Push is on for tax credit to spur high-tech business growth

By Heather J. Carlson

The Post-Bulletin, Rochester MN

In spite of a year filled with grim economic news, southeastern Minnesota's biobusiness partnerships are continuing to expand.

But they'll need help to keep growing, and to that end, a new idea is drawing support: an angel tax investment credit.

It has been five years since Gov. TimPawlenty delivered his State of the State speech from Rochester to announce his support for a four-year university and the genomics partnership between the University of Minnesota and Mayo Clinic.

Those visions have since become reality. The University of Minnesota Rochester has a new space downtown with a unique focus on the health sciences. The university already has teamed up with Mayo Clinic, Hormel Institute and IBM to create a cutting-edge bioinformatics center that would provide assistance to startup life science companies.

Meanwhile, the Minnesota Partnership for Biotechnology and Medical Genomics has funded 52 different projects over the past five years. Those projects have generated more than $45 million in leveraged funding that has come back to the state, according to Dr. Eric Wieben, co-director of the partnership.

Plans are also under way for Elk Run, a 200-acre biobusiness park in Pine Island.

While these projects are moving ahead, there still are plenty of challenges. Among the biggest is a lack of venture capitalists willing to invest in small startup companies that commercialize locally developed inventions, said Jeremy Lenz, vice president of operations for the BioBusiness Alliance of Minnesota.

So the alliance is pushing the idea of an angel tax investment credit in the hopes that it could help spur local investment. To qualify, companies would have to be determined eligible by a state agency. The idea is to provide tax incentives to encourage major investors to put their money into early-stage companies. The advantage of a credit is that unlike a grant, it is the investor — not the government — that decides which projects are worth investing in, Lenz said.

"The reason why we're fighting for that so much is that when you look at it, it puts the investment vision into the hands of the investor,"he said.

The credit would give a tax break to investors in young but promising businesses. So-called angel investments are risky but can carry big payoffs. While the credit can take different forms, one proposal is to offer the credit for investment in high-tech, manufacturing or green business jobs with less than 100 employees and $2 million in gross receipts.

Supporters of the credit know it is a tough session to ask for any assistance. Minnesota lawmakers are grappling with a $1.2 billion deficit this budget cycle. That deficit is expected to climb to $5.4 billion in the two-year cycle. So Lenz said the alliance decided to only come forward with one legislative initiative — the tax credit. It is estimated to cost the state between $8 million to $10 million.

Lenz argues that the tax credit would ultimately end up being a major boost to the state economy. He said Wisconsin has attracted businesses since it implemented an angel investment tax credit program.

But efforts to get such a credit passed have stalled in the Legislature over the past decade. Last year, the measure passed the Legislature as part of a large tax measure. Pawlenty ended up vetoing the bill because he opposed the tax increases in the measure.

This year, the idea appears to have broad support among Republicans and Democrats. The Republican governor put forward what he called a "Job GrowthInvestment Tax Credit." It would have provided up to $5 million in credit per year for those who invested in businesses that met certain criteria. Half of the dollars would be designated for green job investments.

Pawlenty spokesman Alex Carey said Pawlenty continues to support this type of tax credit.

"Gov. Pawlenty strongly supports an angel investment tax credit aimed at stimulating business development, and plans on introducing an initiative similar to the one contained in his budget proposal last year,"Carey said.

Democratic state Rep. Kim Norton of Rochester said she also supports the idea of such a credit, but said the challenge will be making sure it is paid for.

"We continue to be interested in this as one of the strategies that the Legislature might do to support private business and growth," she said.

This type of credit could help development at Elk Run, the biobusiness park in Pine Island. Norton said she knows that people have been frustrated that the project has not moved more quickly, but it won't happen overnight.

Given the state's financial woes, Norton said the real challenge will be to protect funding for important local projects — including the $16 million allocated to the genomics partnership.

"The fight is going to be to hold onto what we have," she said.