In addition, the proposal advanced by Gov. Sebelius eliminates or cuts funding in most other tech-based economic development initiatives funded by the state. Gov. Sebelius unveiled last week her FY10 budget recommendations and revised budget for FY09 based on the most recent revenue estimates that report a gap of more than $900 million. Citing a goal of reducing overhead expenses, the governor recommends eliminating KTEC and Kansas, Inc. as separate agencies and moving select KTEC business development programs to DOC.

For FY10, the governor recommends $25.9 million for the DOC from the Economic Development Initiatives Fund (EDIF), which includes $7.5 million for KTEC programs. This is a reduction of $4.5 million approved for KTEC in FY09. No funding (a reduction of $415,363 approved last year) is included for Kansas, Inc., which conducts economic development policy research and strategic planning for the state.

Under the governor’s proposal, the DOC would administer some of KTEC’s grant programs including the EPSCoR program, the Mid-America Manufacturing Technology Center, and the Strategic Technology and Research Fund, which provides matching dollars for programs aimed at funding basic science research in science and engineering at state universities. Budget documents note that the DOC also would provide operational support for seven business assistance incubators and five university-based Centers of Excellence. Additionally, KTEC’s board of directors would continue to function as part of the DOC to make recommendations on grant awards.

However, with key support services to high-tech entrepreneurs suspended under the proposal, KTEC argues that the governor’s recommendation does not fold KTEC into the DOC, rather it eliminates main sources of support for the state’s innovation economy.

“By eliminating the key, nationally recognized programs, Kansas will lose the tremendous momentum and reputation the state has earned for being technology friendly as well as the traction required to build a dynamic new economy,” said Tracy Taylor, KTEC CEO, in a press release. This includes elimination or defunding for the following programs:

• Direct equity investment in promising technology companies;
• KTEC Pipeline, an entrepreneurial fellowship program;
• Management and facilitation of the Kansas Angel Tax Credit Program and the Angel Networks across the state;
• Proof of concept funding; and
• All KTEC staff expertise.

Recommendations involving the EDIF include $4.9 million for Wichita State University aviation research and $2.5 million for aviation classroom training equipment for a total $7.4 million (down from $7.5 million approved in FY09). This funding would build on previous state investments to help ensure aviation infrastructure and secure additional federal resources, according to the governor’s office (see the May 21, 2008 issue of the Digest).

For the purpose of providing economic benefits to a wind energy manufacturer for job growth opportunities in the state, the governor proposes an additional $2 million transfer from the EDIF to the Kansas Economic Opportunities Initiatives Fund.

Within the Board of Regents budget, the governor recommends $180,500 for a Technology Innovation and Internship grant for community colleges and technical schools that requires a one-to-one match by the receiving institution. The grant allows instructors to intern for private industry and provides funding for innovative equipment for students. However, funding for the Kansas Academy for Mathematics and Science would be eliminated in FY09 and FY10 under the governor’s proposal. This two-year residential program for high school students earning college credits was established by the legislature in 2006 with a planning grant of $295,000 approved in FY09.

Gov. Kathleen Sebelius’ FY10 budget recommendation is available at: http://budget.ks.gov/gbr.htm.

Useful Stats
U.S. Industrial R&D Performed per State by Company Size: 2004
Successful small technology businesses serve as integral components of a robust innovation-based economy. The novel products and services brought to market are often the result of these companies’ R&D efforts. As a result, nearly every state has programs and policies in place to support the growth of small tech firms.

The importance of these small tech firms to state industrial R&D portfolios varies significantly across states, as measured by percentage of research expenditures conducted by firms with fewer than 500 employees, the Small Business Administration’s general definition of a small technology business. Because of this variance, states may wish to review or adapt their TBED strategies.

For instance, if the percentage of industrial R&D performed by small businesses is low, a state may wish to implement strategies that encourage more research investment, perhaps in partnership with their research universities and larger industrial firms. A high percentage of total R&D conducted by small firms in a given state, on the other hand, may warrant more aggressive policies and programs that strive to ensure the localized commercial development of technologies resulting from small businesses’ R&D investment.

SSTI has prepared a chart showing the percentage of industrial R&D performed by selected small business size ranges for each state and the U.S., using the National Science Foundation’s 2004 Survey of Industrial R&D (latest year available).

For the U.S. as a whole, $208.3 billion of industrial R&D was performed in 2004. Businesses with fewer than 500 employees conducted 18.3 percent of the national total. The variance among the states however, is quite large. Michigan, with the research dominance of the Big Three automotive giants, has the lowest small business R&D figure at 6.4 percent. Small companies in Alaska, Hawaii and Montana, on the other hand, account for at least 60 percent of their respective state’s industrial R&D performance. [It is important to note, industrial R&D expenditures in these three states is less than 1 percent of the total industrial R&D expenditures that occurred in Michigan that year.]

Further delineation of the small business employment cohorts may be even more helpful in understanding research activity in the small business community’s R&D activities within a state. SSTI’s chart presents the percentages of R&D performed by companies ranging between 5-24, 25-49, 50-99, 100-249, and 250-499 employees.

Companies with fewer than 25 employees (note that businesses with fewer than five employees were excluded from the NSF survey) performed only 3.0 percent of the total industrial R&D in 2004. The states with the largest percentage of industrial research performed by these smaller companies were Alaska at 37.1 percent, Wyoming at 26.1 percent, Hawaii at 17.6 percent, Louisiana at 16.4 percent, and Montana at 14.3 percent. [Note: figures at this level for the states of Rhode Island, Vermont, and Washington were suppressed.]

Alternately, the 5-24 employee cohort performed 1.3 percent of Michigan’s total industrial R&D, 2.5 percent in California, 2.6 percent in Massachusetts, 3.6 percent in Texas and 4.8 percent in New Jersey.

SSTI’s table can be found at: http://www.ssti.org/Digest/Tables/012109t.htm.

The National Science Foundation’s Research and Development in Industry: 2004 can be accessed at: http://www.nsf.gov/statistics/nsf09301/.

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