CHARLESTON, W.Va. -- In 2002, when the Legislature approved a $225 million bond issue for some 45 economic development projects -- including the Cabela's complex in Wheeling, Pullman Square in Huntington and Appalachian Power Park in Charleston -- a little-discussed provision was inserted into the legislation that set aside another $25 million for the state Economic Development Authority to invest in venture capital companies.
By definition, venture capital is a high-risk (but potentially high-return) investment, and the Council of Finance and Administration was advised last week that $20.35 million of the loans are now deemed uncollectable, with a book value of $3.65 million remaining on the original $24.01 million in venture capitol investments.
Three of four $4 million investments -- to Anthem Capital of Baltimore; Toucan Capital of Bethesda, Md.; and Walker Ventures of Glenwood, Md. -- are total losses. Another $4 million loan, in Adena Ventures of Athens, Ohio, has a current value of $329,145.
Mountaineer Capital of Charleston, operated by Patrick Bond and Rudy Henley, has fared somewhat better, with $1.84 million of losses on a $3.8 million loan, and a current book value of $1.95 million. Novitas Capital of Wayne, Pa., has a $1.037 million book value on a $3.64 million state loan.
Delegate Doug Reynolds, D-Wayne, a Huntington businessman, called the investments "bad to abysmal."
Adding insult to injury, under the law authorizing the loans, the Development Authority is required to accrue 3 percent annual interest on each of the loans even though at least three of the companies are defunct.
"It is continuing to accrue and with them having no ability to repay, it is affecting the state's financials," according to Diana Stout, general counsel for state Treasurer John Perdue.
Sen. Brooks McCabe, D-Kanawha, noted the state has been through this before, when hundreds of millions of dollars of the $3 billion workers' compensation unfunded liability were in accrued interest charged to defunct companies for unpaid premiums.
"Workers' comp had huge accrued interest numbers when it was clear it should have been written off years prior," said McCabe, a former partner with Henley as part of a real estate development firm that was dissolved in 2006.
McCabe said it would be prudent to pass legislation allowing the Development Authority to write off the losses, so that the state does not continue to accrue uncollectable debts.
"My feeling is it's important for the [financial] books of the state should be correct," he said. "In the private sector, when you write something off, and shut something down, you don't continue to accrue interest on it."
That aside, McCabe said he hopes the poor outcome of the 2002 investments won't deter future investment in high-tech research and development.
"The state needs to figure out how to increase the capacity for venture capitol in West Virginia," he said. "It's extremely small, compared to the states around us."
A welcome change of pace: There won't be a party tent at the Governor's Mansion for the governor's Christmas parties this year. The parties (there will only be two) will be held at the Culture Center, although there will be a one-hour open hour at the mansion preceding each party.
As an honorary Marshall alumnus, it's worth noting a controversy that has erupted among faculty.