In the May 16, 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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States Would Receive $20B in Fiscal Relief under Senate Bill
A bill that includes $20 billion for state fiscal relief was to be voted on by U.S. senators Thursday, according to the Federal Funds Information for States (FFIS), a joint subscription service of the National Governors' Association and the National Conference of State Legislatures.

Half of the $20 billion State Fiscal Relief Fund would come through an increase in the federal share of Medicaid. The remainder would be divided 60/40 between state and local governments if S. 1054, the Jobs and Growth Tax Relief Reconciliation Act of 2003, is enacted.

The $20 billion in fiscal relief, to be spread over fiscal years 2003-2004, could go toward education or job training, health care services, transportation or other infrastructure, law enforcement or public safety, and other essential government services.

Senate debate on the Jobs and Growth bill began Monday, May 12, after the House passed reconciliation legislation a week ago allowing for $550 billion in tax breaks. The Administration's request was for $726 billion. S. 1054 is available in its entirety at http://thomas.loc.gov/.

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Alaska Abandons Bid for Tech Future with ASTF Demise
Whether it is oil, gas, logging or fishing, only one other state in the nation, Alaska, is as dependent on natural resource extraction as Wyoming. Using tech-based economic development to diminish the impact of the boom and bust cycles experienced by all "colonial" economies to diversify the state's economy has been one of the goals of Alaska's gubernatorial leaders since 1988, with the creation and continuation of the Alaska Science and Technology Foundation (ASTF).

The decision 15 years ago to provide ASTF with an initial $6 million appropriation and a $100 million endowment, which has generated more than $120 million in income, was significant and unique. It also was gutsy for a state that depends heavily each year on Congressional pork and doles out $1,500 dividend checks to each resident from the interest earned on the state's $24 billion permanent fund from oil sales.

That strategy ends abruptly today, per Governor Frank Murkowski's request, as the ASTF endowment is shifted to the help balance the state's general fund. In a March 18 letter to its grantees, ASTF officials explained that the governor's legislation ordered "all grants and contracts be terminated promptly and that payments be settled and made prior to May 15, in order to facilitate the shutdown of ASTF program operations by May 15, 2003." Many multi-year research and commercialization projects were impacted by the move.

Interest from the ASTF endowment over the years has supported $35 million in matching grants for  technology and knowledge projects, $5 million for wiring the K-12 schools and science museums for Internet connectivity, and $2 million for K-12 science and math teacher grants. ASTF has also provided $8 million since 1988 in matching funds to support the operations of several independent partner organizations, such as the Alaska Growth Capital Corporation, the Alaska High Tech Council, Alaska Investnet, the statewide Small Business Development Center program, and the Alaska Manufacturer's Association.

In addition, $46 million of endowment interest has been used for non-ASTF projects, most of which support building a stronger research and technology base for the state's economy. For example, $35 million was appropriated by the legislature to fund the University of Alaska, operations of the Alaska Aerospace Development Corporation (AADC), and the International Trade and Development office of the Department of Community and Economic Development. Eleven million dollars was used as state match for federal funding of AADC’s $39 million Kodiak Rocket Launch Center.

In all, the vision shared by Alaska's Governor and legislature 15 years ago has enabled a state with a population today of approximately 650,000 people to invest more than $126 million into building a tech-based economy. Efforts to salvage the ASTF endowment – or at least provide $250,000 to foster a more orderly period of closing outstanding contracts – were defeated in the legislature, however.

Last fall, then Governor-elect Murkowski was one of the 14 new governors SSTI highlighted as understanding the importance of tech-based economic development for their respective states. He called for developing technology industries as part of Alaska’s resource economy and creating businesses that export that technology in such industries as telemedicine, commercial fishing, and oil and gas. He also advocated increasing laboratory capabilities at the University of Alaska to leverage public and private grants for medical and technological research.

Times have changed in Alaska. In a May 4 opinion piece for the Anchorage Daily News, Gov. Murkowski's Chief of Staff Jim Clark writes, "Funding entrepreneurship is not an essential function of government."

Clark continues, "The research, applied science and technology development sought by ASTF is available elsewhere...We acknowledge and applaud the good programs ASTF supported, but I would have to agree with the governor that, on balance, it is in the best interest of the state to terminate the program and use the money in the coming fiscal year to maintain core services."

Saved from the state government's budget ax is $50 million for FY 2004 to market one of Alaska's traditional fishing industries.

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VC Falls Back To 1997 Levels
The continuous decline of venture capital investing persisted in the First Quarter 2003 with total investments of $3.8 billion, down from the prior quarter of $4.3 billion, according to the latest PricewaterhouseCoopers/Thomson Venture Economics/National Venture Capital Association MoneyTree™ Survey. A total of 623 companies received funding in the first quarter compared to 726 companies in the fourth quarter of last year. Industry leaders cited the uncertainty associated with the war in Iraq and the lackluster economy as prime contributors to the cautious investment pace.

Venture capital investing fell sharply starting in 2001 after the correction in the public markets and has steadily drifted downward ever since. In terms of dollars, investment in the first quarter of 2003 was the lowest since the third quarter of 1997. The number of companies receiving funding was the lowest since the third quarter of 1996.

Tracy Lefteroff, global managing partner of the venture capital practice at PricewaterhouseCoopers, said, “The reality is that venture capital will not lead the economy out of this slump. It will follow it out. Restoration of global stability appears to be underway. But, until the public markets and liquidity opportunities show signs of sustainable improvement, venture capital will not rebound.”

A total of 131 companies received venture capital for the first time in Q1 2003, a drop from 180 in Q4 2002. However, with $680 million, these companies commanded 18 percent of overall investment dollars, about the same as the prior quarter. This consistency was may indicate that venture capitalists remain committed to balancing new investments with those in existing portfolio companies.

Additionally, the mix of industries receiving first-time venture dollars indicated that venture capital firms might be broadening their range of investing.

Detailed information for the first quarter of 2003 is available by region, industry, stage of finance at http://www.pwcmoneytree.com. The site also has a feature allowing users to download historical data as far back as 1995 for the U.S. and selected regions.

SSTI also has prepared a state-by-state table <http://www.ssti.org/Digest/Tables/051603t.htm> to present the MoneyTree™ results for Q1 2003. Data for the number of deals, total amount invested, average deal size and rank are included in the table. Thanks go to Cindy Cieluch of Porter Novelli Austin for supplying SSTI with the data.

Growthink Survey
The downward trend in venture capital investing also was evidenced by new Growthink data, as companies securing investments numbered 36 fewer than the previous quarter. More than $4.3 billion of venture capital was invested in 486 private companies, according to Growthink Private Equity Funding Reports for the First Quarter 2003.

Among major metropolitan areas, the San Francisco Bay Area continued to lead the nation with $1.27 billion in investments, or 29.5 percent of the nation's total, the Growthink data shows. Boston was next with $589.8 million (13.7 percent) and 49 deals, and Washington D.C., with 37 deals, ranked third at $305.75 million (7.1 percent). New York City was fourth, with 26 companies raising $281.8 million, and Seattle followed with 28 deals and $208.2 million.

After falling out of the top 10 in Q4 2002, Chicago climbed back up to sixth in Q1 2003 with $137.35 million in VC investments. San Diego fell two spots to seventh, and Dallas, having entered the top 10 in the last quarter, went from fourth to eighth. The Denver/Boulder and Austin metro areas rounded out the top 10, which accounted for 75.2 percent of the nation's total first quarter activity. Orange County, Minneapolis/St. Paul and Research Triangle (NC) fell from the top 10.

Growthink reports only private, U.S.-based companies that receive equity investments of $300,000 or more. The company does not collect information on venture capital investments in public companies, debt financing or other areas. The fourth quarter survey, including data by geographic region, state, metro area and industrial sector, is available in individual sections or in its entirety at: http://www.growthinkresearch.com

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Florida Selects Three Centers of Excellence
To help build the state's technology sectors, Governor Jeb Bush and the State Board of Education have selected Florida's first three Centers of Excellence. The Centers are designed to foster innovative, cutting-edge technology research at Florida’s colleges and universities, develop commercially viable applications for that research, and recruit high-tech industries and thinkers to the state.

The three projects are:

The Centers of Excellence program was enabled during the 2002 legislative session as part of the Florida Technology Development Act. This Act authorized the use of $30 million to fund up to five Centers of Excellence as recommended by the Emerging Technology Commission, also established under the Act. Each of the Centers will receive $10 million to spur new facilities, laboratories and endowed academic chairs and will spur entrepreneurial investment in the state.

Descriptions of each of the centers is available at http://www.myflorida.com.

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June 4 Telecast to Feature Three Rural Economic Development Strategies
The National Association of Regional Councils (NARC) is holding on June 4 its fourth telecast on economic development. NARC is a nonprofit membership organization that assists regional councils and metropolitan planning organizations nationwide. Its telecast, "Three Rural Economic Development Strategies," will feature Dr. David Sampson, Assistant Secretary of Commerce, and Mark Drabenstott, Vice President of the Kansas City Federal Reserve to discuss economic development in rural areas. Ernesto Sirolli, founder of the Sirolli Institute, also will be discussing creative entrepreneur strategies. The telecast airs at 3 p.m. For more information, visit http://www.narc.org and click on Economic Development in the left frame.

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People

Richard C. Atkinson, the president of the University of California system since 1995, will receive the prestigious 2003 Vannevar Bush Award from the National Science Foundation for lifetime contributions to the nation in science and technology.

Mitch Daniels, the director of the White House Office of Management & Budget, has announced his resignation.

Sylvia Goodman is leaving her position as director of technology and innovation at Louisiana Economic Development.

Marc Holtzman, Colorado's former science and technology advisor, is taking the position as president of Denver University.

The Board of Directors for Virginia’s Center for Innovative Technology (CIT) announced last week their selection of Peter Jobse as the new president of CIT. Jobse has been CIT’s executive vice president and chief operating officer since joining the organization in October 2002.

Ed Linsenmeyer, with the Naval Surface Warfare Center, has been elected to serve as the Chair of the Federal Laboratories Consortium for Technology Transfer at the FLC's recent annual meeting. Larry Dickens, with the Oak Ridge National Laboratory, was elected Vice Chair.

Bill Madia is leaving his position as director of Oak Ridge National Laboratory to oversee all Department of Energy business for Battelle Memorial Institute.

Larry Moolenaar is the new Executive Director of the Eastern Carolina Council of Governments.

Noreen Scott, former economic development division director for the New Mexico Department of Economic Development, is the executive director for the Rio Rancho Economic Development Corp.

The Greenville Spartanburg Anderson Technology Council has named Philip Yanov executive director.

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