D.C. Program to Aid Small Businesses Creates 31 Jobs at a Cost of $76 Million, City Auditor Finds

By Nikita Stewart
Washington Post Staff Writer
Saturday, March 14, 2009

A District program established to invest in small businesses that would in turn create jobs for city residents has yielded just 31 new jobs at a cost of $76 million, according to a report by D.C. Auditor Deborah K. Nichols.

Nichols is recommending that the city terminate the Certified Capital Companies program, known as CAPCO, which is managed by the Department of Insurance, Securities and Banking. Its commissioner and a director struggled to explain the program's benefits at a D.C. Council hearing yesterday.

According to the report, the program had $54 million in start-up and administrative costs and invested $22 million. Over five years, the investment money was poured into businesses that employed 205 people. After the investments, they employed 236 workers, an increase of 31 jobs.

"It is clear that the District's CAPCO program has not had the desired economic impact," Nichols wrote in the report.

Firms that invest in small companies through the program are given tax credits. Originally, it was thought that the lost revenue would be offset by rises in income, sales and business taxes.

Thomas E. Hampton, commissioner of the insurance department, and Dana Sheppard, who oversaw CAPCO, said the auditor's study did not consider the program's total economic impact.

According to Nichols's report, the agency never set up a "standard measure of the economic impact" and did not conduct required annual reviews. Hampton and Sheppard acknowledged to council members that they had fallen short on both fronts.

Nichols's probe was instigated last year by council members Kwame R. Brown (D-At Large) and Mary M. Cheh (D-Ward 3).

"When we looked at the numbers . . . at best, it was a waste of money," said Cheh, who was chairman of the Committee on Public Services and Consumer Affairs at the time.

Council member Muriel Bowser (D-Ward 4) is now chairman of the public services committee, which oversees the insurance department.

The committee will hold a roundtable April 3, and companies that benefited from the CAPCO program are expected to testify.

A few small-business executives gave their accounts yesterday.

Adrienne Smoot, president of AV Smoot, said five banks turned her down for a loan before two venture capital groups invested in the construction company. The Nichols report said the firm received $750,000 in CAPCO funds.

AV Smoot has 25 employees, four of whom live in the District, she said. Under CAPCO rules, 25 percent of a company's workers must be District residents and 75 percent must work within city borders.

Smoot said other workers had lived in the District when they were hired but moved to Maryland and Virginia for cheaper housing. The business had contributed to the city's tax base in other ways, such as business taxes, she said.

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