As the economy continues to droop and companies cut back or lay off employees, local government agencies are feeling the heat of a diminishing tax base. In response, many areas of the country are stepping up plans to become the next hotbed of startups and entrepreneurship.

Arizona's state and local business organizations are looking to raise as much as $200 million for a private fund designed to encourage technology startups to consider setting up shop inside the state. According to Tuscon attorney and chairman of the Arizona Economic Resource Organization, Larry Hecker, the goal is for new companies to generate cashflow and "create an export economy where we are exporting services and goods outside the state and importing money rather than just recirculating money within the state."

The fund is designed to replace dwindling venture capital resources and will focus on helping entrepreneurs build businesses based on information technology, science, and other industries with typically high-paying jobs. Backed by the Arizona Department of Commerce, Arizona Technology Council, and a handful of other organizations, the project is expected to begin releasing money as early as mid-2010.

Arizona isn't the first state to pull together support for techology-oriented startups. In fact, six new South Carolina-based tech businesses were selected this month to receive a total of $1.2 million in cash from a combination of public and private sources in their home state.

States like Arizona and South Carolina are smart to take matters into their own hands and offer incentives like funding and tax breaks to startups willing to put down roots in their area. Local governments -- particularly the smaller ones -- need companies with high-profile, high-paying jobs that encourage people to stay in or move to the area and support the local economy.

Indeed, the State of New York has set up a task force to address the disparity of a startup's financial need versus the available resources to help seed its success. Speaking at a public hearing at the University of Rochester Medical Center in New York recently, Theresa Mazzullo, CEO of Excell Partners Inc., said, "Now is the time to invest in innovation. Now is the time to take bold steps."

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