By Tom Still
MADISON – Economic development is usually a game of one step forward and one back.
Consider the business news of late in Wisconsin: No sooner had the Illinois-based Uline packaging company announced this month it would move to Wisconsin, bringing about 1,000 jobs with it, than did other major employers announce they would lay off a similar number of state workers.
Keeping Wisconsin in the “net plus” category for job creation is a never-ending task that requires a mix of risk-taking and innovation on the part of state policymakers, who now find themselves staring at the prospect of a national recession that could undo some of the gains of the last five years.
Even if a recession is milder or shorter than what some analysts predict, and even if it bypasses Wisconsin due to the current strength of its export economy, the overall challenge is still the same: Create more than enough new jobs to replace those being lost.
In his “State of the State” speech Wednesday night, Gov. Jim Doyle will unveil his latest ideas for meeting that challenge and keeping Wisconsin’s jobs-creation pipeline filled with new entries. With the help of like-minded members of the Legislature, a plan for keeping Wisconsin ahead of the perpetual curve could pass by spring.
Called “Innovate Wisconsin,” and “Accelerate Wisconsin,” Doyle’s proposals would:
- Build on the success of a 2005 law that created incentives for investments in qualified start-up companies.
- Offer a limited exclusion for capital gains tax reinvested in Wisconsin start-ups.
- Double state funding for high-tech grants and loans from $2.5 million to $5 million annually.
- Offer tax credits to companies that dramatically increase spending on research and development tax credits, and create both sales and property tax exemptions for R&D equipment.
Changes in the law governing state tax credits for investors in qualified start-up companies will remove some artificial barriers without increasing the total amount of tax credits available, which should reassure budget-conscious lawmakers. Under Doyle’s proposal, start-up companies could receive up to $4 million in tax-creditable investments from any combination of angel or venture investors. Current law contains specific caps related to the type of private equity investment, such as angel or venture. As a result, there have already been instances in which angel investors have been “capped out” in receiving tax credits for making follow-on investments in a start-up company.
Doyle’s capital gains tax plan would permit individuals, partnerships and limited liability companies to skip paying state taxes on up to $10 million of their capital gains if those gains are reinvested in qualified Wisconsin start-ups. It’s a targeted break that would unlock money that could be redirected to high-growth investments in Wisconsin, encourage investments in companies that produce high-end jobs, lower the cost of capital available to qualified entrepreneurs, and speed technology transfer.
It also democratizes private equity investment by encouraging a whole new category of investors – those who may have made money on stocks, real estate or other property – to reinvest their money at home.
A doubling of technology grants and loans through the Wisconsin Department of Commerce would help provide some of the “first money in” for promising start-up firms, and a necessary precursor to future rounds of private investment.
Although Wisconsin fares well in attracting academic R&D, meaning research dollars won by universities, it still spends less than the U.S. average. That’s largely because private companies here spend less. Total R&D spending in Wisconsin was $2.7 billion in 2005, or 1.23 percent of the state’s gross domestic economy that year. Nationally, states on average invested 1.65 percent of their economies in 2005 to research and development. Minnesota, by contrast, devoted more than twice as much of its economy to R&D than Wisconsin. It showed in Minnesota’s per capita income, new company creation and other growth categories.
Doyle would provide tax credits to companies that increase their R&D spending by more than 25 percent over their three-year average. Exempting from state sales taxes a manufacturer’s machines and equipment used in research and development would further encourage R&D investment by some of our most innovative private companies.
The governor isn’t alone. Lawmakers in both parties see merit in these ideas. But many worry about the cost, given the tight state budget. Those lawmakers should also consider the cost of inaction, which could affect state budgets for years and decades to come. Taking bold steps now will help avoid economic retreats in the future.
Still is president of the Wisconsin Technology Council. He is the former associate editor of the Wisconsin State Journal in Madison.