In the July 18, 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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Tough Economic Times Remain for States
With the next fiscal year underway or looming, budget data recently released by the National Governors Association (NGA) and National Association of State Budget Officers (NASBO) indicate that states continue to struggle with declining revenues amidst an uncertain economy. The latest Fiscal Survey of the States shows most states are unable to protect their highest priority programs from budget reductions.

Fiscal 2003, which ended June 30 for most states, was a grueling year for the majority of the nation's governors, the Fiscal Survey observes. Based on state budget data collected during spring 2003 by NASBO, most governors chose spending reductions coupled with revenue increases and drawing down their remaining reserve funds to balance budgets. Thirty-seven states were forced to reduce already enacted budgets by nearly $14.5 billion — the largest spending cut ever recorded by the 27-year-old survey.

Governors in 29 states recommended tax and fee increases in fiscal 2004, resulting in a net increase of $17.5 billion — the largest since 1979. Furthermore, state spending growth was cut to only 0.3 percent in fiscal 2003 and is expected to decline 0.1 percent in fiscal 2004. Survey data show governors used a wide variety of budget management tactics to balance their budgets in fiscal 2003:

A variety of other measures were used in 29 states, including refinancing state debt, hiring freezes, tobacco settlement securitization, deferred payments, and fund transfers.

"Governors have reigned in spending over the past two fiscal years, with most states reporting growth rates less than the previous years," said NGA Executive Director Ray Scheppach. "The trend will continue next year - a record high 19 states have proposed negative growth budgets."

Seven states – Alabama, California, Connecticut, Michigan, Nevada, New Hampshire and Oregon – are still wrestling with their FY 2004 budgets. A few other state legislatures are taking up their governors' line-item vetoes this month.

Perhaps the greatest indicator of fiscal pain and potential long-term vulnerability is the near total decimation of state reserve funds or "rainy day" accounts. Total balances peaked in fiscal 2000 at $48.8 billion, but they are estimated at only $6.3 billion for fiscal 2003. Total balances for actual fiscal 2002, estimated fiscal 2003, and recommended fiscal 2004 all fall below levels considered to be an acceptable fiscal cushion, the authors state.

Fiscal Survey of the States comes with tables presenting each state's fiscal condition and is available from http://www.nga.org or http://www.nasbo.org.

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Chip Wars, Part II?
State Partnership with Texas Instrument Yields $3B Investment
From the outsider's perspective, it could be analogous to a world wrestling prize fight, except the punches and stakes are real. Two big, proud states wrestling for dominance in one lucrative industry — semiconductors.

For those keeping score, the venerable leader for a long time was Austin, Texas, with the university, Sematech, Dell Corp., and other industries. Austin boomed right along with the IT sector's explosion.

One year ago this week, upstart Albany, NY, caught everyone's attention with the surprise announcement of capturing Sematech North. The high-profile, big-price tag announcement, coupled with a more comprehensive tech-based economic development strategy put central New York on the map for many (see a 7/19/02 Digest article for the details: http://www.ssti.org/Digest/2002/071902.htm).

Folks in Texas certainly took notice and have roared back with two recent announcements of their own. The main headquarters of Sematech is staying put, thanks in part to a $40 million injection of funds from the state's new Texas Enterprise Fund. The issue was so important to the state that Governor Rick Perry asked for Sematech's funds in his State of the State address on Feb. 1, "An additional $40 million "would allow Texas to compete to retain Sematech, which is being lured by New York. Sematech has proposed building a wafer manufacturing facility that would attract related businesses to the area." Gov. Perry got his money and Sematech announced it would remain in Texas.

But Texas wasn't done.

Two weeks ago, Texas Instruments, Inc. (TI) announced it had selected Richardson, Texas, as the site for a $3 billion semiconductor manufacturing plant. The facility will build the world's most advanced semiconductors on 300-millimeter (12-inch diameter) silicon wafers, the second TI plant with such capability. When fully operational, the facility is expected to directly employ up to 1,000 people.

The selection of Texas as the location for the plant is the result of collaboration between TI, the State of Texas, the University of Texas System and several local governmental and economic development entities. And, like Albany's announcement, this one will catch many in the economic development field by surprise. The Dallas Morning News reports the secret negotiations were given the code name "Project Emmitt," after Dallas Cowboys star Emmitt Smith.

Strengthening and expanding the engineering and research capacity at the University of Texas at Dallas (UTD) was a critical element in the deal, TI reports. TI officials worked closely with policymakers, who earmarked millions in new funding for the Erik Jonsson School of Engineering and Computer Science at UTD — named for one of TI's founders. More than $300 million in new funding from a combination of private and public sources will be directed to the Jonsson School as a result of TI selecting Texas for its next manufacturing site. Included is $50 million from the new Texas Enterprise Fund as part of the State's economic development package for TI.

Gov. Perry hailed the selection of the site.

"This is the largest modern day private-sector economic development project ever undertaken in the State of Texas," said Governor Perry. "The thousands of jobs it eventually will create are exactly what we expect from the Texas Enterprise Fund and our other economic development efforts."

The Dallas Morning News reports the university will use a portion of the funds "to build a 200,000 sq. ft. engineering lab, to hire 40 faculty members and to recruit 400 full-time graduate research students."  A July 1 Chronicle of Higher Education article says $75 million will be used for endowing faculty chairs, student fellowships and assistanceships. The Chronicle identifies other components of the incentive package to build the school's research capacity to include $65 million from the University of Texas System and $85 million from the Texas Permanent School Fund. A total of $100 million is anticipated to be raised from private, corporate and other sources.

More information on the TI announcement is available at: http://www.ti.com/corp/docs/press/company/2003/c03029.shtml

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TechNet Assesses State Broadband Policies; New Mississippi Incentives Bear Fruit
Technology Network (TechNet), a national network of more than 200 CEOs and senior executives in the high technology and biotechnology industries, yesterday unveiled its ranking for how consistent state policies to encourage next-generation broadband deployment are with the network's policies. A TechNet report, The State Broadband Index, shows Michigan's programs and policies as the most favorable for the industry. Florida, Missouri, Texas, Ohio, Washington, Kansas, Virginia, Colorado and Iowa round out the top 10. The report ranks the top 25 states based on the extent to which TechNet believes their public policies spur or impede broadband deployment and demand, and includes a Best Practices Guide to what TechNet considers the most innovative state broadband initiatives.

TechNet points to a low U.S. ranking internationally as justification for the individual states to take more active roles to encourage broadband deployment. According to the Organization for Economic Cooperation and Development (OECD), the U.S. currently ranks sixth in the world in broadband access behind Korea, Canada, Sweden, Denmark and Belgium with a penetration rate of only 6 out of 100 residents having high-speed Internet access.

In addition to TechNet's rankings, the Index outlines a range of policy recommendations for states to explore to expand broadband deployment, including:

The State Broadband Index can be downloaded through http://www.technet.org/

OECD's study, Measuring the Information Economy 2002, is available at: http://www.oecd.org/document/5/0,2340,en_2649_37409_2765701_1_1_1_37409,00.html

Proof in the pudding for rural Mississippi deployment
BellSouth announced at the end of June that it expects to have achieve 100 percent high-speed Digital Subscriber Line (DSL) across Mississippi by the end of the year due to a state's initiative.

"We will complete deployment of DSL to all of our central offices throughout the state as a direct result of the Legislature's passage of the Mississippi Broadband Technology Development Act," said John McCullouch, president of BellSouth-Mississippi. "This means that BellSouth will nearly triple its planned 2003 DSL capital investment and spend $10 million this year to make this highly desired service available to more of our state residents and businesses."

Tax incentives offered through the 2003 Mississippi Broadband Technology Development Act are designed to provide companies with larger economic incentives for deploying broadband services in the least populated areas of the state and smaller incentives to more urban areas. A BellSouth press release stated that, prior to this legislation, the cost associated with deploying broadband in the least populated areas prevented companies from deploying residential broadband throughout the entire state.

More information on the Mississippi Broadband Technology Development Act is available at: http://www.state.ms.us/frameset.jsp?URL=http%3A%2F%2Fwww.ls.state.ms.us

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Commerce's NIST Announces 16 New ATP Awards
New blade technology that could make energy generation by wind turbines more efficient and virus-resistant tissues for skin grafts are just two novel technologies to be developed by the private sector with support from 16 Advanced Technology Program (ATP) awards made last week.

The recipients could be among the final new ATP awards made as the Bush Administration's FY 2004 budget request has recommended terminating the program.

Administered by the Commerce Department's National Institute of Standards and Technology (NIST), the ATP awards figure to help birth numerous technologies, including a method for operating a car's devices through conversational speech and an automated Web-searching and data organizing software system. The new awards represent a total of up to $35.46 million in ATP funding and an industry share of up to $22.28 million, if all projects are carried through to completion.

The 13 individual companies with projects selected for funding are:

The three joint venture partnerships (the lead partner listed first) with projects selected for funding include:

A listing of the new ATP award-winners and their projects is available at: http://www.nist.gov/public_affairs/releases/atpaward0703.htm

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For Entrepreneurship, Are States Chasing the Wrong Smokestacks?
New NBER study suggests different tact may be necessary to breed entrepreneurial growth

Public strategies aimed at promoting tech-based entrepreneurial activity by providing capital or investment incentives may not be enough, posit Paul Gompers, Josh Lerner and David Scharfstein in Entrepreneurial Spawning: Public Corporations and the Genesis of New Ventures, 1986-1999. Instead, “regions may need to attract firms with existing pools of workers who have the ‘training and conditioning’ to become entrepreneurs.”

The authors' recent research, which analyzed numerous factors that affect the total number of venture capital-backed tech companies spawned by public companies during a sample period from 1986-1999, suggests the stimulation of entrepreneurial activity in a region with a small number of existing entrepreneurial companies is a difficult task. Gompers, Lerner and Scharfstein find entrepreneurial activity in a region has increasing returns — venture capital backed entrepreneurial companies spawn more VC-backed tech start ups. Additionally, they warn, the local group of suppliers and customers may not be robust enough to sustain more isolated new technology-based ventures.

The recent working paper released by the National Bureau of Economic Research also concludes that less-diversified companies, those focused on a single line of business for instance, spawn 19 percent more entrepreneurial ventures than do multi-faceted corporations. Findings by the authors are consistent with the notion that the best settings for the origin of entrepreneurial firms are other entrepreneurial firms. It is in these surroundings that employees gather information from their associates concerning what is necessary to initiate a new business and are introduced to a system of suppliers and customers who are familiar with interacting with start-up companies.

While large bureaucratic corporations unwilling to support commercialization of internal innovations spawn entrepreneurial start-ups, companies "that were once venture capital backed have a 23 percent higher spawning level."

Entrepreneurial Spawning: Public Corporations and the Genesis of New Ventures, 1986-1999 can be located at: http://papers.nber.org/papers/W9816

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Useful Stats: 2002 STTR Awards by State
Today's issue of the Idaho SBIR Competition News, an electronic newsletter, includes a table presenting the FY 2002 award statistics by state for the Small Business Technology Transfer Program (STTR). The table includes state totals for the number of awards given and total dollar amount received for both Phase I and Phase II awards. Only Puerto Rico and five states were without some funding during the year from at least one of the five federal agencies required to participate in the STTR program — the departments of Defense, Energy and Health & Human Services, NASA and the National Science Foundation (NSF).

STTR is a highly competitive program that reserves a very small percentage of federal R&D funding for awards to small business and nonprofit research partnerships. Federal agencies with extramural R&D budgets over $1 billion are required to administer STTR programs using an annual set-aside of 0.15 percent. The set-aside will increase to 0.3 percent in FY 2004.

The table is available at: http://www.webs.uidaho.edu/sbir/docs/STTR_Rankings.htm

The table was prepared by Office of Technology within the Small Business Administration, which has oversight for both STTR and the larger Small Business Innovation Research (SBIR) program. More information on the office and STTR program, including previous year award statistics is available at: http://www.sba.gov/sbir/indexsbir-sttr.html

Prepared bi-weekly by Dr. Chris Busch, Idaho SBIR Competition News is published bi-weekly as part of the SBIR outreach activity conducted by the NSF-Idaho EPSCoR Project. More information is available at: http://www.webs.uidaho.edu/sbir/

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People

After 30 years as leader of the Greater Madison Chamber of Commerce, Robert Brennan is leaving to become a consultant to the new Office of Corporate Relations at the University of Wisconsin-Madison.

Maine Governor John Baldacci has nominated one of his senior policy advisors, Jack Cashman, to become Commissioner of the state Department of Economic and Community Development. Cashman formerly served as a Democratic state representative from Old Town.

Cameron Carter is serving as interim president and CEO of Indiana's TechPoint, following Donna Gastevich's resignation to spend more time with her family.

Mike Leavitt of the Idaho National Engineering and Environmental Laboratory has been appointed the Co-chair of the Federal Laboratories Consortium State and Local Government Committee.

Tom Shea with the Office of Economic Adjustment in the Department of Defense has announced his retirement, effective September 30, 2003.

U.S. Department of Commerce Assistant Secretary Nancy Victory has announced her resignation effective mid-August. Victory led the National Telecommunications and Information Administration, which manages the $15.4 million Technology Opportunities Program.

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