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Minutes for HB2168 - Committee on Commerce
Short Title
Enacting the ad astra rural jobs act.
Minutes Content for Tue, Feb 6, 2018
Chairperson Lynn opened the hearing on HB 2168 and requested Revisor Chuck Reimer to provide an overview of the bill.
Chairperson Lynn recognized Representative Troy Waymaster who provided testimony in support of the bill. Representative Waymaster stated rural areas in Kansas are in need of diversifying their economies; however, the current programs offered by the Kansas Department of Commerce provide very little to rural communities. Rural areas of Kansas have experienced a downtown in their local economies. This has occurred in direct correlation to the decline in commodities in the agricultural sector and the steep decline in the price of oil. Many local economies in central and western Kansas depend on one or both of these industries. The Ad Astra Rural Jobs Act is specifically targeted to address the economic needs of rural Kansas. (Attachment 1)
Chairperson Lynn recognized Jeffrey Craver, Advantage Capital, who provided testimony in support of the bill. Many rural small businesses cannot obtain bank financing to help them grow and expand. The Ad Astra bill would help. Rural Investment Companies (ICs) will make longer term (six years or more), at-risk investments into these Kansas small businesses. This patient capital will help the businesses continue to have their financing needs met by local banks and provide them with a national network of co-investors. The ICs managers will serve on company boards, mentor entrepreneurs, connect them with their network of hundreds of other businesses, and assist the companies with personnel and finances as they grow.
Existing Kansas based businesses that could participate in Ad Astra can come from across a breadth of industries including, but not limited to, advanced manufacturing, plant sciences, agribusiness, mining, clean energy, cybersecurity, information technology, defense, life sciences and biotechnology. The companies must have fewer than 500 employees and less than $15 million of revenue during the previous year.
Private sector management of the investments is key to the success of Ad Astra. Federally licensed and regulated Rural Business Investment Companies and Small Business Investment Companies apply for the state to become ICs. Qualified applicants are given permission to raise private capital into Kansas-only ICs. The participating ICs will raise a combined maximum of $166 million of private funds and invest 100 percent of it in qualified rural small businesses located in the state within 24 months. No more than 20 percent of the money in an IC can be invested in any single business.
Investors cannot be paid profits until the IC either proves it met its job targets or it pays severe penalties to the state. It serves to align the interests of the state, taxpayers, small business and investors. If at any point during the six year compliance period a participating IC falls out of compliance, and fails to fix the non-compliance, tax credits associated with that investment are recaptured retroactively by the state. A list of program safeguards in the Ad Astra Rural Jobs Act was provided. (Attachment 2) (Attachment 3)
Chairperson Lynn recognized Liddy Karter, Enhanced Capital, who provided testimony in support of the bill. Small businesses are the economic lifeblood of our communities. As banks have become subject to stricter regulations and more community banks consolidate, it is even more difficult for a small business to find the financing it needs to purchase a new piece of equipment, expand a physical plant, hire additional staff, or bank enough working capital to survive industry and seasonal fluctuations. This is where programs like the Ad Astra Rural Jobs initiative can truly make a difference. Using a delayed tax credit to attract investors to businesses in under-served communities is efficient, innovative, and has proven to work. (Attachment 4)
Chairperson Lynn recognized Carling Dinkler, Enhanced Capital, who provided testimony in support of the bill. He reviewed a document concerning the fiscal impact analysis of the Ad Astra Rural Jobs Act. A study produced by the Economic Impact Group (EIG), a nationally-recognized firm that specializes in fiscal analysis of economic development measures, projects that, using conservative assumptions and methodologies, investments facilitated by the Ad Astra Rural Jobs Act would support job creation and retention in Kansas' rural communities and provide a positive revenue return to state and local governments. The EIG's study, which uses an industry-accepted economic modeling system called IMPLAN, projects that investments supported by the Ad Astra Rural Jobs Act would create approximately 960 direct jobs and retain approximately 370 existing jobs in rural Kansas. These jobs are projected to have an average wage of $51,000 annually.
Furthermore, the model projects that for every job created or retained, another 1.39 jobs throughout Kansas are supported. The net effect of the projected economic activity and jobs growth is the generation of $22 million in state and local tax revenue annually over a 10 year period. Over that same period, the associated revenue translates into a return of $1.92 to state and local government for every dollar in tax credit issued and a return of $1.03 if only state revenue is considered.
Should the Ad Astra Rural Jobs Act be enacted, a prospective fund manager would be required to submit a third-party, projected economic impact analysis of their investment plan and the jobs it would create or retain. That analysis would have to demonstrate a positive return to the taxpayers in order for the applicant to be approved. (Attachment 5) (Attachment 6)
Chairperson Lynn recognized Rex Martin, Rural Jobs Coalition, who provided testimony in support of the bill. The Rural Jobs Coalition is a national organization based in Virginia that works with agricultural, agribusiness and rural based companies, organizations and individuals to support innovative policies to improve the economies and jobs in agricultural and rural regions of the country. Recently, the Center for Economic Research and Business Development at Wichita State University, within its annual Kansas business forecast report, announced that "Employment growth is expected to be lower than Kansas' average employment growth rate over the last five years, which has been 1 percent". Additionally, the report stated that "manufacturing employment has declined each year in Kansas since 2015 and remains over 25,000 jobs below the sector's peak in 2008". There are many reasons for rural sluggishness, but one key critical area to address must be the severe lack of access to capital by small farms and businesses in the rural sector. The Rural Jobs Coalition commissioned a white paper on the "State of Rural Small Businesses and Access to Capital". HB 2168 would provide significant enticements for small business growth and new job creation within the next five to ten years. (Attachment 7)
Chairperson Lynn recognized Shahira Stafford, Kansas Grain and Feed Association (KGFA), Kansas Agribusiness Retailers Association (KARA), and Renew Kansas, who provided testimony in support of the bill. KGFA is the state association of the grain receiving, storage, processing and shipping industry in Kansas. KGFA's membership includes over 950 Kansas business locations and represents 99 percent of the commercially licensed grain storage in the state. KARA is a voluntary trade association that appreciates membership of over 700 agribusiness firms that supply fertilizers, crop protection products, seed, petroleum products, and agricultural services to Kansas farmers. Renew Kansas is the trade association of the Kansas ethanol processing industry.
The purpose of the bill is to initiate and foster economic growth and opportunities in rural communities across Kansas. Growing the Kansas economy requires job creation all across the state. As associations whose membership is largely based in rural areas of the state, we appreciate initiatives that support economic growth in rural areas. Good jobs are vital to maintaining strong, viable communities. (Attachment 8)
Chairperson Lynn recognized Josh Roe, Kansas Department of Agriculture (KDA), who provided testimony in support of the bill. In 2015 KDA was tasked with developing a strategy to grow the agricultural industry in Kansas. One of the desired growth outcomes is to establish Kansas as a premier state for start-ups in agricultural technology and entrepreneurship by fostering a business environment that supports new and expanding businesses. A common challenge for entrepreneurs in rural areas is a lack of access to capital; specifically, access to financing for start-up companies, as they generally do not qualify for traditional agricultural lending. Other options need to be identified by looking inside the venture capital and start-up financing environments. Agricultural entrepreneurs have the ability to navigate these environments, but due to the lack of local financing options, many choose to locate their business in urban areas, oftentimes outside the state. HB 2168 provides a mechanism for applicable financing options for start-up companies in rural Kansas, without a perceived need for these entrepreneurs to relocate. KDA believes that programs such as the Ad Astra Rural Jobs Act will be a vital tool in developing and fostering a rural entrepreneur ecosystem. (Attachment 9)
Written only testimony in support of the bill was provided by:
Sandra Rupp, Ness County Commissioner, President, Kansas Legislative Policy Group (Attachment 10)
Ryan Flickner, Kansas Farm Bureau (Attachment 11)
Greg Krissek, Kansas Corn Growers Association (Attachment 12)
Leslie Kaufman, Director of Government Relations and Legal Counsel, Kansas Electric Cooperatives, Inc. (Attachment 13)
Eric Stafford, Vice President of Government Affairs, Kansas Chamber of Commerce (Attachment 14)
Mandy Roe, Director of Member Services, Kansas Cooperative Council (Attachment 15)
Andrew Nave, President, Kansas Economic Development Alliance (Attachment 16)
There was no testimony submitted in opposition or neutral to the bill.
Chairperson Lynn opened the meeting for questions.
Senator Faust-Goudeau asked Mr. Craver if the job creation and growth was targeted at existing businesses or new businesses. Mr. Craver responded it would be for both, but the expectation is for the bulk of the job growth to occur with existing businesses.
Senator Faust-Goudeau said the fiscal note indicated the bill would require $375,000 from the State General Fund in FY 2018 to implement the program. Should the program not work, she asked if there was any requirement for a portion of the $375,000 to be reimbursed to the State General Fund. Revisor Chuck Reimer indicated he was not aware of any reimbursement requirement.
Senator Bollier asked Mr. Dinkler if he could provide more specific information, rather than averages, concerning job growth projections and salary levels. Mr. Dinkler said he would meet with the economist who performed the study and determine the level of detailed information that would be available.
Senator Olson requested Mr. Carling and Ms. Karter to provide further detail concerning the structure and funding of the program. He applauded the plan saying it would benefit Kansans.
Senator Givens asked Mr. Roe the risks and the rewards of the program. Mr. Roe responded the risk is that agriculture is very cyclical in nature and can be subject to outside factors. The reward is that Kansas is poised to enhance our agricultural production by capturing new ideas for increasing efficiencies.
Senator Holland asked Mr. Roe if he knew the position of the Kansas Department of Commerce concerning this bill. Mr. Roe responded he did not know the Department's position. Senator Holland asked Mr. Craver to review the states in which he has been involved with this type of program. Mr. Craver responded a rural jobs act has been enacted in Utah, Georgia, Ohio and Pennsylvania. However, he noted Pennsylvania has not yet funded the program due to budget issues. Senator Holland asked about the track record of this program in Missouri. Mr. Craver said this program does not exist in Missouri; however, there is a state tax credit called the new market tax credit for which he reviewed some historical result information.
Chairperson Lynn closed the hearing on HB 2168. The meeting was adjourned at 9: 29 a.m. The next meeting is scheduled for February 7, 2018.
