Aug. 10–The Rendell administration has accepted a major change to its economic stimulus package that proponents say could help Pennsylvania attract business investments with less risk to taxpayers.

The change to the governor’s venture capital platform is significant because it appears to have ended the stalemate over one of the biggest issues separating the administration and leaders of the Republican-controlled Legislature on a package in which they otherwise share broad philosophical ground.

Rendell had proposed creating a $250 million pot of state money for use as venture capital to help lure some of the nation’s fastest-growing industries to Pennsylvania.

Administration officials see this as critical to their job-creation goals, but Senate Republicans, in particular, felt the plan was too risky a use of public money.

The Republicans also argued for more time to assess the results of smaller venture capital pools created through tobacco settlement funds before throwing more money in that direction.

But an approach credited to Rep. Steve Nickol, R-Hanover, has helped negotiators strike a middle ground by committing the state to guarantee venture capital as so-called qualifying investments, rather than making those investments directly with tax money.

Under Nickol’s plan, the state would seek venture capital from firms that, under industry analysts’ measurements, have been in the top 25 percent in returns on investment. Those firms would have to invest in Pennsylvania-based start-up companies or projects. In return, if those firms’ investments aren’t profitable after seven years, the state would reimburse them for 50 percent of any losses on their principal investment.

According to drafts now being circulated, the state would gain a small share of any profitable investments.

Nickol said the provisions will help build trust among some legislators concerned that state money could be used to reward the biggest campaign contributors.

“I think we have to regain the confidence of many of my colleagues that we’re not just doing political investing,” he said. “If we limit this to people with a track record that’s been successful, I know I’m going to get somebody decent.”

But Nickol noted that the main benefit is these companies investing in the state and creating jobs and tax revenue.

The deal is said to be gaining favor with Senate Republicans because the risks are more limited, and it lowers the state’s up-front borrowing needs.

That, in turn, could allow new money to be used for some of the other causes being pushed by Republicans, namely an increase in the amount of money available for economic development grants from $500 million, as proposed by Rendell, and up to $250 million in new funding, with voter approval, for sewer and water projects.

“There are a lot of sewer and water projects out there that would also enhance economic development and are ready to go if the money is there,” one senior legislative aide said.

Rendell signaled his acceptance of that proposal during a press conference last week, when he specifically cited water and sewer funding as “excellent suggestions” from Republican legislators that he’s agreed to.

The administration also is said to be ready to accommodate Republican demands for a new pool of funds to help hospitals and other medical facilities buy new equipment to enhance patient safety, and to create a small pool of money to help retain the state’s military bases. It is studying another proposal to help existing businesses modernize.

But negotiators cautioned that the overall stimulus plan still has other significant gaps to close, differences that are not likely to be resolved before the overall budget package — including school funding, restoration of spending cuts to major state-aided services and tax levels — is finalized.

“We’re fairly close on the programs, but we haven’t closed on the programs because we haven’t closed on the entire budget deal,” a senior administration staffer said.

One lingering sticking point on the stimulus package, negotiators from all sides agree, is legislators’ attempts to have a greater degree of control in how the new programs operate and what projects are financed with an estimated $1.5 billion in bond proceeds.

Senate and House Republicans are pushing for creation of a capital project review committee made up of administration and legislative leaders that would have approval authority for all capital budget spending. That has been strictly an administration prerogative until now.

“Our members want involvement in projects. That’s what it is,” said Drew Crompton, a staff lawyer to Senate President Pro Tem Robert Jubelirer, R-Blair. “We’re talking about more money in projects and other things then we [the state] have ever done. . . . We’re not going to give a $1 billion blank check.”

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(c) 2003, The Patriot-News, Harrisburg, Pa. Distributed by Knight Ridder/Tribune Business News.