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As Long as We Remember...

April 4, 2011

A Program to Support

Michael Kurtianyk

It’s time for lawmakers from both sides to step up and do what’s best for Maryland. It’s time to shut up and support Gov. Martin O’Malley’s “Invest Maryland” Program.


So, you don’t know what it is? According to Senate Bill 180, the purpose is to:


“[Establish] an Invest Maryland Program to allow specified companies to purchase credits against the insurance premium tax in order to fund investments in qualified businesses in the State; providing for administration of the credit by the Department of Business and Economic Development; providing for the creation of the Maryland Venture Capital Authority in the Department; requiring the Authority to obtain the services of an independent third party to conduct a bidding process to allocate insurance premium tax credits; etc.”


To further clarify, according to recent testimony at the Senate Budget and Taxation Committee and the House Ways and Means Committee:


“Invest Maryland (SB 180 and HB 173) encourages the development of public-private partnerships to fuel venture capital investment and grow the state’s knowledge-based industries, which is expected to stimulate up to $100 million in venture capital investments and to create thousands of jobs. Under the bill, insurance companies will be eligible for state issued tax credits and in turn they would invest dollars in Maryland’s venture infrastructure. At least half of these investments will flow into the Maryland Venture Fund and the rest will flow into Maryland-based venture capital firms for the purposes of getting critical capital to Maryland businesses so they can create jobs and advance innovation in fields like the biosciences. Some percentage of these funds is expected to be targeted for investments in women and minority owned businesses.”


Thus, the concept is similar to what Silicon Valley has, which fosters ideas that are born in the state (e.g. universities), and then create companies from there. It is much like an incubator system for businesses, but on a state-wide level. Under Governor O'Malley's proposal, the money would come from insurance companies choosing to pay their taxes early at a deep discount. Half would be invested by a panel of participating venture capital firms; half would be invested by a state agency. The companies that become successful would pay the state back with 80 percent interest, after going public, or being sold. Those proceeds would go back into the venture fund to make up for losses and to keep the fund running.


What is not to like about this? Politicians from both sides should support this. Who doesn’t want to create more jobs here in Maryland? In what is arguably the worst economic slump since the Great Depression, the “Invest Maryland” program stands a greater chance of boosting employment than other programs, like last year's tax credit for hiring unemployed Marylanders, or anything else the House and Senate came up with.


Johns Hopkins University President Ron Daniels recently told lawmakers a story about a technology developed at Johns Hopkins. However, the company had trouble finding investors, so they moved to Pennsylvania, where they received a $500,000 investment from the state, as well as other private financing.


As President Daniels put it: “This was our idea, and now it’s going to be developed in another state.”


Opponents are likely to complain this is nothing more than corporate welfare. Why should the state government subsidize businesses, and get nothing in return? However, one needs to look no further than the following:


The Maryland Venture Fund has invested $39.2 million since its inception in 1994 and has returned $62.3 million, according to the state Department of Business and Economic Development (DBED). This fund, according to DBED, “is a state-funded seed and early-stage equity fund; an evergreen fund that receives annual allocations from the Maryland State Legislature. The Fund makes direct investments in technology and life science companies and indirect investments in venture capital funds. Approximately 60 percent of the Fund is invested in technology companies in the areas of software, communications, and IT security, and 40 percent of the Fund is invested in life sciences companies in the areas of therapeutics, medical devices, and diagnostics.”


“Invest Maryland” would put $20 million a year into a $250 billion state economy, a drop in the bucket. But venture investments can develop big returns. They're aimed at innovation and entrepreneurship, which is what brings jobs.


This initiative is a cost-effective investment in Maryland’s future. Insurance companies would be given the option of prepaying future tax liabilities at a discount, with the funds immediately deployed to support businesses in creating jobs and spurring innovation. For every dollar we invest, we will recoup 100% of our principle investment along with a percentage of the profits from successful business ventures.


With the “Invest Maryland” Program, Maryland taxpayers will get money back. What state, or federal, program do we have today that will do this?


We are number one in education. Let’s be number one in job creation.


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