SC Launch Slow to Respond to Funding FOIA

November 9, 2011

Investigative Reports

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The NerveIt’s been nearly seven weeks since The Nerve sent SC Launch a state Freedom of Information Act request to ascertain how the S.C. Research Authority affiliate was disbursing $6 million in taxpayer-supported funds it receives annually.

SCRA responded at the 11th hour, figuratively speaking, to the request, stating that it was in receipt of the FOIA inquiry and was working on a response. However, it gave no indication as to when it would provide the information sought, which included how SC Launch disbursed state money it receives; to whom it’s disbursed; and for what purpose it’s disbursed.

SC Launch gets $6 million a year through contributions to the Industry Partners Fund that are good for a 100 percent credit against state taxes. Created by the Legislature in 2006, the fund ostensibly is used for the development of startup companies.

However, the law was written so broadly that it’s not entirely clear just what parameters exist for how the money can be used. As a result, 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 EngenuitySC and New Carolina.

Those organizations are often operations that derive a substantial share of their funding from public sources and promote government-driven economic development.

The Nerve sent its FOIA request on Sept. 23, one day after SCRA’s executive committee met in Columbia.

Micki Howard, SCRA’s director of communications and legislative affairs, sent the agency’s response toThe Nerve at 4:31 p.m. on Oct. 14, 2011. That was 15 business days after SCRA had received the request, the maximum allowed by state law.

However, one of the glaring weaknesses of South Carolina’s FOIA law is that it does not specify a deadline by which information must be turned over.

That can be problematic; it took more than seven months for SCRA to comply with a Freedom of Information Act request filed by The Nerve last fall seeking information on bonuses paid to executives of the state agency and its affiliates between 2008 and 2010.

Even then, The Nerve was only able to elicit a response from SCRA by informing the agency that if a response was not received, The Nerve would be forced to assume that SCRA intended to be in willful noncompliance with the state’s FOIA law – a potential criminal violation – and would contact its attorney to discuss further action.

During the Research Authority’s Sept. 22 executive committee meeting, Dave McNamara, executive director of SC Launch, informed the executive committee that of the $6 million that SC Launch receives annually through the Industry Partners Fund, only about one-third goes into actual equity-based financing of startup companies.

The other two-thirds is diverted to other uses, including sponsorship of economic development organizations such as EngenuitySC, ThinkTEC and New Carolina, McNamara told the group.

Columbia-based EngenuitySC is one of Columbia’s higher-profile economic development organizations, though it has produced little in the way of actual results. Since 2004, the organization has received more than $2.5 million in public funding, according to information secured through a Freedom of Information Act request.

While the website listed for ThinkTEC, www.thinktec.org, doesn’t appear to be active any longer, there is a Facebook page for the entity, which is an initiative of the Charleston Metro Chamber of Commerce.

According to a description on Facebook, “ThinkTEC facilitates the growth of knowledge businesses in the Charleston region by leading initiatives, providing programs and connecting needs with resources to create a thriving business environment for entrepreneurs and established businesses in this industry.”

New Carolina is a Columbia-based public-private partnership that believes the key to South Carolina’s future prosperity rests with developing “clusters,” which, according to New Carolina’s definition, are groups of companies in a similar line of business that “collaborate to improve competitiveness.”

The issue with having a substantial portion of SC Launch funding going to organizations such as EngenuitySC and New Carolina is that SC Launch and SCRA rarely reveal that a large share of the taxpayer-supported money SC Launch receives annually goes to efforts besides bolstering startup companies. They also tend to underplay or ignore the role of tax dollars in SC Launch’s progress.

For example, a 2008 press release 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 entities as EngenuitySC and New Carolina, whose tangible results have been elusive, earlier investigations by The Nerve have found.

While SC Launch was created in 2006, 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 – an estimated $180 million in gross revenue last fiscal year, according to SCRA Chief Executive Bill Mahoney – 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.

During the Sept. 22 SCRA board meeting, McNamara, SC Launch’s executive director, said that the current breakdown of Industry Partners Fund money, with just one-third going to startups, had been going on during the “prior several years.”

This would square with allegations made by former SCRA Chairman Bill Masters in his resignation letter to Gov. Nikki Haley earlier this year 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 whom 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 controls 100 percent of the money given through the Industry Partners Act, rather than the contributions being controlled, as many believe, by SC Launch.

Donations to the Industry Partners Fund, set up under the Industry Partners Act to provide working-capital seed grants to new technology companies, are good for a 100 percent, dollar-for-dollar credit against state taxes.

SC Launch was created “to facilitate applied research, product development and commercialization programs, and to strengthen South Carolina’s Knowledge Economy by creating high wage-earning jobs,” according to its website.

The entity provides up to $200,000 to help companies bridge the gap between start-up and the point where venture capitalists are willing to invest in companies. More than 180 entities have received funding, according to SC Launch’s website, although it doesn’t list how much taxpayer-funded money has been doled out or who it’s gone to.

That’s one of the objectives behind The Nerve’s Freedom of Information Act request. How long before an answer is provided remains to be seen.

Reach Dietrich at (803) 779-5022 ext. 110, or kevin@thenerve.org.