In the August 23, 2002 Issue:

Copyright State Science & Technology Institute 2003. 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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North Carolina Launches $85 Million Biotech Initiative
Golden LEAF, the statewide foundation established in 1999 to use one-half of the state's tobacco settlement for the long-term economic advancement of North Carolina, has announced an $85.4 million economic stimulus package it believes will significantly improve North Carolina's economy and make the state a leader in the biosciences industry. Foundation officials anticipate the public investment stimulating at least $350 million in new private and federal funding biotech activity in the state.

The centerpiece of the package is a commitment to invest $42 million in bioscience/biotechnology companies developing or manufacturing their products in North Carolina. If those investments are successful, the Golden LEAF Board anticipates making additional investments of $108 million over the next six years, bringing its total investments in the bioscience sector to $150 million.

Other elements of the package include:

$52 million of the package is in the form of equity or debt investments in new ventures. It represents an effort by the Foundation to invest some of its resources in projects that not only will generate income for the Foundation but also encourage investments in North Carolina, create jobs, generate tax revenues, and boost the state's economy.

More information is available at: http://www.goldenleaf.org/

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15 Days Remaining for Early Registration to Nation's Premiere TBED Event!
For more information on SSTI's Sixth Annual Conference Building Tech-based Economies: From Policy to Practice, visit http://www.ssti.org/conference02.htm [expired]

Majority of Cities Foresee Bleak Fiscal Future
Cities predict a stressful future for their budgets, which have been hurt by the economic downturn and the surge in local homeland security spending, according to the annual survey of city finance officers conducted by the National League of Cities (NLC).

For the first time since 1993, a majority (55 percent) of the surveyed finance officers said that their cities are less able to meet their city’s financial needs compared to the previous year (2001). The increased pessimism is based on slower-than-expected growth in revenue from sales, income, and tourist-related taxes combined with new responsibilities on homeland security, rising healthcare costs, and increased spending on infrastructure. Also, state budget woes — the National Conference of State Legislatures projects a $57.8 billion gap in revenues for the states — have exacerbated cities’ fiscal plight as states reduce funding to municipalities.

Finance officers reported that sales, tourist, and income tax collections fell below budgeted levels in the two quarters following September 11, 2001 (October-December 2001 and January-March 2002). Sales tax collections were 8 percent lower than expected. Tourist-related tax receipts were hardest hit, falling 18 percent below projections. Income tax revenues fell 11 percent below projections in October-December 2001.

Two-thirds (67 percent) of the surveyed city officials think the problem will only worsen, saying they will be less able to meet city financial needs in 2003.

Despite the bleak forecast, cities’ ending balances or reserves remained steady at the close of FY 2001. The ending balances in 2001 were 19 percent, compared to 18.3 percent in 2000. One bright spot was property tax revenue, which rose by more than 5 percent over the previous year. However, the close of FY 2001, for many cities, occurred prior to or just after the terrorist attacks of September 11, 2001.

The economic and fiscal impacts of those attacks, in combination with the declining economy, will challenge ending balances in 2002 and 2003.

More information is available at: http://www.nlc.org

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Washington State Launches Northwest Energy Tech Collaborative
Washington Governor Gary Locke announced the formation of the Northwest Energy Technology Collaborative (NWETC) at a signing ceremony on Wednesday attended by the founding members. The Collaborative is a joint, voluntary effort of business, government, nonprofit, industry and educational institutions in the Pacific Northwest — Avista Corporation, Bonneville Power Administration, Pacific Northwest National Laboratory, Spokane Intercollegiate Research and Technology Institute, and Washington Technology Center — who share the common goal to position the region as a recognized leader for innovative research, education and product development for energy technology markets around the world.

The NWETC believes that during the coming decades, the U.S. energy infrastructure must make a transition to incorporate innovations in operating strategies, technologies and business models to remain economically viable in today’s global economy. The Collaborative sees three primary national issues driving the need for this change:

As detailed in the NWETC agreement in principle, the Collaborative will invest financial and in-kind support for the next five years to accelerate the growth of the region’s energy technology industry. Current projects under consideration are primary market research, identification of intellectual property for commercialization, coordination of research and development efforts, and establishment of energy technology demonstration projects. Additional members from the region are anticipated.

More information is available at: http://www.nwetc.com/

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GPF, Science Center Team Up to Help Entrepreneurs
Greater Philadelphia First (GPF) and the Science Center, a consortium of 34 regional academic and scientific institutions, have established a major new joint initiative designed to make it easier for science and technology entrepreneurs to start, grow and expand their businesses. Modeled on UCSD CONNECT in San Diego, CONNECT Greater Philadelphia will assist entrepreneurs by linking them with needed business, academic and other resources.

GPF, the region's business and civic leadership organization, is an association of chief executives of Philadelphia-area companies and nonprofit organizations. The new initiative will be housed within the Science Center.

"We see this as key to growing the Greater Philadelphia region's knowledge-based economy," Sam Katz, CEO of GPF, said in a press statement. "Finding ways to leverage science and technology discoveries as engines of regional economic growth is one of GPF's highest priorities."

Science Center President Jill Felix said CONNECT was a natural extension of the Science Center's mission and will serve as an invaluable one-stop shop for science and technology entrepreneurs and start-up companies. She added that the Greater Philadelphia region has a wealth of university and private laboratories where researchers may develop new and innovative technologies.

The idea for CONNECT began with GPF and its mission to transform the region into one of the nation's leading centers of knowledge. GPF's "Six for Success" agenda, launched in February 2002, is a series of initiatives aimed at achieving this goal.

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NCOE Issues Guide for Creating Jobs, Stronger Local Economies
With heightened public interest in the state of the economy, the National Commission on Entrepreneurship (NCOE) has released Entrepreneurship: A Candidate’s Guide — Creating Good Jobs in Your Community, a first-of-its-kind publication on how policymakers can help stimulate the creation and growth of new businesses in their local areas.

Fast-growth new companies can have a profound effect on local economies. The NCOE guide offers a prescription for developing successful entrepreneurial-friendly environments to foster new companies and fuel jobs.

"A key fact revealed in the guide is that high-growth entrepreneurial activity exists in all regions of the country, and most start-ups are not high tech," said Patrick Von Bargen, executive director of NCOE. "There is no reason policymakers and candidates should leave their communities out of this growth opportunity which has resulted in the creation of 2/3 of all net new jobs and over 70 percent of all innovation in the U.S during the last 25 years."

The guide addresses several myths, offering a definition for and the role of today’s entrepreneurs and how they affect the local economy. It provides policymakers and candidates strategies to foster economic growth by focusing on entrepreneurs’ biggest needs: access to talent, access to capital, a supportive social architecture for networking and a strong infrastructure.

The NCOE guide also suggests policies and programs that range from low-cost recognition and training programs to greater access to seed capital and simplified government rules and regulations for this business sector. By implementing these practical strategies, the report contends, policymakers can create a local capacity for home-grown companies that can lead to more jobs and greater economic prosperity.

Entrepreneurship: A Candidate’s Guide — Creating Good Jobs in Your Community is available at: http://www.ncoe.org/research/4249_NCOE_GUIDE.pdf.

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More Private R&D Crucial for Canada's Atlantic Region, Report Warns
Whether it's oil, gas, mining, lumber, fishing or farming, economies dominated by natural resource exploitation are subject to periods of boom and bust. In order for the four provinces of Canada's Atlantic region to shield themselves from such market swings and scarcity problems, it is necessary to build R&D partnerships and to collaborate more than ever, concludes a report released by Dr. Alan Cornford of GPT Management Ltd., Marin Consultants, Inc. and Gardner Pinfold Consultants Ltd.

Innovation and Commercialization in Atlantic Canada, released in March, aims to assist the Atlantic Provinces in identifying ways to improve the area's economy through R&D, innovation and  commercialization programs. The key for the region, the authors say, is to encourage more private R&D investment and activity.

The report notes in 2001 the federal government of Canada stressed the importance of improving the nation’s R&D performance to foster an innovative economy. There are specific challenges, the authors caution, that arise for the Atlantic region in this regard: while the region represents 7.7 percent of the nation’s population, only 1 percent of the nation’s total industry investment in R&D is spent there.

Increasing industrial R&D activity in the region is of special concern, the paper notes, because of the ratio of industrial R&D to academic R&D investments seen in the most innovative economies. Cornford et al. explain that in those countries with the strongest economic performance, applied R&D within industry is "at least three to four times that of universities, and twice that of universities and governments combined." For Canada's Atlantic region, the report states the ratio is reversed; university R&D investment is three times that of industry.

Innovation and Commercialization in Atlantic Canada calls for an aggressive two-pronged program to facilitate investment in industry-driven applied R&D in these provinces. Firstly, help industries with their capability of undertaking applied R&D and, secondly, aid industry’s use of innovations developed by universities and other institutes.

The report states the Atlantic region must significantly invest in physical and intellectual infrastructure and leverage investment and activity in R&D to help boost innovation and commercialization activity. The region should capitalize on existing physical and intellectual assets and build upon strengths in people, universities and research centers, and key industries. University expertise, assets, capabilities and partnerships are essential to the area and may well hold the key to the region’s future, the authors assert.

After conducting a SWOT analysis of the region — reviewing the investment and structure of the $410 million five-year Atlantic Innovation Fund launched in 2001 by the federal government and identifying several best practices in knowledge/technology transfer — the authors conclude the imperative challenge facing the Atlantic region is to advance a universal vision for the area. They encourage the four provinces to put forth a collective action to foster an environment conducive to innovation and to develop a competitive strategy for the development of the region’s economy.

Innovation and Commercialization in Atlantic Canada can be found at: http://www.acoa.ca/e/library/reports/icac.shtml

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Report Shows Indiana Financial Aid Program Helps Low-Income Students Attend College
Most technology-based economic development programs recognize the need to have more people in their states or communities who have received bachelor degrees or higher. Bringing low-income populations into a knowledge-based economy is particularly difficult because of the two significant obstacles low-income students face for college access: insufficient financial aid and inadequate academic preparation.

According to a report released last week by the Lumina Foundation for Education, the Twenty-first Century Scholars Program, Indiana's state financial assistance initiative, helps low-income Indiana residents overcome those obstacles. The program also may help address "brain drain" concerns when a state experiences a net outmigration of college graduates.

Meeting the Access Challenge: Indiana's Twenty-first Century Scholars Program notes that students who participated as Twenty-first Century Scholars were significantly more likely than non-Scholars to enroll in college. Of the 2,202 Scholars in the study sample, 1,752 — nearly 80 percent — enrolled in an Indiana college or university within one year of high school graduation.

African-American and other minority students were more likely to enroll in public two-year colleges than white students. Students from urban and rural locales were also more likely to enroll in two-year colleges than students from suburbs or towns.

The Indiana Education Policy Center at Indiana University Bloomington conducted the study for the Lumina Foundation to evaluate the effectiveness of the Twenty-first Century Scholars Program in promoting college access. The research model employed compared students who enrolled in college with a reference group that did not enroll. The model controlled for several factors widely documented to affect enrollment patterns, including race, geographic locale and grade point average.

The advantage of the Twenty-first Century Scholars Program, the research suggests, is its two-pronged public policy strategy to promote a college-preparatory curriculum and guarantee adequate financial aid. The evidence also suggests that student aspirations, student middle-school grades, the presence of parents who attended college and residence in a town or suburb are positively related to student enrollment in public four-year colleges and Indiana independent colleges.

Indiana's Twenty-first Century Scholars Program began in 1990. The program essentially establishes a contract between the State of Indiana and low-income, middle school students, who promise to meet certain academic and behavioral standards while taking the steps necessary to prepare for college. The State of Indiana, in turn, promises to provide scholarships sufficient to cover in-state tuition at an Indiana public college or university or its equivalent at an Indiana private college. The study showed that students who completed their end of the contract were more likely to enroll in college. The principal eligibility requirement for Twenty-first Century Scholars is that each student must qualify for the federal Free and Reduced Lunch program in the eighth grade.

Meeting the Access Challenge is available under New Agenda Series publications at the Lumina Foundation: http://www.luminafoundation.org

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Working Paper Correlates Reductions in Personal Tax Rates And Lower Entrepreneurial Activity
Do personal income tax cuts encourage entrepreneurship? Conventional wisdom and many politicians may suggest that if people have more cash on hand, they may be inclined to launch or start their own businesses. A working paper released earlier this month by the National Bureau of Economic Research (NBER) concludes just the opposite: lowering personal tax rates in most cases appears to discourage entrepreneurial activity.

Because entrepreneurship generates many benefits and spillovers to society, this sort of activity is greatly desired in regional economic development policy. In Taxes and Entrepreneurial Activity: Theory and Evidence for the U.S., Julie Berry Cullen and Roger H. Gordon of the University of Michigan and University of California at San Diego, respectively, explore the effect changes to tax law have on the growth and/or decline of entrepreneurial activity. The economists specifically consider changes to progressive personal income tax schedules and the risks and advantages of incorporating.

Since personal tax rates generally are higher than corporate tax rates in the U.S., Cullen and Gordon state there is more incentive for an entrepreneur to incorporate to have profits be taxed at the lower corporate rates. Therefore, this option effectively subsidizes risk-taking: the larger the difference exists between personal and corporate tax rates, the larger the subsidy for risk taking, thereby increasing entrepreneurial activity.

Through their model and empirical evidence on business starts, the economists conclude cuts to progressive personal tax schedules result in a decline in the taxes saved from deducting business losses while profits remain taxed by corporate tax rates.

The study finds that a reduction of 5 percent in the corporate tax rate correlates with a doubling of entrepreneurial activity. On the other hand, if personal income tax rates were reduced across the board by 5 percent, a 30 percent decrease in entrepreneurial activity follows.

When applied to the tax reforms of 2001, Cullen and Gordon's model predicts a 20 percent decrease in entrepreneurial activity will occur once the reforms are fully enacted. The authors explain this is because the tax reforms cut the personal tax rates while leaving the corporate tax rate unaffected.

The economists also found that a universal or flat personal income tax rate of 20 percent correlates with a 15 percent increase in entrepreneurial activity through the model.

The working paper is available for purchase from NBER at: http://papers.nber.org/papers/W9015

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People
H. Day Chapin has been selected as the first Director for the new Northwest Energy Technology Collaborative.

Maxine Lunn is leaving her position as Vice President for Technology Programs at Virginia's Center for Innovative Technology to work in international development.

The Illinois Biotechnology Industry Organization has appointed David Miller to serve as president, effective September 3.

John Wik, director of Delaware's economic development office, is resigning in September to pursue interests in the private sector.

Gary Woodbury, president and CEO of the Small Business Association of Michigan for the past 15 years, has announced he will retire in June 2003.

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