By James McNair
The Cincinnati Enquirer

Ohio doesn't want to own stock in private companies after all.

Gov. Bob Taft said Wednesday that it was never his intention to seek that authority through the bond issue going before voters Tuesday. The measure calls for the state to issue $500 million in bonds over 10 years toward science and technology development projects but includes a provision that would let the state own stock in companies receiving taxpayer money.

In Cincinnati to announce a $25 million grant Wednesday, Taft said the drafters of the issue resolution went too far on the stock-ownership issue. If Issue 1 passes, he said, he will not seek legislative approval of that provision.

"We want to channel funds into partnerships like this one," he said of the new Center for Computational Medicine, which brings together Cincinnati Children's Hospital Medical Center, the University of Cincinnati and five companies.

States generally forbid the investment of treasury money in companies and private ventures. New Mexico is one exception. In Ohio, the ban dates back more than 150 years, when delegates to the Ohio Constitutional Convention of 1850-51 drew a deep line between the public and private sectors in Ohio. Until then, the Ohio General Assembly was a virtual feeding trough for business interests.

An 1837 act called the Loan Law went so far as to require the state to help bankroll railroads, canals and highways, which were private-sector undertakings, according to a 1985 account written by David M. Gold in the University of Toledo Law Review. By 1840, the law had become known as the Plunder Law, and its funding of projects never built or completed led to its repeal in 1842.

Ohio's practice of investing in private enterprise put the state deep in the red. From 1830 to 1840, the debt rose from $4.3 million to more than $12 million, Gold wrote. As for its munificence to industry, all the state had to show was two usable canals, virtually no highways in the regions that needed them, and a squandering of most of the money invested in railroads.

Constitutional historian Tom Swisher, editor of a 1990 book titled the Ohio Constitutional Handbook, gave the state credit for building an effective transportation network in a short span of time. But he, too, cited the pitfalls of state forays into private enterprise.

"They put the state's money and credit at risk in business schemes that often were risky at best, and the demonstrated willingness of the legislature and local bodies to use them was an open invitation for private interests to dip into the public till," Swisher wrote.

A Cleveland resident, Swisher is retired today. He said Issue 1 contains much to support. But he said he is disturbed by the provision giving the state authority to finance - and take stock - in startup companies.

"They could invest in General Motors and still lose their shirt," he said.

Still, no one expects Ohio to return to the wild-and-woolly 1830s and '40s.

Projects seeking state funding go through a rigorous screening process involving independent reviewers and Taft's three-person Third Frontier Commission, made up of Ohio science & technology adviser Frank Samuel, Ohio Board of Regents chancellor Roderick Chu and Ohio Development director Bruce Johnson. And before the state can issue bonds or take ownership positions in companies, the Ohio General Assembly would first have to pass what is called implementing legislation.

Just three weeks ago, Taft stood by the provision allowing state ownership of company stock. He said he didn't expect much of the proceeds of his $1.6 billion Third Frontier tech-development program to be invested in companies.

"I think if that occurs, it should be held to an absolute minimum," he said.

Ohio wouldn't be the first state to give itself the power to invest treasury funds in private ventures.

Earlier this year, the New Mexico Legislature passed such a bill. The state's Investment Council went on to approve the investment of $29 million in three projects, only to reverse course on two because of newfound doubts about the projects' venture capital backers. Last month, the state re-approved one of the projects - an $18 million purchase and refurbishing of a semiconductor plant - after new investors came on board.

E-mail jmcnair@enquirer.com