The state’s biggest technology organization has unveiled its 2014 legislative agenda, and it looks a lot like last year’s.
That’s because the two main bills the Arizona Technology Council pushed last year failed to win final approval, despite some impressive bipartisan support.
For the upcoming legislative session, the tech council and its supporters will again trot out a bill to expand the state’s research and development tax credit — which passed the Legislature last session only to die on Gov. Jan Brewer‘s desk — along with a modified proposal to create a pool of money to be invested in early-stage tech companies.
The council, which has more than 750 members statewide, feels good about the chances for its legislative agenda this year, said Alex Rodriguez, director of the group’s Southern Arizona office.
“It didn’t get as far as we wanted it to, but we feel we’re in a better position coming into the next legislative session,” said Rodriguez, who earned a master’s degree in public policy from Harvard after graduating from the University of Arizona in political science.
Last session, a bill would have increased the amount of state tax credits for research and development from $5 million a year to $10 million in 2014 and $15 million annually after that.
That measure passed out of the Legislature, thanks to bipartisan support from lawmakers including House Speaker Andy Tobin But the governor vetoed the measure, explaining she was uncomfortable with the refundable nature of the credit, which would prompt the state to write a check to applicants without matching tax liabilities.
The other main bill backed by the Tech Council would have created a new dollar-for-dollar credit on premium taxes paid by insurers who contribute to a proposed “High Technology Business Investment Fund” to be overseen by the Arizona Commerce Authority. The credits would be capped at $10 million in fiscal year 2015, $20 million in fiscal 2016 and $20 million in 2017.
That measure passed the House but never reached the Senate floor.
Rodriguez said the research and development tax credit is a valuable tool to encourage high-tech growth in the state. Despite enjoying relatively broad support (the bill passed the House on a 46-14 vote and the Senate 21-8), the bill to expand the credit suffered the fate of many bills that reached the governor’s desk late in the session with budgetary baggage attached.
Rodriguez recalled that the Legislature and Brewer in the session’s last days were busy with the state budget deal to include a controversial expansion of Medicaid.
“Frankly, we weren’t surprised at that in light of the top priority for the governor and the Legislature. They were hammering out something meaningful on (Medicaid). … There were some casualties,” he said.
But the need and the demand is there for an expanded credit, Rodriguez contended, noting that the $5 million now available annually is quickly soaked up on a first-come basis.
“It’s starting to dry up as early as March, and by April they’re done,” he said.
The Tech Council is backing legislation to add $5 million in credit authority in 2015 and another $5 million the following year, bringing the total available to $15 million starting in 2016.
“That would go much further into the year and have much more penetration in terms of businesses out there that can really take advantage of it,” Rodriguez said.
The proposal to use taxpayer money to fund early-stage tech startups may be a tougher sell.
Instead of last year’s idea of using insurance premium tax credits to create a high-tech investment fund, the Tech Council this session will push a bill to create an “Early-Stage Technology Venture Fund” to be capitalized with $50 million in state money over three years.
The quasi-governmental Arizona Commerce Authority would hire a professional investment firm to manage the fund, and part of the revenue from successful ventures would be plowed back into the fund, creating an “evergreen” effect, Rodriguez said.
Evergreen or not, some lawmakers and groups like the conservative Goldwater Institute have staunchly opposed any use of taxpayer “green” to benefit private interests, citing the Arizona Constitution’s strict “gift clause.”
Despite such misgivings, Arizona is surrounded on all sides by states — and Mexico — with some kind of state-backed investment fund to spur innovative businesses, and Arizona is losing out, Rodriguez said.
“We’re the oddball out — we are exporting our talent and treasure, and that’s a problem,” Rodriguez said.
While such funds have been touted as economic drivers, they have run into trouble in some states including Iowa, which in late 2012 paid $26 million to bail out its controversial “Fund of Funds,” which used tax credits to back bank loans.
The requirement that a professional investment firm run the early-stage fund should help Arizona limit its risk and avoid an Iowa-style disaster, Rodriguez said.
The proposed fund would focus on companies in the development phase where they have a product or technology with significant value but aren’t big enough for traditional venture-capital backing — a zone often called “the Valley of Death,” Rodriguez said.
Though high-tech startups are notoriously risky — about three-quarters of venture-capital-backed firms in the U.S. don’t return investors’ capital, according to a 2012 Harvard study — Arizona can’t afford to sit on its hands, Rodriguez said.
“Clearly, startups are risky, but doing nothing is also a risk,” he said.