Iowa Means Business

Chet Culver’s Plan to Promote Iowa Small Businesses, Entrepreneurs, and Access to Capital

Iowa has much to be proud of.  In recent years we have had a fast-growing, broad-based economy.  Exports of Iowa manufactured and processed goods grew to a record high of $6.4 billion in 2004, a 22 percent increase over the previous year.  And household incomes are rising:  Per capita personal income rose 8 percent from 2003 to 2004 – almost twice the national average.  Average wages in the last year have increased by 11 percent. 

Iowa ’s fiscal house is in order:  The revenue projections for 2007 predict a surplus of more than $100 million.  The economy is moving forward.  This is no time to slow down, to stop and rest, or – especially – to turn back.  Instead, as the 21st century economy continues to change, Iowa must take bold steps to ensure that we are an active player in the new economy.   We need a Governor who will keep Iowa moving forward, not one who will either turn back from the accomplishments of the Vilsack Administration or be comfortable to rest on them.  I intend to be that Governor.

Iowa is a state of small businesses – and that’s a strength.  Small businesses create more jobs each year than the entire Fortune 500 put together.  Others may want to focus on giving away our money to big businesses that come from outside our state and have no commitment to Iowa .  I think a vital part of any economic development plan has to promote people starting their own businesses.

Business creation is always a dynamic environment. When state government is involved, creativity remains a key factor.   Ideas are the fuel that drive our economic development efforts.  Here are Ten Ideas to Promote Iowa Small Businesses, Entrepeneurs and Access to Capital:

1) Make Iowa a National Leader in New Private Sector, Entrepreneurial Investments in Home Grown Power and Clean Technologies.  As Governor, I will make Iowa a national leader in job creation and new technology research and development with a, $100 million Iowa Power Fund - to help Iowa’s small, medium and large businesses expand rapidly into the high growth renewable energy, alternative fuel and “Clean Technology” industries.  The Fund will help home grown energy businesses get started or expand, and leverage new private sector investments in “Clean Technologies” in Iowa .  Over the next four years, My Iowa Power Fund will attract more than three times this $100 million investment in new private sector funding for renewable and alternative energy industries in Iowa .

This will make the Iowa Power Fund the largest of its kind in the nation and will put Iowa on the map for the “Next Generation” power and fuel investors and entrepreneurs.   The Iowa Power Fund will require that that the jobs created provide good wages and good benefits and that any company that misuses Iowa Power Funds or doesn’t provide the jobs promised will have to pay taxpayers back with penalties and interest.

2) Insure Iowa Health Care Plan to Cut Skyrocketing Health Premium Costs for Iowa Small Businesses.  Iowa businesses have had to absorb an increase in premiums of at least 58% since 1999, and on average, costs have increased almost 16% per year since 2001.  As a result, fewer businesses are offering insurance to their workers and some are beginning to require higher employee contributions.  As a result of increased costs, some employees may be unable to purchase insurance.  This is one example of the vicious cycle in which higher premiums reduce insurance coverage, and reduced insurance coverage increases premiums.  We must stop this cycle in Iowa by lowering costs and increasing insurance coverage.

High health care costs, due in part to the shifting of charity care costs to the private insurance market, are creating a huge drag on Iowa's economy: according to a University of Iowa estimate, Iowa loses at least half a billion dollars a year because Iowa businesses are hiring less, spending less on taxable equipment and investments, and experiencing lower profits due to the increased cost of health care.  Iowa also loses an estimated $60 million in tax revenue due to the impact of the high costs of care on small businesses.

Clearly, Iowa cannot afford to continue with the status quo.  As Governor, I will work tirelessly with all sectors of the Iowa community to ensure that we expand access to affordable, quality health care to Iowans in every corner of the state.

While eventually all Iowans will be able to buy insurance through my Insure Iowa health care plan (which is available in its entirety at www.chetculver.com), we will focus our initial efforts on those Iowans most impacted by the cost of health insurance.  Specifically, only 27% of Iowa small businesses with less than 10 employees, and 69% of businesses with 10-24 employees, currently offer health insurance to their workers - compared to over 86% of businesses with 25-99 workers, and close to 100% of businesses with more than 100 workers.

Therefore, in Phase I of the Insure Iowa plan, independent workers and small businesses with less than 25 employees will be given the opportunity to purchase insurance through the Insure Iowa plan.  A percentage of the total premium will be subsidized on a sliding scale basis based on the size of the business and the average cost of health plans offered through the State Employee Health Benefits Plan (SEHBP).  Priority for premium subsidies will be given to the smallest businesses (with less than 10 employees).

In addition to the subsidy, the Insure Iowa plan provides the following benefits to employers who buy into the plan:

• Small businesses and self-employed individuals that currently do not offer insurance, and that buy into the plan during the first year of operation, will receive an enhanced premium subsidy for the first two years they offer the insurance.  Businesses that buy into the plan after the first year will receive the basic subsidy level.
• Small businesses and self-employed individuals who currently do offer insurance will receive the basic subsidy level if they buy into the plan during the first year of operation, and a lower subsidy level if they buy in after the first year.  In addition, Iowa will fund the start-up costs of worksite wellness programs for these businesses if they buy in during the first year.  Worksite wellness programs, which have been proven to improve workers' health, reduce absenteeism, and increase productivity, can save businesses between $1.80 and $6.15 for every dollar invested in them.
• Small businesses and self-employed individuals will be able to purchase high-quality, lower-cost insurance than they would be able to find on the small group or individual insurance market, with a reduction in administrative expenses from no longer having to negotiate health benefits for their employees.
• As more Iowans become insured, all businesses should see a reduction in premiums because they will be subsidizing less care for the uninsured.   

3) Creating an Office of Small Business Development and Entrepreneurship whose sole mission will be to help create, grow, and expand small businesses.   Iowa small businesses need and deserve a one-stop shop where they can find someone to answer their questions and be their advocate.

The office will be responsible for receiving and responding to complaints received by the agency from small business; providing technical advice and assisting small businesses in resolving problems and questions; and reporting small business concerns and recommendations to the Governors Office.

We will support and expand the Business License Information Center (BLIC), an on-line tool that assists small businesses in determining which kinds of licenses or permits are needed from state government.

In addition, the law would give a person requesting a notice of regulatory action the option of being notified of all regulatory actions or specified regulatory actions regarding one or more of the agency’s programs.

4) Expanded Business Incubator Programs.  Business Incubators are a proven method of creating healthy new businesses that add to the local and state economy.  While Iowa has invested in a business accelerator program and put in place  half a dozen accelerators around the state, an incubator actually houses new businesses in their first two to three years.  The facilities provide support and services that accelerate the successful development of start-up and fledgling companies by providing entrepreneurs with an array of targeted resources and services.  After their incubation, the companies move into the community and thrive.

To the extent it is practical, we will partner with the Regents institutions to develop and expand existing incubation services that are offered at the research parks located at the University of Iowa, Iowa State University and the University of Northern Iowa .

Incubators are a good investment because rents charged to businesses usually cover the states cost for the building.  In addition, these facilities have proven track records of creating new businesses.  According to statistics from the National Business Incubation Association:

1. Every 50 jobs created by an incubator client generate approximately 25 more jobs in the same community.
2. Nationally, 87 percent of all firms that have graduated from their incubators are still in business.
3. In 2001 alone, North American incubators assisted more than 35,000 start-up companies that provided employment for nearly 82,000 workers and generated an annual earning of more than $7 billion.

5) Establish Regional Small Business Training Alliances.  Unfortunately, most customized job training programs target larger employers and do not meet the needs of many emerging businesses around the state.  Many new employers in high-tech and other emerging industries, as well as more traditional industries that use high tech advances, are small operations; the economics of a small firm do not permit them to conduct their own training programs – but a consortium of small employers in industry clusters could jointly apply for training grants to fund industry specific training.

While Iowa has a business network training program on the books, it can be better utilized and marketed so that businesses in need of worker training can access it.  With regional Small Business Training Alliances, small businesses from similar industries can train workers on new equipment, and gather and share critical information about markets and technology.  These alliances will be independent collaborations among firms in an industry and educational or training institutions that identify common areas of skills shortages within the industry, and develop and deliver the appropriate training to address those shortages.

6) Encourage Small & Family Run Business Growth By Allowing Tax Credits for Stock Options.  Compensation for workers in the new economy has taken many different forms. Stock options and royalties and licensing income from patents and copyrights are important features of compensation for today’s high-technology entrepreneurs. Some states are using targeted tax credits in an attempt to attract high-technology businesses to their state.  For example, Rhode Island has enacted specialized stock provisions for software developers to recruit software companies. Employees of qualified firms are exempt from paying personal income tax on profits from selling company stock and gains from stock options.  Iowa should do the same.

7) Providing Capital for the Smallest Businesses.  Traditional lenders look for businesses with an established track record and credit history.  Many first time entrepreneurs find it almost impossible to access credit.   As Governor, I will establish a micro lending fund which will make capital available to businesses with five or less employees, which requires $50,000 or less in start up capital, and which does not have access to the traditional commercial banking sector.

8) Significantly Cut Taxes on Limited Partnership Venture Capital Fund Profits.  Iowa should reduce taxes on certain venture capital funds – provided the fund’s primary place of business is Iowa and the profits are from investments in approved high technology industries.

9) Expanding Capital Availability for High-Tech Start-Ups.  Iowa can be proud of our universities and business schools who have created nationally recognized programs to assist high tech start-ups among students and faculty.  However, start-ups can’t start up without capital – especially in the technology and manufacturing fields.

(1)  Iowa lacks large-scale venture capital investors.  This means the start-up businesses we have nurtured at our universities go to out-of-state venture capital firms for the money they need to get started.  Too many times an investment comes with the proviso that the company leave Iowa .  We must find creative solutions to leverage state funds to encourage venture investment in Iowa-based companies.

(2) Iowa can create and manage a venture capital fund, the primary focus of which would be economic development in areas that currently are underserved by private venture capital firms.  The challenges of attracting qualified professionals and avoiding politicization of decision-making are substantial, and the program should probably be kept small (e.g., investing $20-25 million annually) until it is clear that these challenges can be overcome.  The Massachusetts Technology Development Corporation is a good model for this.  It is a quasi-governmental agency that has been making seed stage investments in the $500,000-$1,000,000 range in early-stage Massachusetts-based technology companies for 25 years.  MTDC positions itself as being larger and having greater resources than typical angel investors, but smaller than most venture capital funds, which now have fund sizes that generally make it impractical for them to invest less than $3-$5 million in a transaction.

(3) I believe like many Iowans that we should work to find a fiscally responsible way to encourage those businesses that meet IPERS’ strict investment requirements to create jobs here in Iowa .  IPERS currently invests 7.5% percent of its holdings in private equity across the country, some of it in venture capital (currently $300 million) – with a target of 10% in private equity.  I would support continuing to work toward that target, and working to find a way to encourage a portion of the fund’s private equity investments – up to 1% - to be focussed here in Iowa, targeted at private sector venture capital opportunities in growing fields that meet IPERS’ strict investment policies, while creating jobs and increasing returns for the IPERS fund.

10) Create a Link Between Our World-Class Universities and Industries.  Our universities can provide technical support on implementing best business practices, company assessments, strategic advice on management, production planning, quality control, environmental and safety issues, and workforce development; help with facility layout, planning, and design; process assessment and improvement; and other business services.

Iowa has excelled at using our business schools to support new high- technology start-up businesses.  By extending these services to existing businesses, we can ensure that we keep good jobs with good benefits in Iowa .

The Texas Manufacturing Assistance Center works with small to medium-sized manufacturers, providing technical support and implementing best business practices.  The Center also provides help with Company Assessments, Strategic Management, Production Planning and Control, Product Manufacturability and Design, Quality Management Systems, eEnterprise, Environmental, Health and Safety issues, and Workforce Development.  Its business planning services include help with facility layout, planning, and design; process assessment and improvement; quality ISO 9000 training and implementation; information systems software selection and implementation; LEAN manufacturing training and implementation; and product development.

A similar program here can produce a win-win situation in which, as in Texas , program fees rather than taxpayers pay for the program, but businesses that want them receive valuable services in return, helping them to reduce costs, increase profits, and improve quality, performance, and productivity.