Background for SWIB Meeting

Below please find links to the full reports excerpted in the background document.

SWIB Summary on Private Equity Program: http://www.swib.state.wi.us/private_equity.asp
SWIB Summary on Wisconsin Investments: http://www.swib.state.wi.us/investinwisconsin.asp
Full Legislative Audit Bureau Report on SWIB (pdf): http://www.legis.wisconsin.gov/lab/reports/07-10Full.pdf
Highlights of LAB Report on SWIB (pdf): http://www.legis.wisconsin.gov/lab/reports/07-10Full.pdf

Information on the Wisconsin Venture Center

The following is from the Governor's Office background materials on the budget;

REASONS TO SUPPORT THE WISCONSIN VENTURE CENTER

1. The Wisconsin Venture Center builds on the successful angel investing initiatives put in place by the Governor and Legislature, including the Technology Council, Wisconsin Angel Network, Wisconsin’s Entrepreneur’s Network, and Act 255 tax credits for angel and Qualified New Business Ventures.

2. Although Wisconsin has grown its angel investments, Wisconsin still trails its neighbors in attracting venture capital (the next stage in capitalizing growing companies). In 2006, Wisconsin was ranked 33^rd in venture capital with a total of $58 million in venture capital investments. In comparison, Minnesota received $322 million and Illinois received $409 million in venture capital in 2006.

3. The Wisconsin Venture Center seeks to increase the amount of total capital invested into Wisconsin companies to $100 million a year for the next five years by connecting entrepreneurs to venture capital firms from all over the country, particularly in the Midwest and the coasts.

4. Wisconsin’s technology companies need increased venture capital to succeed and grow. 92% of all biotech revenues in 2005 were from venture-backed biotech companies. Venture capital fueled the growth of Apple, Cisco, Google, eBay, FedEx, Home Depot, Intel, and Starbucks. Wisconsin has great start-up companies that with venture capital could be the next Apple or Intel. TomoTherapy’s recent IPO is a great example of angel & venture investing.

5. Venture capital means more jobs, higher revenue, more quickly. Businesses that receive venture capital investments add more jobs more quickly and have higher revenues than businesses that do not receive venture capital investments.^[1]

6. The Wisconsin Venture Center is based on a proven successful model. In 2001, Ohio provided $4m as start up funds for a collaborative effort, the BioEnterprise Initiative, to assist health care companies in attracting venture capital. Since July 2002, the BioEnterprise Initiative has helped over 50 companies attract more than $500 million in new funding. Between 2001-03, Ohio led the nation in the relative growth of total venture capital invested in biotech. The Wisconsin Venture Center can do the same or better for Wisconsin’s companies.

7. The Wisconsin Venture Center will be state-wide non-competitive private-public collaboration between the State, ITAW, the Wisconsin Medical Device & BioTechnology Association, WARF, UW, Wisconsin Technology Council, and private industry.

8. The Wisconsin Venture Center will also connect Wisconsin’s entrepreneurs to management and mentors skilled in capitalizing businesses.

9. Over 85% of the Venture Center funding comes from out-of-state securities agents who are licensed to sell securities in Wisconsin; brokers will directly benefit from increased venture capital which can result in IPOs; brokerage firms in our state support the creation of the Wisconsin Venture Center.

Wisconsin Tax Rankings

Below please find a link to a Wisconsin Taxpayers Alliance press release on Wisconsin's tax rankings.

Points of interest from the release for our discussion;

• WISTAX calculates that Wisconsin’s state-local tax burden ranked eighth highest nationally, down from sixth the prior year.
• When user fees and charges are added to the tax figures, Wisconsin’s taxes-plus-fees claimed 15.20% of personal income, 13th highest among the states (vs. 8th the prior year).
  
• Corporate income tax collections rose from 0.41% to 0.44% of personal income and the
  state’s rank fell to 15th from 12th.
• Individual income taxes claimed 3.10% of income, down from 3.13%. Nationally, they
  ranked 15th compared to ninth in 2004.
• Property claimed 4.43% of income, nearly unchanged from the 4.42% in 2004. Wisconsin’s
  property tax rank dropped from eighth to ninth.
  
• General sales taxes fell to 2.44% of income in 2005 from 2.47% the prior year. Our sales
  tax rank moved from 30th to 31st.
  

Link to release; http://www.wistax.org/news_releases/2007/tax%20rank%200607.pdf

Change in State Spending Priorities

Per the last Committee meeting we were asked to research if there was any research that showed the change in state spending priorities and whether it was intentional or not.

I have the following Milwaukee Journal Sentinel series that uses Legislative Fiscal Bureau to show the shift in priorities and revenues from 1981 to 2001.

Go to Part 1; States Spending Binge Gives Taxpayers Hangover
Go to Part 2; State Spends Big on Roads and Education
Graphic; Change in Priorities

Legislative Audit Bureau evaluation of SWIB

Per our last committee meeting we are in the process of setting up a meeting with SWIB Executive Director Keith Bozarth to get his opinion and advice on reaching the goal of growing the availability of early stage and venture funds available in Wisconsin.

Of interest to Committee members relating to that discussion is an evaluation of SWIB that was released today by the Legislative Audit Bureau. There are several items of note in the report, but I would like to highlight two sections for the committee.

The first is a section on SWIB's Wisconsin private equity portfolio;

The Wisconsin private equity portfolio was established in 2000 to focus on venture capital funds active in Wisconsin and the Midwest. Through 2006, the Investment Board has committed $180.0 million to four venture capital firms. Of that amount, $77.7 million has been invested, including $32.5 million in Wisconsin companies.

The Wisconsin private equity portfolio had negative returns and significantly underperformed its benchmarks for all periods at the end of 2005 and 2006. The Investment Board attributes the underperformance to the fact the portfolio is relatively new: early-stage private equity investments are expected to earn below-benchmark returns until several years have passed. Consequently, it will be important to closely monitor the performance of this portfolio in future years, to ensure it provides the level of return that meets the Investment Board’s fiduciary
responsibilities.

The second point pertinent to previous committee discussions is about highlighting the successes of Act 255 and SWIB investments in Wisconsin. In the report the LAB recommends that "SWIB should highlight the performance of its private equity portfolio in its annual report to the Legislature."

SWIB responded by saying the following;

SWIB will provide this information in our annual report.

Private equity investments often take a number of years to achieve positive returns. The Wisconsin Private Equity Portfolio began in 2000 but a large portion of its current funding was allocated in 2004 and 2006. Therefore, its performance track record is relatively short. While returns since the inception of the portfolio continue to lag the vintage year benchmark, there has been a notable improvement in 2007. Preliminary results as of June 30, 2007, indicate that the six-month return was 23.2% compared to 13.8% for its benchmark. The 12-month return was 18.3% compared to 16.2% for the benchmark.

The whole report can be found here: LAB Homepage

Minnesota Tax Fairness Survey information

Below is a link to the most recent Minnesota Department of Revenue Tax Fairness Survey.
www.taxes.state.mn.us/legal_policy/other_supporting_content/systemsurvey.pdf

I have spoken with Cheryl Powers from The Research Edge, LLC, who conducted the survey for the State of Minnesota. She has received permission from the State of Minnesota to discuss the survey results and methodology with us and is available for a conference call in August. She noted that the cost to conduct a similar survey to the one done for the State of Minnesota would cost between $25,000 and $35,000 (not currently in the CWI Budget).

The State of Minnesota, which pays for the survey, has commissioned this survey every two years since 2001 and a survey will be done this year as well.

Research discussed at 7/17/07 meeting

Below are some of the supporting documents that were discussed at yesterday's meeting;

State of Wisconsin Investment Board stats on investing in Wisconsin.
http://www.swib.state.wi.us/investinwisconsin.asp

Forbes "Best States for Business" Article and Ranking Grid;
http://www.forbes.com/2007/07/10/washington-virginia-utah-biz-cz_kb_0711bizstates-table_print.html

http://www.forbes.com/2007/07/10/washington-virginia-utah-biz-cz_kb_0711bizstates.html?partner=daily_newsletter

Professor Don Nichols Income Gap Presenation
http://www.lafollette.wisc.edu/publicservice/newlegislators/WIincomegap07.ppt