IEDC hopes to establish regional venture capital funds: Counties may balk at spending tax money elsewhere

It is the kind of business stimulus program that few oppose on paper, but to get the idea off the drawing board, IEDC must convince counties to relinquish their parochialism and ingrained spending habits.

That’s likely to be tricky.

“One of the things we’re trying hard to do as a state is to break down county borders where you have infighting, wasted resources and missed opportunities,” said IEDC Executive Vice President and General Counsel Nathan Feltman. “We want to make this thing a reality, and not have it sit on the books like a lot of times legislation does.”

Counties have long had the authority to impose a community economic development income tax, collecting up to one half of 1 percent of individual taxpayers’ adjusted gross income to spend on local projects.

Collectively, 71 Hoosier counties raise $200 million a year through CEDIT, including Clinton, Hancock, Hendricks, Madison, Morgan, Putnam, Shelby and Tipton counties.

This spring, the Indiana General Assembly authorized a little-noted but key change to the CEDIT law: Counties are now allowed to pool their CEDIT money. With this new license, IEDC hopes to trigger the formation of a series of regional venture capital funds that could be used to foster technology transfer from university laboratories and help establish new businesses.

In practice, Feltman said, such venture funds might work like smaller versions of Indiana’s 21st Century Research and Technology Fund, which makes grants and loans to promising enterprises rather than taking equity stakes in them.

Counties already spend their CEDIT money on a laundry list of local needs, such as purchasing fire engines or adding jail space. But to IEDC’s way of thinking, that’s a long stretch from the tax’s primary economic development goal.

“We want to make sure these dollars go for opportunities that are really going to move the ball forward,” Feltman said.

In practice, IEDC would reserve authority to establish parameters for the regional venture funds, sanctioning the kinds of projects that would be allowed and which ones would be off limits. IEDC envisions flexible funds that could be applied to all sorts of situations, from licensing new life sciences technologies to expanding traditional manufacturing facilities.

New regional boards would actually choose and approve the investments. IEDC also aims to add expertise to the equation, helping find folks with experience in high technology, venture capital and business formation to fill out the regional boards.

Business advocacy organizations Tech-Point and the Indiana Chamber of Commerce conceived the idea of regional venture funds organized by the state, then spent years pressing legislators to authorize them.

“I don’t want to say the sky’s the limit,” said Chamber Vice President Mark Lawrance. “But I think it’s creating another tool to address business financing needs around the state.”

TechPoint President Cameron Carter acknowledged that the project is still a work in progress, with many details undecided.

“It’s definitely a change from the status quo and, overall, that’s what the state of Indiana needs. We’ve been doing things the same way for a long time, with some pretty lackluster results,” Carter said.

The authority to establish regional funds is so fresh, it hasn’t yet been publicized. Feltman said IEDC has not received any inquiries about it from county officials.

“We don’t have any counties right now that are banging down the door, but we hope to have a pilot project [soon] with a few communities,” he said.

Off the record, skeptics point out that it will be difficult for IEDC to convince counties to redirect CEDIT funds that now serve as a panacea for local problems. They also doubt that counties can overcome their provincial priorities-questioning whether County A will really support a project that would take root in County B.

But county leaders may be more open to IEDC’s proposals than cynics think. William Keir, executive director of the Tipton County Economic Development Corp., for example, expressed interest in the idea.

Tipton County expects to raise $779,730 through CEDIT in 2006, Keir said. The money has been used to fill potholes. But this year, the county is directing it to develop infrastructure in an industrial park.

Rural counties are so desperate to attract jobs, he said, they might be willing to overcome their long-entrenched methods.

“I think it’s creative and there’s certainly a need out there,” Keir said. “The folks I’ve been dealing with would probably take a look at it.”

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