O'Malley venture capital plan draws skepticism from legislators

Washington Post Staff Writer
Thursday, February 17, 2011

Maryland lawmakers are struggling with the centerpiece of Gov. Martin O'Malley's jobs agenda for the year, hearings on Wednesday revealed. Lawmakers said they weren't sure whether the governor's plan to raise money for high-tech startups would create a much-needed economic boost or a costly boon to insurance companies.

O'Malley (D) wants to raise $100 million from insurance companies to increase venture capital spending in the state by auctioning off to insurance companies up to $142 million in tax breaks.

"So you give the state $7 million and get back $10 million?" Senate Budget and Taxation Committee Chairman Edward J. Kasemeyer (D-Baltimore County) asked. "What does the state get?"

O'Malley testified Wednesday that the measure (SB180) could make the difference on whether Maryland or another state becomes the home of the next great high-tech, bio-tech or other "world-changing" company.

"In this changed economy, we are in a battle for jobs, in a battle for opportunity," O'Malley said. "We have the opportunity to remove what has been a major obstacle to really harnessing the full potential of Maryland's job-creating, innovation economy."

Money from insurance companies would be deposited in the Maryland Venture Fund. The state previously invested $25 million in the 13-year-old fund. The administration says the investment returned $61 million and helped support companies employing 2,000 people. O'Malley made no prediction of the number of jobs the new investment could create, other than to say it could be "thousands."

Several lawmakers, however, were skeptical.

In the Senate budget committee, members politely thanked O'Malley for his testimony - his first before the state's General Assembly since winning reelection last fall - but after the governor left began grilling his secretary for Business and Economic Development, Christian S. Johansson, about the details.

Details explained

Under the governor's plan, Maryland would collect about $100 million from insurance companies during O'Malley's second term. In exchange, the companies would be given vouchers for tax credits that would cost the state as much as $142 million over the course of six years after he leaves office.

Johansson said there was a rationale for the timetable: Maryland would use the money now to inject capital into early-stage ventures, such as those attempting to create commercial spinoff products from medical research being conducted at Johns Hopkins University.

By the time the tax breaks begin to eat into the state's budget, Johansson said, the investments hopefully would begin to pay off with new jobs and therefore fill the resulting budget gap with growing income tax receipts.

But Johansson also testified that it usually takes five to 10 years for early-stage companies to reach the point at which they can begin to repay the state.

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