CAPCO is the Way to Go for Small Businesses!

Small businesses can turn to their local CAPCO programs for funding:

Fostering new businesses in your county (with their new tax revenue potential) is obviously a much better way to deal with state budget cutbacks and dwindling local revenues than increasing taxes or cutting services or both. And it doesn’t necessarily take a new automobile assembly plant in your community to turn the revenue slide.

For most counties, small businesses are the economic engines for their communities. The National Association of Small Business Owners reports that small businesses employ 51 percent of private sector workers; provide two-thirds to three-quarters of the new jobs; and represent 96 percent of all exporters of goods.

There are approximately 17 million small businesses in the United States that generate, in just four sectors — real estate, rental and leasing; construction; professional, scientific and technical services; and retail — $405 billion for the economy.

One of the economic development tools states have begun using to foster the continued growth of the small business sector is the Certified Capital Company Program (CAPCO). CAPCO encourages growth of small businesses and the formation and support of a local venture capital infrastructure. A CAPCO program allows insurance companies to invest in Certified Capital Companies to claim tax credits for qualified investments in certified CAPCO funds.

The state tax credits, taken over time, generate large pools of private venture capital to be invested in that state. A state CAPCO program has many benefits for local communities. CAPCOs are generally required to invest in non-bank small businesses located within the state, with limits on revenues and the number of employees. Unlike traditional government assistance programs, the CAPCO program relies primarily on the private sector to invest in the targeted geographies.

CAPCOs promote entrepreneurship and foster small business growth. They encourage more direct venture capital investment in a community.

In 1983, Louisiana became the first state to adopt a CAPCO-type program. Effective March 2003, Georgia will join Alabama, Colorado, Florida, Louisiana, Missouri, New York, Texas, and Wisconsin in providing CAPCO tax incentives to spur investment in small businesses which creates an infusion of more dollars to county governments, and more job opportunities for local citizens.

For example, Colorado is providing $200 million ($100 million for 2002 and $100 million for 2004) for this program in the form of premium tax credits given to insurance companies in exchange for the insurance companies giving $100 million in cash to the CAPCOs. The CAPCOs will then use these funds to invest in qualifying Colorado business. Twenty-five percent has been set aside for rural counties.

Georgia law provides for several types of income tax credits in connection with investments in less-developed areas of the state.

The state’s 159 counties were divided into four tiers, based on the county’s unemployment rate for the most recent 36-month period, lowest per capita income for the same period, and highest percentage of residents whose incomes are below the poverty level.

To encourage investments in less-developed areas of the state, the CAPCO legislation provides that each $1 of qualified investment in a qualified business that has its headquarters in a Tier 1 County is treated as $2. Similarly, each $1 investment in a qualified business in a Tier 2 County is treated as $1.50.

If your state hasn’t yet enacted CAPCO legislation, encourage it to do so. And if it has, make sure you take advantage of the program in your economic development efforts.


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