By Tom Still

MADISON – Gov. Jim Doyle hasn’t been sugar-coating the bitter fiscal pill that state government is destined to swallow. With sales tax revenues sliding, he’s predicting a state budget deficit of roughly $5 billion for the next two-year cycle and warning that many – if not most – state programs will be crimped.

But the budget problems facing Doyle and the Legislature, where both houses are now controlled by members of his own Democratic party, cannot be solved by cuts alone. Policymakers must also work to “grow” their way out of the crisis by fostering a climate that encourages investment, company creation and quality jobs.

That could mean stimulating the state economy, in ways that may be above-and-beyond what President-elect Obama and the new Congress will do, through targeted economic development programs.
At this month’s Wisconsin Early Stage Symposium in Madison, Doyle signaled he won’t roll up like a scared armadillo. He told about 250 business leaders and investors, mostly from the state’s growing technology sector, that hard times are no excuse to “pull the covers over our heads” and wait for the recession to blow over.

In fact, Doyle said, it may well be a time to build on state economic development programs that have worked. That should include Wisconsin’s successful tax credits incentives for investors in emerging, high-growth companies.

Launched in January 2005, the investor tax credits program built by the Legislature and Doyle has helped to nearly triple “early stage” investments by angel investors and venture capitalists in Wisconsin companies. In 2007, total early stage investments in Wisconsin reached $147 million, with the dollars spread over scores of deals in high-growth businesses ranging from advanced manufacturing to biotechnology to information technology.
For every $1 in tax credits awarded, the state gets $4 in investment – and the money is put to work immediately by start-up firms that rent or buy space, buy equipment, purchase supplies and begin the process of hiring tax-paying, skilled workers.

Because the tax credits don’t count against state revenues until they’re claimed, the economic stimulus effect of those credits begins well before there is a state cost – and those benefits far exceed the cost over time.

The Wisconsin program has received national attention from major business publications and other institutions that chart how states stimulate their high-growth economies. As Inc. magazine reported in August, “Wisconsin’s program is one of the most successful so far…”

None of this is voodoo economics. Economic studies have repeatedly shown that rapidly growing industries backed by the venture capital industry and like-minded angel investors have disproportionately contributed to our nation’s job growth, and that these investments are more likely to add high-paying, sustainable jobs for workers who hold college degrees, two-year degrees or other skilled credentials. These are jobs that contribute significantly to wealth accumulation in communities and states that foster the growth of investor-backed industries – which translates to more tax revenue for those states and communities without raising tax rates.

In 2005, the latest year for which full data is available, angel- and venture-backed companies in the United States accounted for 9 percent of the nation’s private-sector employment and 17 percent ($2.1 trillion) of the gross domestic product. Wisconsin has historically been a rounding error in most venture capital statistics, but the investor tax credits and a more coordinated approach to tech-based development has finally put the state on the map.

It might easily fall off the map, however, if the effort begun by Doyle and the Legislature four years ago is allowed to stagnate. That’s why the governor is considering improvements to the current program so that its reach might be extended – and investors will find Wisconsin an attractive place to do business, even when financial markets are unstable.

Wisconsin has an identifiable edge in research and development, high-growth start-up companies and the support mechanisms to nudge them toward profitability and job creation. The best way for Wisconsin to replace jobs lost in sagging industries is to grow new jobs in emerging markets. That also happens to be one of the best ways, over time, to expand the state’s tax revenue base and help to avoid future budget deficits.

The deficit will force some hard choices, but crisis can also breed creativity.  Doyle and members of the Legislature will likely employ both in the months ahead.

Still is president of the Wisconsin Technology Council. He is the former associate editor of the Wisconsin State Journal in Madison.


Click here to read another column on the importance of investor tax credits in Wisconsin: “Don’t raise income tax, raise investment credits“ by John Torinus of the Serigraph Inc.