A committee appointed by Gov. Janet Napolitano has developed a plan to strengthen Arizona’s competitive position in the New Economy, but selling key parts to the Arizona Legislature will be tough in a tight budget year.
Particularly controversial are likely to be tax credit and fund measures designed to encourage venture capital investments in start-up technology companies. Critics likely will argue that such investments are too risky to be guaranteed by Arizona taxpayers.
Other recommendations by the 30-member Governor’s Council on Innovation and Technology range from campaigning to bring a federal research lab to Arizona to work force training improvements to finding a "brand" name for the state’s high-tech sector.
Napolitano hasn’t commented yet on the recommendations, which were released Thursday, while taking time to study them in detail. But her initial reaction is "they are incredibly thorough and provide a unique road map that has not been done before at this level of specificity," said Noah Kroloff, the governor’s chief assistant for policy.
Napolitano will work with four members of the Legislature, two Democrats and two Republicans, to try to build legislative backing for the program. "She will work with them to see where we can go with this," Kroloff said.
Establishment of a stateguaranteed venture capital "Fund of Funds" is likely to cause the most debate. The council recommended that $100 million be raised from pension funds, foundations, loans and other sources that would be invested in start up technology companies. The fund would be supervised by an oversight committee and managed by a professional manager with experience in venture capital investing.
Tax money would not go into the fund, but taxpayers would be on the hook to repay the loans if the investments didn’t pay off.
State Sen. Carolyn Allen, R- Scottsdale, predicted a struggle in getting approval for such a program because venture investments often carry a high risk.
She added that an entrepreneur with good prospects should be able to attract venture capital from the private sector without state assistance. "I do believe the free enterprise system does these things better than getting the government into it," she said.
Gil Jimenez, director of the Arizona Department of Commerce and a member of the council who helped develop the "Fund of Funds" proposal, said similar programs have worked successfully in other states, including Oklahoma.
The Oklahoma fund has been in operation since the mid-1990s, and state tax money has never been called to repay loans, he said.
"What you have there is an investment board that was created, and they have a private sector, experienced, qualified individual as executive director managing the store," Jimenez said.
He said he is confident the council’s recommendations will move forward in the Legislature if the lawmakers "put the politics aside and do what’s best for the state."
Rep. John Loredo, DPhoenix, the House minority leader and a member of the governor’s council, predicted tough going in the Legislature because high-tech assistance is likely to face opposition from conservatives opposed to government help for private companies and liberals opposed to creating more tax loopholes.
Another problem is that special interests may try to tailor the bill to give themselves favorable treatment, he said.
On the other hand, improved state revenue projections may make tax credits more feasible, he said.
"The bottom line is this is a new way of proposing public policy — having experts in the field work together," he said of the governor’s
council. "Sometimes it’s hard to sell something like this to legislators with little expertise in the area, so this may be a matter of educating the legislators as much as anything."
Napolitano is already moving on one of the council’s recommendations that doesn’t require legislative action — setting up an office in Washington, D.C., to promote Arizona interests in the nation’s capital, including helping researchers obtain federal grants.
Last week the governor appointed Brian de Vallance, an attorney with extensive government and technology experience, to be the state’s full-time representative in Washington.
Also negotiations are under way for office space.