Budget Request - Commerce

2003-05 Budget Overview – Agency Requests

Department of Commerce

Amy Boyer, The Hamilton Consulting Group

Dec. 6, 2002

The Wisconsin Department of Commerce (Commerce) recently submitted its biennial budget request and subsequent five percent reduction proposal to the Department of Administration. Commerce’s initial budget request, which totals $368,737,100, is essentially a cost to continue budget, with several statutory changes.

Commerce’s request focuses primarily on the Build Wisconsin initiative. The purpose of Build Wisconsin is to create a roadmap for future economic growth and development in Wisconsin and to provide the framework to implement the strategy. One of the initiatives proposed by Commerce is to promote and develop industrial clusters in regions throughout the state by allocating additional funding from the Wisconsin Development Fund to the Technology Development Program, which helps companies develop new products, enhance existing products and improve manufacturing processes. Commerce would also coordinate with other agencies and entities to assist in the development of a development cluster.

Also in Commerce’s proposal, development zone tax credits would be modified to allow technology firms to sell unused research and development credits or net operating losses for no less than 75% of their value to other businesses that pay taxes in Wisconsin. Currently, R&D tax credits are neither transferable nor refundable.

Other statutory changes being proposed by Commerce include:

Technology Zone eligibility change: Under current law, S corporations, LLCs, and partnerships are unable to take advantage of the Technology Zone credits because they do not pay an income tax. Commerce is proposing to amend the Technology Zone program to allow for these types of businesses to qualify for the credits. Under the proposal, Commerce would use the entity’s net income (from its tax return) multiplied by the corporate income tax rate to estimate what its income tax liability would have been if it had been a corporation. Commerce will then use that amount, along with other underwriting criteria, to determine the tax credit available to the entity.

Pooling of CDZ and EDZ Credits: Commerce proposes to combine resources from the Community Development Zone and the Enterprise Development Zone programs, creating a $275.155 million pool. Allocations to both of these programs would be made from this pool. In addition, since credits for the EDZ program will no longer be capped at $3 million, Commerce will no longer need to seek statutory authority for Development Opportunity Zones, which typically exceed $3 million.

Brownfields Grant Program: Commerce proposes to change the appropriation from an annual to a biennial appropriation. Commerce also proposes to eliminate the “small communities” requirement, which requires Commerce to make seven awards to communities under 30,000 in population. In the request, Commerce argues that they have not received a large number of applications from “small communities” and that the requirement has precluded some higher scoring projects from receiving awards.

Commerce does not request any additional funds for the PECFA program. PECFA claims average $10 million/month, with available revenue totaling $5-6 million/month and the $32 million in bonding authority has been used. Commerce estimates that there will be $68 million available in each year of the biennium for awards, which is consistent with the current allocations. With the lack of new funding for the PECFA program, the claims backlog will likely grow.

Also, as requested by the Department of Administration, Commerce has submitted a five percent base reduction plan. In the plan, Commerce proposes to eliminate the Division Administrator position for each of the following divisions: Marketing, International Development, and Community Development. One financial specialist position and one half-time program assistant in the Division of Economic Development will also be eliminated for a total base budget reduction of $347,200. The Department also proposes to eliminate the three divisions (Marketing, International Development, and Community Development), and reallocate the services and positions to the Division of Economic and Community Development.