Bringing It All Back Home

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When was the last time you took a member of your state legislature to lunch?

If you haven't yet, you probably should. Increasingly, if slowly, state representatives and officials are waking up to the fact that the health of their economies depends on a thriving small business sector -- and they're drafting the innovative legislation that's needed to spur its growth.

Indiana has come closest to proposing an integrated plan for helping its smaller companies. That state is one of those in the upper Midwest hardest hit by the current recession; in February, its unemployment rate stood at 13.3%. To revitalize the state's economy, Gov. Robert D. Orr and Lt. Gov. John M. Mutz put together a long-range program to encourage new, higher-risk enterprises.

The program's centerpiece, established by the 1981 General Assembly, is a state-chartered Corporation for Innovation Development (CID). The CID, capitalized by private investment, will create a central pool of venture capital, which may be used in two ways. First, it may help locally oriented financing organizations, which must be federally licensed as Small Business Investment Companies. These SBICs will also have the leverage of borrowed federal dollars.

The CID may also directly invest its own funds in new businesses that are unable to obtain capital through conventional channels. These may include very high risk ventures and established businesses too big to be eligible for SBIC funding.

To encourage investment in the CID and SBICs, the state has provided up to $5 million in tax credits over a five-year period. Indiana businesses, banks, or individuals can deduct from their state tax bills 30% of any investment they make in either the CID or the SBICs.

In addition, this year the Hoosier legislature established the Corporation for Science and Technology. The corporation will encourage technology transfer between Indiana's universities and its businesses and stimulate the expansion of technology-intensive business and industry. Already in place is a Computer-Aided Design and Manufacturing Assistance Center at Purdue University in West Lafayette.

Indiana is not alone in developing legislation to further small business growth.

The California Legislature has adopted three proposals to help its smaller firms. It's first-in-the-nation "two-tier" capital gains tax (see "The Right Way to Cut Taxes," INC., November 1981, page 14) rewards the risk takers who invest in California's growing companies. No state capital gains tax will now be levied on returns from small company stock if the investment has been held for at least three years.

A new "late payment" law will protect small companies doing business with the state. If California is more than 30 days behind in paying its bills, it will have to pay a penalty of.25% per day on the amount due.

Finally, an "equal access to justice" law gives a small company the right to sue California for legal costs when a state action against the company is held by a court to be without merit.

In Georgia, workers are breaking ground for a $5-million facility at Georgia Institute of Technology in Atlanta to house an Advanced Technology Development Center. While the center is under construction, more than 20 small firms are already receiving assistance at the university under the state's "new and small technology business incubator" program. The companies have access to research facilities and technical assistance and are able to get advice about financing and marketing.

Colorado is creating a secondary market for small business bank loans through the Colorado Housing Finance Authority (CHFA). This arrangement will permit banks to expand significantly the amount of credit they have available to lend to their small business customers. Essentially, the program is a unique state alternative to Small Business Administration-guaranteed loans -- except that the state doesn't guarantee them. Rather, the CHFA buys the loans made by banks, pools them, and packages them into multimillion-dollar, high-rated bonds for consumption by institutions throughout the country. The bonds are retired as the loans are paid off. Such cycles may double or triple the amount of credit available to small business in Colorado.

The state of Washington has enacted a "regulatory fairness" statute modeled after the Federal Regulatory Flexibility Act. Under its provisions, state regulations will be tailored to the ability of companies to comply with them. In other words, smaller firms will be burdened with less regulation than larger ones.

Arizona's legislature enacted the nation's first statute that expressly bars government agencies from competing with private enterprise. The legislature also set up a one-stop licensing service for smaller firms and enacted an equal-access-to-justice law.

North Carolina is one of a handful of states that has followed Congress's example and established small business committees in both branches of its legislature. It has also set up a statewide advocacy group to work with Gov. James Hunt, Jr., on small business issues. In addition, the state has appropriated $24 million to create a major microelectronic center in the Research Triangle Park of Raleigh-Durham-Chapel Hill. At first, large companies will use the facilities, but state officials talk confidently of the center becoming a magnet for smaller high-technology firms.

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