Indiana Economic Development Corp. and Nate Feldman and Legislature and Government & Economic Development and Economic Development

Biz interests scored legislative wins

May 7, 2007

A month ago, Indiana Secretary of Commerce Nathan Feltman was on pins and needles. In their first version of the next state budget, legislators had ignored his request for new cash to underwrite economic development.

By the final swing of the gavel April 29, Feltman could rest more easily. The Indiana Economic Development Corp. had received $96 million it can now dole out as business grants. And lawmakers had authorized tax credits worth millions more for the commercialization of new technologies.

Feltman, like many local business leaders, had a glass-half-full view.

"We did get a lot accomplished. We had some good things passed," he said.

Even so, he said, "if we really want to move the ball forward in a big way in this state and continue to diversify our economy with the higher-paying jobs of the future, we have to make some bold decisions. The time to act is now, not a year or two from now."

From an optimist's standpoint, IEDC had plenty to celebrate. For starters, the General Assembly appropriated $70 million for the Indiana 21st Century Research and Technology Fund-the state's showcase program for investments in budding high-tech firms.

Legislators also authorized a $20 million research and development fund for the life sciences, renewed the Indiana venture capital investment tax credit through 2012, authorized a $6 million "deal closing" fund for business relocation projects, and approved a tax exemption for income derived from patented technologies.

Others focus on the half-empty part of the glass. Gov. Mitch Daniels' failed proposal to lease the Hoosier Lottery to a private operator might have generated $2 billion. Daniels had planned to spend much of the proceeds on new programs to attract top research professors to Indiana's research universities and to offer scholarships to merit scholars who stay in the Indiana work force after college graduation.

Ditto Daniels' toll road plans, which could have raised even more money. His proposed Illiana Expressway would have created a new route across northern Indiana. And his Commerce Connector would have created a partial outer beltway southeast of Indianapolis.

Economic development officials had huge ambitions for the farm property near Commerce Connector exits. They say the majority of business expansions take place within a short commute of major highways.

Business leaders who buy into Daniels' vision of bold change are bemoaning missed opportunities.

"We had a much more aggressive growth and jobs agenda the last two years," said Indiana Chamber of Commerce President Kevin Brinegar. "We played a whole lot of defense this session."

Still, business interests could have fared much worse.

When the Legislative Services Agency late in the session estimated that residential property taxes would increase 24 percent, industry lobbyists feared legislators would soften the blow for homeowners by raising taxes on business. Instead, they elected to add slot machines to Indiana's two horse racing tracks.

Indiana Association of Realtors CEO Karl Berron is as pleased with what didn't happen as what did.

"The Hippocratic oath of the Legislature is, 'First, do no harm.' A lot of folks who roam around the Statehouse forget that and get caught up in the issue of the day," he said. "There were some disappointments along the way. But I can't think of anything particularly bad that happened to business."

That's saying something in a year when lawmakers spent much of the session scrounging for new sources of cash. Because the state this year has not kept pace with its relatively low projections of tax revenue growth, little money was available to expand or create programs.

Even so, the IEDC was able to secure $70 million for the 21st Century Fund--just $5 million less than it received in the last two-year budget--while also securing $20 million for the new life sciences R&D fund.

The 21st Century Fund emphasizes grants that lead directly to the commercialization of university research or corporate technology. Meanwhile, the R&D fund will go to work at an earlier stage of the development process. The money will help leverage money from the federal government, and help pay for construction of university labs and the hiring of key academics.

Feltman had sought tens of millions more for IEDC's new "deal-closing" fund, a catchall designed to pick up business relocation costs. IEDC will have to make due with $6 million for the next two years.

"We have to start somewhere," Feltman said. "It's not a lot of money, so we're going to use it sparingly. But we'll use it wisely when we're in very close competition, and we know we're up against a state offering $100,000 or half a million to offset the cost of moving."

Indiana's high-tech sector cheered the renewal of a popular tax credit program and the creation of another. Legislators extended the Indiana Venture Capital Investment tax credit, which allows investors to write off a portion of their outlay to entrepreneurs against state taxes, through 2012.

They also created a tax exemption for income derived from patented technologies that are developed and commercialized in Indiana.

Innovators can write off up to 50 percent of their income from the patent for five years. It has a $5 million annual ceiling, and can be claimed only by small and midsize companies.

"The idea behind this is, we want to start new businesses in Indiana. We have a great deal of intellectual capital in this state. Here's a spark that may get new technologies launched," said Jim Jay, president of the trade group TechPoint. "It may attract entrepreneurs to Indiana to patent products and start companies. It's a real big win for the technology community across the state."

Below is a roundup of how other business-related measures fared:

Gambling

Debate over two gambling measures dominated the General Assembly's 2007 session. Daniels proposed leasing the Hoosier Lottery to a private contractor in exchange for a huge payment up front and a guarantee of annual payments thereafter.

Despite hints that the Hoosier Lottery might fetch $2 billion or more on the open market, Daniels couldn't drum up enough support to proceed. Statehouse observers expect him to try again next year.

At the same time, legislators agreed to the addition of thousands of slot machines at the state's two horse tracks, in Anderson and Shelbyville. To install the machines, each track must pay $250 million--all of which will be earmarked for residential property tax relief.

City finances

Indianapolis Mayor Bart Peterson told lawmakers the city's public safety system needs $85 million in new money to stave off catastrophe. He pushed for four concessions, and ended up getting two.

Lawmakers again shot down his Indianapolis Works local government consolidation proposal, which would have merged township fire departments into the Indianapolis Fire Department and rolled township assessors under the Marion County assessor. They also rejected his plea for the state to pick up the expensive annual tab for local child welfare.

But the Legislature granted Peterson's request for a new local option income tax, which the mayor said was desperately needed to fill public safety coffers.

The tax still must be passed by the City-County Council. Deputy Mayor Steve Campbell said it would be levied across all of Marion County and could raise up to $85 million--though some would have to be shared with other authorities in Marion County, such as those in excluded cities.

"This was a do-or-die session for us," Campbell said. "And they did come through on the one piece we needed the most, the revenue source."

Insurance regulation

Anthem Blue Cross and Blue Shield lost one of the key tools it used to build up an Indiana market share that tops 30 percent. But it's still unclear whether the new rules will actually unseat Anthem as king of Indiana's health insurance realm.

Lawmakers approved a bill that forbids health care providers from granting Anthem--or any other health insurer--so-called "most favored nation" clauses, which guarantee Anthem receives at least as large a discount as any of its peers. Anthem holds such clauses with all 120 Indiana hospitals with which it deals.

Now, a hospital could negotiate lower prices with an insurer other than Anthem, hoping to draw more customers to the second insurer and put the hospital in a better negotiating position. Such a scenario could give a toehold to other national insurers--such as UnitedHealthcare--to expand their relatively small presences in Indiana.

Insurance coverage

An estimated 132,000 uninsured Hoosiers are in line for health coverage under a sweeping health care bill passed at the 11th hour.

The bill will raise taxes on cigarettes 44 cents a pack to a total of 99.5 cents a pack. That means, come July 1, every pack-a-day smoker will pay $160 more per year.

If smoking rates stay where they are, the measure will provide more than $200 million to pay for health insurance for Hoosiers earning up to double the poverty line--or $41,300 for a family of four.

The plan would charge premiums of $1,100 a year, or no more than 5 percent of each participant's household income. The state would plunk those dollars in a privately administered health savings account to pay medical bills.

The bill also gives employers who start offering health insurance tax credits up to $2,500 for each of the first two years.

Utilities

An environment-friendly utility bill backed by groups such as the Hoosier Environmental Council and the Sierra Club died in the final hours of the session.

The measure by Rep. David Crooks, D-Washington, would have required that certain percentages of electricity be sold from renewable energy sources such as wind or landfill gas.

"We had a version of it right up until the last day, but things just fell apart," said Brian Wright, coal policy director at the Hoosier Environmental Council.

So-called renewable electricity standards have been enacted by 21 states. Indiana's utilities generate electricity mostly from coal, which, when burned, emits pollutants like sulfur and mercury.

Utility companies and ethanol producers also prevailed in a separate measure.

Ethanol producers gained a tax credit of up to $20 million when producing at least 20 million gallons of cellulosic ethanol a year.

Meanwhile, gas or electric utilities that buy gas from coal gasification plants now may recover costs through customer rate adjustments and are now eligible for tax breaks on construction of gasification facilities.

Among those to benefit: Citizens Gas & Coke, Vectren Corp. and Northern Indiana Public Service Co. They are partners in Indiana Gasification's plant to be built in southern Indiana.

Incentives for film industry

This year started out looking brighter for a four-year push to gain additional tax incentives for film production in Indiana.

The House and Senate passed a measure that, in its final version, would have given companies a state-funded 15-percent rebate on costs for most commercials, music, films and other productions produced in the state if the project budget exceeded $100,000.

But in the end, Daniels said the bill became too broad, including tax perks for productions already happening in the state instead of focusing on luring new business.

"My concerns with the bloating [of the bill] were made well-known to those supporting the add-on of these costly incentives," the governor said in a statement he issued after vetoing the bill. "We sought a balanced approach ... to secure projects the state would not otherwise have attracted."

Backers were unable to get the bill called for a veto override vote in the last two days of the session.

Retail sales of alcohol

A bill that would have placed further limitations on the sale of alcohol by groceries, gas stations and convenience stores failed for a second straight year.

The legislation would have required grocery stores to set up separate areas not accessible to minors in order to sell alcoholic beverages. It also would have prevented gas stations and convenience stores from selling beer or wine.

Liquor stores had backed the measure, citing a potential drop in underage drinking. But convenience store lobbyists cried foul, arguing the liquor stores were only seeking to drum up a competitive advantage.

Physician assistants

Lawmakers passed a measure allowing physician assistants to prescribe medicine.

When the law goes into effect July 1, Indiana will become the 50th state giving assistants that authority. Observers think the change could cause the number of physician assistants statewide to double. There are about 680 now.

More and more overextended doctors are hiring physician assistants nationwide. Their ranks rose 14 percent nationally in the last five years. In California, they doubled to 6,000.

For years, Indiana's physician assistants had pushed for prescription-writing authority. But they were frequently opposed by doctors, who argued that quality and safety might be compromised. Doctors also worried that drug-dispensing physician assistants would staff competing clinics that would siphon away doctors' patients.

But this year, doctors softened their opposition and spent more time pushing for safeguards. The final bill requires physician assistants to be supervised by a doctor and to receive additional certification to dispense narcotics.

Guns in the workplace

Lobbying by the Indiana Chamber of Commerce helped squelch legislation that would have stripped Hoosier businesses of authority to restrict guns on their premises.

On the other side of the debate was the National Rifle Association. It argued that employees' rights to bear arms are restricted if they can't bring guns along to work, then leave them locked inside the trunks of their cars.

The measure died in committee, though Brinegar expects it to return in future sessions.

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