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Fixing the Funding Gap for a Better Arizona

taxScott Mussi’s and Serena Unrein’s guest opinion titled “HB2646 is risky business for taxpayers” published April 16 is factually wrong and improperly suggestive on so many points, it begs a response.

HB2646 is tax credit legislation that would create an Investment Fund for the state through the Arizona Commerce Authority (ACA).

In their misinformed diatribe, Mussi’s and Unrein’s first claim is, “HB2646…lacks even minimum safeguards and exposes taxpayers to a tremendous amount of unnecessary risk.” In truth, the legislation “…requires an annual audit of the professional finance organization contracted with the Authority … and results must be reported….”

Moreover, the fund would also be subject to existing performance and transparency requirements imposed on the ACA, which has oversight. Anyone having been through audits can appreciate the amount of accuracy and disclosure expected.

Mussi and Unrein also misinform the reader by claiming: “…taxpayers are required to absorb all of the risk by funding the creation of the program, but won’t stand to receive any of the profits associated with the investments.” The authors apparently fail to realize that Arizona’s Constitution prevents the government from being involved in deals. To comply, the bill limits the state’s involvement to issuing tax credits for those companies directly investing in the high-tech, early-stage growth fund.

Unlike any other tax credit program, the first profits realized by the fund would go directly into the state’s general fund. Thereafter, a percentage of the revenue would go back into the fund, creating an “evergreen” effect and allowing for further investment in other Arizona-based businesses.

Arizonans would also benefit through the creation of high-paying jobs, additional corporate income taxes, payroll taxes, business property taxes, and increased collaboration in R & D with the state’s universities.

Mussi and Unrein state as a pejorative that, “…insurance companies and other special interest groups…will reap all of the gains.” There were no consultations with the insurance industry when crafting the legislation and it is a mystery what the authors mean by “special interest groups.”  The nonprofit Arizona Technology Council has been supporting the bill but gets no compensation and no member is guaranteed any funds. Companies receiving proceeds from the Investment Fund would be judged by the professional Fund managers.

Mussi goes on to criticize the fact that the $50 million fund would be created outside the normal appropriations process and not subject to “…normal public scrutiny of normal line-item spending…” This bill has been fully vetted and scrutinized through the normal legislative process and has passed through all assigned committees despite Mussi and Unrein making their concerns known to the Legislature. It’s worth noting HB2646 is awaiting the conclusion of budget deliberations and won’t move to Senate Rules or the Senate floor until the budget is determined.

Also quoting Mussi and Unrein: “…you’d think that there would be strong reporting requirements and performance standards built into the legislation… It merely calls on the ACA to ‘annually assess the success and effects of the high technology business investment.’” Besides the audits, HB2646 requires the ACA to examine the investments’ effects on “…internal rates of return, total return and length of the investments, jobs created, average salaries, increases in exports from this state, goods and services purchased from companies in this state, state and local tax revenues and collaborative investments in universities in this state.”

Relating to their cry for “performance standards,” this is illegal. No investment may promise future performance.

Mussi and Unrein state “…there are no requirements in HB2646 as to what kind of business will receive these tax credits beyond the general guidance of ‘high technology businesses.’” In fact, the legislation specifies health, bioscience, semiconductors, electronics, information technology, energy, aerospace and defense.

The authors also claim “there is no guarantee that this money won’t end up going to businesses that otherwise would have lacked capital investment.” The bill clearly states “the professional finance management organization shall give priority to investments in businesses that have sources of investments in addition to the investments made pursuant to this section.”

At no time have Mussi and Unrein contacted anyone directly affiliated with this legislation to express their concerns or gain better understanding. Also, they have not contacted Speaker Andy Tobin or his staff, or the Arizona Technology Council, its Board of Directors, lobbyist firm or Capital Formation Committee chairmen.

We challenge Mussi and Unrein to call the Speaker’s office and set an appointment to discuss HB2646. If the need to address further concerns remains, we will gladly do so.

Steven G. Zylstra is president & CEO of the Arizona Technology Council, a trade association for science and technology companies.

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