August 10, 2001 -- SSTI Weekly Digest

In the August 10, 2001 Issue:

Outlook for States' FY 02 Revenues Worsening

Is the Internet Becoming a Luxury?

Ohio Completes 2nd ECom Assessment

Useful Stats I: 30 Years of Federal R&D Obligations by State

Useful Stats II: Top 100 Cities for NIH R&D Support for FY 2000

Copyright State Science & Technology Institute 2002. Information in this issue of the SSTI Weekly Digest was prepared under a cooperative agreement with the U.S. Department of Commerce, Economic Development Administration. Redistribution to all others interested in tech-based economic development is strongly encouraged — please cite the State Science & Technology Institute whenever portions are reproduced or redirected. Any opinions expressed in the Digest do not necessarily reflect the official position of the U.S. Department of Commerce.

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Outlook for States' FY 02 Revenues Worsening
The general fiscal condition of state budgets is growing weaker, indicates a preliminary report released August 1 by the National Conference of State Legislatures (NCSL). State Budget & Tax Actions 2001 provides information on 46 states included in NCSL's annual survey. The remaining states – Massachusetts, New York, North Carolina, and Wisconsin – had budgets that were either not passed or awaiting the governor's approval.

While the fiscal conditions of states were strong a year ago, they have since been replaced by anemic revenue growth and expanding budget gaps, NCSL reports. As many as 17 states had budget shortfalls during fiscal year (FY) 2001. Another 20 states took measures to reach balanced budgets for FY 2002 due to the slowing economy. States with budget surpluses, 22 in all, were able to make deposits to the rainy day fund or other reserves (12 states), offer greater funding for capital projects (eight states), reduce taxes (six states), and target funding for specific programs (six states).

To eliminate budget shortfalls or enact balanced budgets, 37 states took such actions as:

canceling or delaying capital projects;

cutting spending;

delaying expenditures;

implementing targeted or across-the-board budget cuts;

increasing state debt obligations;

tapping rainy day funds or other reserve funds; and

tapping tobacco settlement funds.

End-of-the-year balances, as a percent of spending, showed decline among the 46 reporting states. According to the NCSL report, 33 states experienced decline between FY 2000 and FY 2001, and aggregate state balances decreased 22 percent, moving from $43.7 billion to $34.1 billion. The latter figure, at 8.2 percent of FY 2001 general fund spending, is 3.3 percentage points lower than the FY 2000 balance of 11.5 percent. This decline, notes the report, marks the first time since FY 1992 that the ending balance failed to meet or exceed the previous year's balance and signifies the largest percentage drop since FY 1980.

Other highlights of the NCSL report include:

Revenues for the 46 states grew 4.5 percent between FY 2001 and FY 2000; spending grew 9.1 percent during the same time. Five states reported less revenue in FY 2001. State revenues in FY 2002 are expected to grow 2.4 percent over FY 2001 levels.

Medicaid, more than all other areas of state spending, is budgeted to grow 8.7 percent in FY 2002. With 40 states reporting, Medicaid will hold the largest percentage of new spending, topping K-12 education (3.7 percent), higher education (3.6 percent) and corrections (3 percent).

States will support tax cuts for a seventh straight year; the 2001 net tax reduction is $7.1 billion less than that of 2000. Nine states cut taxes by 1percent or more of 2000 collections, with three of these reducing taxes by 3 percent or more. Four states had tax increases of 1 percent or more, with two increasing taxes by at least 5 percent. Thirty-three states took no significant tax actions; four states did not report.

State Budget & Tax Actions 2001, complete with charts and graphs, is available through the NCSL website: http://www.ncsl.org/programs/fiscal/presbta01.htm

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Is the Internet Becoming a Luxury?
The toll a lackluster economy is taking on Wall Street, manufacturing orders, and tech firm profits are well-known facts at this point. Tightening state and local tax revenues are also apparent. For households, less cash usually translates to changes in vacation travel plans and fewer purchases of luxury items, like bigger cars, expensive jewelry and – Internet access?

Recent netScore Internet Traffic reports by comScore Networks, Inc. and Diameter reveal a five-percent decline in U.S. Internet usage over the past two months. While U.S. Internet traffic originating from colleges and universities is expected to drop off each summer, increases in household and business Internet use have historically more than made up for the decline. But not this year. In fact, household usage dropped in both June and July.

Internationally, Internet traffic also declined, from a total of 299.7 million unique visitors in May to 296.4 million users in July – the lowest level since March. U.S. users now represent only 42 percent of the total world web market.

The impact of the decline in usage on future e-business growth may be significant, leading to more market consolidation and dot-com failures. netScore executives suggest that “to be successful, many on-line marketers must including response to the challenge of generating sales in a medium that is no longer showing explosive growth.”

As travel and entertainment-oriented sites largely dominate web traffic (and porn sites are excluded from the data set), encouraging other uses such as e-commerce, distance learning and telecommuting becomes more challenging.

A recent UPI article analyzing the netScore data finds how the web is used may be increasing the economic chasm between less educated and more educated Americans. More educated Americans tend to use the web for professional development, economic gain and as part of their careers. Less educated web surfers tend to seek amusement or entertainment first.

From a policy perspective, the findings seem to suggest the strategies of many state and local economic development organizations to address the Digital Divide through increasing Internet access and broadband availability need to be reoriented away from household audiences to specific needs for the business and industrial sectors.

Fortunately, work-related use of the Internet is the one group still growing, according to the netScore reports. The work segment of U.S. Internet usage accounted for more than 52 million unique visitors in July, nearly 42 percent of all U.S. Internet traffic. For comparison, the work figure was only 47 million visitors in May.

Some public efforts have begun focusing on the business community. With more than 70 centers across the country, the Manufacturing Extension Partnership of the National Institute of Standards & Technology has developed an eBusiness initiative to assist manufacturers in understanding and capitalizing on the power of the Internet as a business tool. See http://www.mep.nist.gov/index2.html for more information.

Public programs that help targeted populations to gain a better understanding of ways to use the Internet to improve their economic and professional position include the U.S. Department of Education’s network of Community Technology Centers. See http://www.ed.gov/offices/OVAE/CTC/

More information about the netScore reports and the UPI analysis can be found at: http://www.comscore.com

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Ohio Completes 2nd ECom Assessment
Ohio businesses experienced a 15 percent increase in overall Internet and website usage between 1999 and 2000, according to the 2001 report released by ECom-Ohio — a public-private collaborative project to increase Ohio's readiness for global electronic commerce.

In Assessing Ohio's Readiness for Global Electronic Commerce, Ohio is said to have extensive connectivity infrastructure. Between May 2000 and June 2001, Ohio's network connectivity increased by more than 150 percent. Ohio's four "cybercities"– Cincinnati, Cleveland, Columbus, and Dayton – place it among the best connected states in the U.S., the report holds. Overall, Ohio cities saw the total bandwidth available increase by more than 400 gigabits per second since May of 2000. At least 20 cities witnessed more than 100 percent growth in capacity, with 12 new cities said to have network connectivity capacity of 45 megabits per second or more.

On a per capita basis, the report positions Cincinnati as the nation's leader in broadband availability with 85 percent of the city's population having access to broadband services. Seventy-nine percent of all Ohioans live in areas where they can obtain broadband services. While increasing 25 percent over six months, broadband services continue to be found primarily in urban areas. By 2005, Ohio plans to have 90 percent of its population equipped with broadband access.

Additional highlights in the ECom-Ohio report:

Although broadband is increasingly available, Ohio businesses still favor dial-up modems to access the Internet more than any other method of access, including Digital Subscriber Lines (DSL), cable and wireless satellite. Their use of the dial-up modem, 71 percent, is higher than the national average, 59 percent; their use of DSL, 6 percent, is lower than the national average, 18 percent.

Ohio businesses appear to be "about a year behind their national counterparts in moving onto the web."

Ohio's manufacturing community is adopting internet and e-commerce capabilities as quickly as the are Ohio companies in the service sector.

Nearly 7,000 computer workstations with Internet access are available to Ohio residents through public libraries, community computing centers, colleges, universities, K-12 schools, and religious institutions.

The ECom-Ohio report also measured the level of adoption and use of business-to-business (B2B) practices among Ohio's three main industry sectors — automotive suppliers and original equipment manufacturers, transportation and logistics, and finance and financial institutions. More than 19 percent of businesses using the Internet said they were exploring or involved in B2B. Adoption of e-commerce technologies also was said to be faster in the above sectors than in Ohio businesses, overall.

To continue competing in the new economy, Assessing Ohio's Readiness for Global Electronic Commerce calls for Ohio businesses to employ new e-commerce and B2B tools. The report cites goals of increasing the number of businesses with websites and increased B2B usage. The report also urges Ohio businesses to enhance products and reach new markets.

ECom-Ohio, entering its third and final year, is chaired by the Ohio Board of Regents and NCR Corporation. The project is spearheaded by the Technology Policy Group, an initiative of the Ohio Supercomputer Center (OSC).

Pari Sabety, Director for Technology Policy at OSC and author of the ECom-Ohio report, is leading a workshop on related subject matter at SSTI’s annual conference September 19-21, 2001. The ECom-Ohio report is available at: http://www.ecom-ohio.org/

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Useful Stats I: 30 Years of Federal R&D Obligations by State
The National Science Foundation has published Federal Funds for Research and Development: Detailed Historical Tables: Fiscal Years 1951-2001. The five-volume report includes seven tables (55-61) that present the data by state for the period 1970-1999. Federal R&D obligations are characterized by industrial, university, nonprofit, FFRDC and intramural performers. Only available online, the report can be downloaded at http://www.nsf.gov/sbe/srs/nsf01334/pdfstart.htm

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Useful Stats II: Top 100 Cities for NIH R&D Support for FY 2000
The latest monthly update from http://www.econdata.net, an excellent portal for regional economic development related data on the web, included the following table prepared by the National Institutes of Health (NIH). The table presents the top 100 cities based on the total value of NIH research and development grants, contracts and training awards made in FY 2000. The funding may have been provided to a number of different organizations, companies, academic institutions, government agencies, or individuals located within the cities.

Boston led the list with $1,078,198,949. New York City was a distant second at $865,191,623. Number 100, with more than $21 million in NIH research funding was Athens, Georgia. Cities in approximately 40 states made the list. The complete table is available at: http://silk.nih.gov/public/cbz2zoz.@www.cities.top100

Free e-subscriptions to EconData's Monthly Update, as well as easy access to a host of data sources, can be secured through http://www.econdata.net/

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