Could investors' gamble pay off in NKY?

Progress never happens quickly in politics – but sometimes, persistence can pay off in a big way.

It took more than four years, and a whole lot of lobbying and behind-the-scenes muscle, but a tax credit that could transform the Northern Kentucky economy is finally law.

Gov. Steve Beshear visited the Covington headquarters of the business accelerator UpTech on Wednesday for a ceremonial bill-signing of a new tax credit for "angel investors" who invest in startup companies.

Such programs are increasingly common. Offsetting the risk to the investor helps speed the flow of private capital into startups, which have a high risk of failure – but also offer the chance for big rewards.

"It is time for our economy in this area to take off," said Beshear, an early and ardent supporter of the tax credit. "We are going to take it to the next level."

The bill-signing was packed with a who's who of Northern Kentucky business and political leaders, almost all of whom played some role in making the tax credit happen.

"You all burned up the phone lines, burned up the highways driving to Frankfort to talk about the importance of this bill, what it means to our region and the Commonwealth as a whole," said Trey Grayson, president of the Northern Kentucky Chamber of Commerce. "We wouldn't be here today without this army."

Kentucky's new program, which takes effect Jan. 1, is among the most aggressive in the nation.

It allows individuals who invest $10,000 or more in a startup company to claim an income tax credit of up to 40 percent of the investment. Out-of-state investors can also sell their tax credits to Kentucky investors.

It might sound like a small thing, but state and local officials believe it will have deep and long-term effects by encouraging more Kentuckians to invest in startups – and encouraging more of those startups to stay in the Bluegrass State and create jobs here.

And it all started in Northern Kentucky, at what was then known as the Northern Kentucky ezone.

In 2009, the ezone's Casey Barach researched how to help fledgling companies attract the capital needed to grow. The answer? A tax credit to make it more attractive for investors to sink that capital into a company that might or might not succeed.

It was a relatively new idea then, but today at least 20 other states, including neighboring Ohio, offer such a program.

Northern Kentucky business leaders were on board right away, and the Chamber has lobbied Frankfort ardently for the tax credit. Three different local lawmakers – Sens. Katie Stine and Jack Westwood and Rep. Arnold Simpson – sponsored bills trying to make it law since 2010.

Twice, Gov. Steve Beshear pushed for the idea in his annual address to lawmakers. A tax reform commission led by Lt. Gov. Jerry Abramson recommended the tax credit.

Kentucky's economy was still bouncing back from the recession, however, and the legislature balked at the $3 million needed to pay for the program – until this year.

In the wee hours of Sunday, March 30, legislative leaders were at the negotiating table to hash out a compromise on the state budget.

With Stine and Sen. Chris McDaniel in the room and pushing for the measure, legislative leaders decided that now was finally the time to green-light it, said Rep. Rick Rand, House budget committee chairman.

A tax credit might sound like a small thing, but it could have deep and long-term effects by encouraging more Kentuckians to invest in startups – and encouraging more of those startups to stay in the Bluegrass State and create jobs here.

The region's startup community is already booming thanks to UpTech, created in January 2012 by business leaders and Northern Kentucky University. The program provides privately-raised capital, mentoring and operational support to promising young technology companies.

The problem is, once those companies graduate from UpTech they have a tough time raising money in Kentucky to help them continue to grow.

Several promising firms have moved to Cincinnati because it's easier to find investors there. The angel investor tax credit aims to stop that brain drain and keep those companies in Kentucky – and help them grow and create jobs.

Such investments are always a gamble, however: the startup could fail in a year or two, or it could become the next Facebook – and there's no way of knowing ahead of time.

Now, more Kentucky investors are likely to take that risk and find out.■