Economic & Tourism Development

State Economic Development News Update - June 24, 2002

Posted June 24, 2002

Economic development initiatives in the 2002 legislative sessions have played out in the context of a tumultuous fiscal year for the states.

An April 2002 NCSL survey revealed that the FY 2002 budget gap for all states is estimated at $27 billion compared to original budgets. Of the 39 states and the District of Columbia that revised their FY 2002 revenue forecasts, 24 reported that revenues were even failing to meet the revised levels through the end of March. The April NCSL state fiscal outlook survey, distributed free to state legislatures, is available.

Some states have cut their economic development budgets, and five states-Maryland, New York, Ohio, Washington and Pennsylvania-enacted measures to expand or authorize gambling in their search of new revenues.

At the same time, many significant measures have been signed into law that boost economic development efforts. A number of states passed tax incentives to encourage the growth of venture capital, and other states authorized major bonds, appropriations and tax incentives for technology development.

Other measures attempt to improve the effectiveness of a state's economic development strategies, such as restructuring agencies and instituting strengthened disclosure requirements for businesses receiving incentives.

The following selected economic development items have been gathered from media reports and state contacts. Please contact Monica Kearns at (303) 364-7700 ext. 236 or monica.kearns@ncsl.org if you have comments or information on your state.

Alabama

A certified capital company program (CAPCO) was established in Alabama to encourage the growth of venture capital. With CAPCOs, insurance companies receive tax credits for investing in state-certified venture funds, and these funds then invest in start-up technology businesses.

The Alabama CAPCO will grant insurance companies a premium tax credit equal to 100 percent of their investment in certified funds, up to $10 million per company. Total available credits will be funded up to $100 million annually. The CAPCO program does not grant credits against the insurance premium tax receipts for the Education Trust Fund. The certified venture funds will invest in technology companies with fewer than 100 employees and with at least 80 percent of their employees in the state. House Bill 627 established the program. The Alabama regular legislative session adjourned on April 22.

In other Alabama news, Hyundai announced in April that it will locate a new assembly plant in Alabama that is expected to create about 2,000 direct jobs and 4,000 to 5,000 indirect jobs. The state offered $118 million in incentives to the company. Information is available from the governor's web site.

Arizona

Arizona's gaming compacts with Indian tribes will expire next year, and the state and tribes must negotiate new ones. The legislature failed in a special session in May to approve a deal negotiated by the governor with Indian tribes that would have provided the state a percentage of their casino revenues. Instead, three competing ballot measures are now scheduled for a November vote, each of which would take Arizona gambling in a different direction. All three, however, support continued Indian gaming and would in fact allow urban tribal casinos to grow.

One initiative would provide for 3 percent of tribal casino profits to go to the state. The other two measures would provide the state with an 8 percent share of total revenues. One of those proposals also would let racetracks operate slot machines, an idea nixed by the legislature. All three measures could pass, and if they do, the one with the most votes will prevail where they conflict. The questions will return to the legislature if they fail.

California

The governor's revised budget proposes an overall reduction of about $75 million for the Technology, Trade and Commerce Agency. Of this amount, approximately $36 million is in temporary transfers from economic development loan funds into the general fund. The remainder represents economic development program cuts. These numbers are subject to revision in the budget bill, Assembly Bill 1777, currently in conference committee. The California regular legislative session will adjourn August 31.

The governor reactivated the California Economic Strategy Panel in February with the appointment of five panel members. The panel devises a biennial economic development strategic plan and submits it to the secretary for the Trade and Commerce Agency.

Florida

Technology transfer received a boost in Florida when Senate Bill 1844 was signed into law. The measure will create several university-based research centers intended to enhance technology commercialization and increase the number of faculty and students in technology based fields. The state education board is to submit a plan to the legislature by 2003 that recommends where to establish at least two, and no more than five, Centers of Excellence. The board's plan also must indicate how it will allocate at least $10 million for each center.

The legislature also passed Senate Bill 40 to make several changes to economic development programs and incentives. First, the bill expands the eligibility criteria and purposes for which Rural Infrastructure Fund grants may be used.

It also improves the budgeting and administration process for defense and other target industry tax credit programs. Furthermore, if participating businesses are not in compliance with job creation or other terms of the tax credit programs due to an economic downturn, the bill allows them to temporarily remain in the program until the economy recovers. The Florida regular legislative session adjourned on March 22.

Georgia

Georgia established a CAPCO program similar to the new Alabama program. House Bill 1441 provides insurance companies a tax credit equal to 100 percent of their investment in certified capital companies to be applied against state premium tax liability. The credits will be funded up to $7.5 million annually for 10 years, up to $10 million cumulatively per company. The certified funds will be invested in new biotechnology companies. The Georgia regular legislative session adjourned April 12.

Illinois

Casino taxes may increase in Illinois. House Bill 4904 and Senate Bill 2059, which would increase taxes on riverboat casinos by 5 percent, still are in committee.

Indiana

Among the governor's responses to the state's budget shortfall was a $50 million cut in March to the 21^st Century Research and Technology Fund. This fund was created in 1999 to give research and development grants to universities and private industry. Approved projects stay on the books but will not be funded until budget problems are solved, according to a March 20, 2002 press release from the governor's office.

The technology fund is among the programs supported by the Build Indiana Fund, which is financed by gaming revenue.

The legislature still is considering a bill, House Bill 1001, that would permit riverboat casinos to remain dockside, rather than having to cruise. The Indiana regular legislative session adjourned on March 14, and a special budget and tax session began on May 14.

In other Indiana news, the Indianapolis Star News reports that the Indy Partnership, a private non-profit economic development organization, recently reached its goal of raising $15.5 million to market the Indianapolis region.

Iowa

The Iowa Legislature passed two bills in January 2002 to support the growth of venture capital in the state. The governor signed both measures. House File 2078 establishes a venture capital fund and a tax credit trigger for investors if their investments do not meet a certain profit rate, and House File 2271 creates tax credits for individuals who invest in seed capital in Iowa. The Iowa regular legislative session adjourned on April 12, and a special budget session began on April 22.

Kansas

House Bill 2505, called the certified capital formation company act, was signed into law. The measure establishes a program similar to CAPCO programs in other states, giving investors a tax credit equal to 50 percent of their investment in certified capital formation companies. Credits can be claimed beginning in 2006 and they will be funded up to $2 million annually for 10 years, up to $5 million cumulatively per company or individual.

The University Research and Development Enhancement Act, or House Bill 2690, also was signed into law. The measure authorizes the issuance of up to $130 million in bonds to construct and operate four research facilities at state universities. The bill authorizes general fund transfers up to $10 million per year, for a total of $50 million, for debt service payments beginning in 2005. The Kansas Development Finance Authority will contract with the Board of Regents for the balance of the debt service payments. Federal and private sector sources are expected to contribute the balance of the funds needed. The Kansas regular legislative session adjourned April 13, and the veto session began May 1.

Kentucky

Building on the Kentucky Innovation Act passed in 2000, Kentucky House Bill 525 has been signed into law to encourage science and technology development in the state. The measure establishes Kentucky Innovation and Commercialization Centers as part of the Office for the New Economy. These public-private centers will link entrepreneurs and investors and will help entrepreneurs pursue investments in their technology-oriented businesses, among other activities.

The measure also creates new tax credits. Individuals can apply for tax credits equal to 40 percent of their investment in venture capital funds, and businesses can apply for credits equal to 5 percent of the costs of construction for qualified research facilities. Kentucky's regular legislative session adjourned on April 15, and a special session on the budget began April 22.

Louisiana

Louisiana had a special session on economic development from March 25 to April 17. The regular fiscal session convened on April 29 and will adjourn by June 12.

Two special session bills were signed into law that change the state's Quality Jobs Program, which provides tax incentives to companies that conduct at least half of their business outside the state or are in a targeted high-growth industry. House Bill 144 specifies in greater detail the industries that qualify for the tax credits and lowers the amount that firms' annual payroll must grow from $1 million to $500,000 over three years, among other provisions. The changes are expected to increase the number of small and medium sized businesses that qualify for the program. Firms also must subsidize health care insurance for workers and pay at least 1.75 times the federal minimum wage to receive the credits.

House Bill 166 adds the National Basketball Association to the list of industries that qualify for the Quality Jobs program. The bill authorizes tax credits up to $3.65 million to be granted to the Charlotte Hornets NBA team if they move to New Orleans.

House Bill 67 was signed into law to provide additional incentives for professional sports teams. The bill provides $10 million in state funds to upgrade the New Orleans arena for the Hornets and $6.75 million for an indoor practice facility for the New Orleans Saints football team.

A number of additional tax incentives were signed into law. House Bill 17 provides a job creation tax credit to motion picture production companies and Senate Bill 85 broadens the criteria for sales tax exemptions for motion picture companies. House Bill 30 phases in a sales tax exemption for computer software designed in the state. House Bill 104 provides a sales tax exemption on capital expenditures for new research equipment by start-up biotechnology companies and House Bill 106 provides a tax credit for qualified research and development expenditures and a tax credit for recipients of federal Small Business Innovation Research Grants.

Maine

The Maine Legislature passed a bill, LD 2130, that authorizes $35 million in bonds to be issued. The measure has been signed by the governor and will be voted on by Maine citizens in a June referendum.

The bond funds include $4 million for a Municipal Investment Trust Fund and $8 million to recapitalize two economic development loan programs. About $6 million would go to a new Maine Rural Development Authority, $9 million would construct product development and testing centers for companies at two University of Maine campuses, $5.5 million would fund biomedical research and development equipment, and several tourism projects would be funded.

Maine also enacted LD 2200 to study the impact of a casino on the state's economy. Maine's regular legislative session adjourned on April 25.

Maryland

Maryland authorized multi-jurisdictional lotteries when Senate Bill 93 was signed into law. The state lottery now can enter into agreements not only with other states but also with other countries.

House Bill 405 was signed into law to allow the Maryland Technology Development Corporation to restructure itself. The corporation was created by the legislature in 1998 as a public corporation that supports technology development and commercialization. The restructuring will allow the organization to operate as a private for-profit or non-profit entity and apply for grants and loans from the federal government and the private sector.

Also, Maryland is conducting an interim study on establishing a CAPCO program. The Maryland regular legislative session adjourned on April 8.

Michigan

A number of renewable energy measures are under consideration in Michigan. Senate Bill 1315 would authorize five new Renaissance Zones, which give businesses and residents in the zones nearly tax-free status, and one of the new zones would focus on alternative energy research, development and manufacturing. Senate Bill 1316 would create a new authority to promote research and development for alternative energy technologies. Information about these and other renewable energy bills is available from NextEnergy.

Several Michigan bills aim to increase equity capital availability in the state. Senate Bill 618 would establish a CAPCO program. Senate Bill 1318 would create a venture capital fund that invests in young high-technology businesses and a tax credit to investors in the fund if their investments do not meet a certain profit rate. The credits would be funded up to $30 million over six years.

Missouri

The Missouri Department of Economic Development reduced its tax credit programs by $7.7 million for fiscal year 2002. Information is available in a January 11, 2002 department press release.

The Missouri regular legislative session adjourned on May 30.

New York

In October 2001, New York legalized additional Indian casinos, participation in a multistate lottery and video gaming at horse tracks. Casinos are proposed for Niagara Falls and Buffalo, and the state continues to work on arrangements that would direct a portion of tribal casino revenues to the state.

While the governor proposed $750 million for economic development initiatives, the legislature authorized $1.2 billion. The total includes a $600 million appropriation and $600 million in bonds to be financed by projected gaming revenues. The first $300 million in bonds is contingent on establishment of the first newly-approved casino in New York, and the second $300 million in bonds is contingent on the second casino. A new Empire Opportunity Fund will receive $270 million of the funds for various economic development projects, the Centers of Excellence program at state universities will receive $250 million, the GeNYsis program will receive $340 million for biotechnology development, transportation infrastructure and community projects, and the Restore program will receive $340 million for various economic development, transportation and community projects.

North Carolina

Changes to a major tax incentive act were signed into law. Senate Bill 748 requires that businesses receiving tax credits under the William S. Lee Quality Jobs and Business Expansion Act provide information about the number of new jobs created, in which development zones the jobs are located, and the percentage of jobs that go to zone residents, among other provisions. The information will be compiled by the Department of Revenue and will be submitted annually to the legislature. The measure also requires studies to be conducted that examine the effectiveness of the tax incentives and their effect on tax equity.

The governor's budget does not include funding for the North Carolina Technological Development Authority (TDA), a non-profit organization engaged in business incubation, technology transfer and venture capital investing. A December 2001 report by the Office of the State Auditor questioned $1.5 million in TDA spending on entertainment, management salaries and other expenses. The North Carolina regular legislative session is scheduled to end in July.

Ohio

Ohio continues its plan to participate in a multi-state lottery game, although a lawsuit filed in March says doing so would violate the state's constitution. Statutory changes to address the multi-state nature of the lottery are moving through the legislature.

Oklahoma

The Oklahoma Quality Jobs Incentive Leverage Act, House Bill 2245, was signed into law. The bill authorizes bonds and tax incentives totaling about $50 million for the expansion and modernization of tire plants in Oklahoma. The Oklahoma regular legislative session adjourned on May 31.

Pennsylvania

Pennsylvania will join 21 other states in offering the Powerball lottery game. It begins June 27.

A bill that would allow start-up companies to sell their unused research and development tax credits has passed the House. Start-up firms may qualify for R&D tax credits but may not yet have earned income against which the credits can be applied. House Bill 2349 would allow qualified firms to sell their unused credits for up to 75 percent of the value, so the firms receive an immediate cash inflow rather than having to claim tax benefits in the future. The credits would be funded up to $5 million a year. The Pennsylvania regular session is expected to adjourn November 30.

Pennsylvania is among the states using its tobacco settlement funds for economic development. The Legislature authorized $100 million from settlement funds in June 2001 for the Life Sciences Greenhouse initiative, and the first participant company was announced in April. The initiative provides early-stage capital and other incentives to biotechnology businesses, and it aims to commercialize biotechnology research from Pennsylvania universities. The Southeast region of Pennsylvania will receive $33.8 million under the program, the Southwest region will receive $33.3 million, and the Central region will receive $32.8 million.

Also, five Pennsylvania universities, a business incubator and an economic development organization have decided to work together to incubate businesses. Rather than independently trying to assist start-ups, the group will work jointly through the Port of Technology incubator in University City, according to the Philadelphia Business Journal.

South Carolina

Before Senate Bill 1200 was signed into law, South Carolina could issue general obligation bonds totaling up to 5 percent of general fund revenues of the preceding fiscal year. Now the bond amounts can be up to 5.5 percent of the preceding year's general fund revenues, with the additional debt service limited to economic development bonds. The South Carolina regular legislative session adjourned on June 6.

Tennessee

A Tennessee contingency budget plan drafted by legislators would eliminate the state tourism and economic development departments. The contingency plan, introduced as House Bill 3072 and Senate Bill 3042, also would hold the amount of funds the state distributes to local governments at the FY 2001-02 level. The bills still are in committee. The Tennessee regular legislative session is scheduled to end June 19.

Washington

Washington will join seven other states in offering the Big Game multi-state lottery since Senate Bill 6560/House Bill 2624 was passed and signed into law. The Washington regular legislative session adjourned on March 14.

West Virginia

House Bill 4005 was signed into law, authorizing more than $200 million in bonds intended for a variety of economic development and infrastructure projects, including a Victorian outlet mall in Wheeling and a baseball park in Charleston. Video lottery revenues will underwrite the bonds. Developers must apply for the funds, which will be granted by a nine-member committee. The West Virginia regular legislative session adjourned on March 14, and a special session began June 9.

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