A tax credit to investors who fund start-up companies in Minnesota, an idea that has long languished in the State Capitol, may actually see the light of day in 2009.

With the national economy in recession and Minnesota hemorrhaging thousands of jobs a month, state officials are weighing proposals to stimulate the job market by providing millions of dollars in tax breaks to venture capitalists willing to risk money on breakthrough technologies.

"We will pass something," said Tim Mahoney, DFL-St. Paul, chairman of the House Committee on Biosciences and Emerging Technology. "If you have a good idea, there will be a venture capitalist who will support it."

Today, Mahoney will hold a joint hearing with the Senate Committee on Business, Industry and Jobs on ways to jump-start the economy. The meeting, held during Life Science Alley's annual conference at the Minneapolis Convention Center, will offer legislators the first chance to vet Gov. Tim Pawlenty's Green Jobs Investment Initiative.

The proposal, announced with fanfare last month, represents Pawlenty's highest-profile support of an investment tax credit. Under the plan, investors who park their money in up to 20 regional investment funds could get tax credits totaling $20 million over four years. Half of the credits would go to investments in companies that create "green jobs."

"It's incrementally a good step in the right direction," said John Alexander, chief executive of Chameleon Scientific Inc. and president and co-founder of TC Angels, an angel investor group. "Could it be better? Yes. Is it better than what we've got right now? Absolutely."

Alexander has often criticized the state for doing too little to support innovation.

"If Minnesota can get something in place that would encourage people to make investments, I'm all for it," Alexander said.

Pawlenty said he wants to position Minnesota at the leading edge of the Green Revolution, an idea echoed by President-elect Barack Obama's call for a federal stimulus plan to create 2.5 million jobs in two years partly by developing wind farms, solar panels, and fuel-efficient cars.

"If the economy continues in its awful state -- and it looks like it's going to for the foreseeable future -- it will be more important than ever to do things that will try to encourage investment in job growth in Minnesota," Pawlenty said last month.

Doug Cameron, managing director and chief science adviser for Piper Jaffray's renewable energy and clean-tech practice, said Minnesota must seize the momentum. In the past, Cameron has bemoaned the lack of "buzz" surrounding the state's clean tech industry even though Minnesota boasts strong expertise in wind and ethanol.

"We currently have an historic opportunity to rethink and reinvent the Minnesota and national energy economy," Cameron said. The proposals "are steps in the right direction. However, other states are also extremely active in this area, so we will need to move quickly and creatively in order to not fall behind."

But other experts wonder if the program is too narrow and overly complicated to generate much impact. Instead of dividing the tax credits between green investments and everything else, the program should focus entirely on renewable energy or, alternatively, be open to any technology, said Jay Hare, an analyst with PricewaterhouseCoopers in Minneapolis.

Alexander of TC Angels agrees.

"I'm a big fan of simplicity," Alexander said. "Simple would be better."

Wisconsin model

In the past, Mahoney and leading venture capitalists have voiced support for a broad-based tax credit for angel investors -- affluent individuals who typically contribute $5,000 to $100,000 to start-ups. Over the years, angel investors have become a crucial source of capital to early stage start-ups, especially as larger venture capital firms focus on a more developed -- and less risky -- companies.

Wisconsin, in particular, has aggressively courted angel investors with generous tax breaks and other incentives. Angel investors can claim up to $500,000 per investment over two years; venture capital funds can earn up to $2 million per investment over one year.

By comparison, Pawlenty's plan is much more restrictive. It caps annual tax credits to $200,000 per investor and $1 million per fund. The program only allows investors to collect the credit after three years and requires regional funds to invest 60 percent of its money within a geographic region.

With a $5 billion budget deficit looming over Minnesota, Mahoney said it would be difficult to match Wisconsin. Given Minnesota's bleak finances, the state could grant tax breaks next year but delay their use until 2012, he said.

"We have a $5 billion shortfall," Mahoney said. "We don't have a lot of capital to work with right now."

Betting entirely on green might not be entirely wise either, said Hare, who thinks public interest in clean technology will wane as oil prices continue to dip.

"I don't think it's a good idea to focus on specific types of companies," Mahoney said. "We throw a lot of money at green jobs and we make a political statement. But we ignore the rest of the economy."

The state's best source of innovation continues to be medical devices. In the third quarter, medical device start-ups attracted $130 million, or 59 percent, of all venture capital investments in Minnesota, according to the MoneyTree report by PricewaterhouseCoopers and the National Venture Capital Association, based on data by Thomson Financial.

Thomas Lee • 612-673-7744