A heavily criticized expansion to a state funded venture capital program is becoming a divisive issue in the Tennessee Republican Party, including the crowded GOP primary for the open 6^th Congressional District seat.

Candidate Lou Anne Zelenik in a statement released last night took shots at fellow 6^th District GOP primary candidates and sitting State Senators Jim Tracy and Diane Black for their involvement with the Tennessee Small Business Investment Company Credit Act and the program it created, TNInvestco.

Zelenik called the program “crony capitalism” and challenged the Senators to explain voting for the original law.

“I think Ms. Black and Mr. Tracy should not only explain how they came to believe this secret operation was a good thing, but then lead the charge to dismantle TNInvestco”, Zelenik said.

TNInvestco became an issue this legislative session when Democratic Gov. Phil Bredesen’s administration offered an million expansion to the program. TNInvestco funds venture capital companies by issuing them tax credits the firms can sell to insurance companies. The proceeds of those sales are then to be used on small business investments.

The program has been widely criticized for its secretive nature, though the closing of records related to TNInvestco was not written into the original law. Bredesen administration Commissioner of Economic and Community Development Matt Kisber and Commissioner of Revenue Reagan Farr have fought open records efforts to review how the tax credits were awarded.

The law gives sole discretion to Kisber and Farr to award the funds to certified TNInvestco companies. Kisber triggered a little-known 1988 law allowing his department to seal any economic development records he deems “sensitive” in order to keep scoring matrices used to award the tax credits secret. Last year, 0 million in tax credits were awarded to six venture capital firms to sell under this system.

In addition, leaders with a group written into the law to advise Kisber and Farr – the Tennessee Technology Development Corporation – have been critical of the process used to award the original 0 million. A draft memo uncovered by Tennessee Watchdog saw a leading TTDC official questioning whether the TNInvestco process was being “subjugated to political influence.”

GOP lawmakers sponsored the original law – and the new amendment seeking to expand the program – though it was a Bredesen administration initiative. Tracy was one of the sponsors of the original law and Tracy and Black voted for its passage. Rep. Charles Sargent, a Franklin Republican, is said by legislative sources to be the main advocate for the Bredesen administration for the million expansion.

Zelenik compared TNInvestco to policies of President Barack Obama’s administration.

“TNInvestco reminds me of the Obama administration spreading   taxpayer money to special friends and supporters. The government should not be in the
business of picking winners and losers. I’m asking to go to congress to stop this type of backroom, secretive deal making”, added Zelenik.

Tracy defended the original TNInvestco law, calling it “a good conservative idea.”

However, he added that he would not vote for the new million amendment unless a group of amendments that have been shot down in the House and Senate Commerce Committees are added. Those amendments include unsealing the records, allowing the State Comptroller to audit the program’s success rate and closing any “revolving door” opportunities allowing Kisber, Farr or administration officials to work for TNInvestco related companies.

“The program was designed for jobs,” Tracy said. “The framework and the idea are good conservative ideas. I’m not for what is going on this year. Without those amendments on it, I’m not voting for it. “

More GOP Pushback

TNInvestco is encountering other significant GOP opposition in the legislature from leading Republicans who are questioning the transparency issues being created by Kisber’s application of the 1988 law.

Rep. Joe Carr, a Republican, saw his group of amendments concerning unsealing the TNInvestco records, adding comptroller audits and the “revolving door language” fail in the House Commerce Committee Tuesday.

Carr admitted there was obviously some GOP support for the bill but quickly added there was also some very bipartisan concern over the transparency of the program.

“We have had some concerns that for every questions answered on this bill two more come up,” Carr said. “In the Small Business Subcommittee, we were frankly concerned about the accuracy of the answers we were getting (from the administration.)

“This is not a partisan issue. There are people on both sides of the aisle concerned about the cloak of secrecy that exists in the process as to how these VCs were selected.”

Senate Commerce Chair Jack Johnson offered an amendment last month that would exempt TNInvestco from Kisber’s ability to seal records, effectively unsealing the scoring matrices used to award the original 0 million in tax credits. The amendment did not get out of the Commerce Committee nor did a similar amendment offered by State Sen. Mae Beavers.

Johnson told Tennessee Watchdog Wednesday the amendment for the additional million would not have his vote in the Senate floor unless the transparency issue is addressed.

“I am not going to vote for the bill unless the amendment is adopted,” Johnson said.

Tracy said he had not seen Zelenik’s release, but predicted the TNInvestco expansion would not get out of the Senate without Carr and Johnson’s amendments.

“I think it is going to have a very hard time passing in the Senate without those amendments,” Tracy said.

Black could not immediately be reached for comment for this story.