In the April 4, 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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State Tobacco Settlements, Life Science R&D Threatened by Lawsuit?
A recent $10 billion judgment against Philip Morris may have the tobacco giant filing bankruptcy. Philip Morris has claimed it cannot post a $12 billion bond to appeal a lawsuit in Illinois or even meet the $2.6 billion payment due mid-April for the 1998 settlement with the states.

The tobacco company's actions are expected to have repercussions for several states counting on the funds to finance TBED initiatives. Among those threatened are Michigan's well known $1 billion life science investment over 20 years. One-fifth of Pennsylvania's future tobacco settlement payments are targeted toward life science technologies. And, the Missouri legislature is considering a bill that would commit one-quarter of the state's settlement money to the life sciences, beginning in 2006.

If Philip Morris misses a tobacco settlement payment due later this month, it may result in more budget cuts in states that are planning on using the funds to help balance their budgets. Ohio, for example, is expecting $126 million from Philip Morris on April 15. Roughly two-thirds, or $82 million, of that money would go toward the state's current deficit. Ohio Governor Bob Taft said the state will have to consider additional cuts if Philip Morris withholds all or some of its payment.

Other states have sold or are planning to sell bonds backed by the tobacco settlement payments to fund TBED or balance budgets. With the increased prospect that the court-required 25 years of settlement payments may not materialize, investors are dumping their bond holdings and prices are plummeting, according to an April 3 New York Times article. The Times points out that Virginia canceled its bond offering earlier this week, and California is delaying one after seeing the price of its previous bond drop 14.4 percent in the last two weeks.

The lawsuit that set these developments in motion was a class-action consumer fraud suit filed in Illinois on behalf of smokers of Marlboro and Cambridge's "light" cigarette brands. Philip Morris lost the suit and the court ordered a $10 billion judgment and required a $12 billion bond for Philip Morris to appeal.

Coupled with Standard & Poors warning last Friday that the Philip Morris corporate bond rating might be lowered to junk status, the news sent tobacco stocks tumbling and the company openly discussed the possibility of bankruptcy if the Illinois judgment should stand. Anti-smoking groups have called it a bluff to pressure the courts into lowering the appeal bond and award.

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Pennsylvania Governor's New Budget Provides Generous Stimulus Package
Pennsylvania Governor Edward Rendell recently unveiled an economic stimulus program that will invest nearly $2 billion in bonds and loan guarantees. The stimulus program is intended to leverage at least $5 billion in private investment in economic development projects, creating jobs in Pennsylvania's small and mid-size cities and towns.

Key provisions of Plan for a New Pennsylvania include:

Governor Rendell, navigating a budget deficit, said his plan requires new revenue sources such as slot machines at racetracks, increased fines on reckless drivers and a higher tax on malt beverages, which was last raised in 1947. To help fund the property tax relief and school programs, the governor proposes a personal income tax increase of 0.65 percent. Combined with a separate 0.3 percent income tax increase, Pennsylvania's personal income tax rate would rise to 3.75 percent — the first increase since 1992, according to press reports.

For more information on Plan for a New Pennsylvania, visit http://www.planforanewpa.com.

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Washington Gains Rural Tech Fund, Pension VC Investments
The past week has marked the beginning of two public initiatives in Washington State to increase the availability of financing for technology firms.

Rural Technology Loan Fund
The Washington Technology Center, in partnership with the Evergreen Community Development Association, has established a Rural Technology Loan Fund to assist in the creation of family wage sustainable technology jobs that help alleviate poverty in rural communities in the state. The program is designed to provide gap financing or late-stage product development loans for implementation of value-added production processes and/or technology development.

Loan funds may be used for development costs for patented technology, working capital equipment purchase, real estate, improving production processes or engineering costs. Rural technology-based companies in Washington, including start-ups and existing businesses, are eligible to apply.

Applicants must meet loan criteria and have a strong business plan. For instance, loans for new technology are only available for technology that is patented, tested and ready for market entry. Loans for product development are available to applicants who can obtain matching funds from state, federal or personal resources. Details about the program are found at: http://www.watechcenter.org/business/rtlf.html

Early Stage Investments by State Pension Fund
On March 26, the Board of Directors for the Washington State Investment Board (WSIB) unanimously approved a new policy statement to invest a still-to-be-determined minimum amount or percentage in Washington-based start-ups. According to a March 27 Seattle Post Intelligencer article, the move by the state pension fund is intended to help the state's technology, biotechnology and manufacturing sectors.

Details for the policy's implementation remain to be fleshed out, but the impact on the $48 billion fund's portfolio should be significant. WSIB had just under $62 million invested in 69 Washington companies through its private equity partnerships.

More information on WSIB is available at: http://www.sib.wa.gov/

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AAAS Releases Detailed FY04 Budget Analysis
The American Association for the Advancement of Science (AAAS) has posted an online version of its 304-page analysis of the research and development portion of the President's FY04 budget request. After a five-chapter overview, which includes a brief look at declining industrial R&D expenditures, the report breaks down the $122.5 billion request for R&D for seven federal agencies.

The report also provides cross-agency looks for numerous disciplines: physics; astronomy; atmospheric sciences and climate change; ocean sciences; earth sciences; biological and ecological sciences; chemical sciences; behavioral and social sciences; federal statistics; mathematical sciences; computing research; nanotechnology; electrotechnology related; and mechanical engineering.

Each of the book's 27 chapters, as well as the appendices and tables, is separately downloadable.

Prepared by an Intersociety Working Group of 23 scientific and academic-related organizations, the report will be available in print at the AAAS Colloquium on Science and Technology Policy in Washington, D.C., April 10-11. The online version is available at: http://www.aaas.org/spp/rd/rd04main.htm

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Louisiana Strategic Plan Provides Road Map for Developing State's Economy
An update to Louisiana: Vision 2020, a strategic plan to improve the Louisiana economy, calls for creating more quality jobs in the state's high growth sectors. First released by the Louisiana Economic Development Council in 1998, the newly revised plan also stresses the need to place increased importance on early childhood education, teacher quality and math and reading performance among high school students as keys to boosting student achievement.

Louisiana: Vision 2020, 2003 Update centers around three goals designed to accomplish 27 quantifiable objectives. Goal One, which sets up the next two goals, calls for the state to reinvent itself as a Learning Enterprise, "a rich, diverse, complex organism in which all businesses, institutions, and citizens are actively engaged in the pursuit of knowledge."

The plan's second goal focuses on supporting an environment in which entrepreneurs in Louisiana may thrive. It states that since entrepreneurs are responsible for most high growth companies and new high wage jobs, Louisiana's economic development strategies should strive to retain the state's talented graduates and workers. Fifteen technology clusters are cited as targets for economic development activity, including: advanced materials; agriculture and food products; entertainment; environmental technologies; food technologies; health care; information technologies; life sciences; micro- and nanotechnologies; oil, gas and energy technologies; petrochemicals; shipbuilding and other durable goods manufacturing; transportation and logistics; tourism; and wood, lumber and paper.

Goal Three sets as a target for Louisiana to rank among the nation's top 10 states in standard of living indicators. It also calls for "the preservation, development and promotion of Louisiana's natural and cultural assets for their recreational and aesthetic values."

Louisiana: Vision 2020, 2003 Update goes into further detail on each of its three goals. In Goal Two, for example, the plan draws upon a 2001 Southern Growth Policies Board study in which federal, university and privately-performed research and development (R&D) are collectively named "as one of the best indicators of a region's capacity to innovate." Vision 2020, 2003 Update expands on the study's findings, highlighting the state's decreasing share of industry-performed R&D over the last 40 years — from little more than 1 percent of the nation's R&D in 1963 to 0.06 percent in 2000. Louisiana, the study suggests, must find new ways to stimulate innovation, develop new technologies and, finally, commercialize them.

Vision 2020, 2003 Update also provides some discussion on Louisiana's strengths, weaknesses, opportunities and threats. Funded by the Louisiana Economic Development Council, the report will continue to be updated every five years, with benchmarks adjusted annually. Since 1996, the council and its 10 task forces have promoted efforts to construct the best possible economic development plan for Louisiana. Their plan is available at: http://www.led.state.la.us/vision2020/index.htm

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NBIA Report Reveals Incubation Programs, Services on the Rise
The business incubation industry has grown dramatically since 1998, both in the number of programs in operation and the depth and breadth of services they offer, according to 2002 State of the Business Incubation Industry, a recent report by the National Business Incubation Association (NBIA).

NBIA regularly surveys business incubators throughout North America to identify trends in the industry. The organization's 2002 report highlights survey data collected in 2001.

“In 2001 alone, North American incubators assisted more than 35,000 start-up companies that provided full-time employment for nearly 82,000 workers and generated annual earnings of more than $7 billion,” JoAnn Rollins, NBIA director of membership, said in a press statement.

The survey data show 950 business incubation programs were operating in North America in 2001, up from 587 in 1998. Nearly half of these programs were mixed-use incubators that accepted a variety of clients, while more than one-third focused on assisting technology companies. Academic institutions were the most common incubation program sponsor. The report also offers some additional findings:

Business incubators traditionally have provided entrepreneurs with basic business support services, but the variety of assistance programs offered by incubators has increased substantially in recent years, NBIA observes. Some incubators now offer entrepreneurs access to in-house investment funds, assistance with product design and development, and loaned executives to manage their companies.

Despite the rise and fall of several high-profile Internet incubators in recent years, the data suggest the most successful incubators continue to be nonprofit programs that provide entrepreneurs with a rich mix of business assistance services, incubate companies for several years and set graduation requirements for moving start-ups out of the incubator.

Copies of 2002 State of the Business Incubation Industry are available for purchase from NBIA’s online bookstore at http://www.nbia.org/bookstore.

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Foundation Giving Expected to Drop in 2003
Corporate, community and independent foundations can be significant sources of funding for local and regional technology-based economic development initiatives. Unfortunately, the first look at growth and giving estimates for 2002 and 2003, suggests foundations may be less charitable than previous years to new and existing grantees.

Foundation Growth and Giving Estimates: 2002 Preview, prepared by The Foundation Center, projects that giving by the country's nearly 62,000 grantmaking foundations in 2002 was $30.3 billion, down less than one percent from the $30.5 billion recorded in 2001. This relatively stable level of giving followed six consecutive years of double-digit percentage growth in foundation support.

Three straight years of stock market declines and a yearlong recession were balanced out by factors that contributed to the overall stability of foundation giving in 2002, including: giving by newly active foundations established near the end of the recent economic boom; a continuing high level of new gifts and bequests from donors to existing foundations; and ongoing payment of commitments made in the aftermath of the 9/11 attacks. In addition, an effort on the part of many foundations to maintain stable levels of giving – or at least to limit reductions – in the face of government cutbacks helped to keep overall foundation giving steady.

Foundation giving will almost certainly decrease in 2003, the report states, although not as dramatically as might be feared given the state of the economy and stock market. Collectively, foundations suffered an estimated 10-12 percent loss in the value of foundation assets in 2002, following a nearly 4 percent decrease in 2001. Moreover, roughly two-fifths of respondents to the Foundation Center's 2003 survey indicated they expected their giving to decline in the current year. Yet close to three-fifths of funders expected their giving to remain about the same or increase — including at least a few of the nation's largest independent foundations and several leading corporate and community foundations.

The findings have mixed meanings for the TBED community. As public funding sources tighten in many areas due to the persistent state and local fiscal crises, many TBED organizations are exploring alternative funding partners, including foundations. The overall decline in giving will likely make securing new foundation funding more difficult. Alternately, corporate and community foundations have been among the most active in supporting TBED initiatives, so the fact that 60 percent will maintain or possibly increase giving can be viewed as encouraging.

For examples of several ways foundations are facilitating the growth of local and regional tech-based economies, please see past issues of the SSTI Weekly Digest in the Digest archives online, including a special issue December 24, 1999. Foundations also provide research funding and are often included in the SSTI Weekly Digest Funding Supplements.

Giving projections for 2002 and 2003 are based on estimates reported in the Center's 2003 "Foundation Giving Forecast Survey" by more than 760 large and mid-size foundations, combined with year-end fiscal indicators and supplemental reporting by donors of 9/11 contributions.

The 10 page Foundation Growth and Giving Estimates: 2002 Preview can be downloaded at: http://www.fdncenter.org

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Measuring 2-year Tech Employment Change: AEA and BLS
A recent study released by the AeA reported a decline of 560,000 high-tech jobs in the U.S. over the period from January 2001 to December 2002. However, AeA’s Tech Employment Update may not show the true magnitude of the decrease in high-tech jobs, as the AeA definition of high-tech excludes many industrial sectors with significant R&D investments.

Using a broader definition developed by the Bureau of Labor Statistics (BLS) reveals high tech employment fell by 602,000 jobs. The BLS definition was updated by Daniel Hecker in "High-Technology Employment: A Broader View" in the June 1999 issue of Monthly Labor Review.

For some sectors the drop is quite severe. For example, employment in communications equipment fell by 29.7 percent over the 24 months. Fourteen SIC codes experienced double-digit declines while increases were posted in only four sectors — drugs; ordnance and accessories; research and testing services; and, management and public relations.

SSTI has prepared a table presenting change in high-tech employment by sector for the period between January 2001 and December 2002. The table presents data for both the AeA and BLS definitions of high tech and is available at http://www.ssti.org/Digest/Tables/Go_Sens.htm. SSTI's aggregate totals for AeA's definition of high-tech employment do not exactly match AeA's figures since SSTI utilized data at the 3-digit SIC code level and AeA's definition is defined at the 4-digit level.

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Gleanings from the TBED Presses
Two of SSTI's sister organizations for promoting technology-based economic development (TBED) had items of potential interest to the readers of the SSTI Weekly Digest in their e-newsletters this week. The highlights below include links for more information.

Broadband
The April 1 issue of the Southern Compass, the electronic newsletter of the Southern Growth Policies Board, alerted SSTI to A Broadband World: The Promise of Advanced Services. The paper, written by Matthew Benett of the Alliance for Public Technology (APT), provides case studies of the successful incorporation of broadband applications for local and regional public service delivery. The report is available at: http://apt.org/confer/broadband-world.pdf  Free email subscriptions to the Southern Compass and back issues can be obtained at: http://www.southern.org/compass/index.asp

Entrepreneurship
The March 31 issue of E-News, the bi-weekly newsletter from the National Commission on Entrepreneurship, included several brief items of note:

This week's edition of E-News is available online: http://www.ncoe.org/newsletter/enews/03_31_03.html  Free subscriptions can be established at: http://www.ncoe.org/newsletter/subscribe/

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Institute for Government Innovation Launches 17th Annual Awards
The Institute for Government Innovations has announced it is accepting applications for the 17th Annual Innovations in American Government Awards, ultimately to identify outstanding examples of creative problem solving in the public sector.

Innovations in American Government encompasses all levels of American government, focusing on domestic programs. Innovations that arise within defense and international agencies are eligible if they have significant domestic policy content, such as job training, base conversion, procurement reform, energy conservation or environmental protection. Weapons systems will not be considered.

The awards cycle consists of four rounds, which will result in 15 finalists. Five winners will be selected in May 2004 to receive $100,000 each.

All units of government in the U.S. – federal, state, local, tribal and territorial – are eligible for recognition and awards under the following guidelines:

Paper applications are due by May 30, 2003, but applicants also may submit online applications, which are due by June 6, 2003. More information is available at: http://www.innovations.harvard.edu/content.cfm?activeSection=8&activeSubSection=13&flashInstalled=1

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