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Lawmakers renew push to incentivize investors to give money to advanced industry startups

Note: This is the second of three stories outlining legislative attempts to spur economic growth by giving tax credits to businesses and industries. Today’s focus: HB14-1012, the Advanced Industry Investment Tax Credit. A fourth story covers federal crop insurance subsidies.

By Lars Gesing
CU News Corps

Colorado lawmakers have pushed hard during this year’s General Assembly session to extend and increase tax credits to industries and corporations in the hopes that such breaks would spur job growth and the overall economic performance in the state.

CU News Corps analyzed this year’s legislative session and the key corporate tax-credit incentive bills that lawmakers proposed and passed. News Corps found that many of the programs put in place don’t always work as well as lawmakers intend.

House Bill 14-1012, which proposed the advanced industry investment tax credit, aims to incentivize so-called angel investors, wealthy individuals looking to put their money into local startups, to help new businesses with early-stage capital.

An amended version of the bill passed the Senate on April 30, and the House confirmed the changes in a second vote two days later. The bill will become law once Gov. John Hickenlooper signs it within the next month.

State Rep. Max Tyler (D-Lakewood), one of the bill’s three House co-sponsors, said early-stage capital was one of the problems most startup businesses encountered.

“Maybe this bill can be the tipping point by providing an incentive to invest into those businesses,” Tyler said.

The advanced industry investment tax credit allows an investor to claim a reduction of their state income tax bill equal to 25 percent of their investment. If the startup operates in a rural or economically distressed area, investors can even claim a credit equaling 30 percent of their financial engagement, which has to be at least $10,000.

In Colorado, advanced industries include companies that specialize in aerospace, advanced manufacturing, bioscience, electronics, energy and natural resources, information technology and infrastructure engineering.

The Boulder Chamber of Commerce welcomed the efforts put forward by Tyler and the bill’s other sponsors, state Rep. Cheri Gerou (R-Evergreen) and state Sen. John Kefalas (D-Fort Collins).

“We need to support the advanced industry programs because that’s how we excel as a community,” said John Tayer, president and CEO of the Boulder Chamber. “The success and vitality of our economy are everyone’s business. We need to thoughtfully invest in key state industries, in particular those which provide [economic] growth.”

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This year is not the first time state legislators tried to incentivize angel investors with tax credits. In 2010, lawmakers created a similar program. But those incentives never worked – because of the program’s small scale, as backers of this year’s new attempt argued.

The 2010 bill capped a 15-percent tax credit at $20,000, and only investments made in 2010 were eligible in the first place. The program’s overall size was limited to $750,000.

This year’s bill, which replaces the innovation investment tax credit, takes a large, multi-year approach. The maximum amount for a single tax credit is now $50,000. Investors can claim tax credits for multiple investments into different businesses, though.

The original bill’s language allowed for up to $2 million annually to be granted in advanced industry investment tax credits within the next four years. But the amended version cut that scope to $375,000 in 2014 and $750,000 for each of the years 2015, 2016 and 2017.

The national Angel Capital Association estimates that by now, half the states provide some form of comparable benefits. Still, the bill passed in Colorado this spring is highly experimental, as most angel investment tax credit programs nationwide have emerged within the last five years and have failed to produce reliable data so far.

According to Tyler, the program will be worth the risk.

“Colorado is now the No. 4 job creator in the country,” he said. “We would like to improve that so that at some point, maybe we will be No. 1.”

In 2017, the bill requires the Office of Economic Development to report to legislators on the advanced industry investment tax credits and their economic benefits.

According to Carol Hedges, the executive director of the Colorado Fiscal Institute, relieving individuals of their tax duties is the wrong approach. “The use of the tax code to pick out individual groups and treat them differently is at an apex this year,” Hedges said.

“If you give someone a tax credit to make them do something they normally wouldn’t do, you basically pay for that,” said Linda Gorman, a senior fellow at the Independence Institute, a free-market think tank in Denver. “If the government wants to achieve something, they should pay for it upfront so the taxpayers can see the costs.”

Despite the criticism, the advanced industry investment tax credit isn’t the only incentive for the high end of the corporate sphere. The new bill complements the advanced industries accelerator programs that were created in 2013.

In a press release, Gov John Hickenlooper said then, “We can boost Colorado’s advanced industries by increasing their access to capital. These types of bipartisan efforts will help Colorado continue to grow and sustain a long-term innovative ecosystem that creates highly skilled jobs and prepares Coloradans to fill them.”

Read Part I/ Read Part III/ Read Part IV

HB1012 at a glance JPG

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No Responses to “HOUSE OF SUBSIDIES: Part II”

  1. HOUSE OF SUBSIDIES: Part IV | CU News Corps on May 12th, 2014 11:34 am

    […] Part I/Read Part II/Read Part […]

  2. HOUSE OF SUBSIDIES: Part III | CU News Corps on May 12th, 2014 11:34 am

    […] Part I/Read Part II/Read Part […]

  3. HOUSE OF SUBSIDIES: Part I | CU News Corps on May 12th, 2014 11:35 am

    […] Part II/Read Part III/ Read Part […]

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