By Commissioner Thomas E. Hampton
Recently, the DC Auditor issued a scathing report on the Certified Capital Companies (CAPCO) program, which is administered by the District of Columbia Department of Insurance, Securities and Banking (DISB).
DISB is responsible for regulating insurance companies, District banks, mortgage lenders and brokers, and securities firms operating in our jurisdiction. We perform licensing, analysis and examination functions, as well as product review on about 60,000 entities. Our mission is two fold: to attract and retain financial services companies, and to provide effective and efficient regulatory processes to protect the residents of the District of Columbia.
The services provided by the financial-services industry to consumers and businesses are critical to increasing economic growth and providing financial security. Without these important services, it is hard for businesses and therefore, state and local governments to survive. This issue could not be more important given the current economic crisis the United States is experiencing. Although the genesis of the crisis may have occurred within the credit markets, the restrictions banks and other financial-service companies have placed on the extension of credit and other financial products have exacerbated the economic problems.
As the financial-services regulator for the District of Columbia, our agency bridges the gap between the products and services our licensees provide, and the financial service needs of our businesses and residents. Although the administration of the CAPCO program is not one of our primary regulatory functions, this program is very important to the viability of small businesses in our city. The program provides capital and loans to businesses and serves as an economic development tool in the District of Columbia. Job creation is not the single goal of the program. In addition to new employment opportunities in the District, businesses funded through the program pay taxes, lease office space, and spur new business; all of which are beneficial to the city and essential to the District economy during these recessionary times. This is why DISB disagrees with the conclusions and findings stated by the DC Auditor Deborah Nichols in her March 12, 2009, audit report on the CAPCO program.
The audit does provide some useful strategies to improve the CAPCO program. However, the audit also contains some inaccurate facts. For example, the District of Columbia government has not spent $76 million on the CAPCO program as the auditor reports. Rather, the total cost of the program has been set at $50 million, to be allocated in future tax credits. Moreover, none of those tax credits have been used to date. Under the CAPCO, $50 million allocation of future-year tax credits was provided to insurance companies in exchange for the $50 million dollars in funds that these companies invested in the three CAPCO companies in 2004. The insurance companies may claim a maximum of $12.5 million in tax credits per year until all their credits have been claimed, beginning this year.
Additionally, the audit unfairly portrays the program as being grossly mismanaged by DISB. While there were some discrepancies in the administration of the CAPCO program, I believe that the agency approved applications that complied with the intent, if not the letter, of the law. As of today, the CAPCO program has made $22 million in investments and loans to District businesses or business groups; $28 million is still available. It was the intention of DISB, and the Fenty Administration to get more capital and loans out to District businesses. It should be noted that all companies receiving investments were based in the District of Columbia at the time the investment was executed, and provided jobs to District residents, and other local economic benefits.
In an effort to get more capital and loans to our businesses, DISB has worked with the three CAPCO companies on strategies to mitigate some of their loan underwriting standards. Currently, two of the CAPCO companies, in collaboration with other organizations, implemented a small business “Premier Business Plan” development contest. This innovative program provides the winner access to $100K to enhance their small business. One of the primary impediments for businesses getting access to capital is an inadequate business plan. This initiative should augment the business plan process for District businesses.
DISB will continue to work to improve the CAPCO program. Some aspects of the audit may be helpful in DISB’s review of the program. However, DISB believes the program is an important vehicle for assisting District businesses with financing necessary to grow and thrive in the District of Columbia.
Commissioner Thomas E. Hampton is the head of the DC Department of Insurance, Securities and Banking