In the April 30, 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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 Lawmakers Support Energy, STEM Initiatives in Upcoming Fiscal Year
Legislators in Alaska, Iowa and Oklahoma recently approved funding for several TBED-related initiatives within state operating and capital budgets for the upcoming fiscal year.

Alaska Legislators Create Renewable Energy Fund
The 2008 legislative session wrapped up earlier this month, resulting in statewide support for renewable energy following the passage of the fiscal year 2009 operating (HB 310) and capital budget (SB 221).
 
Lawmakers agreed to Gov. Sarah Palin’s proposal supporting alternative energy projects in the upcoming fiscal year and beyond with the passage of HB 152, which creates a renewable energy grant fund and recommendation program to be administered by the Alaska Energy Authority (AEA) and establishes a seven-member advisory committee.
 
The legislation requires AEA, in consultation with the advisory committee, to identify criteria to evaluate the benefit and feasibility of energy-related projects and develop a methodology for distributing funds. The capital budget agreement includes a "$50 million capitalization of the fund" for the grant program in FY09, AEA notes. AEA will solicit projects for funding and present them to the interim Legislative Budget and Audit Committee, who will make the final funding decisions. In subsequent years, AEA will submit a list of potential projects to the legislature at the beginning of the session and the legislature will have the final decision making authority.
 
Gov. Palin appointed Steve Haagenson last month to serve as Alaska’s new Energy Coordinator and executive director of the AEA, as proposed in her State of the State Address earlier this year (see the Jan. 23, 2008 issue of the Digest).
 
Iowa Budget Supports STEM, Continues Investment in Power Fund
Lawmakers approved Gov. Chet Culver’s proposal to support science, technology, engineering and mathematics (STEM) fields within the state’s higher education system, allocating $4 million for the Mathematics and Science Education Collaborative Initiative.
 
Led by the University of Northern Iowa (UNI) in collaboration with the University of Iowa and Iowa State University, the goals of the initiative are to improve math and science performance of Iowa students, prepare more high quality math and science teachers for Iowa’s schools, and promote statewide collaboration and cooperation. The governor proposed $5 million for STEM support during his Condition of the State Speech earlier this year (see the Jan. 16, 2008 issue of the Digest). UNI outlined several projects underway to support the initiative including:

Approved last year by the General Assembly, the Iowa Power Fund will receive its second installment of $25 million in FY09. The $100 million fund invests in private sector renewable and alternative energy industries (see the May 7, 2007 issue of the Digest).
 
Lawmakers also approved legislation making the use of the Power Fund money more flexible. SF 2422 provides a revolving loan fund and grants for technical review and assistance of proposals for applicants that cannot otherwise pay the associated fees and increases funding that can be used for administrative costs. The legislation also directs $2.5 million to the Department of Economic Development for the workforce training and economic development funds of the states’ community colleges.
 
No Funding Boost for OCAST in FY09
Gov. Brad Henry and legislative leaders announced April 16 a standstill budget agreement (HB 2276) for FY09 that provides level funding for most state agencies – a far cry from the governor’s earlier recommendation that would boost many state agencies’ operating levels, including an additional $12 million for the Oklahoma Center for the Advancement of Science and Technology (OCAST).
 
OCAST will receive $22.45 million in FY09 under the agreement – the same amount appropriated last year. Gov. Henry’s budget recommendation asked lawmakers to provide an additional $6 million to replace one-time funding for the Bioenergy Center and $5 million to replace seed capital funds diverted last year for the center. The executive budget also recommended $1 million to enhance existing OCAST programs (see the Feb. 6, 2008 issue of the Digest).
 
The governor’s proposal to provide a permanent funding source for the EDGE Endowment Fund was amended during the legislative process into a bill dealing with the Quality Jobs tax credits for the owners of an NBA basketball team to relocate to Oklahoma City. No additional money was allocated to EDGE for FY09 or the previous fiscal year.

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Looking at State Equity Intensity Changes Leader Board
SSTI’s VC Dashboard Value Enlarged with Addition of Per Capita Data
The runaway success of California and a few other major venture capital centers in the U.S. has made it difficult to get a firm grasp on the venture capital scene in the rest of the country. In the April 16, 2008 issue of the SSTI Weekly Digest, SSTI looked at the impact of removing California from the data to get a clearer picture of how venture capital investment is distributed throughout the other 49 states. This approach, however, does not make it any easier to evaluate a state's venture activity relative to its actual capacity for investment. Such a study would require reliable metrics on the demand for investment, which we have yet to uncover.
 
In the absence of such metrics, it may help to examine each state's amount of investment and number of deals at the broadest and most general standardization level -- venture capital investment relative to the state’s total population. While total population is no substitute for data on investment capacity, it can provide a thumbnail sketch of how states are performing in light of their size. This approach could also help deconstruct the success of state with larger populations, such as Texas, New York and California. It also may suggest a degree of equity intensity for each state relative to similar sized states and the national average.
 
Equity Intensity Measured by VC Dollars Per Capita
Though Massachusetts perennially places a distant second to California in total venture capital dollars, the state has outperformed California in per capita investment every year since 1995, the year our data set starts. At the height of the tech boom in 2000, Massachusetts was securing $1,631.75 per person in venture capital investment. The state also has maintained the highest number of deals per capita, with 67 deals per 1,000,000 residents last year. Taking population into account, however, moved California to second place in investment. California took in $377.61 per person last year, well over the national average of $100.28. Massachusetts received $540.97.
 
Revealing how skewed the data is toward the states with the greatest intensity, only seven states finished last year with per capita figures higher than the national average: Massachusetts, California, the District of Columbia, Washington, New Hampshire, Colorado and Maryland. Among these leading states, the District of Columbia (DC) and New Hampshire benefited the most from the transition from total dollars invested to per capita dollars. DC ranked 23rd last year in total investment but has risen from a post-tech boom low of $35.13 per capita in 2002 to $226.43 in five years. New Hampshire ranked 21st last year in total dollars, but took fifth place in the per capita rankings. The state has remained among the top states in per capita investment since the tech boom, although it did dip below the national average in 2006.
 
Accounting for population, Texas ranks considerably lower in per capita dollars than in total investment. Last year, the state had the third largest share among states of venture capital dollars, but ranked 18th in per capita investment. Other states with larger populations, like Florida and New York also had poorer showing on the per capita list. Taking population into consideration, however, did little to improve the standing of smaller states with little investment. North Dakota, Wyoming, Arkansas, Alaska and Nebraska occupied the bottom spots on both lists for 2007.
 
Equity Intensity Measured by Number of Deals
The data for deals per one million residents is similar to dollars per capita, with a few exceptions. Vermont consistently ranked much higher based on its annual number of deals vs. its total dollars received. For instance, in 2007, Vermont ranked 32nd in per capita investment but eighth in deals relative to population. This shift reflects the prevalence of much smaller deals in the state compared to the national average deal size. In 2007, Vermont’s average deal was $873,775; for the U.S. as a whole last year, the figure is nearly nine times higher at approximately $8 million.
 
The impact of looking at per capita deals rather than dollars can work in reverse on a state’s performance, as well. In 2007, for example, Kentucky ranked 22nd in per capita investment, but ranked 40th in deals per million residents. Average deal size in the Commonwealth was well over the national average at more than $15 million that year, although that figure was unusually high for the state.
 
SSTI will take a closer look at average deal size and other aspects of venture capital in the coming months.
 
Explore the Dashboard on Your Own
State and national per capita figures are now available on the profile pages of the SSTI Venture Capital Dashboard for all 50 states (plus DC and Puerto Rico). These provide data from 1995 to 2007 on total venture capital investment and deals, as well as national share and now per capita figures for each. Investment information has been derived with permission from the PricewaterhouseCoopers/National Venture Capital Association MoneyTreeTM Report with data from Thomson Financial. The population data has been drawn from the U.S. Census Bureau's Annual Population Estimates.

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Recent Research
Measuring the Effectiveness of State R&D Tax Credits
Two weeks ago, Idaho Gov. C.L. “Butch” Otter vetoed legislation to repeal state R&D income tax credits for Idaho companies. Among his reasons for the veto, Gov. Otter claimed removing the credits would put Idaho at a competitive disadvantage because surrounding states over similar incentives. Was he right?

It is true most states offer R&D tax credits to their corporate residents at this point. Little has been known about the credits’ impacts or effectiveness on recruitment, however. Most of the academic research on the topic has focused on the federal R&D tax credits and competition among nations.
 
On the state level, in theory at least, a rationally acting, research-intensive firm can be expected to select a location within a state that has an R&D tax credit over another state without one – all other things being equal. Note: The italicized phrase is a critical but impossible one that is required for these kinds of conclusive statements. 
 
A recent research paper published in Economic Development Quarterly begins to shed some light on the effectiveness of state R&D tax credit programs for recruitment purposes. In State R&D Tax Credits and High-Technology Establishments, Yonghong Wu from the University of Illinois at Chicago concludes state R&D tax credits have “significant and positive effects” on the number of high tech establishments in a state.
 
Wu’s findings are based on increases in the number of high-tech companies within states, as measured by high-tech companies per capita and high-tech companies as a proportion of total businesses. Wu analyzed panel data for 49 states from 1994 to 2002, during which time 18 states initiated their own R&D tax credit programs. The author also provides an overview of the structure of state R&D tax credit programs, including their history, with Minnesota being the first to implement a program in 1982.
 
State R&D credits are primarily offered against a company’s state corporate income tax liability for R&D expenses performed within the state. Wu’s paper adds to the body of knowledge of tax credit research in that its main focus is state-level R&D tax credits and its central measure of effectiveness is high-tech firm growth, a bit different than gauging R&D spending levels as seen in other research on the topic. To better examine the effects of the state tax credits, the paper’s model accounts for the variation in state tax credit rates, academic and government R&D spending within the state, the percentage of a state’s population with a bachelor’s degree, and national economic factors that affect high-tech companies regardless of the state in which they are located.
 
Estimating the magnitude of impact for state R&D tax credits, Wu reports tax credit programs increase on average 0.07 percent of the total number of business establishments in a state per year and see an increase in the number of high-tech companies by 1.35 to 1.47 percent. On average, the tax credits help to create 101-106 high-tech firms and 2,306-2,422 high-tech jobs. Wu also steps though a sample exercise for the state of Washington for the year 1996, when it is estimated that state’s R&D tax credit program created one high-tech job at the cost of $9,000. If the job exists for 20 years, Wu estimates the present value of state tax revenues from the one position to be $112,000.
 
However, not all state R&D tax programs are created equal. For example, the percent of R&D expenditures eligible for credit varies from state to state. Additionally, some states offer “refundable” credits, set up such that the amount provided to a company utilizing the R&D tax credit may exceed that company’s actual state income tax liability. Some states allow credits to carry forward to future years, while others set percentage caps on the tax liability that can be applied to credits. 
 
Earlier this year, the Iowa Department of Revenue reviewed Iowa’s R&D tax credit program, which included a very detailed examination of the federal R&D tax credit and other state R&D tax credits across the country. The study found 38 states use R&D tax credits of various forms, with the most common credit rate percentage being 5 percent. The department reports the range extends from Michigan’s 1.9 percent rate to Rhode Island’s 22.5 percent. While the report offers no policy recommendations, it provides a structured analysis of Iowa’s R&D tax credit program.
 
Recent analysis by the Iowa Fiscal Partnership, based in part on the Iowa Revenue Department’s report, reveals potential problems with the refundable approach and highlights the fiscal impact of tax credits in general. The partnership is part of the State Fiscal Analysis Initiative, a network of state-level organizations, and the Center on Budget and Policy Priorities.
 
State R&D Tax Credits and High-Technology Establishments can be accessed from the most recent issue of Economic Development Quarterly (by subscription) at: http://edq.sagepub.com/cgi/content/abstract/22/2/136
 
Iowa’s Research Activities Tax Credit: Tax Credits Program Evaluation Study from January 2008 can be found through the Iowa Department of Revenue at: http://www.iowa.gov/tax/taxlaw/IDRTaxCreditEvalJan2008.pdf
 
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Nebraska State Fair Moving to Accommodate University Research Park
Urban universities often have to cope with issues of land scarcity unique to their high density settings. In many cases, it’s because of their own success as an attractive magnet for other activities. The result? Major expansions can take years of negotiation and planning – and top dollar – to accomplish. In addition, tensions with neighbors and community sometimes arise over new development or incompatible land use. Some municipalities may struggle in a love-hate relationship with the colleges, welcoming the above-average wages of academic employment and accompanying economic growth, yet fretting over losing tax base as schools acquire more land.

Rarely does a large piece of land exist in close proximity to an urban university that is both available and affordable – land providing the academic institution and local tech-based economic development programs the room to create opportunities for future research, innovation and science-based growth.
 
Fortunately for the University of Nebraska–Lincoln, one of those large tracts of marginally used land - the state fairgrounds - sits adjacent to and between the school’s two urban campuses. Once the school proposed a multi-use research park for the land, state leaders were eager and willing to help make the transfer a reality.
 
Nebraska Gov. Dave Heineman recently signed a bill which allows the Nebraska State Fair to be relocated by 2010 from Lincoln to the city of Grand Island, about 90 miles west of its current location. The fairground property will be transferred to the University of Nebraska, Board of Regents, which intends to build 1.6 million sq. ft. of research and support space on the space.
 
Uprooting a tradition like the state fair, particularly in areas with strong agricultural heritages like Nebraska may seem like blasphemy, but reflects the realities brought on by decades of development.
 
Just as urban campuses are landlocked, so too are the agricultural research fields and state fairgrounds in several state capitals, making reinvestment and modernization prohibitively expensive. Land swaps or fairground relocation can bring redevelopment and growth opportunities for the universities, the fairs and expositions, and the affected communities.
 
In the Nebraska example, about $42 million in financing will be used to upgrade a site in Grand Island for future Nebraska State Fairs, with $21.5 million coming from the University of Nebraska, $8.5 million from the city of Grand Island, $5 million from the state’s cash reserve fund, and no more than $7 million from the Nebraska State Fair Board. The bill also instructs university officials to outline a master plan and a business plan for the development of the research park, which is modeled after the Centennial Campus at the University of North Carolina.
 
The final copy of the bill, as passed by Nebraska’s unicameral legislature, can be found at: http://uniweb.legislature.ne.gov/FloorDocs/Current/PDF/Final/LB1116.pdf
 
While no timeline has been set for the completed construction of the Nebraska Innovation Park, initial concept plans of the layout can be seen at: http://www.unl.edu/ucomm/chancllr/nipark/
 
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When Should a State Take Equity in Life Science Firms? Issue Debated in Massachusetts
As Massachusetts legislators are in the process of crafting a compromise bill for the statewide Life Sciences Initiative, one new issue to emerge would have the state taking an equity position in the life sciences companies in which the state provides financial support.

Insuring the state receives the economic development impacts promised by a company when the state provides financial support is not particularly new. Clawbacks for deals that leave state or fail to live up to employment promises are being demanded by states and communities with increasing frequency on conventional recruitment economic development projects.
 
The House version of the bill – H. 4554 – includes an “Equity investment” clause in which the state receives no less than 3 percent of the equity in a company that received state grants. The equity clause calls for a future quasi-public agency to become an equity partner in a biotech firm if state funds are used, and it only applies to firms that fail to secure venture or angel investor capital, according to a Boston Herald article. However, S. 2566, the Senate version of the bill that passed last month, does not include the clause.
 
Backers of the House version said in the Boston Herald article that it is not unusual for universities to negotiate similar deals with start-up companies that have potential for large returns within emerging fields. The article also notes that the Massachusetts Technology Development Corporation, a quasi-public agency, cuts similar equity deals. The approach is not uncommon for most public angel or venture capital-like programs, but the Massachusetts proposal for life science firms adds a caveat that effects only those deals unattractive to private equity sources.
 
For more information on the Life Sciences Initiative, including a comparative analysis of the House and Senate bill versions, please visit the Massachusetts Biotechnology Council at: http://www.massbio.org/

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Countdown Begins: Only Two Weeks Left to Apply for the 2008 Excellence in TBED Awards
With just about two weeks left to apply for the 2008 Excellence in TBED Awards, applications are already coming in, and while there is no prize for early birds, we’ll gladly accept your entry at any time. No need to worry though; there is no penalty for procrastinators, other than the risk of a too hastily prepared proposal.
 
New to this year’s application brochure is a one-page set of application guidelines that was developed from the suggestions submitted by judges on last year’s award committees. This resource serves as a useful tool when crafting your narrative. Be sure to check it out at http://www.ssti.org/awards.htm.
 
The deadline to apply is May 16, 2008.
 
To learn more about last year’s winners, please visit: http://www.ssti.org/Awards/07winners.htm

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SSTI Introduces Team Pricing for Its Annual Conference, Oct. 14-16, 2008
Excitement already is building for SSTI's 12th annual conference, Encouraging Regional Innovation, and we only published the "save the date" postcards last week! Past participants know SSTI's annual conference is the only event of the year to bring together so many thought leaders and practitioners from all aspects of TBED from every corner of the country and every type of organization, with such varied angles and perspectives on every issue. The Oct. 14-16 event at the Intercontinental Hotel in Cleveland promises to help professionally advance the tech-based economic development community through a series of fully interactive plenary sessions and discussion based breakouts. 

To help our members get the most of the premiere conference of the year, SSTI is making available for the first time team pricing for members' registration to the full conference. This special offer provides significant discounts to our member organizations for multiple-staff registrations to the conference. The first registration is the regular price – already discounted $100 from non-member prices. Each additional employee of the member organization registering at the same time will receive $70 off their registration fee! With so much content to absorb, having an extra pair of ears around is not a bad idea. And with this year's pricing structure, can you afford not to bring more of your team to SSTI's annual conference? To register, please click here for a PDF that you can print and fax/mail for as many members as are attending, or call Noelle Sheets, SSTI's director of member services, at 614.901.1690.

What? Your organization isn't already a member of SSTI? How embarassing! But no worries! It's a problem that can be fixed immediately! Member discounts can begin with receipt of your paid membership application, which is available at: https://www.ssti.org/membership.htm

Please note: The team pricing discount is only available to member organization employees, not their grantees or contractors. Board members of member organization and state legislators may still take advantage of the $100 member discount.

Keep checking SSTI's 12th conference website, www.ssticonference.org, for program updates!

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SSTI Job Corner
A complete description of this opportunity is available at http://www.ssti.org/posting.htm.

Ben Franklin Technology Partners of Southeastern Pennsylvania, a nonprofit economic development organization created to stimulate economic growth through technological innovation, is seeking a vice president to lead its Technology Commercialization group in the Physical Sciences. This position will be responsible for developing strategic and operational plans and cultivating regional partnerships and initiatives with key personnel at universities, companies, government and private research institutions, and other key institutions. A Bachelor of Science degree in engineering or science related to the physical sciences is required. Candidates also should have at least 10 years of private sector experience in a related field.

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