In the February 6, 2008 Issue:

Copyright State Science & Technology Institute 2008. 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.

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 Final Bush Budget Released: R&D Gets Boost; Economic Development Slashed
Analysts Say Request Going Nowhere
The last budget request of a lame duck administration rarely musters much attention from Congress as its focus is turned toward the next administration and, for entire the House of Representatives, its own re-election. Not one of the previous seven budgets of the Bush years has been passed on time, so no one in Washington expects this one to be the exception.
 
Nevertheless, the fiscal year 2009 request provides the Bush Administration one final opportunity to outline how it would like to see the federal government spend its money. As in every previous budget request from the Bush White House, that doesn’t include much for economic development programs. “Highlights” for economic development programs include: Whether or not this tired assault on the federal government’s role in encouraging innovation and entrepreneurship gains much traction during Congress’s budget sessions this summer remains to be seen. To the Administration’s credit, it has managed to whittle down spending on economic development. For example, in FY 2001, MEP’s budget was $107 million. The EDA budget was a whopping $412 million.
 
By proposing cuts or elimination, the Administration forces constituents to argue for maintaining some level of funding, rather than sustaining or growing programs. Squeezing budgets year after year, as has been the approach, means programs do not keep pace with inflation or meet the growing needs for services as the country slips further into recession.
 
COMPETE Research Rising as Other Fields Slip
While the president vetoed FY07 budgets reflecting increases for the science agencies as recently as December, the Administration this month is proposing similar increases for those same agencies in FY09. The National Science Foundation (NSF) and the Office of Science with the Department of Energy (DOE) both stand to benefit. Unfortunately, both increases come at a cost to other programs and line items – cuts that are probably too unpalatable for even congressional Republicans to swallow in an election year (e.g., Medicare, student aid, etc). On the positive side: All news on the research side of the federal budget request is not encouraging, however. The National Institutes of Health (NIH), on the other hand, would be level-funded, further exacerbating complaints within the life science community for the slowdown in medical advances resulting from lower-than-inflation increases for the National Institutes of Health.
 
While the overall defense budget would see a robust boost of 8.2 percent in the Administration request, basic research investment at the Department of Defense (6.1 funds) would decline 5 percent.
 
Space science and engineering at NASA would experience a staggering 21 percent reduction, dropping to $8.39 billion from the FY07 total of $10.57 billion.
 
Digest readers looking for more information regarding the Administration’s FY09 budget request are encouraged to peruse the following sources:

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White House Touts Broadband Accomplishments; Groups Call for More Detailed Access Data
Four years ago, President Bush launched a nationwide initiative to increase the availability of affordable, high-speed Internet access. The Administration's Broadband Initiative, which included efforts to expand the wireless spectrum available for commercial use and new funding to support broadband research, sought to eliminate the gaps in service that existed in many areas of the country and to improve U.S. competitiveness through its broadband infrastructure. Networked Nation: Broadband in America 2007, a new report from the U.S. Department of Commerce's National Telecommunication and Information Administration (NTIA), states this initiative has "to a very great degree" accomplished this mission.
 
External groups tracking broadband policy and use disagree with that conclusion.
 
Networked Nation cites an Federal Communications Commission (FCC) report from last year that found the over 99 percent of all U.S. zip codes received broadband service from at least one provider as of the end of 2006. Those zip codes encompassed more than 99 percent of the nation's population. NTIA also concluded that the Administration's broadband policies have been effective in increasing the quality of broadband service while decreasing the price. The report attributes these gains to the Administration's technology-neutral support for broadband progress, the opening up of the commercial spectrum, the moratorium on an Internet sales tax, and the elimination of regulatory barriers to expanding high-speed networks.
 
A new report from the Information Technology and Innovation Foundation (ITIF) entitled Framing a National Broadband Policy, however, casts some doubt on NTIA's assertions and contends that the U.S. will require a concerted national effort to keep pace with broadband deployment around the world. Recent ranking from the Organization for Economic Cooperation and Development (OECD) put the U.S. at 15th among the 30 OECD nations in broadband subscribers per capita. Also, U.S. subscribers tend to have slower connections than other countries. The report argues that the current U.S. approach, one that relies almost exclusively on the market to deploy its broadband infrastructure, may not be enough to keep the U.S. globally competitive.
 
ITIF contends that a new, farther-reaching national broadband policy is necessary to achieve affordable, high-quality broadband service throughout the country. The foundation maintains that this policy should emphasize the need for universal and affordable service, rather than increased competition since, much like utilities, the business of broadband provision has natural monopolistic aspects. The report frames a number of the debates that would likely shape the eventual form of a national policy.
 
One of the major obstacles, however, to creating effective broadband initiatives is the lack of accurate, detailed data about deployment. The Government Accountability Office (GAO) issued a call for more granular data about broadband availability in a report last year (see the Dec. 19, 2007 issue of the Digest). The issue of improved broadband metrics also was addressed by the Pew Internet & American Life Project at a workshop in 2006, the results of which were recently released. Participants concluded that the data currently available on broadband access cannot sufficiently answer questions about the impact of new technologies and initiatives. The GAO argues that the definition of broadband needs to be updated to take into account the requirements of new applications like IPTV and downloadable video content. Also, data collection should focus on the experience of the end-user and not the speeds claimed by broadband providers.
 
A bill to add this sort of detail to federal data collection on broadband has been approved in the House and is scheduled for Senate consideration. The Broadband Data Improvement Act (S. 1492), in its current form, would require the FCC to report high-speed availability by zip code and by four-digit location code. In addition, the FCC would collect data on two tiers of broadband speed. The second tier would only include broadband of sufficient speed to provide access to full-motion, high-definition Internet video.
 
Networked Nation: Broadband in America 2007 is available at: http://www.ntia.doc.gov/reports/2008/NetworkedNationBroadbandinAmerica2007.pdf
 
ITIF's Framing a National Broadband Policy can be downloaded at: http://www.itif.org/index.php?id=118
 
GAO’s Measuring Broadband: Improving Communications Policymaking through Better Data Collection is available at: http://www.pewinternet.org/pdfs/PIP_Measuring%20Broadband.pdf

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$200M for Energy Diversity Package in Florida Budget Recommendation
Gov. Charlie Crist outlined several new alternative and renewable energy initiatives aimed at diversifying the state’s economy and creating high-wage jobs in his fiscal year 2008-09 budget recommendation. Many of the new proposals would be financed by tapping into the state’s budget reserves and relying on casino and lottery revenues.
 
The governor’s proposal invests $200 million in energy-related research and commercialization projects, along with rebates and tax credits for consumers, that build on the policy framework of the Serve to Preserve Climate Change Summit held last summer. Funding is directed to implement new research priorities for the state, including:

Upon depleting the Innovation Incentive Fund over the last two months with a $94 million investment to lure the Max Planck facility and $60 million for a research initiative with the Oregon Health and Science University, Gov. Crist is asking lawmakers to restore $200 million to the fund. This request is $50 million less than that of last fiscal year and includes $100 million for the aforementioned Green Tech Recruitment proposal.
 
The Office of Tourism, Trade and Economic Development is slated to receive $407.9 million for program support, a decrease of $47.9 million from the FY 2007-08 appropriation. Despite the overall decline in funding, several key economic development programs would see their budgets increase or remain level. Funding requests for specific programs include:

Also included in the governor’s budget recommendation for the Office of Tourism, Trade and Economic Development is $23.5 million – an increase of $5.7 million – for tax incentives aimed at supporting high-wage jobs and research in high-impact sectors. This includes the Qualified Target Industries Tax Refund Incentive, Qualified Defense Contractors Tax Refund Incentive, and the High-Impact Performance Incentive.
 
Funding for the university-based Centers of Excellence program would decrease by $39.7 million for a total $60.2 million in FY 2008-09. A portion of the funds will be used to conduct an external review to determine the viability of future commercialization of the proposed research, according to budget documents.
 
Gov. Crist also recommends $74.3 million to universities and $26.6 million to community colleges for the state’s portion of matching Challenge Grants, which provide funding for scholarships, endowed chairs and facilities. One specific item of note, the governor is requesting $1.2 million for a partnership between the University and Central Florida and the Burnham Research Institute.
 
Gov. Crist’s FY 2008-09 budget recommendation can be accessed at: http://peoplesbudget.state.fl.us/

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OCAST May Receive $12M Boost in FY 2009
Gov. Brad Henry unveiled the details of his fiscal year 2009 budget recommendation earlier this week, providing a substantial increase in funding to the state’s lead TBED agency and proposing a permanent funding mechanism for cutting-edge research through the EDGE Endowment.
 
Citing a sizable return on investment from the Oklahoma Center for the Advancement of Science and Technology (OCAST), the governor is recommending $34.5 million for FY09 – a 54 percent increase over last year’s appropriation. OCAST is slated to receive $6 million to replace one-time funding for the Bioenergy Center – established in 2007 – and $5 million to replace seed capital funds that were diverted last year for the center (see the June 6, 2007 issue of the Digest). An additional $4 million from OCAST seed funds appropriated last year would be allocated to the Bioenergy Center in FY09 for a total of $10 million. Gov. Henry also recommends $1 million to enhance existing OCAST programs.
 
Funding for the state’s research endowment is accumulating at a much slower rate than expected. With only $150 million deposited into the proposed $1 billion endowment since 2004, Gov. Henry is asking lawmakers to approve a permanent funding source using surplus gross production taxes on oil to grow the fund at a faster pace. Currently, oil revenues are deposited into a number of different accounts until they reach $150 million. The governor’s plan would direct any surplus revenues over the $150 million threshold to the EDGE endowment. Lawmakers did not allocate funding to the EDGE program last year. 
 
The budget recommendation for the Department of Commerce and Tourism is $32.9 million – a 17 percent increase over the FY08 appropriation. This includes $2 million for the Oklahoma Creativity Project, a collaborative statewide initiative to establish the state as a world-renowned center of creativity and innovation in commerce, education and culture. The governor’s budget also would remove one-time funding for the 2nd Century Entrepreneurship Program, which acts as a central point of access and information for new business enterprises.
 
In his State of the State Address, Gov. Henry asked lawmakers to continue the momentum of recent years in the arena of higher education and fully fund endowed chairs and reduce their backlog in colleges and universities. The budget recommendation also includes $1.5 million to expand the Middle School Math labs initiated in 2005. Initial funding was provided for 10 labs in middle schools with low math performance and was subsequently expanded the following year due to high success rates.
 
Two aerospace bills under consideration this legislative session would provide tax incentives to keep aerospace graduates in the state and support aerospace-related research and economic development activities. Held over from last session, HB 2784 provides an income tax credit of up to $5,000 for college graduates who work in aerospace or engineering for a period of five years, provides tax credits for employers of up to 30 percent of the qualified wage cost of employment, and offers incentives for recruiting college interns. HB 3098 creates the Oklahoma Aerospace Institute to support the aerospace industry in the areas of education and training, research and economic development. The institute will include a center for applied research to focus on R&D and technology transfer activities. 
 
Gov. Brad Henry’s FY 2009 budget recommendation is available at: http://ok.gov/OSF/Budget/Budget_Books.html

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Pennsylvania Governor Continues Push for Energy Strategy, Research Fund
Several months of debate leading into a special legislative session late last year was not enough to convince lawmakers to approve funding for two of the governor’s major TBED priorities. With the release of the fiscal year 2008-09 budget recommendation, Gov. Ed Rendell is again asserting the importance of the alternative energy legislation and the Jonas Salk Legacy Fund, urging lawmakers to quickly enact the initiatives.
 
The alternative energy legislation calls for an $850 million bond issue securitized by an electric power public benefits charge to fund energy independence programs (see the Feb. 12, 2007 issue of the Digest). Additionally, the governor’s budget recommends $500 million – a portion of the state’s Tobacco Settlement Fund – in seed funding for the Jonas Salk Legacy Fund for biosciences research, biotechnology commercialization and investment capital.
 
The governor’s recommendation for the Ben Franklin Technology Development Authority Fund is nearly a $3 million less than last fiscal year. No funding is recommended for assistive technology ($500,000 decrease), telecommunications infrastructure ($6 million decrease), or innovative partnerships ($500,000 decrease). However, funding for Ben Franklin Technology Partners would increase by $4.4 million.
 
Gov. Rendell’s budget recommendation augments funding for Department of Education priorities in math and science and workforce preparation, including:

Gov. Ed Rendell’s FY 2008-09 budget recommendation and Budget Address are available at: http://www.portal.state.pa.us/portal/server.pt?open=514&objID=377825&mode=2

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Massachusetts, Maine Vary in Measures of Innovation Economy
Measuring the strength of a state or region’s economy, particularly the elements related to tech-based economic development, is a tricky but vital tool for developing and updating TBED policies. Several challenges present themselves when deciding what information to present on the elements of the innovation system and assessing the region’s health and performance relative to appropriate surrogates.
 
Fortunately for the field, two states that have been leaders in using an index as a policy development tool, released reports last week which display an array of methods to analyze their own state’s relative TBED performance. Each report provides a unique perspective and can provide models for emulation and customization by other states.
 
Massachusetts
One of the forefathers and continual innovators in design and delivery of innovation indices is the Massachusetts Technology Collaborative (MTC), which released on Feb. 1 the 11th edition of its Index of the Massachusetts Innovation Economy. The report continues to benchmark Massachusetts in 20 indicators against selected states – California, Connecticut, Illinois, New Jersey, Minnesota, New York, North Carolina, Pennsylvania and Virginia.
 
New to this year’s edition, the Index benchmarks Massachusetts and the other states relative to other countries from around the world. This global perspective allows the selected state economies to be compared to countries typically considered the most innovative or competitive:

International benchmarks are present throughout the four main sections of the report, which outline trends in R&D investment, human capital and workforce development, growth in specific industry clusters, and export trade and immigration.

The 20 indicators used to compare the benchmarked states are organized into three broad categories - economic impact, innovation processes and innovation potential - that are designed so that Massachusetts’ relative standings can be used to comprehend the dynamism of the state’s economy and its economic opportunities and threats.
 
Helping to facilitate the dialogue on how the state best capitalizes on its assets through its public TBED investments and policies continues to be one of the main purposes for MTC’s preparation of the Index.
 
Maine
Maine also recently released the latest update to its perennial benchmarking study, the 2008 Maine Innovation Index. The report was prepared for the state’s Office of Innovation within Maine’s Department of Economic and Community Development. While the MTC study described above mainly covers information on exports, immigration and wages, Maine’s index highlights additional details about the state’s preparedness to participate more fully in the knowledge-based economy through examining R&D investments and Maine’s connectivity or deployment of IT to schools and households.
 
Understanding trends for the indicators selected for inclusion in an index is critical; basing policy on single-year snapshots can be ineffective. Recognizing this, the Maine index provides a 10-year historical comparison for many of its 25 selected indicators, benchmarking its performance with that of the New England states, the U.S. as a whole, and the other EPSCoR states. Maine’s index contains a scorecard listing all of the indicators, illustrating if each has increased or decreased over both a one-year period and a five-year period.
 
While Maine has seen its R&D capacity and its educational attainment and skills increase over a five-year period, its number of patents issued and investments in venture capital have decreased, the report indicates. The state’s amount of R&D from various sources and its SBIR/STTR awards have increased over time, but these same measures standardized by gross domestic product reveal Maine consistently lags the U.S. as a whole, which in turn is consistently lagging the New England states as a whole. These insights can help influence the design or new or expanded initiatives by the state to improve its standing in future volumes of the Index.
 
The Massachusetts Technology Collaborative’s 2007 Index of the Massachusetts Innovation Economy can be found at: http://www.masstech.org/institute/the_index.htm
 
The 2008 Maine Innovation Index is available at: http://www.policyoneresearch.com/ReportsandDocuments.htm#Indexdocs

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Warning for TBED
State Budget Problems Go Beyond Current Economy
During the past two months, five reports have highlighted grim news for state budgets in fiscal year 2008, FY 2009 and beyond, brought on by declining revenues, the crisis in the housing market, increased oil prices, a potential national recession, and structure issues with state finances.
 
In early December 2007, the National Governors Association and the National Association of State Budget Officers released The Fiscal Survey of States, which indicated that state spending is expected to grow only 4.7 percent this fiscal year and budget shortfalls are developing as rising healthcare costs put pressure on revenue and spending. In mid-December, the National Conference of State Legislatures found that states' revenue growth is slowing and deficits could reach at least $23 billion. The January State Revenue Report from the Nelson A. Rockefeller Institute of Government showed 2007 third-quarter tax revenues were down 0.6 percent over the same period last year, after adjusting for inflation, prompting governors to make mid-year budget adjustments for FY 2008.

Fourth, a Center on Budget and Policy Priorities revised report released Jan. 28 found that more than half of the states are anticipating budget problems and at least 25 states face budget shortfalls in FY 2009. Of the 25 states, 19 are expected to have shortfalls totaling at least $32 billion for FY 2009, including Alabama, Arizona, California, Florida, Iowa, Kentucky, Maine, Maryland, Massachusetts, Minnesota, Nevada, New Hampshire, New Jersey, New York, Ohio, Rhode Island, South Carolina, Virginia and Wisconsin. These states' shortfalls average 8 percent to 8.7 percent of their general fund budgets. Another three states expect budget problems in FY 2010 and beyond, including Connecticut, Missouri and Texas, the report indicates. Actions states are likely to take to address budget shortfalls, according to the analysis, include cuts in services such as health and education, tax increases, and cuts in local services or increases in local taxes.
 
Finally and perhaps most disconcerting is the Jan. 22 report from the General Accounting Office (GAO). While the title alone, Growing Fiscal Challenges Will Emerge during the Next 10 Years, is intended to create alarm, the contents are more so. The preface, signed by Comptroller General of the U.S. David Walker, hints of Walker’s growing exasperation and sense of crisis: “Continuing on this unsustainable path will gradually erode, and ultimately damage, our economy, our standard of living, and potentially our domestic tranquility and national security.”
 
The GAO’s model foretells of several severe pressures on state revenues and budgets creating fiscal chaos within the next 5-10 years. Many issues some states have been experiencing for a growing number of years already, including rapidly rising medicare costs, declining revenues based on archaic tax structures, and delayed maintenance for basic infrastructure needs.
 
Other problems are perhaps more subtle and may not have percolated into budget talks on the floors of state assemblies:

What it means for TBED
The GAO points out the U.S. cannot simply grow its way out of the problem economically. "Substantial policy changes would be needed to prevent fiscal decline in the state and local government sectors,” the GAO notes.
 
Troubling, too, for the tech-based economic development, higher education and even K-12 educational communities is that these pressures on state and local budgets are likely to result in significant counterpressures in those areas not directly linked to the problems. That means states will have less funding available for discretionary activities such as TBED, higher education and some K-12 activities. Additionally, there will be increased calls for accountability and impact performance measures.
 
It may make sense for TBED programs to be looking now at strengthening their performance reporting, building constituent support, and broadening revenue streams. Some solutions may require alternative structures (external to state government, for instance) to permit the organizations to accept these revenues, hold equity positions or provide financing, for example. Other approaches could include establishment of endowments through bonds, foundation contributions and one-time appropriations.
 
Currently state, university and local TBED efforts are caught in battles for shares of the decreasing budgets for FY 2009. Evidence is mounting, however, on the need to focus increasingly on long-term financial security to sustain efforts to compete in innovation-based economies.
 
This will be a central topic of discussion at SSTI’s annual conference, Oct 14-16, 2008, in Cleveland. Please reserve space on your calendars now to join us. Registration, which had to be closed prior to the event last year, will again be limited. More information is available at http://www.ssti.org/conference08.htm.

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SSTI Wants to Visit Your City and Bring 400 of Our Closest Friends
This is your opportunity to shine in the spotlight! By hosting SSTI’s 14th Annual Conference in 2010, you can increase your national and international visibility by showcasing the success of your state and/or community’s tech-based economic development efforts to thousands of TBED professionals.

Letters of intent are due next week! You still have time to contact Noelle Sheets, director of membership services, at 614.901.1690 or sheets@ssti.org to request the bid packet.

Some of the host benefits include:

NorTech will host SSTI’s 12th Annual Conference, Transforming Regional Economies. Please plan to join us at the InterContinental Hotel Cleveland! Preconference activities are slated for Tuesday, Oct. 14, 2008, with the main conference continuing through Oct. 15-16, 2008. (Look for an announcement regarding the 2009 conference location soon, too!)

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