In the January 10, 2003 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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Tech Talkin' Govs 2003: The Inaugural, Budget, and State-of-the-State Addresses
Annually, SSTI looks at the various addresses given by the nation's governors at the beginning of the year. Over the next several weeks, the SSTI Weekly Digest will profile the excerpts concerning programs, policies and issues immediately affecting the tech-based economic development community.

The states are facing their worst fiscal crises in more than 50 years — the latest combined deficit figures were a whopping $90 billion. It should not be lost on the governors the important role tech-based economic development plays in strengthening state and local economies through higher wage jobs and more competitive businesses. Do their speeches bear that out?

During the past 10 days, inaugural addresses were given in Arizona, California, Connecticut, Florida, Idaho, Maine, Massachusetts, Michigan, Minnesota, New Mexico, New York, Wisconsin and Wyoming. State of the State speeches were made in California, Connecticut, Idaho, New York, North Dakota, Virginia and West Virginia. Governors in Colorado, North Dakota, Virginia, and Wyoming delivered budget messages as they presented their budget proposals to the state legislature.

Recent highlights show tech-based economic development remains a bipartisan priority for many states:

California
Governor Gray Davis, Second Inaugural Address, January 6, 2003
"[W]e will make California the world's nucleus for life science innovation. This sector of the economy, perhaps more than any other, has high-growth potential, high wages for its workers, and a higher purpose - using cell technology to build healthier, happier lives. We'll build on our existing successes to put California at the center of this remarkable industry."

Governor Gray Davis, State of the State Address, January 8, 2003
"I will ask the Public Utilities Commission to create an Office of Economic Development. It will review all major proceedings before the PUC to determine their benefit to the economy, infrastructure and job creation.

"Every large economy needs a vibrant manufacturing base. So I will ask you to extend the Manufacturers' Investment Credit. This credit is widely recognized as creating hundreds of thousands of new jobs...

"To keep California on the cutting-edge of this life-saving field [life sciences], we need to launch a new Life Sciences Initiative. My Administration will focus on three things: one, increasing the number of qualified lab technicians. Two, working with the University of California to simplify the transfer of technology. Three, increasing access to venture capital and federal grants."

Maine
Governor John Baldacci, Inaugural Address, January 8, 2003
"[W]e cannot let the temporary budget troubles divert our attention from the bigger challenge of strengthening Maine's economy. In the coming weeks, I will be putting forth a detailed economic strategy. It will include "Pine Tree" opportunity zones to spur economic development in areas of Maine that really need it; a doubling of our investment in research and development to support emerging industries like biomedical research at Jackson Lab; one-stop shopping for business and trade information; and a more consolidated, consistent emphasis on regional and international opportunities with the other New England states and the maritime provinces of Canada...

"One of the ways we will address [Maine's lag nationally in postsecondary performance] is by transforming the state's technical colleges into a true Community College System offering a full range of programs and making the best use of all our existing resources, including the University campuses and K-12 schools. To enhance higher education opportunities in Maine, our public higher education systems need to work collaboratively and efficiently. I have discussed this with the Chancellor of the University System and the President of the Technical College System, both of whom share this belief."

New Mexico
Governor Bill Richardson, Inaugural Address, January 1, 2003
"The voters of New Mexico showed on Election Day that...they want a state government that supports sustainable business growth and technology development. They want New Mexico's state government to work with private business to create good, high wage jobs while protecting our state's precious natural resources..."

"We will take advantage of our potentially enormous economic resources. We will reinvigorate our state universities, our national laboratories and work with the business community. We will actively promote the transfer of technology from the cutting-edge research of our labs to the private sector. We can nurture this growth to build a high-wage economy...

"We must bring our unique technological and scientific resources to the cutting-edge of the newest, environmentally friendly technologies. My administration will provide incentives for energy efficiency and the development of renewable energy sources. We will make New Mexico an exporter of the cleaner technologies of the future."

In related news, the Santa Fe New Mexican reported Wednesday that Governor Richardson announced he will ask the legislature to approve "spending about $24 million on economic-development initiatives, including $15 million for an existing in-plant training program and a one-time $9 million endowment of professorships at the state's research universities: The University of New Mexico, New Mexico State University and New Mexico Tech."

New York
Governor George Pataki, State of the State Address, January 8, 2003
"And while we deal with the immediate [fiscal] crisis we must also look beyond today and focus our sights and our energies towards the bright future that awaits us tomorrow. For we know that if we act responsibly, the crisis before us will be temporary, and if we build on the remarkable progress we've already made, the promise of the future we seek will be unlimited.

"...we must pay special attention to the needs of the new high-tech economy. Two years ago, I set forth a simple but powerful idea: Combine the power of our high-tech industry with the strengths of our top-flight academic institutions – add active State government support – and we can create a new economy and a new prosperity for New York. This notion is embodied in our Centers of Excellence – a network of high-tech research and economic development centers stretching from Buffalo to Brookhaven – creating an Empire State High Tech Corridor that teams our universities with industry.

"... But we need to continue our momentum by expanding our Empire State High Tech Corridor. Therefore, we are moving forward with additional Centers of Excellence – in Westchester with leading research institutions like New York Presbyterian Hospital, Cornell and Columbia universities, New York Medical College, and companies like IBM and GE, focused on biotech... And in New York City, with Sloan-Kettering Cancer Center, Columbia, NYU and other medical research institutions, to build on the biotech industry and academic strengths there.

"We must build on the other high-tech and biotech investments we have made – in our STAR Centers, our Advanced Research Centers and our Centers for Advanced Technology – in places like Alfred, Binghamton, Potsdam and Ithaca, and throughout our Empire State High Tech Corridor. Industry and university collaboration are essential to our goal of creating a new economy in New York.

"This is a critical time in our State's history. All these new projects and initiatives hold promise and they are loaded with incredible potential. They need to be nurtured with the same energy that was used to conceive and attract them."

North Dakota
Governor John Hoeven, State of the State Address, January 7, 2003
"I am asking you to make a major investment in North Dakota's future – an investment of more than $100 million – an investment in an initiative we call Smart Growth. It includes new funding for both traditional economic development programs, and a new approach - marshaling all of our resources in new ways to build our future...Smart Growth is a comprehensive plan that combines education, career development, and technology with entrepreneurial business activity to create a more dynamic economy for North Dakota.

"The programs in the Growing North Dakota Initiative totaled $21 million. It was a major commitment to build our future. But today, I am asking you to commit five times that investment – more than $100 million – to Smart Growth, a unified vision of teamwork and initiatives that will 'Build Our Future in North Dakota.'"

"Let me give you some examples of the kinds of investments and commitments I am asking you to make in Smart Growth:

Virginia
Governor Mark Warner, State of the Commonwealth Address, January 8, 2003
"...we currently have twenty-two workforce development programs spread across ten different agencies, in three secretariats. Too often, the current system doesn't help working Virginians when they need it most. That's why I have offered a comprehensive plan to move Virginia toward a coordinated statewide workforce development system. This plan improves the existing one-stop Workforce Development Centers. And we will FINALLY appoint a single, high-level state official to coordinate workforce development.

"And to target young adults without high school diplomas, we have proposed creating a "middle college" within the community college system. In the information age, when job skills are more important than ever, state government should help people gain new skills - not stand in their way.

"Looking beyond the session, we'll keep working to grow the economy by focusing on emerging industries and strengthening our traditional industries.

"In particular, advances in the life sciences offer tremendous economic opportunities, and I intend to build on the work that our biotechnology task force began this past year."

West Virginia
Governor Bob Wise, State of the State Address, January 8, 2003
"I have also requested that we merge the Governor’s Office of Technology with the Office of Information Services and Communications. We spend millions on technology--and it’s simply not coordinated as well as it should be."

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Governors Urge Congress to Fund Support for Small Manufacturers
The National Governors' Association (NGA) is urging leaders of the House and Senate Commerce-Justice-State (CJS) Appropriations Subcommittees "to maintain the federal government's share of support for the Manufacturing Extension Partnership (MEP) in the fiscal year (FY) 2003 appropriations."

Governors Mike Johanns (R-NE) and James McGreevey (D-NJ), co-chairs of NGA's Economic Development and Commerce Committee, sent a letter on behalf of the nation's governors. They point out that MEP is a partnership supported by states, federal government and small manufacturers.

"Each partner benefits from the partnership and has a responsibility to maintain it. Neither the states nor the small manufacturers are capable of replacing a loss in federal funding for MEP," the governors say. "As our economy struggles to recover, MEP is needed more than ever. It plays an important role in our state and national economies that no other entity is likely to fulfill."

MEP is a national network of centers with 400 offices across the country and Puerto Rico that provide technical assistance and business support services to American manufacturers. The program helps small and mid-sized manufacturers adopt new technologies, processes, and business practices. In FY 2000 alone, MEP clients reported that completed projects created or retained 25,000 jobs, increased or retained sales of $2.3 billion and saved $483 million in costs nationwide.

The letter to the appropriation leaders comes at a critical time. The Administration requested only $12.9 million for the $106.5 million program last February. Although MEP has bipartisan support in Congress, funding for the program remains undecided.

A copy of the letter can be found at: http://www.nga.org/nga/legislativeUpdate/1,1169,C_LETTER^D_4801,00.html

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CFED Study Shows Some States Fare Better than Others in Recession
If states are to emerge from the recession stronger than when they went in, state policymakers must make long-term investments in economic fundamentals such as a skilled workforce, technological capacities and quality amenities, reports the Corporation for Enterprise Development (CFED). They also need help from the federal government, according to the 16th annual Development Report Card for the States by CFED, a nonpartisan Washington-based think tank.

CFED uses 71 measures to provide a relative, state-by-state assessment of economic development in three main areas — performance, business vitality and development capacity. Colorado, Connecticut, Massachusetts, Minnesota and Virginia were the top performers in 2002, all earning straight As. Seven other states – Delaware, Maryland, New Hampshire, New Jersey, New York, Utah and Washington – joined them on an honor roll with all As or Bs. Virginia is a new addition to the honor roll in 2002. Eight states got an F in at least one of the three categories.

One of the longest running barometers of state economic development policies and their impacts, the CFED study suggests states that have historically invested in the building blocks of long-term economic development – K-12 education, world-class universities, good roads, and research and development – are performing better overall than their peers, despite hard economic times. They have demonstrated sustainable growth and development for the long haul, the report notes. However, states are facing a combined deficit estimated at nearly $90 billion this year, and the temptation is to cut programs across the board to balance their budgets.

Ten guidelines are provided by CFED to help state policymakers make wise choices in what programs to cut, what investments to sustain, and what taxes and fees to raise. The authors recognize that intense competition for scarce state resources will force painful tradeoffs for citizens. For example, pressure may increase to provide more tax incentives to recruit new businesses to achieve short-term employment goals. But policymakers should understand that most jobs are homegrown and that economies benefit from a workforce supported by solid educational, health and other human investments, the report adds.

States face major obstacles, however, in their efforts to balance their budgets and spark economic growth. They do not control monetary policy and cannot run budgetary deficits. CFED calls for the federal government to provide immediate short-term revenue-sharing assistance to states as well as to initiate a new, permanent federal-state partnership to combat future recessions.

The federal government also should provide a pool of matching funds that states could draw from on the basis of their need and their own contributions, the authors say. Contributions from a state's general revenues would be triggered by the performance of their economy — when revenues are large, contributions would be large. During weaker periods, contributions decline and shrink to zero when growth falls below normal. And, rather than rely on existing but erratically funded stabilization programs, the federal government could distribute funds among states according to their own contributions, with some allowance for local fiscal effort.

Such a permanent partnership, the study argues, would allow for a faster and more evenly shared response to future economic downturns. Hard times may not be here to stay, the report observes, but they will return. CFED concludes states should use this time of hard choices to lay a strong foundation to weather future recessions better.

The 2002 report card reflects some changes over the 2001 edition. As a result of an apparent anomaly in the 2000 study, the sector competitiveness measure was suspended for evaluation and not included in the 2001 report card. CFED discovered a significant error in the 2000 data, namely that grades were assigned based on inverted rankings. The error has been corrected, and the measure is reintroduced in 2002 as the "competitiveness index."

The Development Report Card for the States is available at: http://drc.cfed.org.

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Ben Franklin Technology Partners Create Funding Vehicle to Aid Growth of Companies
Ben Franklin Technology Partners of Southeastern Pennsylvania (BFTP/SEP), an independent nonprofit economic development organization, has announced the Commonwealth of Pennsylvania's $2 million commitment to establish the Ben Franklin Investment Partners venture guarantee revolving fund. The fund is the first such development financing vehicle of its kind in the U.S.

The multifaceted fund provides a guarantee of up to 25 percent of any loss experienced by a group of qualified private investors – angels – in seed investments made in technology companies located in southeastern Pennsylvania. The goal is to respond to the capital needs of these early-stage companies, most of which have experienced difficulties raising early stage risk financing and other challenges as a result of the economy's downturn.

Over time, the Ben Franklin Investment Partners guarantee fund is expected to leverage up to $10 million of seed-stage investments from angel investors along with approximately $8 million of companion BFTP/SEP investments. Both BFTP/SEP and non-BFTP/SEP enterprises will have access to financing rounds, which are expected to average $350,000 to $750,000.

With a maximum guarantee of $200,000, the fund both encourages private investors to take a longer view of investment opportunities in southeast Pennsylvania as well as partner with the BFTP/SEP and the Commonwealth to grow new enterprises. Targeted companies will reflect the diversity of the southeast region, including communications, business services, information technologies, electronics, life sciences, medical devices and services, and advanced manufacturing industries.

More information on BFTP/SEP is available at: http://www.sep.benfranklin.org/

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U.S. Industrial R&D Expenditures Peak in 2000, NSF Reports
U.S. companies had $199.5 billion in R&D investment in 2000, a 9 percent increase over the 1999 total, according to the annual Survey of Industrial Research and Development published by the National Science Foundation (NSF). The survey data is presented in a recent NSF InfoBrief, which shows the total industrial R&D increase to be 7 percent after adjusting for inflation.

Company funding of R&D rose from $160.2 billion in 1999 to $180.4 billion in 2000 – a 13 percent increase – and continued its steady climb since 1953, the report notes. Meanwhile, federal funding of industrial R&D contributed to the overall increase despite falling from $22.5 billion in 1999 to $19.1 billion in 2000, a 15 percent decrease. After adjusting for inflation, company-funded R&D experienced a 10 percent increase, and federal investment dropped 17 percent.

Manufacturing accounted for the majority of company-funded industrial R&D in 2000, NSF reports. Sixty-one percent, or $110.8 billion, may be attributed to manufacturing industries, while 39 percent was accounted for by companies in nonmanufacturing industries, or $69.7 billion.

The full InfoBrief, NSF 03-306, is available at: http://www.nsf.gov/pubsys/ods/getpub.cfm?nsf03306

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Starting and Maintaining Clusters
The challenges of creating a cluster of companies in related technologies, both the processes and factors for influencing cluster development, are different than the requirements for maintaining the cluster, concludes "Old Economy" Inputs for "New Economy" Outcomes: Cluster Formation in the New Silicon Valleys. The paper contests cluster development is a combination of elements of both new economic theory focusing on increasing returns and old economic theory, which concentrated on comparative advantage.

In preparing their study, the authors analyzed geographic clusters of information and communication technology (ICT) firms from different parts of the world and stressed the importance of studying clusters in-the-making, not only clusters that were already established. ICT clusters were located in Ireland, Cambridge UK, Israel, Scandinavia, India and Taiwan, present-day Northern Virginia and Silicon Valley in the 1960s.

Additionally, several key factors in the formation of a successful cluster are outlined. First and foremost, entrepreneurs must move away from the established products and technologies and not try to compete directly with them, the authors say. Instead, they should create relationships with these existing industries and concentrate on complementary products and technologies to help companies establish themselves in the short-run. In the long run, these technologies and products may become substitutes and competitive alternatives.

The study also suggests that clusters must be linked with a sizable and growing demand as well as have access to a supply of key factors, such as skilled labor. Other important factors in the formation of clusters involve firm and market building (old economy ideas) and sometimes a little luck, since risk is involved.

No recipe for cluster formation exists, but understanding that a combination of new economics and old economics is imperative for success, the report states. Regularities were evident in the clusters analyzed, including an abundance of highly skilled labor, managerial labor and connection to markets. Another commonality concerns new firm formation and firm building: the growth of companies is just as important as, if not more than, the growth in the number of firms, the authors find. The significant growth of a few businesses can signal the success of the cluster to the outside.

The report offers a few public policy conclusions:

Written by Timothy Bresnahan (Stanford University), Alfonso Gambardella (Sant'Anna School of Advanced Studies in Italy) and Annalee Saxenian (University of California, Berkeley), the paper was presented at the 2002 DRUID Summer Conference, "Industrial Dynamics of the New and Old Economy," held in Copenhagen/Elsinore. "Old Economy" Inputs for "New Economy" Outcomes and other papers from the conference can be downloaded at: http://www.druid.dk/druidlit.html?part=conf&request=OK&choice=s02&order=author

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New Govs Bring Key S&T Personnel Shifts
Several of the key economic development and science & technology positions have been filled by some of the nation's 24 new governors. Many of these individuals will be involved in setting the state's tech-based economic development agenda and determining budget cuts, reorganization plans or program eliminations to handle the money squeeze. In addition, a few other lead S&T agencies have announced top-level changes.

Arizona
Chris Cummiskey has been named director of the Government Information Technology Agency by Governor Janet Napolitano. Cummiskey served in the state senate since 1994 before running unsuccessfully for secretary of state last fall.

Georgia
Gov.-elect Sonny Perdue has named Annie Hunt Burriss as his policy and legislative advisor. Burriss is the vice chancellor for economic development for the University System of Georgia and a past president of the Georgia Economic Developers Association.

Hawaii
Nola Miyasaki, executive director of the High Technology Development Corporation, announced her resignation in December. She will become the executive director of the Falcone Center for Entrepreneurship within the Syracuse University School of Management.

Governor Linda Lingle has named Ted Liu, an international investment banker, to head the Department of Business, Economic Development and Tourism.

Iowa
In December, Governor Tom Vilsack appointed Michael Blouin to the position of director for the Iowa Department of Economic Development. Blouin had been the executive director of the Greater Des Moines Partnership for the past three years.

Maine
Michael Ryan returns to the Maine Science & Technology Foundation to serve as president and CEO. Ryan previously served from 1999 to May 2002 as vice president of policy for the Foundation.

Massachusetts
Gov.-elect Mitt Romney has nominated Douglas Foy to serve as Chief of Commonwealth Development. Foy has been the president of the Conservation Law Foundation, a New England environmental advocacy organization, for the past 25 years.

Michigan
According to several Michigan news sources, Governor Jennifer Granholm has nominated three-term Lansing Mayor and former state representative David Hollister to be her point person on economic development policy. Hollister will serve as director for a new Department of Labor and Economic Growth, which is being formed by the merger of the Consumer and Industry Services and Career Development departments. It is reported the Michigan Economic Development Corporation (MEDC) and Michigan Broadband Development Authority will work closely with the new department, but will remain a quasi-public agency. A new economic advisory council – comprised of Hollister, representatives of the business community and the state's environmental and transportation department directors – will be created for MEDC.

New Mexico
Governor Bill Richardson has appointed Randy Burge as the director of the science & technology division of New Mexico Economic Development Department (EDD). Burge was a founding president of the New Mexico Information Technology and Software Association. Peter Mitchel, formerly head of the economic development division of the department, is EDD's new director for the space division.

Oregon
Marty Brantley will be the new director of the Economic & Community Development Department. Brantley was a past president of a Portland TV station.

Rhode Island
Gov.-elect Don Carcieri has named Michael McMahon to serve as executive director of the Rhode Island Economic Development Corporation. A former New York venture capitalist, McMahon's responsibilities will also include overseeing the Rhode Island Economic Policy Council, Samuel Slater Technology Fund, and the Quonset-Davisville Management Corp.

South Carolina
Robert Faith, a real estate executive from Charleston, was picked by Gov.-elect Mark Sanford to serve as Secretary for the South Carolina Department of Commerce.

Tennessee
Gov.-elect Phil Bredesen has appointed Matt Kisber to serve as commissioner of the State Department of Economic and Community Development.

Wisconsin
On Wednesday, Governor Jim Doyle announced the appointment of Cory L. Nettles as the new Secretary of the Department of Commerce. Perhaps the nation's youngest economic development director at 32, Nettles was an attorney specializing in product liability and commercial litigation with a Milwaukee law firm.

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