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Minutes for SB90 - Committee on Commerce
Short Title
Extending the tax credit under the center for entrepreneurship act to financial institutions and increasing the annual tax credit limit for all contributors.
Minutes Content for Wed, Feb 13, 2019
Chairperson Lynn opened the hearing on SB 90 and requested Revisor Charles Reimer to provide an overview of the bill following the verbal testimony.
Chairperson Lynn recognized Alex Orel, Senior Vice President - Government Relations, Kansas Bankers Association (KBA), who presented testimony in support of the bill. SB 90 was requested by the KBA in coordination with NetWork Kansas. NetWork Kansas and its statewide partners have been promoting an entrepreneurial culture since its inception in 2004. The partnership of local business leaders increases access to capital through the Entrepreneurship Tax Credit and brings targeted entrepreneurship programming to communities. The leadership teams or financial review boards across these 60+ partnerships include a local banker.
Under current law, financial institutions who pay a privilege tax are not eligible for the Entrepreneurship Tax Credit. KBA believes this was an oversight in the implementation of the Kansas Economic Growth Act of 2004, where it was created to apply to income tax payers. Kansas banks pay income taxes, but under statute is called the privilege tax. These changes would allow banks to participate in the same program, a program banks are currently involved with, and that all other businesses and individuals in the state can participate in. This bill does not increase tax credits; the maximum annual allocation remains the same. (Attachment 1)
Chairperson Lynn recognized Steve Radley, President and CEO, NetWork Kansas, who presented testimony in support of the bill. Kansas banks are critical to Network Kansas' work in communities across Kansas and the entrepreneurship tax credit is the fuel to all the programs that have been implemented. The goal is to increase the connectivity between entrepreneurs and resources, increase access to capital, and strengthen the relationship between communities, partners and entrepreneurs. Mr. Radley discussed community ecosystems and statewide funding programs. (Attachment 2) (Attachment 3) (Attachment 4)
Chairperson Lynn recognized Erik Pederson, Vice President of Entrepreneurship, NetWork Kansas, who presented testimony in support of the bill. In 2014, the Center for Rural Entrepreneurship in Lincoln, Nebraska, published the book Energizing Entrepreneurial Communities. The book outlines three fundamental beliefs that the Center and NetWork Kansas share:
- Entrepreneurship development is a necessary component of any economic development strategy and is the most promising strategy for rural and small metro communities.
- Creating an entrepreneurial environment requires culture change, adopting a "grow your own" mentality.
- Entrepreneurship development requires a systems approach: a collaborative, often regional approach of "connecting the dots".
Through the E-Community Partnership, the focus of NetWork Kansas is on increasing access to capital and bringing targeted entrepreneurship programming to the communities. At the core of the E-Community concept is a loan fund. NetWork Kansas works with each E-Community to provide access to $75,000 to $150,000 of gap financing. The community has local decision-making over which businesses to loan money. Since inception in 2007, these community loan funds have collectively funded $17.3 million of loans to 528 businesses. Since E-Community loan funds are intended to be gap financing, meant in many cases to close an undercapitalized deal, many of those deals would not happen without the E-Community funds, which makes it more meaningful that this $17.3 million in E-Community loans leveraged more than $83.5 million in capital for Kansas businesses.
There are four NetWork Kansas E-Community coaches, each the key contact for about fifteen E-Communities. These coaches attend the E-Community leadership team meetings, help with strategic discussions and work together with the leadership team to decide priorities, increase access to capital and implement entrepreneurship programming. (Attachment 5)
Chairperson Lynn recognized Justin Pregont, Assistant City Manager, City of Atchison who presented testimony in support of the bill. Atchison has been successful in building a culture of entrepreneurship, and the main reason for the success has been the partnership and relationship with NetWork Kansas. NetWork Kansas is not the only gap financing program available, but it is exponentially more accessible and the only such program, to his knowledge, that has committed to thorough community engagement and a relationship focused "ground game" with every one of its community partners. Mr. Pregont's testimony highlighted three examples of gap financing packages provided through the E-Community program. (Attachment 6)
Senator Sykes requested a list of all the tax credits that are available to entrepreneurs in Kansas.
Chairperson Lynn asked how NetWork Kansas measures success once the loans have been made to the entrepreneurs. Mr. Radley responded NetWork Kansas follows up and generates a monthly report on active loans. Job creation resulting from the loans is also tracked.
Senator Pilcher-Cook noted entrepreneurship grants are helpful to the seller of a business in addition to the buyer. There was discussion concerning the increase in the maximum amount of tax credits that any one taxpayer could claim from $50,000 to $100,000. The goal of the increase was to encourage participation in the program.
Senator Holland asked Mr. Orel if the Kansas banking commissioner had weighed in on the bill. Mr. Orel responded there have been conversations about the bill and no problems with the bill were indicated. There were questions concerning potential conflicts of interest with the bill. Mr. Radley said the loans are administered through the partner network and there is no tie to the banks.
Senator Alley asked who takes first position in the loans. Erik Pederson responded on all the E-Communty loans, the E-Community portion is always subordinate. The bank or the certified development company is always first.
Written only testimony in support of the bill was provided by:
- Christy Hopkins, Legislative Committee Member, western Kansas Rural Economic Development Alliance (wKREDA) (Attachment 7)
- Shan Hanes, President and CEO, Heartland Tri-State Bank, Elkhart, Kansas (Attachment 8)
No testimony was received in opposition or neutral to the bill.
Chairperson Lynn closed the hearing on SB 90.
Senator Lynn yielded the Chair to Senator Pilcher-Cook who presided for the remainder of the meeting.
