Fates Of Angel Tax Credit, Small Business Funding On The Table At Legislature
The future of Minnesota’s angel investment tax credit and a state-funded boost to a federal program for small-business technology commercialization are hanging in the balance in St. Paul as state legislators meet this year.
The two measures are high on the agenda of the Minnesota High Tech Association, whose leader said she is pushing lawmakers to see the state’s tech competitiveness as an interconnected ecosystem where taxpayer support for academic research and its startup business climate go hand-in-hand.
MHTA President and CEO Margaret Anderson Kelliher told TCB that bipartisan backing is evident so far for keeping the angel tax credit alive (and indeed boosting it) after its scheduled 2017 “sunset,” as well as providing matching funds for the federal Small Business Innovation Research and Small Business Technology Transfer (SBIR/STTR) programs.
But with legislative spending proposals, she added, it’s never over until it’s over.
“The good news is we’ve had entrepreneurs whose companies have used the angel tax credit and investors over to testify, so it’s been progressing and I think the legislators have been fairly receptive,” Anderson Kelliher said. “We’re doing grassroots advocacy to make sure people are talking to their legislators about it. We really need to remove that ‘sunset.’
“But it’s little harder to explain to lawmakers about the long-range economic benefits of this than it is for a ‘job-by-job’ kind of funding proposition. This is about bringing capital into Minnesota, retaining capital here and building companies, so there are questions, mainly from Democrats, about how long it takes for the jobs to materialize – it could be five years out. But I think people generally understand the economic cycles of these kind of high-paying, high-tech jobs.”
MHTA: Angel credits address state’s lag in tech startups, entrepreneurship
A big part of her pitch to legislators is that despite Minnesota’s well-known research strengths in health care and computer science, the state lags in the levels of entrepreneurship it’s able to spawn, thanks largely to scarcity of early-stage funding for startups. It’s the missing link for turning the state into a much more prominent tech job hotbed, MHTA contends.
Thus, the most pressing legislation for the state’s tech startup community, especially its emerging health care and biotechnology industries, is the angel investor tax credit program, officially known as the Small Business Investment Tax Credit, which is facing extinction after this year unless legislators agree to renew it.
The MHTA asserts $377 million in business investment has been tied to the credits since their inception in 2010. The credits provide qualified investors in certified small businesses with a refundable income tax credit equal to 25 percent of their investments up to a maximum of $125,000 ($250,000 for married joint filers). Under current law, it “sunsets” after 2017. Annual allocations of $15 million were provided from 2014 to 2016 and $10 million for 2017.
Under identical bills introduced in the House and Senate, the program would become a permanent one, removing the sunset clause. And they would provide a higher, permanent annual allocation of $20 million. The effort boasts bipartisan support: Its House sponsors include a pair of Republican committee chairs, Sarah Anderson of Plymouth and Greg Davids of Preston, as well as DFLer Paul Rosenthal of Edina.
Anderson, its chief sponsor, testified at a February 21 hearing before Davids’ House Tax Committee in support of the measure, calling the angel credit an important tool in boosting the state’s potential as a medical technology center.
“Minnesota can really become the digital health capital of the nation,” she said.
Also praising the credit was David Russick, founder and managing director of Gopher Angels LLC, an angel investment network certified under the program, who said it is succeeding in attracting the attention of out-of-state investors “who would not normally look at Minnesota-based companies.”
However, one aspect of the proposed legislation produced disagreement. As the law is now is set up, half of the annual tax credit total is reserved for investments in greater Minnesota or minority- or women-owned businesses through Sept. 30 of each year, after which any remaining funds are available for any qualifying investment. An adopted amendment, however, would eliminate that “carve-out” going forward, which drew the ire of some Democrats.
Rep. Jim Davnie (DFL-Minneapolis) called the move “deeply concerning” given Minnesota’s troubling racial and gender disparities, while Rep. Paul Marquart (DFL-Dilworth) said removing the carve-out for greater Minnesota—where nine counties have unemployment rates of more than 7 percent—was a blow, adding he wanted to see it reinstated in the final bill.
In the end, the angel tax credit bill—at a permanent funding level of $20 million per year and no carve-outs—was recommended by the Tax Committee for inclusion in the final omnibus tax. As of this writing, it had yet to have a committee hearing in the Senate.
SBIR/STTR measure would augment funding to federal grant winners
Meanwhile, the SBIR/STTR proposal had also been introduced in both chambers and was awaiting its first committee hearings.
That measure would appropriate $8 million in each of 2018 and 2019 to provide a state match for federal funding under the two programs, which hand out research and development grants ranging from $150,000 to $1.5 million to small companies with commercially promising technologies and innovations. The program is run by the U.S. Small Business Administration and the funding comes from 11 different federal agencies, including the National Institutes of Health.
The MHTA was pushing hard for the funding in part because the organization in October became new home for the Minnesota presence of the SBIR/STTR programs, taking over from the Metropolitan Economic Development Agency, and since then has been beefing up educational efforts to raise the awareness of the funding opportunities it offers.
“We think it’s a good fit for us,” Anderson Kelliher said. “The companies participating in the SBIR/STTR program tend to be small science and technology firms that are commercializing products and services and are seeking non-dilutive fund to grow these ideas.
“It directly addresses what we have found about Minnesota through the latest Milken Institute State Technology and Science Index, which is that while we have moved up five places since 2015 to seventh in the nation for overall science and technology capabilities (thanks to our world-class medical research and devices sectors), we only ranked 16th for entrepreneurial infrastructure.”