LANSING – The companies and other entities receiving start-up grants and loans in 2006 under the state’s 21st Century Jobs Fund created over 1,000 jobs between 2007 and 2008, according to a performance report about the fund recently given to lawmakers.

When the businesses, universities and non-profit organizations were awarded $120 million in the fall of 2006, those entities estimated they would establish 3,815 jobs with the money. So far, those groups have about one-third the number of jobs, creating 1,040 positions between October 2007 and September 2008.

“We’re actually a little ahead of where we thought we would be,” said Kapila Viges, managing director of program administration for the Michigan Economic Development Corporation, which produced the updated report to the Legislature.

The 21st Century Jobs Fund was approved by the Legislature and signed into law in 2005. It tapped into $1 billion of the state’s future tobacco settlement dollars, securitized the money, and used the profits to provide commercialization, loan enhancement and investment opportunities.

Viges said the program will run for 10 years and the life of the awards given to companies out of the fund range from six to 10 years.

On the commercialization end, the report notes groups have leveraged an additional $181 million during that time period after an initial fund leverage, which the entity receiving the grant or loan had to come up with, of $229.6 million.

During the 2007-08 fiscal year, some companies have withdrawn their awards, or in one case had that money rescinded by the state. Total funds that fell into those two categories were $17.8 million. Viges said some of the recipients couldn’t meet their obligations under the terms of their loan or grant agreements.

While the commercialization aspect of the fund produced 261 commercialized products that year, Viges said the state bases its success on job growth, how companies can leverage additional dollars, what kind of return on the investment there is and what kind of equity the state has in a company.

Some groups given the money have already outpaced expectations, including a grant to Grand Valley State University that provides services and consulting to technology companies. The original grant expected to create eight positions, but instead there are over 270 people working on that initiative. That program was one that also leveraged new dollars, turning a $2 million state grant into $48 million in new capital.

The Small Business Capital Access Program under the fund has also sparked more jobs, adding 2,222 positions and retaining 6,463 posts, according to the report. Ms. Viges said the program is aimed at giving lending institutions in the state an incentive to take on more small business loans. The state backs a percentage of the loan given out, so if a loan defaults, the lending institution can get some of that money back from the state.

Under the program, 1,015 loans were enrolled between October 2005 and September 2008. The Michigan Strategic Fund invested $2.25 million and $63.5 million in other funding was leveraged.

However, not all programs have been as successful under the 21st Century Jobs Fund.

The report notes there were no loans made under the Choose Michigan Fund, which is a loan enhancement fund aimed at allowing Michigan to compete with states that were giving out cash for companies to locate here.

Viges said there were no loans made because the state didn’t have enough money in the budget to lend in the last fiscal year. But she said the state has several companies “in the pipeline” and hopes to have deals arranged to use those Choose Michigan loans in the near future.

While the report to the Legislature, which is required by law, provides a snapshot in time, the idea behind the fund was to “plant the seeds early on” in the hope of growing a business community at a time when some start-ups and entrepreneurs would have a harder time accessing capital on their own, Viges said.

“It’s a high-risk business,” she said.

But for the state so far it’s been paying off, Viges said, with about 80 percent of the jobs fund portfolio doing well. She said a private sector portfolio, in comparison, may have at most 20 companies performing to expectations.

But Jim Holcomb, vice president of business advocacy and associate general counsel for the Michigan Chamber of Commerce, counters there is still a problem with the state being in the position to pick winners and losers.

“You can always find a bright spot in any program,” he said. But Holcomb questioned how many other jobs are leaving the state, or not coming here to begin with, because of the tax and regulatory burdens they face.

He said it is still important for lawmakers to address these issues head on and enact real reform, including addressing the Michigan Business Tax and its 21.99 percent surcharge.

This story was provided by Gongwer News Service. To subscribe, click on Gongwer.Com

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