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Republicans propose sweeping changes to promote investment

A $130 million package of legislative incentives proposed recently by state Republicans is designed to build on efforts to transform Wisconsin’s economy into a knowledge-based, innovation economy. The package of 20 bills, dubbed “Invest Wisconsin,” seeks to encourage the creation of high-technology businesses, ands is part of a three- to four-year campaign designed to deliver tax relief, regulatory reform, judicial reform, workforce retraining, infrastructure enhancement and capital investment, says State Sen. Ted Kanavas (R-Brookfield), one of the principals behind the proposed legislation.

Invest Wisconsin comes on the heels of the passage of job creation bills during the 2003-2005 legislative session, which was cited as one of the most pro-business sessions in modern state history. Invest Wisconsin seeks to build upon that effort with a package of bills that support promoting capital investment, enhancing the state’s vital infrastructure and reforming government regulations that its sponsors say are burdensome to business.

“We are trying to create a more entrepreneurial economy in Wisconsin, so we can keep our best and brightest,” Kanavas said recently in an interview with WTN. “I anticipate a lot of [bipartisan] cooperation. We are betting the ranch that will we will be able transition this economy from where it has been over the last five to 10 years, from lower-skilled manufacturing-type jobs to more high quality jobs driven by intellectual property. Those things have to happen for Wisconsin to be able to compete against low-cost providers around the world.”

The proposals contained within the Invest Wisconsin plan are also designed to help existing manufacturers and agriculture companies innovate so they can stay competitive in the world economy, Kanavas said.

One of the more controversial aspects of the Invest Wisconsin proposal involves eliminating the capital gains tax for those who invest long-term cap gains in Wisconsin businesses. The capital gains tax elimination would be phased in over time.
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“I think we are very far behind as it relates to our entrepreneurial economy, given the pedigree of our intellectual property economy – we have to reinvest, “ Kanavas said, adding that a proposed innovation tax credit is critical, as it means having the ability to reinvest in a new business processes.

“We are creating a culture for innovation and entrepreneurship. We have to grow our own at home. We can’t rely on the kindness of strangers. I think it is very important. What we need here more than anything else is a robust capital climate. We are way behind other states in the Midwest in forming capital."

Wisconsin’s investment in venture capital significantly lags behind other Midwest states. According to the National Venture Capital Association, Wisconsin posted $57 million in venture capital that assisted nine companies in 2004. By contrast, Minnesota invested $370 million in 40 companies, Illinois $270 million in 39 companies, Michigan $147 million for 120 companies, Indiana $66 million for six companies and Missouri $62 million for 11 companies.

“We can create a better entrepreneurial climate if we have capital coming to Wisconsin,” Kanavas said. “And the best way we can do that is to stop taxing capital. If you want to stop something from being effective, tax it. Wisconsin needs to be a magnet for capital formation, and our current tax climate doesn’t allow it. I think it’s going to be a fight, and I think it’s going to be a fight worth fighting.”

As a current board member of the Wisconsin Technology Council and a former Wisconsin Department of Commerce official and Department of Financial Institutions Deputy Secretary, Terry Grosenheider believes that the individual investor must be engaged in building the new Wisconsin economy.

With the establishment of Act 255, the state legislature created a $65-million package of investment tax credits spread over more than 10 years. By comparison, Wisconsin residents will legally wager $6.5 million in the next 32 hours, Grosenheider says.

“If we want to create new businesses and new jobs, we must make it easier to invest, not more difficult,” he said. “The state has very few levers in terms of changing policy and affecting the economic environment. One of those levers is tax policy, and that’s why we need to take a look at how we treat capital gains. We need new investments and we need new businesses.

“Unless we change the mix or types of businesses, we aren’t going to change the number of people holding master’s degrees and doctorates,” adds Grosenheider, who is now a private banker for U.S. bank in Madison. “We need to give them a reason to stay here. By changing the capital gains taxation levels, we can encourage new investment in those businesses that are coming to create opportunities. If we truly want higher incomes in this state, then we have to change the investment patterns, and that means changing state law. You can’t just change lip service to it, you actually have to do something about it.”

From a technology/business development standpoint, repeal of the shareholder wage/lien statute will be important for people trying to raise money for venture funds, Kanavas said, adding that it currently acts as a disincentive for people to invest in Wisconsin-based funds.

Under the entrepreneur category, Invest Wisconsin seeks to:

• Increase the number of security holders from 25 to 100.
• Increase the number of security offers from 25 to 300, or under such exemption permit sales to 100 security holders.
• Eliminate all prohibitions on advertising of offerings for all exemptions, assuming advertising is filed simultaneously with its use and is subject to anti-fraud provisions.
• Increase the amount of capital that can be raised from $5 million to $20 million.
• Facilitate the raising of venture capital by providing a tax credit to broker-dealers of 10% of the first $500,000 raised in an offering of a Qualified New Business Venture in any 12-month period.
• Permit any finders to be able to receive a fee for finding investors of up to $2 million in a 12-month period under Wisconsin exemptions without a requirement of being licensed.

Kanavas also believe there is support from the Doyle administration for supplying an additional $2 million in funding for the Biomedical Technology Alliance (BTA) in southeast Wisconsin. Full funding had been promised, but was pulled during the state budget session last summer. (The total for the BTA is $2.5 million over two years.)

"What it’s going to do is finally bring together all of the research institutions in southeastern Wisconsin to fund projects with matching private dollars that will be performed by the students at the universities," Kanavas said, adding that one of the main benefits is that new intellectual property will be created.

“What we are trying to do is move more money.” Kanavas said. “What we have here is intellectual capital, along with highly talented, smart, creative people. With this combination, if you just put the yeast of capital into the equation, we are going to create something that will be pretty extraordinary here.”

For a more detailed examination of the Invest Wisconsin proposal, click here.

John Rondy is a correspondent based in Milwaukee. He can be reached at jrondy@wistechnology.com.

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