WisBusiness: Angel tax credit expansion up in the air

By Brian E. Clark

MADISON – Expansion of a tax-credit program backed by Gov. Jim Doyle and aimed at helping early stage companies attract funding from so-called angel investors remains in limbo after Senate Democrats trimmed it from their budget.

The increase would boost the credits from $3 million to $5.5 million annually.

John Murray, spokesman for Assembly Speaker Mike Huebsch, R-West Salem, would not say if Huebsch would try to keep the funding hike in the final budget that will be sent to Doyle. Assembly Republicans are expected to take up the budget – which currently includes the angel investor tax credit increase – tomorrow.

“He (Huebsch) is not going to comment on any specific budget initiatives and that’s all I can say,” said Murray.

Doyle spokeswoman Carla Vigue, however, said the governor will continue back a hike in funding for the effort, which is known as Act 255.

She said Doyle believes expanding the credits will spur economic growth in emerging industries such as biomedical research and biotechnology.

Senate Democrats cut the expanded funding for the tax credits because they believe investors are not taking advantage the money now in the program, said Helen Marks Dicks, a spokeswoman for Senate Majority Leader Judy Robson.

“It hasn’t be exhausted from previous years,” she said. “Some $2.7 million remained in the program at the end of fiscal 2007 and $578,000 was unclaimed from 2006. The feeling is it doesn’t need to be expanded because it’s not now being fully utilized.”

But Tom Still, president of the Wisconsin Technology Council, said the most of the money to aid angel investors has been claimed.

“The problem is that there is a time lag,” he said. “If you got the credit in 2006, you wouldn’t claim the tax credit until April 15 of 2007. Likewise, if you were getting the credit in 2007, you wouldn’t claim until next April.”
Still said the credit might not even be used until 2009 or later, depending on the needs of the individual.

“These are investors and they might want to wait a year or two to when they want to offset a gain,” he said. “That’s how this program was set up and we are going to have to do some education so that people understand it better.”

Still said he is confident legislators will take another look at expanding the program.

“While I’m disappointed that this modest expansion is not in the Senate budget, I think there is still time to do some lobbying and get it back in, especially because the governor backs it,” he said.

“It is working. For not a lot of dollars or paperwork, the state has leveraged tax credits to attract private dollars that are invested in tech start-ups, which is a sector where we really want the investment,” he said.

Still said the tax credit program sends a message to investors from Wisconsin and elsewhere in the country that the Badger State “is open for business and that there are opportunities here.

“I believe it is a powerful thing,” he said. “And it’s not a lot of money. In a budget of $57.7 billion, this small expansion is not much more than a rounding error.”

Sen. Ted Kanavas, R-Brookfield, an architect of Act 255, said he is dismayed that the Senate Democrats cut the expansion from the budget.

“This is disheartening for those of us who worked on economic development. This tells me they don’t understand the need to create wealth and opportunities for our kids to stay here,” he said.

J. Patrick Genn, managing director of a Middleton-based investment company, said Act 255 has helped stimulate angel investors to back Wisconsin companies.

“Tax credits are a big deal,” said Genn, whose firm goes by the name Continuum, said. “Investors always ask if they are available. It makes a difference. Not having them available isn’t necessarily a deal killer, but they sure help.”

Continuum has invested more than $16 million in 15 new companies during in its first two years. They range from $250,000 to $3.2 million.
Continuum was also at the center of a deal that raised $7 million for Cellectar, a company that is developing a radiopharmaceutical drug that can both detect and treat cancer.

That $7 million deal in September 2006, which involved a number of individual investors as well as Continuum, stands as the largest known angel investment round in Wisconsin history. In total, risk-capital investments in Wisconsin topped $102 million in 2006, up 56 percent over the previous year.

“The tax credits put forward by the state through the Act 255 legislation have helped companies such as Cellectar attract angel funding, and encouraged investors such as Continuum to take a chance on them,” he said.

“Through a small public investment in the tax credits, Wisconsin has attracted many times that amount in private dollars. It demonstrates how bipartisan cooperation can help grow Wisconsin’s economy – efficiently and without a lot of red tape.”