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Making Sense of SC Launch Numbers No Easy Task

Questions still remain after the S.C. Research Authority responded to an S.C. Freedom of Information Act request for information on how its affiliate SC Launch spent approximately $18 million in state money over the past three years.
 
SCRA late last month replied to a Sept. 23 FOIA request from The Nerve seeking a breakdown of funds disbursed to SC Launch through the legislatively created Industry Partners Fund for fiscal years 2009, 2010 and 2011.
 
<em>The Nerve</em> sought specific information on the $6 million SC Launch receives annually from the fund, including to whom the money was allocated and how it was allocated.
 
In response, the Research Authority sent The Nerve 15 pages of information.
 
This included a list of companies SC Launch invested in, and a list titled “non-return based funding,” which included such items as providing legal services, marketing services and matching funds for federal small-business grant programs to private companies, along with loans to private businesses.
 
For 2011, SC Launch directed money to 16 companies for a total investment of $2.6 million, while its non-return based funding totaled $1,992,669.
 
Also included in the FOIA response were separate spreadsheets for fiscal years 2009, 2010 and 2011 identifying expenses for company services, mandated programs and administrative costs. However, it’s unclear in the spreadsheets exactly what entity is being scrutinized.
 
The only identifying feature on each of the three pages is a listing for the fiscal year in question.
 
It would seem, for example, unlikely that the is for SC Launch. The last column on the sheet reads “Contribution to SC Launch, Inc.,” and lists a cost of $2,118,000.
 
It also wouldn’t seem to be SCRA, a $195 million operation, as the total costs listed on the spreadsheet for 2011 are barely more than $6 million.
 
The information SCRA sent to The Nerve regarding how SC Launch funds are disbursed also didn't seem to square with what was discussed at a recent SCRA Executive Committee meeting.
 
Although SCRA’s director of communications and legislative affairs, Micki Howard, stated in the agency’s FOIA response to <em>The Nerve</em> that the Research Authority’s reply “lawfully and entirely fulfills your most recent FOIA request,” it fails to adequately detail the final destination of all money SC Launch receives.
 
For fiscal year 2011, the information SCRA provided showed company investments and non-return based funding of $4,592,670, about $1.4 million less than SC Launch received through the Industry Partners Fund, contributions to which are good for a 100 percent credit against state taxes.
 
Officials with SCRA did not return inquiries from The Nerve seeking further information.
 
SC Launch was created in 2006, while SCRA goes back to 1983, when it was chartered through legislation. The Research Authority is a state-created and state-controlled technology and real estate development and management company.
 
SCRA does not receive direct state appropriations, but it has received government largesse over the years. Upon its creation, the General Assembly gave the agency approximately 1,400 acres of undeveloped land, estimated at that time to be worth $10.7 million, and $500,000. Since then SCRA has received other land grants, as well.
 
The Research Authority makes most of its money from contract management fees. Its work centers on commercializing high-tech research, such as the development of new composite materials used in the construction of Navy submarine hulls.
 
The Industry Partners Fund was created by the Legislature in 2006 with the idea of giving tax credits to create a fund to develop startup companies. The Nerve detailed last month</a>, the law was written so broadly that it’s not entirely clear just what parameters exist for how the money can be used.
 
And a presentation made at a recent SCRA Executive Committee meeting would seem to contravene the idea that a large share of money SC Launch receives from the Industry Partners Fund actually goes directly to entrepreneurs.
 
In fact, it appears that SC Launch may be doling out as much as two-thirds of the $6 million it receives annually not to startups, but to other endeavors, including public-private partnerships such as New Carolina.
 
These organizations often derive a substantial share of their funding from public sources and promote government-driven economic development, rather than entrepreneurship typically associated with a technology-based economy South Carolina leaders cited as a factor behind the creation of the Industry Partners Fund.
 
Only about one-third of the $6 million received annually for the prior several years went into equity-based financing, SC Launch Executive Director Dave McNamara told the SCRA Executive Committee during a board meeting in late September.
 
Another third goes to sponsorship of such entities as Columbia-based EngenuitySC, ThinkTec in the Lowcountry and Innoventure in the Upstate, along with aiding university startup assistance programs and Small Business Innovation Research matching programs, he said.
 
The final third goes into corporate sponsorships, such as helping programs like New Carolina award prizes, McNamara told the board.
 
Yet, according to a bar chart included with the information sent by the Research Authority in response to The Nerve’s FOIA request, SCRA claims that 79 percent of SC Launch program funds, more than $5 million, went “direct to entrepreneurs” in 2011. In 2010, that figure was 87 percent; and in 2009 the figure was 81 percent, according to SCRA.
 
Defining 'Direct'
 
The crux of the problem would appear to lie in how SCRA’s defines the term “direct to entrepreneurs.”
 
An issue with having a substantial portion of SC Launch funding funneled to organizations such as EngenuitySC and New Carolina is one of disclosure.
 
SCRA rarely makes public that large chunks of money diverted by taxpayers to the Industry Partners Fund end up not with startup companies, but instead in the hands of public-private entities that are more public than private, or in public-private developments.
 
For example, SC Launch has poured more than $675,000 into South Carolina’s largely government-driven efforts to develop a hydrogen-centric economy, a push that has cost the state tens of millions of dollars but netted little in the way of results.
 
Included among SC Launch’s investments was $540,000 for a hydrogen fueling station that was built in Columbia in 2009, records show – despite the fact there was but one hydrogen-powered vehicle in the state at the time</a>.
 
SCRA and SC Launch tend to heavily emphasize the entrepreneurial angle of the Industry Partners Fund when soliciting donations.
 
For example, a 2008 press release</a> highlighted the fact that SCRA and SC Launch had garnered $6 million in private donations for that year, money “which will help fuel the Knowledge Economy through strategic investments in technology start-ups within the state.”
 
The release went on to add that “SCRA utilizes the funds to accelerate entrepreneurial growth of technology start-ups that are creating high-paying jobs and building equity in the future for all South Carolina. SCRA support of the SC Launch! program supplies high-potential entrepreneurs and researchers with key tools for success, a mix of mentoring and seed money of up to $200,000.”
 
There is no mention of taxpayer dollars being sidetracked to such public-private entities or investments in such questionable economic projects as hydrogen fueling stations.
 
The method SCRA and SC Launch use to divvy up Industry Partner Fund support is nothing new, either.
 
During the Sept. 22 SCRA board meeting, McNamara, SC Launch’s executive director, said that the current division of fund money, with just one-third going to startups, had been going on during the “prior several years.”
 
Indeed, former SCRA Chairman Bill Masters earlier this year wrote in his resignation letter to Gov. Nikki Haley</a> that less than 50 percent of funds contributed to the program actually finance SC Launch’s entrepreneurial equity initiatives.
 
The rest, he wrote to Haley back in February, goes to SCRA overhead, the universities (the University of South Carolina, Clemson and the Medical University of South Carolina, all of which have a seat on SCRA’s Executive Committee) or, in some cases, other alliances.
 
Since 2006, approximately $30 million has been diverted to SC Launch through the Industry Partners Fund, money that otherwise would have gone to the state’s general fund to provide funding for such core services as education and law enforcement.
 
At the time of his resignation, Masters recommended removing SC Launch from SCRA and placing it either under the S.C. Department of Commerce or making it a stand-alone agency, in order to allow it to more efficiently invest in South Carolina entrepreneurs.
 
Masters also alleged that SCRA’s Executive Committee and top management control 100 percent of the money given through the Industry Partners Act, rather than the contributions being controlled, as many believe, by SC Launch.
 
SCRA Chief Financial Officer Julia Martin seemed to confirm this during the Sept. 22 board meeting, saying that Research Authority officials help devise how SC Launch money is spent.
 
“Through the budget process we work together to develop a budget in general (for SC Launch) that’s one-third for services; one-third for non-return based like the SBIR (Small Business Innovation Research) matching grants and USAP (university startup assistance program) grants; and one-third that’s set aside for that entity for their use,” she said.
 
Reach Dietrich at (803) 779-5022 ext. 110, www.kevin@thenerve.org.

State Agencies Series SCRA Economic Development Alternative Energy Accountability Transparency

SC Launch S.C. Research Authority Industry Partners Fund