The District of Columbia’s Certified Capital Companies (CAPCO) Program is under intense scrutiny following the release of a damning performance report by District Auditor Deborah K. Nichols. The audit alleges that CAPCO program expenditures of $76 million (only $22 million of which was actually invested in businesses) have resulted in the creation of just 31 jobs since its inception in 2004. Further, the audit found that the number of DC residents employed by CAPCOs actually declined by two during that period.
Nichols has recommended that the program be terminated based on the CAPCO program’s lack of effectiveness in achieving the economic development goals sought by the District and its severe deficiencies in management by the Department of Insurance, Securities and Banking (DISB). The audit found that DISB:
- Failed to verify information presented in Qualified Business applications;
- Failed to conduct mandated annual reviews of CAPCOs;
- Certified businesses to participate in the program that did not meet CAPCO requirements;
- Failed to encourage CAPCOs to invest in businesses that complied with CAPCO’s investment strategies; and
- Failed to establish a standard to measure the economic impact of the CAPCO program.
The CAPCOs themselves allegedly engaged in a host of unsavory activities too numerous to cite here, but included are doozies such as one company investing equity in its own subsidiaries. Even if management deficiencies are disregarded, CAPCO programs nevertheless have insurmountable structural problems in the way that they incentivize (or fail to incentivize) actual economic development.
Professor Julia Sass Rubin, a community development finance expert at Rutgers University, says that CAPCO programs are “an extraordinarily expensive and inefficient way…to pursue economic development.” At a recent District of Columbia Council Committee Roundtable to explore the audit’s findings, Councilmember Michael Brown argued that there must be counterexamples to the failed CAPCO programs in many states. Rubin’s response: “There isn’t any example where it’s not inefficient.”