The state’s budget is bleak now, but it could be even bleaker in the future if lawmakers don’t invest in business programs to diversify and strengthen the state’s economy.

That’s the sales pitch business leaders took to the Statehouse as legislators began their wrap-up session Wednesday with the state still facing a $750 million budget gap that is expected to grow even wider.

Despite the deficit, leaders of some of the state’s largest business groups were hoping that legislators would use the final days of the session to approve bills to stimulate business.

“It is always tough to look at issues like this when you are in the shadow of a budget shortfall of more than $700 million,” said Jim Edwards, senior vice president of the Kansas Chamber of Commerce and Industry. “But we’re telling legislators this is exactly the time you have to look to do something for business.

“The engine of this state continues to be the business community and the manufacturing community, and there seems to be a pretty large segment over there in the Statehouse that says even though things are tight, we still need to fuel that engine.”

Here’s a quick look at several of the issues business leaders and organizations say they’ll be watching during the final days of the 2002 legislative session.

Business equipment

The Kansas Chamber of Commerce’s top priority is getting legislators to provide companies some relief on the property taxes they pay on business equipment and machinery, Edwards said.

According to Edwards, the state still has the highest property-tax rate for business machinery and equipment of any of neighboring states, and the tax continues to be a disincentive to businesses expanding and locating in the state.

The relief would come in the form of a tax credit businesses could take on their state income-tax return. Currently businesses can deduct 15 percent of what they pay in property taxes on business equipment and machinery. A bill has passed the House that would increase the tax credit in the next five years to 40 percent.

Edwards said his group hopes the bill will come up in a conference committee this session, but even some supporters of the measure believe it will be a tough sale in today’s fiscal environment.

“It passed the House, and to be honest with you, that surprised me because of the difficult economic times we are in,” Rep. Tom Sloan, a Lawrence Republican, said. “I believe the only reason it did pass was because a majority of legislators recognize that without a vibrant, growing business economy, we’ll face even larger problems in the future.”

But Sloan said support for the bill in the Senate was far from certain. Lt. Gov. Gary Sherrer, who also is the secretary of the Kansas Department of Commerce and Housing, agreed.

“I don’t think there are many people who would disagree that it is a tax that we’re clearly out of line on when you compare what other states are charging,” Sherrer said recently. “So it is an important issue, but I don’t know if our current state budget situation will allow it to be feasible.”

Even some with the Kansas Chamber of Commerce are admitting that winning approval for the entire 40 percent tax credit currently proposed may be overly ambitious.

“I guess I would say we are hopeful we can get some of that through, but we’re not sure this is the year we can get it all through,” said Marlee Carpenter, director of taxation for the Kansas Chamber of Commerce.

Venture capital

Leaders representing Kansas Inc. and the Kansas Technology Enterprise Corp., which are state-funded business groups, say it’s time to encourage new high-tech businesses to start up and grow in Kansas.

“The traditional pillars of our state economy  agriculture, aviation, oil and gas  are not capable of pulling us out of a recession anymore,” said Charles Ranson, president of Kansas Inc., the state think-tank for economic development. “I’m afraid we’re not at the bottom of this downturn yet.

“The economic base in this state is too narrow , and it has to be diversified.”

But Ranson said it will take a new venture-capital program supported by the state to jump-start the creation of new high-tech companies. Ranson and Tracy Taylor, president of KTEC, are pushing for approval of a bill that has been stuck in conference committee since last year.

The bill would create a new 50 percent tax credit for qualified investors who invest at least $25,000 in a state-approved capital formation company, which would then use the money to invest in promising start-up companies.

The bill would limit the total amount of tax credits the state would issue in any one year to $2 million, and the credits would sunset after 10 years. The bill also wouldn’t allow the tax credits to be redeemed until 2006, in an attempt to steer the bill clear of the state’s current financial troubles.

“This will help us become competitive with other states because every study that has ever been done shows there is a tremendous venture capital gulch in Kansas,” Taylor said.

The result is Kansas residents with high-tech ideas start their companies in other states or quickly move the companies to states where start-up funding is more readily available, Taylor said.

Kansas Inc.

A specific bill hasn’t yet addressed the issue, but several business leaders said they’ll be keeping an eye on the future of Kansas Inc. Talk has circulated at various times during the session of eliminating the agency and adding its research and strategic planning roles into the state’s department of commerce.

Sherrer said he believes the idea has some merit. He said a recent legislative post audit report was critical of the state’s lack of coordination between economic development agencies. He said eliminating Kansas Inc. and shifting its duties to the commerce department might help with coordination.

Ranson said he thinks the move would be a mistake, because he fears the research and strategic planning for economic development would become politicized if it were moved to the commerce department.

“We take very seriously our role of being an independent, nonpartisan organization, and that can create some hard feelings at times because we don’t always follow the party line,” Ranson said. “But I think it is important that someone play that role, and I think quite a few legislators do, too.”