Recent State Actions to Access Venture Capital

Access to venture capital is on the agenda of many states. Recent announcements in four states demonstrate that several different approaches can be used to address the problem.

Contact: Sam Leiken
Social, Economic and Workforce Programs Division NGA Center for Best Practices

* In Florida, the state’s pension fund managers have decided to invest up to $400 million in venture capital funds to make up for a decline in the venture dollars its companies have received, from a 3 percent share of the U.S. total three years ago to 1 percent today.

* Iowa Governor Tom Vilsack announced the creation of a $5 million venture capital fund thanks to an initial investment by the insurance company AEGON to help Iowa’s start-up companies grow. The Iowa First Capital Fund is fully funded by private money and is presently worth $5 million. The fund is expected to increase to as much as $10 million in the coming weeks.

* Massachusetts– a well-known vanguard of venture capital–has decided to commit two percent of the $28 billion in assets of the Massachusetts Pension Reserves Investment Trust for targeted investments in economic development and housing projects. Types of investments to be considered include seed funding for industries "overlooked" by private venture capitalists.

* Governor Ted Kulongoski of Oregon signed HB 3613 earlier this summer, requiring that the Oregon Investment Council have at least $100 million in venture capital investment in Oregon businesses by Jan. 1, 2008. Oregon’s venture capital funds will also come from its pension fund, which is managed by the council.

Related Links:

* Oregon VC Fund http://www.leg.state.or.us/03reg/measures/hb3600.dir/hb3613.en.html

http://www.nga.org/center/frontAndCenter/1,1188,C_FRONT_CENTER%5ED_5914,00.html

*********************

Proposal would dissolve Colorado CAPCO
Treasurer: Use cash to lower insurance

By Andy Vuong
Denver Post Business Writer

State Treasurer Mike Coffman wants to eliminate the embattled CAPCO program and replace it with an initiative to lower insurance costs for Colorado residents and businesses.

In a move that drew criticism from members of the task force he created to review the Certified Capital Company (CAPCO) program, Coffman on Thursday announced a proposal that would replace the program’s remaining $100 million in tax credits to lower taxes on all insurance premiums, from health to auto.

"We have the opportunity now to eliminate a broken government program, replacing it with a tax-relief plan that has clear and meaningful benefit to Colorado families and businesses," Coffman said.

The state legislature created the CAPCO program in 2001 to spur economic growth by giving $200 million in tax credits to insurance companies that, in turn, lend money to CAPCOs to invest in small Colorado businesses.

Critics of the program say it has done little to boost Colorado’s economy. Supporters say the program has created jobs and provided access to capital for companies that struggled to raise funds.

"I’m always in favor of cutting taxes, but the treasurer’s plan amounts to a $100 million gift to big insurance companies," said Bob Lee, director of the state’s Office of Economic Development and International Trade. Lee has been a harsh CAPCO critic. "If, and that is a big if, insurance companies pass the savings on to policyholders, a family paying $1,000 in premiums can expect to save about $1 per year."

Ryan Brennan, vice president of Advantage Capital Partners, one of Colorado’s six CAPCOs, said eliminating the program would hurt the state’s economic development efforts at a time when it needs help.

"There has been tremendous job creation … there’s been $45 million invested in Colorado businesses (through CAPCO)," Brennan said. "This is the absolute wrong time for the treasurer to sabotage a job-creation program."

Colorado Software & Internet Association board member Chad Brownhill called Coffman’s proposal worthwhile, but added that the state needs a program that helps small businesses access capital.

Coffman said he will work with state lawmakers to introduce the measure at the beginning of the next legislative session in January with hopes that changes can be made before the second round of tax credits are issued.

During the first phase of the CAPCO program in April 2002, insurance companies received about $100 million in tax credits that will be spread out over 10 years. Another $100 million in tax credits is scheduled to be issued next April.

House Majority Leader Keith King, R-Colorado Springs, drafted the amendment to the CAPCO legislation that split the tax-credit disbursement into two phases so lawmakers could review the program after the first year.

"Before we totally eliminate the program, I would still like to work with the governor’s office, Bob Lee and Mike Coffman to see if economic development can be done appropriately in the state," King said.

The discussion may be moot for now, though. In an opinion released Tuesday, the Office of Legislative Legal Services said eliminating or reducing the amount of tax credits in the CAPCO program would require voter approval because of guidelines in the Taxpayer’s Bill of Rights amendment (TABOR).

This means it would be impossible for Coffman’s measure to be approved before the next round of CAPCO tax credits is issued.

But TABOR author Douglas Bruce said Thursday that Coffman’s proposal won’t require voter approval and can be imposed by the legislature because it doesn’t result in increased revenue for the state.

"If there is an offsetting reduction in revenue, and the result is no net income for Colorado, that falls within the constitutional guidelines," Bruce said.

http://www.denverpost.com/Stories/0,1413,36~33~1656917,00.html