Lenczewski angel grant proposal lambasted by DFL and GOP critics

Critics are piling on House Taxes Committee Chairwoman Ann Lenczewski’s proposal to provide grants to angel investors.

A large chorus that includes DFLers in the state Legislature and GOP Gov. Tim Pawlenty’s administration is assembling in support of incentives for people who invest in Minnesota start-up ventures. But Lenczewski’s grant idea runs against the grain of the predominant proposal to offer tax credits.

And some people are not pleased.

Former Star Tribune reporter Thomas Lee, writing in the online publication MedCity News, wrote that Lenczewski is “crashing the party” with her grant proposal.

Minnesota Revenue Commissioner Ward Einess, who is working on an angel investor proposal that Pawlenty will announce for the 2010 legislative session, said the grant idea is “flawed.”

House Biosciences and Work Force Development Chairman Tim Mahoney, DFL-St. Paul, said grants aren’t a good way get investors to the table.

“With grants it keeps investors less involved,” Mahoney said.

Mahoney is a co-sponsor of a 25 percent tax credit for qualifying angel investors.

Lenczewski, DFL-Bloomington, has been a consistent opponent of tax breaks such as business subsidies and tax deductions. Last session, during the conference committee on the omnibus tax bill, she opposed an angel investor credit that passed the Senate. The tax credit wasn’t included in the conference report.

Lenczewski is moving forward with her angel grant proposal, despite the opposition.

She counters that the tax credit idea is flawed.

She noted that there are federal tax consequences for angel investors in high-income tax brackets.

“A tax credit is much more expensive to the investor since they have to account for deducting their federal taxes. They lose about 35 percent of the tax credit value right off the top. In a grant, they would not,” Lenczewski said.

Mahoney and Lenczewski’s committees are scheduled to hold a joint hearing Feb. 9 in the State Office Building on angel investment proposals.