New Hampshire lawmakers grill proponents of proposed tax credit proposal
Skepticism greets investment firms urging passage of $60 million plan
The Small Business Jobs Fund Act, a $60 million tax credit to encourage investment in New Hampshire, would more than pay for itself, according to the two companies that back the program and stand to make millions of dollars of fees from it.
New Hampshire taxpayers would get back $1.55 for every $1 in credits, municipalities would get $15 million and some 1,200 new high-wage jobs would be created as a result, said an analysis conducted by Economic Impact Group and paid for by Advantage Capital Partners.
But members of the House Ways and Means Committee, which had retained Senate Bill 205 from last year, were still skeptical about the prospects, and in two work sessions grilled Jeff Craver, a principal of Advantage, and Mackenzie Ledet, a director at Stonehenge Capital, two of the large investment firms that manage funds seeded by state tax credits around the country.
“You are saying that the private sector doesn’t want to take the risk,” Rep. Paul Henle, D-Concord asked at a hearing last week. “So you are asking the New Hampshire taxpayer to take the risk instead.”
“No, no,” said Craver. “This helps their rate of return to attract capital.”
On Wednesday, Rep. Bill Ohm, R-Nashua, followed up, asking, “If we are going to put in the capital, shouldn’t we get an equity kicker in the process?”
“An equity kicker will compress what we are offering because then a slice has to go to the state,” Craver replied.
Craver said that it ran the study it paid for by Richard English, a professor at the University of New Hampshire’s Peter T. Paul School of Business. But English didn’t testify last week. Instead, it was NH Sen. Dan Innis, R-New Castle, a colleague of English and sponsor of the bill.
“The number one reason businesses fail is lack of capital,” Innis said. “We sort of lost the New Hampshire advantage, and this fills the gap of financing that the banks don’t fill.”
The study’s analysis was very conservative, Innis said, particularly since it only counted additional jobs, not retained jobs.
But lawmakers picked the study apart, some noting that some of the anticipated revenue – the revenue generated by additional workers buying liquor and paying cigarette taxes – went into dedicated funds, not the general fund which would lose the revenue.
Others wanted to know more about the 52 companies the study is based on in other states, or what type of companies would benefit from this in New Hampshire.
How it would work
Under the proposal, the state would offer as much as $60 million in dollar-for-dollar tax credits against state business taxes over four years. An applicant — from among 89 eligible federally approved specialized equity funds like Advantage and Stonehenge — would raise $40 million, including $10 million of their own capital to create a $100 million pool. That pool in turn could give out “non-bankable” loans, or investments of up to $5 million, to nearly any “growth” company — a firm with fewer less than 250 employees and less than $10 million in revenue — which would hire low-to-moderate-income people or are located among them.
The eligible businesses should be involved in such fields as manufacturing, clean energy, information technology and biotechnology, or any other field “highly beneficial to the economic growth of the state.”
Credits wouldn’t be granted until the third year of a four-year period, after all the investments have been made.
Credits would be paid out only if the money went where it should go. Those investors that didn’t receive credits might have to give up a share of any profits if they didn’t create or retain as many jobs as promised, at least during the six years the program is scheduled to operate.
If the company shut down or moved in year seven, “that’s the private sector doing what the private sector does,” Craver said.
New Hampshire already has various mechanism to invest in business ventures, such as the NH Business Finance Authority. Indeed, several committee members asked why not give the money to the BFA, and they called in its director, James Key-Wallace, on Wednesday to spell out the difference in what it does, and what this new fund would do.
The BFA – which offers state guarantees and does not seek state money – works with venture capital firms to set up funds, like the Granite Fund for high-tech companies.
Key-Wallace said his program is different because the state gets an equity share proportional to its investment.
It takes a bit of a bigger risk, because “our money goes in first and comes out last,” he said.
Key-Wallace said he doesn’t oppose SB 205, but said that programs like it in other states have a mixed record.
But Craver said that SB 205 would complement the BFA, not compete with it.
The BFA is more for startups, he said, while the new fund is for companies wishing to “take it to the next level.” The difference was in “size, scale and timing,” he said.