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Farhat Wants State Center For ‘Micro-Enterprise’

May 21, 2024

A new “center for micro-enterprise development” would help track down fundraising opportunities for Michigan businesses with fewer than 10 employees, under a bill package the House Economic Development and Small Business Committee took up Tuesday.

Rep. Alabas A. Farhat (D-Dearborn)’s HB 5463 would create the center, operated by the Michigan Strategic Fund, to centralize federal and private funding sources, along with assisting Michigan’s smallest businesses and local business development organizations.

“When we think small business, we think 500 employees or (fewer),” Farhat said. “And while that is small in the grand scale of the many corporations… we see today, in Michigan, a lot of our startups, a lot of our smallest businesses are really in that sweet spot – about 15 or fewer.”

Farhat said to help these fledgling businesses succeed, it’s necessary to ensure they’re supported with aggressive state and federal funding, something the state could increase its focus on.

Wafa Dinaro, executive director of southeast Michigan economic development group New Economy Initiative, said her company, which focuses on entrepreneurship in underserved communities, helped the Michigan Municipal League to champion a statewide Microbusiness Coalition.

“Coming out of this, we really saw a gap in how we support, and how we even talk about, microenterprise and micro-businesses in the state,” she said.

Dinaro said the Michigan Economic Development Corporation has begun to take measures to support small businesses, “but we have a really long way to go, and you really have to be more intentional… about creating an office to start to build those resources and start to build the next big Fortune 500 company that’s probably already here.”

The bill is similar to legislation introduced in 2021 by former Rep. Abdullah Hammoud.

During testimony, Rep. David Martin (R-Davison) expressed concern that the state is creating an additional agency when local governments, who know their region and local business climate, already have options in place for small businesses to seek funding.

“I just wonder why the state needs to do that when the (U.S.) Economic Development Administration already provides revolving funds for the local communities,” he said.

Farhat responded that the intention isn’t to preempt locals or be duplicative, but to create a coordinating office to assist local governments with limited bandwidth that may be looking for additional resources, “somebody whose job it is to sit to work with federal partners, to go out there and find new opportunities for our smallest or very small businesses.”

The funding is already out there, Farhat said, “but what’s not out there is equal access to information.

“Certain business owners may know it, certain counties may have really robust and really aggressive (enterprise development),” Farhat said. “Our goal is to give equal access to information that’s out there for our microenterprises across the state, so (they) can apply and be competitive.”

Dinaro added that right now, “there’s nobody at the state level… who cares, frankly, about very small businesses, and there’s nobody who (has the) sole job every day to wake up and think about how (to) support them.”

She said the statewide program would also align Michigan’s definitions of “microenterprise business” and development organization with the federal government’s definitions.

The fiscal impact of the new center has not yet been determined, Farhat said, responding to a question from Rep. Betsy Coffia (D-Traverse City) on the potential number of new full-time positions needed to staff it.

Farhat said it could look like the shifting of current personnel or creating additional positions, but “we want to be very thorough and thoughtful.”

The bill was supported by the Small Business Association of Michigan and the Michigan Bankers’ Association, and opposed by the Mackinac Center for Public Policy.

Michigan Innovation Fund Gets First Hearing

Also taken up for testimony Tuesday was Rep. Greg VanWoerkom (R-Norton Shores)’s HB 5651, Rep. Jason Hoskins (D-Southfield)’s HB 5652 and Farhat’s HB 5653, which together establish the “Michigan Innovation Fund,” a program to provide grants to certain venture capital funds and nonprofits to promote investment.

The legislation, which MIRS reported on prior to its formal introduction, would split the bulk of a $105 million investment between five nonprofit early-stage evergreen funds, with a portion of funding also going to other “ecosystem organizations” that provide programming and technical assistance to startup companies.

Hoskins joked that it was “small business day” in his committee, and VanWoerkom agreed that the bill package would help small business development in Michigan.

“We need to be focusing on the gardening aspect of economic development,” he said. “So often, this committee and the Legislature over the past term has focused on those big programs. Here is a tool that I think is essential for us to start that garden, get those next great companies.”

VanWoerkom said he believes the fund will not replicate the Strategic Outreach and Attraction Reserve fund in veering away from supporting small businesses, because of the use of evergreen funds.

“I think this is going away from the model of just ‘the government knows best,’” he said, “and putting it with the actual experts, and helping them guide and see the successful businesses.”

Specifically, HB 5652 would amend the Michigan Early Stage Venture Investment Act, extending the program and requiring money from its investment funds (the Venture Michigan Fund) to be deposited into the 21st Century Jobs Trust Fund, which would be used for the Michigan Innovation Fund program.

The extension would stop the Michigan Early Stage Venture Investment Corporation created through the act from lapsing on Jan. 1, 2030 and returning $140 million from the fund into the General Fund, along with remaining funding lapsing into the 21st Century Jobs Trust Fund.

Instead, an Investment Act board would determine a new sunset, and all money would be deposited into the 21st Century Jobs fund on expiration.

HB 5651, a technical bill, would provide for the deposit of money from the venture fund into the 21st Century Jobs Trust Fund.

HB 5653 would then create the Innovation Fund program through the Michigan Strategic Fund Act, funded with $105 million.

For Fiscal Year ‘23-24, 85 percent of the $105 million would go towards five pre-selected early evergreen funds, with an additional 15 percent for grants to other qualified non-profits for start-up support services.

In subsequent fiscal years, 40 percent of the funding would be expended on qualified evergreen venture funds, 40 percent would be deposited for investment through the existing Venture Capital Investment Program and the final 20 percent would be expended for grants to other qualified nonprofits.

Nia Batts, a partner with Union Heritage Ventures, testified with a neutral position on the bills but expressed concern that the grants to other groups would not include for-profit firms like her own, which she said invests in under-represented groups in Michigan.

VanWoerkom said her firm would qualify, despite the reference to non-profits in the bill, under the 40 percent that would be deposited for investment through the existing program in subsequent fiscal years.

To qualify for the program in general, grant recipients would need to operate a business development office in Michigan with at least one full-time employee.

Grant agreements could also require a recipient to provide annual reports on its activities, according to House Fiscal analysis, including information on administrative and operational costs and a list of investments made with grant award proceeds.

Hoskins, the committee’s chair, said Michigan is often home to conversations about the lack of tools to attract and retain business talent, but the Michigan Innovation Fund is “going to be one of those tools that really sets us apart.

“We are sometimes the last in the country, or we’re so far behind,” Hoskins said. “We’re certainly seeing it on the coasts, and I hate to always bring this up because… it’s not that I hate Ohio… it’s just in a lot of ways, as we talk about economic development, Ohio is really eating our lunch.”

Farhat said while Michigan has great talent and strong research universities, the state doesn’t have easy access to start-up capital, while states like Ohio deposit hundreds of millions of dollars into their evergreen funds to support early startups.

With this bill package, Michigan could compete, he explained.


Article courtesy MIRS News for SBAM’s Lansing Watchdog newsletter

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