Minnesota approved a tweaked version of the angel investment tax credit to broaden the number of companies eligible for the credit and also bring internship salaries back to a market reality.
The change states that up to $4 million in private investment is eligible for the tax credit (previously that number was $2 million). That means, for example, that investors in a company that raised $1 million before it qualified for the tax credit can now receive a tax credit on $3 million of additional investment.
The other change was a minor tweak: altering language around intern salaries. The old version set minimum salaries for nonexecutives at about $20 per hour (at least 175 percent of the federal poverty guideline for a family of four). Now, interns will be paid at a rate that comes to about $12.69 per hour, said LifeScience Alley’s Frank Jaskulke. That wage figure is more in line with what engineering interns would make, Jaskulke said.
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But the changes give me pause — and not because there’s anything wrong with them. Perhaps it’s because these changes in the investment tax credit are juxtaposed against one another with the backdrop of crisis mode around Minnesota’s (and other) state budgets.
MedCity Media, which publishes MedCityNews.com, qualified for Ohio’s angel tax credit. So I understand its value to a startup company and to investors. But I also know there’s a chance private industry in many states have over-promised when it comes to the benefit of angel investment tax credits and other uses of public dollars to invest in private companies.
The concept behind the tax credit of providing state incentives that attract investors, grow companies, add jobs and expand important local industry should work. But it’s just as likely that many life science industries are now in a build-to-flip, invest-in-products-not-companies world where exits won’t deliver the job growth voters (and that’s the key term for policymakers: voters) expect.
It would be better if voters were thrown a few economic bones. State dollars, by design, often come with an expectation of a locally driven benefit (that’s why the Minnesota law includes basic wage expectations). There will be strategic, long-term benefits for fans of state incentives like angel tax credits to allow higher-market benefits just in case things don’t work out.
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That’s why I get hung up on issues like the intern salary. The change is technically correct: $20 per hour is well above market value for an intern.
But for investors, a company employing three interns for 15-week internships at the lower wage scale delivers their portfolio company a savings of $13,158.
Those same investors, if investing $4 million under the angel investment tax credit, realize a total tax credit of $1 million.
The answer isn’t intern salaries. But the question is how can supporters of angel credits add benefits to voters to protect the the angel tax credits if the credits don’t do what we hope?
