In the June 12, 2006 Issue:

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Legislative Actions & Tech Talkin' Govs 2006, Part IV
The fourth installment to Walkin' the Tech Talkin' Gov Walk (see the April 17 , May 8 and June 5 issues of the Digest) covers the outcomes of the 2006 legislative sessions within Colorado, Iowa, Minnesota and Vermont. Following is a synopsis of bills passed and budget appropriations relevant to tech-based economic development and the priorities outlined in respective gubernatorial addresses at the beginning of 2006.

Colorado
Gov. Bill Owens signed into law a $26.5 million economic development package, which includes investments in bioscience and job creation. While the bulk of the funds are slated for increasing tourism ($19 million), two of the bills include funds aimed at increasing science and technology research and creating better jobs in the state.

HB 06-1360 provides $2 million in one-time funding for the advancement of new bioscience discoveries at Colorado research institutions. The legislation creates the Bioscience Discovery Evaluation Grant Program within the Colorado Office of Economic Development to improve and expand the evaluation of new bioscience discoveries with the intent to commercialize new products and services. Grants are to be distributed to technology transfer offices in amounts of up to $150,000 per bioscience research project.

Under HB 06-1017, the Economic Development Commission has the authority to offer financial incentives to any business that creates a minimum of five new jobs in rural areas and 10 in urban areas. Jobs must be created and maintained for at least one year before the company can receive the incentives. The legislation allocates $3 million annually to the program, of which 15 percent is earmarked for job creation within Enterprize Zones outside the Metro Denver area.

Gov. Owens also signed a bill that provides funding to a new Colorado renewable energy collaboration. HB 1322 creates the Colorado Renewable Energy Authority and allocates up to $2 million per year for three years, beginning in fiscal year 2007. Under the legislation, the Authority must use the allocation of state matching funds to support one or more proposals of a consortium consisting of the Colorado School of Mines, Colorado State University, University of Colorado, and the National Renewable Energy Laboratory for federal energy research funding and energy-related research funding from federal agencies and other public and private entities.

Iowa
The General Assembly approved Gov. Tom Vilsack's request of $50 million for the Iowa Values Fund within the Department of Economic Development (refer to HF 2459). Established in 2003, the Iowa Values Fund supports economic development opportunities in the specific areas of life sciences, software and information technology, advanced manufacturing, and value added agriculture (see the June 6, 2003 issue of the Digest). The governor signed the budget bills on June 1. They do not include his recommendation of $2.3 million for the Bioscience Alliance and $250,000 for the creation of a Lean Manufacturing Institute to provide training for manufacturing firms.

The budget includes, however, investments from various funds for FY 07 to the State Board of Regents to implement infrastructure-related recommendations (refer to HF 2782) proposed by the governor in his Condition-of-the-State Address (see the Jan. 16 issue of the Digest).

Another bill that passed during the session is SF 2272, which requires high school students to take three years of math and science and takes effect with the graduating class of 2010-11.

Minnesota
The Legislature passed and Gov. Tim Pawlenty signed HF 2959, authorizing nearly $1 billion in general obligation bonds to finance more than 100 capital projects. The final bonding bill includes $307 million for renovation and construction of buildings at the University of Minnesota (UM) and Minnesota State College and University campuses. According to the Minnesota High Tech Association, funding for four UM building projects include:

The legislature also passed SF 3371, requiring fourth and eighth grade students to participate in the TIMSS International assessment of student achievement in math and science. Legislation that did not pass during the session includes HF 3534, a bill to create a STEM Gifted Advisory Committee, and a bill to create a Biomedical Sciences Research Facilities Authority (HF 3268). UM sought to create the authority and grant the power to expend $330 million in bonds to pay for 90 percent of the building projects.

The governor signed the FY 2007 Supplemental Budget bill on June 2. It includes $15 million for collaborative research projects in biotechnology and genomics by UM and the Mayo Clinic at their joint Rochester facility and $16.3 million for new higher education programs at the University of Minnesota Rochester in biomedical, engineering and computer technologies.

Vermont
As the legislative session came to an end, lawmakers agreed to spend $5 million in surplus money from the 2006 budget to implement the Vermont Promise Scholarship program. In his State-of-the-State Address (see the Jan. 16 issue of the Digest), Gov. Jim Douglas initially called for $175 million for the scholarships over 15 years, which largely would have been paid for by a 10-year boost in collections from tobacco settlement funds. Gov. Douglas called the allocation a "modest down payment," following the legislature's rejection of his proposal.

The University of Vermont, Vermont State Colleges and Vermont Student Assistance Corporation each will receive one-third of the funds for student scholarships in 2007, according to the Burlington Free Press. A nine-member commission will decide what incentives to use to reverse the state's brain drain, the article states. The commission is expected to receive another $5 million in July from a boost in revenue.

The legislature approved $3 million for the governor's Next Generation Initiative, proposed in his Budget Address (see the Jan. 30 issue of the Digest). Direct investments of $1 million each will be distributed to the following:

The FY 2007 approved budget, H. 881, also includes an increase of $400,000 to the Vermont training program and $110,000 to the Department of Economic Development for the following: $75,000 for grants to the regional development corporations; $25,000 for the Southern Windsor County incubator; and $10,000 for the north link broadband project.

The legislature also passed S. 165 during the session to restructure and reorganize the state's economic development incentive program. According to an Associated Press article, a compromise was reached to modify the way the Vermont Economic Progress Council grants economic incentive tax credits. Under the new program, which was renamed the Vermont Employment Growth Incentives program, awards will be based on increases in employment and capital investments by a company.

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College Incubators, Seed Funds OK, IRS Says
Does increasing a university or community college's involvement in tech-based economic development - through technology incubators or early-stage capital programs - detract from the nonprofit, educational purpose of the institution? Fortunately, for many state and regional TBED strategies, the Internal Revenue Service (IRS) says no. The IRS recently released a ruling affirming the nonprofit status of a college foundation planning to unveil a new high-tech incubator and pre-seed capital fund. The potential benefit of this investment to the college protects the organization's 501(c)(3) status, and the deductibility of its outside contributions, the ruling states.

The foundation, unnamed in the IRS release, plans to build a business and research incubator near the campus providing office space and specialized resources for technology start-ups. Its associated capital fund will support qualified businesses through early-stage product development and technology assessments in exchange for a small equity interest. While the incubator will be operated in partnership with the local chamber of commerce and county government, both college-based initiatives will be financed through philanthropic donations.

The IRS agreed with the foundation's argument that the plan could create new employment and educational opportunities for students in the economically depressed region. Campus-based incubation will encourage cooperation between client companies, faculty and students. The new pre-seed capital fund will contribute to the college's educational program by encouraging local "innovation and entrepreneurial behavior", resulting in new jobs and college partnerships.

Return on investments made by the fund will be used to perpetuate the pre-seed fund rather than be distributed to those individuals making the original donations to establish the fund, the IRS ruling states. Because of the educational purpose and nonprofit motivation for creating the fund, donations to capitalize the preseed fund may be considered deductible charitable contributions.

Released in early April, the ruling applies only to this specific case; however, it is an encouraging sign for other college and university incubation programs. Universities and foundations can preserve their nonprofit status and invest in entrepreneurial support programs if these programs serve a necessary role in the educational mission of the institution.

Read the IRS ruling at: http://www.irs.gov/pub/irs-wd/0614030.pdf.

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South Must Shift Values to Accommodate Knowledge Economy, Report Says
Promoting the policies and harnessing the habits that will make innovation central to a Southern way of life requires a fundamental shift in the approach to knowledge itself, says the latest report by the Southern Growth Policies Board.

The report, Innovation with a Southern Accent: The 2006 Report on the Future of the South, offers recommendations for 13 states and Puerto Rico to transition the region into a more knowledgeable, innovative and prosperous South.

In preparing the report, Southern Growth hosted retreats, community forums, policy dialogues and surveys involving about 4,000 southern residents. In a section titled, "Listening to the South", the report provides details on the concerns voiced by participants regarding technology and innovation. According to the report, six major themes emerged from the discussions, including:

The report is centered around three knowledge flow topics, including the creation of knowledge, the accumulation of knowledge, and the application of knowledge. Strengths within the region include high research output in nanotechnology, a growing number of biotech companies, and increased employment within information technology fields.

While the South has innovation bright spots, they are scattered throughout the region, which contributes to part of the problem. Because resources are scattered, very few areas have a critical mass of innovation resources to stand alone, the report states. Even existing resources are not networked in meaningful ways to leverage into world-class innovation hot spots, the report adds.

Building a southern economy based on innovation requires a cultural shift toward valuing and celebrating knowledge. For example, the report asks, is it known to southerners that they lag the nation in economic growth, innovation, and educational attainment? And, is it accepted in the southern culture that these are unchangeable conditions? The report stresses the importance of valuing knowledge, accompanied by a civic and political commitment. Recommendations include:

A section of the report is dedicated to Puerto Rico and each of the 13 states. Each state page provides a survey summary completed by policymakers, which includes the target industries for economic development within the state and information on legislation and polices enabling certain economic development programs and initiatives. Innovation with a Southern Accent: The 2006 Report on the Future of the South is available for purchase from the Southern Growth Policies Board at: http://www.southern.org/pubs/pubs.shtml

Links to this report and 4,000 additional TBED-related research reports, strategic plans and other papers can be found at the Tech-based Economic Development (TBED) Resource Center, jointly developed by the Technology Administration and SSTI, at: http://www.tbedresourcecenter.org/.

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Recent Research
Harnessing Geographic Knowledge Spillovers to Fuel Regional Growth
[Editor's Note: SSTI is excited to welcome Phillip Battle to its staff as a policy analyst. The author of this article, Phil recently received his Master in Public Affairs degree from the LBJ School at the University of Texas at Austin. His area of research interest is technology policy and economic development.]

A forthcoming article from Regional Studies suggests that despite the rise of the Internet as a global medium for the distribution of knowledge, location still matters within the innovation community. Proximity and industry networks speed the transmission of new technologies, which in turn accelerates regional growth.

Thomas Döring of the University of Kassels and Philipps-University Marburg and Jan Schellenbach of Philipps-University Marburg present more than 50 years of theory and empirical research examining the spread of knowledge across regional economies. The article explores several hypotheses about how and why the dissemination of new technologies is limited by proximity and, more importantly, why disadvantaged regions persistently fail to benefit from technological advances.

The authors differentiate knowledge from information. Knowledge is a broader category of understanding, which encompasses the ability to solve problems but may be difficult to transmit through language, codified science or media.

Empirical evidence suggests all knowledge, even that which is made public and non-excludible, is more efficiently diffused though personal, informal relationships. Tacit knowledge, understanding and skills transmitted by the movement and interaction of human capital, is the most effective vehicle for the spread of new technologies. Even though industry research may be published in publicly available outlets, proximity and participation in industry networks remain more important in securing access to new knowledge.

This knowledge does not spread uniformly. Many regions continually miss out on the productivity benefits of new technologies. Disadvantaged regions tend to experience an ever-widening technology gap. Döring and Schellenbach cite the work of Marjolein Canils, holding that knowledge tends to spread first to neighboring R&D centers, and then to the periphery of those centers. The likelihood of absorption in periphery areas is determined by the usefulness of the new knowledge in light of already accumulated knowledge.

Firms and economies clearly benefit from the accumulated knowledge within the region and from the presence of strong networks of firms, R&D laboratories, and venture capital. Firms gain access to regionally stored knowledge through formal networks and partnerships and also through informal means, such as social networks between managers and the movement of local labor.

Sophisticated models created within the New Economic Geography literature explain the growth rate of regions based on the accumulation of knowledge. Tacit knowledge is received incrementally through flows between regions and networks and fuels productivity gains. Growth rates increase based on the amount of accumulated, but still relevant, knowledge.

The authors are hesitant to make normative claims about the value of regional policies specifically intended to maximize the benefit of knowledge spillovers. Döring and Schellenbach recommend further study on the subjects of research proximity and the mechanisms of regional knowledge spillovers. A more advanced understanding of these phenomena could yield insights into site selection, labor resources, and the development of disadvantaged areas.

Empirical studies within the literature, however, have already demonstrated the value of building strong local and regional networks. These networks exert an essential, significantly positive impact on innovative activity." Regions with strong formal and informal networks, built through technology councils, networking events and industry partnerships, have a clear competitive advantage over other regional economies.

What Do We Know About Geographical Knowledge Spillovers and Regional Growth? - A Survey of the Literature is available at: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=753386.

Links to this paper and 4,000 additional TBED-related research reports, strategic plans and other papers can be found at the Tech-based Economic Development (TBED) Resource Center, jointly developed by the Technology Administration and SSTI, at http://www.tbedresourcecenter.org/.

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Useful Stats
Real Gross State Product, 2001-2005
The U.S. Bureau of Economic Analysis (BEA) recently released advanced real gross state product (GSP) estimates for 2005. According to the data, real GSP grew in all 50 states and the District of Columbia from 2001-2005. Western states dominated the lead in U.S. economic growth, with Nevada incurring the largest increase in real GSP growing from $75.1 billion in 2001 to $96.6 billion in 2005 -- a 28.56 percent change. Along with Nevada, four other states experienced an increase of more than 20 percent in real GSP over the five years: Oregon, Idaho, Florida and Arizona.
 
Nationally, real U.S. GSP grew by 12.19 percent over the most recent five years, up 2.23 percent from the period 2000-2004. Twenty-four states experienced real GSP growth less than the national average, including Louisiana with the lowest in the nation at 4.74 percent, followed by Michigan (4.83 percent), Connecticut (7.36 percent), Illinois (7.43 percent), and Ohio (7.98 percent). The minimal increase in real GSP for Louisiana was directly related to the effects of Hurricanes Katrina and Rita, according to the BEA.
 
SSTI has prepared a table ranking real GSP for all 50 states and the District of Columbia by percent change from 2001-2005 is available at: http://www.ssti.org/Digest/Tables/061206t.htm
 
Also available is a table characterizing real GSP from 2000-2004: http://www.ssti.org/Digest/Tables/071105t.htm
 
BEA's press release detailing real GSP estimates for 2005 is available at: http://www.bea.gov/bea/newsrel/gspnewsrelease.htm

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People

Stuart Arnett announced he will step down as the director of economic development in the New Hampshire Department of Economic Development and Resources, effective Aug. 1, to pursue work in private sector.

Connecticut Innovations has named Kevin Crowley as its director of investments.

The South Dakota Board of Regents announced that Scott Meyer will become system vice president of research, effective June 26.

Jeff Nesbit was appointed director of the National Science Foundation's Office of Legislative and Public Affairs.

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SSTI Job Corner
Complete descriptions of the position openings described below are available at http://www.ssti.org/posting.htm.

The Delaware Economic Development Office (DEDO) is seeking someone to serve as its capital resource director. The incumbent will provide financial incentives and tools to assist businesses in creating, expanding or retaining employees, among other responsibilities. Toward that effort, the director will work with various other financial sources, external partners and resource centers to provide more opportunities to all clusters, entrepreneurs and various individuals. He or she should have a bachelor's degree, with 3-5 years in specific industry experience. A Master in Business Administration degree is preferred.

The Life Sciences Discovery Fund (LSDF) of Washington State is seeking leadership staff to help mold and direct this new organization from the ground up. The LSDF acts as a foundation, managing more than $35 million per year in grants to researchers and organizations across the state. The program is part of the governor's economic development strategy to promote life sciences research that will foster a preventative and predictive vision of the next generation of health-related innovations, enhance the competitive position of Washington, and improve the quality and delivery of health care. Current opportunities include a director of programs and a grants administrator.

The New Mexico Technology Research Collaborative (TRC), New Mexicos lead organization for developing and commercializing technology, creating new companies, and generating new jobs, is seeking someone to serve as its executive director. He or she will be responsible for the overall direction and management of the TRC programs, mission and goals including resource development, finances, contracts, and assets in accordance with the organizational mission and operational policies. Candidates should have a terminal degree in a scientific, medical, legal or business domain and 10 years of experience as a leader of technology research/commercialization programs/projects.

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