How does government money create jobs?

A question that has lingered through the debt-ceiling debate fiasco, specifically related to the need for stimulating a weak economy, is how can government money actually create jobs?

Gov. John Hickenlooper's administration is working hard to find an answer. It has applied to the Treasury Department for $17.2 million it wants to spend with lenders in Colorado to break their reluctance to fund small-business growth.

Small businesses grow by hiring people to produce and sell more of their product or service, increasing a firm's revenue and profits. The longest running complaint small businesses have had with state and federal policy makers has been that banks refuse to lend businesses money to achieve that growth.

Alice Kotrlik, a long-time valuable asset of the Office of Economic Development and International Trade and director of its Business Finance Division, is in charge of Colorado's application to the State Small Business Credit Initiative, and expects to hear a "favorable" response from Treasury very soon, perhaps within days.

She said the 2010 Small Business Jobs Act, signed last September and so far apparently in no danger from projected deficit-reducing budget cuts, requires the programs using the federal money to be started by states within 90 days of receiving a grant. All of Colorado's $17.2 million, if it gets it, will have to be deployed within two years. So the money will be going to businesses fairly quickly once the state gets its check.

That's good because business finance is a top-of-mind issue in Colorado not only because of political pledges to get people back to work -- create jobs -- but also because past efforts to fund small-business startups with government money have been dismally unsuccessful.

Kotrlic's office crafted her application for the small-business federal funding through Hickenlooper's "bottom-up" economic-development process, resulting in the release last month of the Colorado Blueprint, a document that amounts to a master plan for state governance.

The application calls for distribution of the $17 million through three programs: an existing loan-loss/reserve program run through the Colorado Housing and Finance Authority (CHAFA); an expanded pilot program started last summer that offers angel investors a tax credit for investing in Colorado small businesses; and an altogether new program designed to distribute $14.2 million of the funds by depositing cash certificates of deposit in banks that want to loan money to a small business but are hesitating because of a borrower's shortfall in the value of collateral being used to support the loan.

Kotrlic described the program for me in detail, and it sounds like the only kind of government effort a Colorado bank would be willing to sign up for to loosen up its lending to small business: direct cash infusions of government money they can take if a loan goes sour.

The banks aren't crazy. The reason a Small Business Administration emergency loan program failed in Colorado and around the country in 2008 and 2009 was because the loans -- $35,000 max -- weren't large enough for the bankers to bother with, and because the people who needed them, small businesses already in trouble and at risk of survival because of the economic collapse, were too risky to lend to.

Kotrlic's new program will provide up to 25 percent of loans from $75,000 to $1 million in a cash CD that can be deposited in the lending bank and dedicated as collateral for the loan. The small business owner then can use the full amount of the loan to grow his or her business by hiring new workers and increasing sales and revenues, and pay back the bank over a three-year term.

The state will provide a collateral shortfall for loans up to $5 million, but the percentage of state-supported collateral will drop for bigger loans to the amount needed to cover the borrower's shortfall up to about 10 percent of the loan. Kotrlic points out that 10 percent of a $5 million loan would still amount to a $500,000 cash CD, and she seemed to think that was plenty for the state to give a bank to cover the risk of an otherwise credit-worthy borrower.

That's how government money can create jobs and stimulate the nation's lagging economy. It's government at its best, helping private small businesses break through big-business bankers' reluctance to help Main Street get back on its feet.

Eco-devo tour might get it right this time

Gov. Hick takes to the road today to do a little more of what his transition team started regarding Colorado's economic-development strategy.

So far, Hick has not named a director of the Office of Economic Development and International Trade, and to my mind that's a good thing. The last two governors did a poor job crafting a strategy for the office that actually accomplished something.

Which meant the state and its small businesses suffered for 12 years from a high-level lack of concern for the prosperity of Colorado's small-business owners. Small business, after all, generates the most jobs in our economy, and the state's interest in business owners who are job generators only makes sense.

That was not the strategy of the last two governors. Both Bill Owens, who thought a free market should allow small business to fend for itself, and Bill Ritter, who had a Democrat's instinct for stepping away from anything that smelled of the monied interests in Colorado, allowed the economic-development office to flounder.

I think both governors hoped the Denver Metro Chamber of Commerce and its own economic-development arm would cover their asses on the eco-devo front during their terms.

But the Denver chamber had its own problems of perception rooted in its sometimes blind following of big-business interests. It paid lip service to small business, but I think its leaders felt more comfortable, more powerful and more influential dealing with the bigs. They simply paid less attention to the smalls.

The Hickenlooper team's encore tour of statewide economic-development interests promises a broader approach our new governor calls "bottom-up."

Outstate eco-devo folks have learned from the past that the phrase might mean they are just in for another spanking. Here's hoping for more from the state's newest chief executive.