Changes to 'fund of funds' act sought

Utah economic development representatives want Gov. Olene Walker to let the Legislature consider changes to the state "fund of funds" act before a probably inevitable court case about its constitutionality.

The state Board of Business and Economic Development on Thursday adopted a resolution encouraging Walker to put HB240, passed in 2003, on the schedule for a special legislative session next week.

Supporters of the Venture Capital Enhancement Act, tweaked during a November 2003 special session, had hoped its provisions would have been in operation by now as a way to boost venture capital investment in Utah. But the state auditor's office has lingering questions about the act's constitutionality.

"We've tried on a number of occasions to work that out with the auditor's office and have not been able to come to any reasonable resolution," David Harmer, executive director of the state Department of Community and Economic Development, told the board Thursday. "It appears now we will have to have those issues settled by the court."

Suggested changes would make the act "more efficient," he said, adding that they should be made before a court looks at the matter.

"The idea would be that we want the Legislature to approve these changes that we're proposing, then we would take the act with those changes and go to the court for them to rule on the constitutionality. So it's very, very important that we get these changes made now. Otherwise we'd have to wait until the next general session, and that would put us behind another six months in terms of the implementation," Harmer said.

"If we went to the courts now and then came back and made changes to the act, that would raise questions about (whether) those changes change the court's position, so it's not feasible to go that direction."

The act calls for creation of a $100 million "fund of funds" that would come from private sources, but the state would protect investors from a loss by issuing contingent tax credits — up to $20 million annually — if investors do not receive a 5 percent to 6 percent return on their investment in Utah companies.

Harmer said one proposed change to the complex act is to make the contingent tax credits refundable.

"Initially when people see that they think, 'Oh, that's bad, because that increases the fiscal exposure to the state.' In reality, it does not. . . . If you really understood how the original act worked, it's absolutely no different other than it's a lot simpler to administer," he said.

If the act is not considered for the special session, Harmer predicted frustration could surface.

"If we don't, frankly, we're going to get a lot of negative reaction from the business community," he said. "It's been drawn out already, and this would just push it further."

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