In the May 3, 2004 Issue:

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MEP Finalist for Innovations in American Government Award
Cutbacks in service loom after 63 percent budget reduction
The Manufacturing Extension Partnership (MEP) is one of 15 finalists for the 17th Annual Innovations in American Government Award. Administered by the Ash Institute for Democratic Governance and Innovation at Harvard University's Kennedy School of Government in partnership with the Council for Excellence in Government, the award recognizes creativity and excellence in public sector service delivery.

MEP is the only economic development program included among this year's finalists, selected from more than 1,000 applications. MEP, a state-federal partnership, supports a network of more than 1,400 professionals in more than 300 locations around the country providing technical assistance, support services, engineering services, and business advice to small manufacturers.

Five of the award's finalists will be selected to receive one of five $100,000 prizes in July. The cash is something MEP sorely needs right now. After seeing its budget cut 63 percent this year, MEP program administrators are still figuring out how to maintain the program's core capabilities and effectiveness before center contracts expire at the end of June.

Things could have been worse, however, as the Administration had proposed the program's elimination in its fiscal year 2004 budget request. Congress restored less than $40 million of the $106 million FY 2003 appropriation level. The Administration's request for next year is $39 million.

The irony in MEP's selection for the Innovations Award this year, given the budget situation and three years of massive layoffs during the global restructuring of most manufacturing sectors, was not lost on Mike Wojcicki, president of the Modernization Forum, a trade association for MEP centers around the country.

"The Administration wants to eliminate the program just when the nation's small manufacturers need it the most," Wojcicki said in a press release.

Criteria for selection as a finalist for the Innovations Award included a measure of the applicants' effectiveness. MEP has an extensive performance assessment and evaluation system in place and was prepared to tell its story for the selection process. For example, manufacturers who completed MEP projects in 2002 - the most recent year for which data is available - reported sales of $2.8 billion, savings of $681 million, plant investments of $940 million, and 35,000 jobs as a result of MEP projects in just the following year.

The ability of the national program to achieve similar results in the near future already appears compromised given the changes looming once NIST lays out its plans to deal with the 63 percent reduction. A recent Modernization Forum survey shows MEP centers are downsizing rapidly in anticipation of NIST's decisions. MEP centers in at least 16 states said they expect they will entirely close in the next year. MEP centers already have laid off 15 percent of their staff and without additional funding in FY 2005, the surviving centers will reduce their staffs by more than 50 percent.

See http://www.excelgov.org for more information on the Innovations Awards. The MEP survey results can be found on the Modernization Forum's website at: http://www.modforum.org/surveyresults.pdf

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State Budgets: '04 Blacker; '05 Red for Nearly Half
With only two months to go in the 2004 fiscal year for most states, 32 are projecting small surpluses in the end - a sharp contrast to the situation they faced a year ago - according to a new report by the National Conference of State Legislatures (NCSL).

At this time last year, states were still struggling to close a cumulative $21.5 billion budget gap. Now, they are working to close a total gap of $720 million, according to State Budget Update: April 2004.

The surpluses are not large. And they did not accumulate painlessly, the report points out. These projected surpluses are the result of improved collections in major revenue categories and the difficult paring of programs. Nine states expect surpluses below 1 percent of their general fund budgets. In Florida, Nevada, Oklahoma, South Dakota and Wyoming, the surpluses are larger than 5 percent.

But this breathing room comes after three consecutive years of fiscal crisis, when states had to cut funding in such core areas as education, healthcare and corrections. Some states tapped rainy day funds, increased fees or raised taxes on items including cigarettes, health insurance and phone service to help make ends meet.

Presently the black ink for '04 ending balance appears only to be a short reprieve for many states as '05 revenue forecasts and spending projections see 33 states resolving expected budget gaps once again.

Some states are expecting a positive picture, however. At least 12 project surpluses, bringing the cumulative surplus to about $1.9 billion. These surpluses continue to be modest, though, with Hawaii, Ohio, Oregon and Texas reporting surpluses equal to less than 1 percent of their budgets.

Copies of State Budget Update: April 2004 may be purchased from NCSL by contacting 303-364-7700 or books@ncsl.org.

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California Big on Hydrogen; State Captures $50M of DOE Fuel Cell Funding
He may be more traditionally associated with gas-guzzling Humvees than anything remotely environmental, but Gov. Arnold Schwarznegger has become a big believer in alternative energy vehicles. The governor's recent call for creating a "Hydrogen Highway" by 2010 is, perhaps, the country's boldest commitment to getting hydrogen fuel cell vehicles on America's roadways anytime soon. It provides an example of how public-private partnerships, with the government serving as an early adopter of a potentially disruptive technology, could produce positive economic results for the state.

The goal of the California Hydrogen Highway Network initiative is to catalyze a rapid transition to a clean hydrogen transportation economy through strategic placement of fueling stations and public investment in fuel cell vehicles, primarily businesses and light duty vehicles. An early network of 150-200 hydrogen-fueling stations throughout the state (approximately one station for every 20 miles on the state's major highways) would make hydrogen fuel available to the vast majority of Californians, the California Fuel Cell Partnership suggests. The Partnership and others estimate that this initial low-volume fueling network would cost approximately $90 million, the majority of the investment coming from private investment by energy companies, auto makers, high-tech firms, and other companies.

The governor's Earth Day highway announcement presciently foreshadowed news that California institutions and companies collectively captured up to $50 million of a total of $350 million for hydrogen fuel cell research projects awarded by the U.S. Department of Energy (DOE) on April 27. The private sector is expected to provide an additional $225 million in matching funds for the research.

The DOE funds are distributed among several different hydrogen-related initiatives:

A complete list of DOE award selections is available at: http://www.doe.gov/engine/content.do?PUBLIC_ID=15725&BT_CODE=PR_PRESSRELEASES&TT_CODE=PRESSRELEASE

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Minnesota, Texas Capture Two DHS Centers
The U.S. Department of Homeland Security (DHS) recently selected Texas A&M University and the University of Minnesota to lead the second and third Homeland Security Centers of Excellence (HS-Centers). The department anticipates providing Texas A&M University, the University of Minnesota and their partners with a total of $33 million over the course of the next three years to address security in two key agricultural sectors -- foreign animal diseases and food security.

The selections were made from 23 proposals submitted in response to a December 2003 broad agency announcement by DHS' Science and Technology Directorate. Site visits were conducted for  seven finalists before selecting the two new HS-Centers.

In November 2003, the University of Southern California partnered with other universities and was chosen to house the first HS-Center, known as the Homeland Security Center for Risk and Economic Analysis of Terrorism Events.

DHS plans to establish additional HS-Centers in 2004, spanning a variety of research and development areas of interest. More information will be available at http://www.dhs.gov.

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States Building R&D Capacity Through Endowed Faculty Positions
Studies have shown a strong correlation between high-wage economic growth and university research activity. Examination of nearly every strong regional technology center across the country will reveal at least one research university within its boundaries. As a result, many state and local technology-based economic development (TBED) efforts strive to increase the quantity and quality of university R&D undertaken within their boundaries.

One need look no further than the local cineplex to see an analogy for the rationale of one particular TBED strategy. Hollywood knows adding a well known actor to a movie's lineup guarantees some level of ticket sales at the box office. Similarly, many state and local TBED programs are financially supporting the recruitment and retention of exceptional academic researchers through endowed chairs, faculty positions or eminent scholars.

Federal research grants, industrial R&D collaborations, exceptional graduate students and faculty, scientific community awareness, and patent filings are among the benefits a university or college expects to gain by enticing a single elite academic researcher to its campus. Such world class researchers can spark economic growth through enabling the creation and commercialization of new technology, attracting new businesses, forming clusters and strengthening existing tech companies by encouraging additional investment.

For example, to compete for a larger share of federal and foundation research funds, attract talented faculty and students and foster new company-industry relationships, the Georgia Research Alliance (GRA) created an Eminent Scholars program several years ago as the "hub" of its investment strategy. Through these investments, GRA has recruited more than 40 eminent scholars, predominantly focused in advanced communications and biosciences, to six Georgia universities to lead research programs with a high potential to impact economic development. GRA's effort is yielding results too: for every state dollar invested in eminent scholars, the state sees a $4 to $6 jump in federal R&D funding.

The debate to support endowed chairs is currently underway in Missouri's state legislature as well. Last month, HB 1671 passed the House, committing funding to endowed chair programs beginning in FY 2007. House Speaker Catherine Hannaway referenced the successes of previous programs that helped the University of Missouri recruit world-class faculty and achieve new levels of research through increased federal and private support. HB 1671 is intended to expand upon those programs and requires:

Last week, however, a committee in the Missouri State Senate removed the provision from the broader economic development bill. The Kansas City Star reports opponents of the endowed chairs were concerned the researchers in key life science fields would attract other funding that "could finance research involving abortion, stem cells or human cloning." The bill is being considered by the full Senate.

Oklahoma and Florida also are working on legislation to eliminate the backlog of state funding for endowed chairs. Oklahoma Gov. Brad Henry recently signed HB 1904 to authorize a bond issue to match donations as part of his Economic Development Generating Excellence (EDGE) initiative (see the March 29, 2004, issue of the Digest). Presently, $52 million in private donations is waiting for matching funds.

Yielding to pressure from private donors threatening to demand returns or vowing not to commit more money, state legislators in Florida have agreed to eliminate the entire backlog of $186 million to match donations, reports the St. Petersburg Times. Three chairs totaling $13 million at the University of South Florida have been held up due to the backlog, as well as funding for scholarships and research programs. Under Florida state law requiring the state to match donations above a certain amount, the state owes $112.7 million to 11 public universities and $73.2 million to 28 community colleges.

In South Carolina, Clemson University will tap into state lottery funds set aside last year by the General Assembly for an endowed chair program. BMW Manufacturing Corp. pledged $10 million with another $5 million to be raised by suppliers for the state to match. Clemson will use the funds to recruit engineers and scientists to the school’s new graduate program in automotive systems integration.

While many states are increasing endowed chair programs, New Mexico Gov. Bill Richardson vetoed funding for endowed chairs in March, cutting $6 million from programs at the University of New Mexico, New Mexico Tech and New Mexico State University. An Albuquerque Tribune story noted the cuts were made in an effort to balance the state budget. The state supports its universities but feels they need to do a better job of matching state funds, the newspaper reported.

Missouri HB 1671 is available through the Missouri House of Representatives at: http://www.house.state.mo.us/bills041/bills/hb1671.htm

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Carnegie Mellon Reviews University-Cluster Interrelationship
A study released last week by the Economic Development Administration (EDA) and Carnegie Mellon University's Center for Economic Development finds that, within a region, universities are best able to affect the growth of young, emerging clusters. The study, Universities and the Development of Industry Clusters, concludes a "university must have a large base of research and development in order to significantly impact a cluster..."

For a university to have the maximum benefit for local cluster development, the institution must align services and community involvement with regional interests and industry clusters across a broad spectrum, not just in terms of technical knowledge and R&D. In other words, the university needs to actively address business, workforce and community issues in addition to developing an exceptional research capacity.

Industry clusters occur when the markets interconnect a number of companies in a geographic region they serve and products they produce, according to the study. Efforts to support the growth of industry clusters are known as cluster development.

"Cluster development has emerged as a leading strategy to spur economic growth," said Jerry Paytas, associate director of Carnegie Mellon's Center for Economic Development and a co-author of the study. "It puts enormous pressure on universities to be an engine for economic development, when the path from university research to regional economic benefit is not simple or direct."

Clusters play an important role in determining the potential economic impact of universities' research and cluster-supporting activities, the authors say.

"Clusters that are externally, rather than regionally organized and oriented may even facilitate the diffusion of university derived benefits outside the region," they argue. "The university can produce the seeds of new firms and industries, but the region must offer a fertile climate for them to flourish."

The study profiled industry clusters in and around the University of Michigan, Wright State University, New Mexico State University, Lehigh University, West Virginia University, Virginia Polytechnic University, the University of Northern Iowa, and Florida State University.

Universities and the Development of Industry Clusters is available at:  http://www.eda.gov/Research/ResearchReports.xml

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Useful Stats: Change in Per Capita Personal Income by State 1998-2003
One of the differences between technology-based economic development (TBED) and more traditional approaches to promoting economic growth is TBED's orientation that while all jobs may be important, they are not created equal. Traditional economic development may provide millions of dollars for financial incentives and infrastructure construction assistance for a shopping mall or "big box" retailer that provides many poverty-level wage positions or part-time jobs.

Investment in TBED, however, may direct the public's limited resources toward creating and sustaining companies requiring higher skilled employees, paying higher wages, and increasing the standard of living for its residents. But what constitutes a high wage job?

A measure for creating wealth is to improve an area's per capita personal income, the total personal income received by all persons in a given area divided by the population of that same area. Broadly speaking, jobs that pay more than the per capita personal income would be preferable to those paying less.

The Bureau of Economic Analysis (BEA) has released the 2003 figures for state per capita personal income. The BEA also revised data reported for earlier years. Change in personal income, measured in constant dollars, reveals that not all states are seeing the impressive figures published in many news accounts on the data.

SSTI has generated a table presenting the revised 1998 per capita personal income figures by state, the 2003 figures in current and constant 1998 dollars, the percent change from 1998 to 2003 in constant dollars, and the ranks for each category.

Notably, seven of the top 10 states based on the percent change in per capital personal income are all EPSCoR states. The exceptions are the District of Columbia (ranked first), Maryland (third) and Massachusetts (10th).

SSTI's table is available at: http://www.ssti.org/Digest/Tables/050304t.htm

The BEA data is available at: http://www.bea.gov/bea/newsrel/SPINewsRelease.htm

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People

The National Science Board recently named Mary Good to be the recipient of the 2004 Vannevar Bush Award for "her life-long contributions to science, engineering and technology, and for leadership throughout her multi-faceted career."

Sean O'Kane, a hotel manager from Manchester, N.H., has been confirmed as the new commissioner of the New Hampshire Department of Resources and Economic Development.

Robin Siss, Vermont's first commissioner for the Department of Information and Innovation, has announced her resignation. Siss began the position in August. Denise Fehr will serve as acting commissioner.

Katherine Willis, the founding president of Cyber-state.org, has announced her retirement. Jeff Moore will serve as interim president.

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