It seemed like a good idea in the early 1980s: The state would provide loans to start up technology companies with business prospects that were just too risky for conventional bank loans.
Almost 20 years and more than $20 million in taxpayer money later, lawmakers are saying it is time for the state to bow out of the loan business. "It's not good policy to take taxpayer money and put it into high-risk investments," said House Majority Leader Kevin Garn, R-Layton.And that could mean the end of the Utah Technology Finance Corp. (UTFC), a quasi-governmental entity charged with administering the loan program. That is just fine with UTFC, which on Wednesday presented a plan to the Legislative Management Committee that would transform the agency into a private, for-profit entity that would continue to make the same kind of loans.
Lawmakers will likely consider legislation privatizing UTFC when they meet next January.
Bolstered by state audits critical of the management practices of UTFC, lawmakers have been increasingly critical of the agency over the past several years. Recent legislative sessions have seen repeated attempts by some lawmakers to dissolve UTFC.
Last year, Speaker of the House Marty Stephens, R-Farr West, told UTFC officials to come up with a privatization plan, and on Wednesday they presented legislative leaders with a first draft.
According to UTFC Executive Director Duane Blackley, UTFC would sell about 90 percent of its current loan portfolio to specialized lenders called Utah Industrial Loan Corps., which could use the investments to satisfy certain federal loan requirements. That would generate $11.5 million that would be returned to Utah taxpayers.
UTFC would then reorganize as a Small Business Investment Corporation with a license from the Small Business Administration. It could also apply for designation as a Community Development Financial Institution, a program administered by the U.S. Department of the Treasury.
Blackley said the new private entity would have the same mission as the current UTFC, but the loan funds would not come out of taxpayer pockets as it has since 1983.
"We could pay back to the state a very significant portion of its investment in UTFC," Blackley promised lawmakers.
Since 1983, UTFC has spent about $20.4 million in state revenue. The first five years of the program, UTFC administered about $5 million in grants to startup companies in return for future royalty payments. Those royalties have returned little cash to the state.
Later, UTFC shifted its focus to a loan program, although the high-risk nature of the loans has resulted in a high default rate. That's why Blackley said it is a good deal for the state to get $11.5 million, the current face value of the outstanding loans.