Small Business Growth Act passes Senate, questions remain about funding for certain state pension plans
By Autumn Shelton, RealWV
CHARLESTON, W.Va. – The Small Business Growth Act, intended to encourage capital investment into the state’s small businesses, was passed by the Senate on Friday. But questions surround the bill – including whether or not its passage will take funding away from certain state pension plans.
Senate Bill 1, the Small Business Growth Act, would establish the Small Business Growth Program to be administered by the Department of Commerce.
According to a fiscal note provided by the state Tax and Revenue Department, “The proposed program would generally piggyback on the federal New Markets Tax Credits intended to increase capital for businesses and low-income communities by providing a tax incentive to investors. The current federal tax credit was set to expire at the end of 2025, but the credit was made permanent in the One Big Beautiful Bill Act. The federal credit is intended to provide private investors with a federal tax credit for investments made in business or economic development projects located in ‘distressed’ communities in specified census tracks. If a growth investor was eligible for both the thirty-nine percent federal credit and the state credit of sixty percent, they could receive a credit of up to ninety-nine percent of the amount they invested.”
The program would allow those seeking equity investment into small businesses to complete an application through the Department of Commerce. The application costs $5,000, according to the bill.
Tax credits for those who receive approval would be capped at $15 million per calendar year, the bill states, excluding carry-forward amounts. Growth investors may use these credits against their state Insurance Premium Tax liability. The credit would not be available, however, until three years after the initial investment.
The Department of Commerce would then invest the capital into eligible businesses as a loan, defined as those who have 250 employees or fewer and their principal business operation must be located in West Virginia, the bill states. A committee substitute of the bill sets an effective date of Jan. 1, 2027.
West Virginia would see an annual revenue decrease of $15 million if the Small Business Growth Act should become law, the state Tax and Revenue Department fiscal note states.
An additional $500,000 would be needed for extra staff in the Department of Commerce office as well as outside counsel/advisors, according to a fiscal note from the Department of Commerce.
During a Senate Finance Committee meeting on February 2, Sen. Ben Queen, R-Harrison, said the bill would support the state’s small businesses.
“I think we’ve all sat across the table from small business owners who aren’t looking for handouts, people who already have customers, already have employees and already have products that work,” Queen said. “And, almost every time the story ends the same exact way – the businesses don’t fail, they just couldn’t get enough capital to take the next step.”
Queen said the state has worked to support the business climate and this bill will continue to help with that.
“This is not government picking winners and losers,” Queen continued. “This is private money taking private risk, with a few guardrails and accountability. The credits are capped, non-refundable and only work if real investment actually happens.”
On Jan. 6, during the third-reading of the bill in the Senate chamber, Sen. Eric Tarr, R-Putnam, said he opposed the bill after questioning Senate Finance Chair Jason Barrett, R-Berkeley on credits toward the Insurance Premium Tax liability – which provides some funding for certain pension funds and volunteer fire departments.
“What other things does the Insurance Premium Tax fund?” Sen. Tarr questioned. “Does it somehow take away from those funds that are going to pensions or fire departments?”
Barrett responded that the tax funds programs like the municipal pension fund and volunteer fire departments, but the tax credits will not take away from pensions or fire departments.
“So, we’re looking to build a $15 million fund, are we using some other tax aside from the Insurance Premium Tax?” Tarr questioned. “So, I’m having a hard time voting for this if I don’t know how much money is coming off of the Insurance Premium Tax. I know there’s earmarks for pensions. I know there’s earmarks for our fire departments and teacher’s retirement. So, is there $10 million, is there $100 million? That’s the thing. So, if we’re going to go in here, and we’re gonna take all this, how do we not risk the earmarks that go into those funds?”
Barrett responded that because other businesses will invest, “there will be more revenue coming in because of those businesses.”
Tarr countered Barrett’s statement saying that less revenue would be coming in because one business may be favored over another due to the $15 million tax credit cap, and that existing businesses may face competition from a similar business that wishes to open next door.
“So, it’s not completely for everybody,” Tarr continued. “It’s for whoever can get there first when they need it, if they need it.”
Barrett said he anticipates that when applications are approved, that “competition would be taken into consideration.”
“I wouldn’t envision a loan being approved for a small business that is going to set up shop right next to an existing business that would be competition,” Barrett said.
Tarr added that although this bill looks like an economic development bill, it isn’t.
“Tax credits in general are a way to go in and pick a certain group who has the political influence at the time to get favoritism for the dollars that you pay in taxes as West Virginians,” Tarr said. “And, when you do that you necessarily take from somebody else to specifically give it to somebody else. So, I’m sitting here having to pay a tax. I’m going to give my competitor right next door to me to come in and reduce my business. That’s what this one does.”
Tarr also said that he couldn’t vote yes because he has no idea how much will come out of the Insurance Premium Tax.
“I know that it’s affecting two pension funds, and I know it’s affecting our firefighters,” Tarr said. “So, this bill’s mistitled.”
Despite Tarr’s concerns regarding the bill, Senate Bill 1 passed by a vote of 27 to 6. The bill is now on its way to the House for additional consideration.
