Monday, March 21, 2011

Perhaps there's a better way?

I read the following in the NASVF NetNews dated 3/18/2011:

Angel Investor Tax Credit Produced 47 Jobs in 2010

The angel investor tax credit spurred $28 million in funding for 67 Minnesota companies in 2010—and those 67 companies collectively created 47 jobs last year, according to a report that the Minnesota Department of Employment and Economic Development (DEED) recently submitted to the Minnesota Legislature.

Angel investors collected just over $7 million in credits from the state in 2010. Because $11 million in angel investor credits was available in 2010, almost $4 million in remaining funding will roll over into 2011—bringing the total available to nearly $16 million this year.

Jeff Nelson, the angel tax credit’s program coordinator, anticipates that all of the funding available this year will be used up by the end of 2011 as the program picks up steam, adding that he was pleased with the 2010 results. The tax credit program was signed into law on April 1, 2010 but didn’t kick off until July.

Quick math: $7m / 47 new jobs translates to an astounding $148,936 in lost state revenues per job created!

Now, I am not about to argue that the state should not support small business growth and job creation. But somehow I find it hard to believe that this is the most efficient means to support small businesses and job creation? In today's climate of tight budgets, we should be seeking cost effective means to stimulating innovation, new businesses, and sustainable job growth. I find it difficult to fathom that nearly $150k in tax credits to investors per job created can be justified! There must be a better and cheaper way to offer incentives directly to entrepreneurs, or tie tax credits directly to jobs created and the value of those positions on the local, regional, and national economy.

Put it in another perspective, my firm is about to engage in a new joint development project with a local UW campus supported via the modest Wisconsin Small Company Advancement Program (WisCAP). It will create one full-time position on campus immediately, and likely 2-3 more at my firm within the next year. The cost to the state is a mere $65k per full-time job. That is more than twice as cost effective than the Minnesota program so highly praised in this article.