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AZ, OH and WI Govs Move to Privatize State Economic Development

February 23, 2011

Facing massive government deficits and stagnant regional economies, many states are exploring new options for their economic development activities. Three states recently have taken steps towards eliminating their primary economic development agencies, and replacing them with public-private partnerships, intended to reduce state spending and improve the responsiveness of state efforts.

Last week, Arizona Governor Jan Brewer signed off on a comprehensive economic competitiveness package. The centerpiece of the legislation is the elimination of the Arizona Department of Commerce, and the creation of a new Arizona Commerce Authority (ACA). Brewer says that the restructuring is needed to streamline the responsibilities that had been accumulated by the Commerce Department and to clarify the state's focus on creating new jobs. Many of the programs currently associated with the department may be permanently eliminated, including the state's energy efficiency and renewable energy deployment office, the Rural Economic Development Initiative (REDI) program, the Arizona Main Street program and many of the state's technology programs.

The new organization will have a board comprised of both business leaders and state officials. ACA would focus on attracting corporate investment in Arizona and oversee an annual $25 million deal-closing fund to encourage business expansion and relocation. The fund will use clawbacks and third-party performance evaluations to ensure that recipient companies meet their obligations and that the funds are invested properly.

ACA also would help to target the use of Arizona's angel investment tax credit. The credit, which was set to expire at the end of FY11, was extended through FY16 in the competitiveness package. Under the new legislation, the asset cap for small businesses to qualify under the program has been raised from $2 million to $10 million. ACA would be charged with determining eligible industry sectors. In addition, the package exempts investment in qualifying small businesses from capital gains tax.

The Arizona bill includes a 10 percent increase in the state's Research and Development (R&D) tax credit, as well as a number of other tax breaks for businesses. Arizona's R&D credit focuses specifically qualified expenses related to university research. The credit would be subject to a an aggregate cap of 10 percent per year.

Read the governor's press release at: http://www.azgovernor.gov/dms/upload/PR_021711_BrewerSignsLandmarkEconomicLegislation.pdf.

A more complete summary of the bill is available at: http://www.azleg.gov/legtext/50leg/2s/fiscal/sb1001.doc.pdf.

Ohio Governor John Kasich signed his own economic development privatization bill last week. JobsOhio, a new nonprofit corporation would assume the the business-incentive and job-creating functions of the Ohio Department of Development. A board of governor-appointed business leaders will direct the new organization, with $1 million to cover startup costs. Additional funding decisions will be made within the next six months.

Sequoia Capital's Mark Kvamme was appointed head of the new corporation, though that appointment is currently in dispute. Both Kvamme and Governor Kasich have stressed that JobsOhio will raise significant private support, and may eventually become self-sustaining.

Read the bill and analysis at: http://www.legislature.state.oh.us/bills.cfm?ID=129_HB_1.

Wisconsin Governor Scott Walker has signed similar legislation to replace the Wisconsin Department of Commerce with a new Wisconsin Economic Development Corporation (WEDC). The new public-private partnership would, again, focus exclusively on job creation. Other Commerce Department responsibilities will be redistributed among other state agencies. The reorganization would take place after July 2011. The WEDC board, appointed by the governor, would develop and implement economic programs to provide business support, expertise and financial assistance to companies.

Though the legislation provides a charge to assist new startups and to help existing companies to expand, it is unclear whether the Department's Technology Commercialization programs would remain at WEDC.

Read the bill at: http://www.mmaction.org/wp-content/uploads/2010/10/JR1SB-6.pdf/a>.


Arizona, Ohio, Wisconsin