the biomedical sciences, supports research and mentoring of young investigators, and enhances research infrastructure at participating institutions.

National Science Foundation: NSF EPSCoR

The NSC EPSCoR goals are: a) to provide strategic programs and opportunities for EPSCoR participants that stimulate sustainable improvements in their R&D capacity and competitiveness; and b) to advance science and engineering capabilities in EPSCoR jurisdictions for discovery, innovation and overall knowledge-based prosperity.

OBJECTIVES

To catalyze key research themes and related activities within and among EPSCoR jurisdictions that empower knowledge generation, dissemination and application;

to activate effective jurisdictional and regional collaborations among academic, government and private sector stakeholders that advance scientific research, promote innovation and provide multiple societal benefits;

to broaden participation in science and engineering by institutions, organizations and people within and among EPSCoR jurisdictions;

to use EPSCoR for development, implementation and evaluation of future programmatic experiments that motivate positive change and progression.

What does EPSCoR mean for Maine? EPSCoR funds are used to establish partnerships with leaders of state government, higher education and industry to effect lasting improvements in a state's research infrastructure and its national R&D competitiveness. In addition to research competitiveness, the EPSCoR programs stimulate human resources, technology transfer and economic development. By enhancing science and engineering research, education and technology capabilities, this Federal-State partnership is balancing the distribution of valuable Federal research dollars. These partnerships are designed to stimulate local action that will result in lasting improvements to the state's academic research infrastructure and increased national R&D competitiveness.

Maine has been awarded more than $59,000,000 from EPSCoR funds since FY2000:

The Department of Defense (DoD) SBIR and STTR programs fund a billion dollars each year in early-stage R&D projects at small technology companies -- projects that serve a DoD need and have commercial applications.

· The SBIR Program provides up to $850,000 in early-stage R&D funding directly to small technology companies (or individual entrepreneurs who form a company).

· The STTR Program provides up to $850,000 in early-stage R&D funding directly to small companies working cooperatively with researchers at universities and other research institutions.

· Small companies retain the intellectual property rights to technologies they develop under these programs.

· Funding is awarded competitively, but the process is streamlined and user-friendly.

· Learn more by going to Overview and other sections. Also visit our Resource Center at www.dodsbir.net

DoD's SBIR and STTR Programs

The purpose of DoD's SBIR and STTR programs is to harness the innovative talents of our nation's small technology companies for U.S. military and economic strength.

The Small Business Innovation Research program funds early-stage R&D at small technology companies and is designed to:

· stimulate technological innovation

· increase private sector commercialization of federal R&D

· increase small business participation in federally funded R&D

· foster participation by minority and disadvantaged firms in technological innovation

About EPSCoR

to activate effective jurisdictional and regional collaborations among academic, government and private sector stakeholders that advance scientific research, promote innovation and provide multiple societal benefits;

· Co-Funding of Disciplinary and Multidisciplinary Research:

EPSCoR co-invests with NSF Directorates and Offices in the support of meritorious proposals from individual investigators, groups, and centers in EPSCoR jurisdictions that are submitted to the Foundation’s research and education programs, and crosscutting initiatives. These proposals have been merit reviewed and recommended for award, but could not be funded without the combined, leveraged support of EPSCoR and the Research and Education Directorates. Co-funding leverages EPSCoR investment and facilitates participation of EPSCoR scientists and engineers in Foundation-wide programs and initiatives

Sec. 1. 5 MRSA §13105, sub-§2, C, as amended by PL 2005, c. 19, §2, is further amended to read:

C. The development of new commercial products and the fabrication of such products in the State through the Maine Technology Institute under section 15302 and the technology centers under section 15321; and

Sec. 4. Transfer of duties. The Commissioner of Environmental Protection and the Commissioner of Economic and Community Development shall coordinate to ensure that the duties, functions and responsibilities of the Department of Environmental Protection, Office of Innovation and Assistance are transferred in a timely manner to the Department of Economic and Community Development, Office of Innovation. The Department of Economic and Community Development, Office of Innovation shall assume the duties, functions and responsibilities transferred to it in this Act within existing budgeted resources.



He said at you can't socialize the risk and privatize the gain. This rings a chord with what I suspect is the case with the taxpayer's role in The Small Business Growth Fund - which is a high growth capitalistic investment group created by the Maine State Legislature in 1995 "for public good" (like the non-profits). From what I am reading in the legislation, there seems to be a lot of merging with commercial interests and "the public good' which would set the legal parameters for taking tax payer money and investing it in a private investing firm.



I heard about SBGF at the Juice conference where we were told that the government puts in one dollar to every nine dollars of private investment money.



I immediately wanted to know what the taxpayer got out of it but this was not said. At first I assumed that the taxpayer would be a 10% investor but I have yet to find that stated anywhere. If the taxpayer is not a stockholder, then our state government gave this group of private investors in "high growth businesses” a grant and that would make it exactly what Eliot Spitzer articulated- socializing the risk and privatizing the gain- as we know that the private investors expect to see a profit from the money they put in- where as if the government gave this firm a grant, then the tax payers do not get a share of the investment - only a share of the risk.



I am researching information found at the Department of Innovation and will post it on The Main Street Economy. I generally do not have anyone reading my blogs, but this seems so important and I hope that some others will pay attention.

I am clicking on the links to the legislation, which of course says that if you want it interpreted, get a lawyer-, which I am not- But I do know the English language and so I'll go with that.

Be interesting to get other's input on the meaning of the legislation, some of which was only passed this year.