RESEARCH

Proposed tax credit involves investment firm tied to numerous national insurance companies linked to some legislators’ own businesses. By Clint Brewer A bi-partisan piece of legislation in the Tennessee General Assembly stands to benefit some of the nation’s largest insurance companies with substantial tax credits, and some lawmakers sponsoring the bill are either agents for or appear to have business relationships with those very same insurance companies. The Tennessee Small Business Investment Company Credit Act (House Bill 2083/Senate Bill 1203) is a bill that is being posited as a boon to small business in Tennessee by its sponsors in the legislature and the lobbyists representing the business interests behind it .The act would create a $100 million fund for small business investment in Tennessee. The bill only states a private company would manage the money. The legislation creates the Tennessee Small Business Investment Company Credit or TSBIC. Under the credit, insurance companies may pay a $7,500 fee and invest $500,000 or more to qualify for the credit. Insurance companies in Tennessee – or their customers – pay up to 2.5 percent tax on gross premiums paid for by policyholders in the state or on property owned in the state. Under the legislation, insurance companies that participate in the fund would earn a tax credit against their premium tax equal to 80 percent of their investment in the fund. The legislation carries a hefty fiscal note, with decreases to state revenues for the tax credit program estimated at over $5 million annually for at least five years beginning in Fiscal Year 2013-14. According to a May 1 report on the Venture Nashville Connections news website, the bill is being sought by three different out-of-state capital companies, including Advantage Capital Partners, a St. Louis, Missouri company with over $1 billion in small business and private equity lending ability. Advantage Capital Partners has had success in multiple states using similar models of public/private partnership to create small business funds. Advantage Capital Partners’ website states the company has seen many of the major insurance companies in the country invest in similar funds in multiple states. A survey of the Advantage Capital Partners’ insurance company investors in previous funds shows that several of the Tennessee Small Business Investment Company Credit Act sponsors in the Tennessee General Assembly either work as producers for those same insurance companies or have a business relationship with them through their agencies. The lead House sponsor for the bill, Rep. Charles Sargent (R-Franklin), is a State Farm Insurance agent, according to his Statement of Disclosure of Interests on file with the Tennessee Ethics Commission and the Venture Nashville Connections report. State Farm is listed on Advantage Capital Partners website as having invested in “one or more of the Advantage Capital family of private equity and venture capital funds.” Sargent has not received any direct campaign finance support from Advantage Capital Partners, but campaign finance records show Sargent does enjoy significant support from other State Farm agents as well as insurance industry special interest money from political action committees. The details of a House Commerce subcommittee hearing where the bill was debated were also reported by the Venture Nashville Connections website on May 1. In the account, Sargent apparently told the subcommittee at the time State Farm was not aware of the bill. “State Farm ‘doesn’t know anything about this bill,’ insofar as he has been able to determine thus far, but that he was still trying to validate that understanding,” Venture Nashville Connections reported Sargent telling the subcommittee. In the Senate, bill sponsors include Senators Bill Ketron (R-Murfreesboro) and Eric Stewart (D-Belvidere). Ketron is an employee at a Murfreesboro independent insurance agency according to his Statement of Disclosure of Interests. Stewart started a business in the 1990s – the Stewart Insurance Agency in Winchester – that is still in operation today according to Stewart’s own campaign web site. Stewart’s Statement of Disclosure of Interests on file with the Ethics Commission lists him as the proprietor of the Stewart Insurance Agency. Information from Advantage Capital Partners website and statements from staff interviewed by telephone at both senators’ insurance agencies show their companies represent insurance carriers that have invested in Advantage Capital Partners funds in the past. Ketron’s employer, Universal International Insurance of Murfreesboro, offers insurance from Travelers and AIG. Stewart’s agency in Winchester carries Hanover and Travelers. All four companies have invested with Advantage Capital Partners in past ventures outside of Tennessee. Advantage Capital Partners has spent between $10,000 and $25,000 on lobbyists during the current legislative session according to Tennessee Ethics Commission reports. There are no records of any campaign finance contributions from the company or its officers to any Tennessee legislator or political entity. As of the release of this policy brief, Sargent, Ketron and Stewart had not returned telephone calls to their legislative offices for comment from the Tennessee Center for Policy Research. The legislation presently sits before the respective House and Senate Finance Ways and Means Committees.