MINNEAPOLIS, Minnesota — Something was missing at the annual LifeScience Alley conference Wednesday. And no, I’m not referring to venture capital money.
For the past two years, the Minnesota House committee that oversees bioscience development held a special hearing on why Minnesota needs an angel investor tax credit to boost high tech companies. And for the past two years, nothing happened.
But there was no such meeting this year, partly because it would cost the cash-strapped state $3,000 to convene one. Or maybe committee chair Tim Mahoney (DFL-St. Paul) doesn’t want to jinx what supporters say is the best chance in years the credit will pass.
“I’m the most optimistic I’ve ever been about this,” said Mahoney, a self-described “recovering socialist.”
Peter Bianco, director of life science business development at Halleland Health Consulting in Minneapolis, is also feeling lucky. Given Minnesota’s weak economy, an investment tax credit could jump start the state’s high tech economy, he said.
“There is a sense of inevitability,” Bianco said. “The world has not stood still. The data shows this legislation really works. There is a direct linkage between the tax credit and jobs. We’re out of time. We got to start growing jobs.”
A Deep-dive Into Specialty Pharma
A specialty drug is a class of prescription medications used to treat complex, chronic or rare medical conditions. Although this classification was originally intended to define the treatment of rare, also termed “orphan” diseases, affecting fewer than 200,000 people in the US, more recently, specialty drugs have emerged as the cornerstone of treatment for chronic and complex diseases such as cancer, autoimmune conditions, diabetes, hepatitis C, and HIV/AIDS.
Fine words, but forgive me if I’m skeptical. After all, Minnesota also needed to grow jobs last year but ideological tax warfare between Republican Gov. Tim Pawlenty and the DFL-controlled legislature ultimately torpedoed a bill. So what’s changed?
Sen. Kathy Saltzman (DFL-Woodbury), a strong champion of the credit, said she learned several lessons from last year:
Start early. Time has never been on the side of the credit. Last year, legislators inserted a $10 million-a-year, 25 percent tax credit for angel investors in the final tax bill literally minutes before the session expired. Since the summer, Saltzman and her allies have been hard at work crafting a new bill even though the legislature doesn’t reconvene until early 2010. Saltzman has been negotiating directly with Ward Einess, Minnesota’s Commissioner of Revenue and Pawlenty’s top advisor on tax policy.
Stand it alone. For the tax credit to pass, legislators must craft a stand-alone bill to insulate the credit from the inevitable partisan feuds that engulf St. Paul. Pawlenty has long said he supports the credit but he ultimately rejected last year’s tax bill because it contained tax increases he vehemently opposes.
Figure out to pay for it. I thought this was fairly obvious, but what do I know? Saltzman and Mahoney say the state will finance the credit by cutting something else, possibly the $50 million research and development credit Minnesota awards to large companies like Medtronic Inc. Finding an offset is crucial since officials estimate Minnesota’s budget deficit to hit $1.2 billion over the next 19 months.
Make it count now. Under last year’s bill, investors could not realize the credit until several years after they’ve written the checks. That completely negates any incentive for angels to act now. To position the credit as a true economic stimulus, the new bill allows investors to receive the credit immediately.
Supporters also say the issue has suddenly become a top priority for lawmakers. Why? OK, this part of my post is a little uncomfortable, even self serving. But it is what it is.
Sources say the stories I wrote for the Star Tribune, my previous employer, caught lawmakers attention, especially my series on how Wisconsin is far outpacing Minnesota in biomedical investment.
Last year, while Minnesota was too busy not passing the credit, our rival state more than tripled the annual pool of credits for angels and venture capitalists from $11.5 million to $37 million, despite a $5 billion budget deficit. Wisconsin also boasts two large university research parks and arguably the country’s most successful tech transfer program in Wisconsin Alumni Research Fund (WARF).
What really galled lawmakers was the flight of promising local biomedical start-ups, including University of Minnesota drug spin-off VitalMedix, Rapid Diagnostek and RJA Dispersions, a nanotech firm, to Wisconsin over the past year because they could not find funding in Minnesota. In addition, 11 Minnesota biomedical start-ups recently presented to angel investors in Wisconsin. If they win money, they will most likely move across the river.
Politicians are not particularly good at thinking ahead, but they do have some pride. Say Minnesota needs an investment credit to ensure its future and lawmakers will yawn. Say Minnesota needs an investment credit because we’re losing our best companies, technology and talent to a rival state and suddenly their ears perk up.
But before we start cracking open champagne bottles, the credit still faces significant obstacles: House Tax Committee Chairwoman Ann Lenczewski (DFL-Bloomington) and Gov. Pawlenty.
Lenczewski, a populist academic, was never a fan of investment credits, calling them giveaways to the rich. Some people suspect she only inserted the credit in last year’s tax bill because she knew full well Pawlenty would veto the package. But if enough lawmakers on the tax committee support the credit, she’ll eventually go along, Mahoney said. I’m not holding my breath though.
And then there’s Pawlenty. The guv says he supports the credit but has never spent much political capital to pass it.
In November 2008, Pawlenty held a major press conference to announce a Green Jobs Initiative. Under the plan, investors who park their money in up to 20 regional investment funds could get tax credits totaling $20 million over four years. Half of the credits would go to investments in companies that create “green jobs.”
The plan had its obvious flaws. Despite his party’s profession for free-market capitalism and minimal governmental control, Pawlenty has shown a disturbing habit of coaxing investment dollars toward specific regions and industries. Venture capital money works best when it flows to the best ideas and start-ups, whether they’re hatched in Minneapolis/St. Paul or East Fargo. Pawlenty doesn’t seem to get this.
Nevertheless, his proposal was better than nothing. But as Minnesota’s budget and economy sunk deeper in the hole, Pawlenty abandoned the initiative and chose to focus on opposing tax increases.
Will Pawlenty show up this year? Ward Einess’ work is encouraging but T-Paw may have other things on his mind, like running for president.
We can look at this in two ways. Passing the long elusive tax credit could boost Pawlenty’s economic credentials and cement his legacy in Minnesota. Or, as some lawmakers suspect, Pawlenty will be distracted by the campaign and ultimately lose interest in the issue.
There may be some truth to that. For Pawlenty to win the Republican primary, he must win over the party’s conservative base, who are already skeptical of the little-known moderate Republican from flyover country. Facing down DFLers over tax increases may help Pawlenty’s conservative credentials more than passing an investment tax credit.
All signs point to Pawlenty digging in. In an op-ed that appeared last month in the Star Tribune, Pawlenty proposed a “‘Spending Accountability Amendment’ to the state Constitution that would cap spending at the level of revenue actually received during the previous budget period.”
“After more than 40 years of mostly explosive growth, it’s time the state budget had more backbone,” he wrote. ” Status quo defenders will cite bureaucratic reasons why it can’t work. But they’re wrong. Minnesotans look at their checkbook balance before they write a check. State government should do the same.”
Let’s be candid. The amendment will not pass. But the fact that Pawlenty would devote precious political time to a non-starter sounds like a man who’s more focused on Iowa caucuses than Minnesota biotech.
I could be wrong. Maybe this IS the year for the credit. Even a small one, which is more likely, would be something. Passing the credit would demonstrate to investors and companies Minnesota is finally getting serious about its future, instead of looking longingly at its neighbor across the river.
