In the November 4, 2009 Issue:

• Election Results: Texas Prop 4 Commits $500 Million toward University Research
• Angel Investors Supported Smaller Deals in the First Half of 2009
• FY10 Budget Leads to Significant Cuts for PA Economic Development Efforts
• Michigan Budget Reflects Deep Cuts; Funding for Workforce, Community Colleges Preserved
• China Injects $1.31 Billion toward High-Tech VC Funds, NASDAQ-Like Stock Exchange
• 2009 Election Results: Are Changes in Store for TBED in NJ, VA?
• Useful Stats: Department of Energy R&D Obligations per State FY2002-2006
• SSTI Job Corner

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Election Results
Texas Prop 4 Commits $500 Million toward University Research
Texas leaders have fully embraced the importance that strongly supported top-tier research universities can serve for attracting and retaining high-wage technology companies and as drivers for future economic growth. With Tuesday’s passage of Proposition 4 by a solid 56.7 percent majority, it is evident the voting population of the Lone Star State gets it as well.

Proposition 4 is a constitutional amendment establishing a national research university fund to help emerging research universities in Texas striving to achieve national prominence as major research universities. The pool of money, to be capitalized initially by an existing $500 million higher education fund, is to be “a dedicated, independent, and equitable source of funding” that is distributed by a yet-to-be-determined formula established by the legislature or an agency designated by the legislature. That said, the University of Texas at Austin and Texas A&M University, already tier one research institutions, are not eligible to receive any of the funds. The goal is to raise one or more of seven public universities to the same status: Texas Tech University; University of Texas at Arlington; University of Texas at Dallas; University of Texas at El Paso; University of Texas at San Antonio; University of Houston; and the University of North Texas.

Among major proponents for the proposition was Texans for Tier One, which was co-chaired by former Texas Lieutenant Governor and former University of Houston System Chancellor Bill Hobby as well as University of Texas System Board of Regents Chairman James Huffines. The group funded an economic analysis, Texas as a “State of Minds,” which argued that adding only two more Tier One universities to the state’s economy by 2035 would have a cumulative impact by that time of “$161.1 billion in total spending each year, $81.8 billion in annual output, and 344,393 permanent jobs. The State government would gain more than $4.2 billion in annual fiscal revenues, with local tax authorities seeing benefits of about $1.3 billion per annum.”

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Angel Investors Supported Smaller Deals in the First Half of 2009
Angel investors are reducing the average size of their investments, according to the latest report from the University of New Hampshire Center for Venture Research. In the first half of this year, total angel investment dollars fell by 27 percent from the same period in 2008, but the number of angel deals increased by six percent. As a result, the average deal size has fallen by 31 percent since early 2008.

The report attributes the change to lower company valuations and to angel investors taking a more cautious approach to investing without decreasing their level of activity. Investors have also begun shifting their focus away from seed- and startup-stage firms in order to support their portfolio companies and reduce their risk.

The trend toward smaller deals began in the second half of 2008, when private equity markets were affected by the global economic crisis. Total angel investment dollars fell by 26 percent last year, while the number of deals fell by only three percent. Though the crisis has constricted capital markets, the number of angel investors has remained steady since 2007. Angels have adjusted their investment strategy by investing fewer dollars rather than decreasing their participation in the market.

Part of this adjustment has been investing more in portfolio companies. First-sequence investment by angels has fallen from 65 percent to 58 percent of angel activity over the past year. While an increase in the number of deals usually would be an encouraging trend for startup entrepreneurs, the declining amount of angel dollars and first-sequence investments suggest that it may be more difficult to secure angel capital now than it has been in recent years.

Seed- and early-stage deals made up only 27 percent of angel investment in the first half of the year, its lowest point in several years. While expansion-stage investment remained unchanged, post-seed- and startup-stage investment rose to 58 percent of angel activity. Though angel capital still has a reputation for a focus on early-stage investments, later-stage deals have represented a majority of angel activity since 2008.

Healthcare has expanded its lead as the most popular sector for angel investment with 28 percent of all angel deals, according to the report. Software, once the leading angel recipient, represented only 14 percent of investment. The industrial/energy sector grew to 13 percent of deals, up from 10 in the first half of 2008, which the report attributes to a continued interest in green technologies.

Read the full report from the University of New Hampshire Center for Venture Research at: http://wsbe.unh.edu/files/Q1Q2_2009_Analysis_Report.pdf.

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FY10 Budget Leads to Significant Cuts for PA Economic Development Efforts
The first third of the current fiscal year was over before Pennsylvania leaders could agree on a $27.8 billion FY10 budget that sharply reduces spending across many areas of community and economic development. It does boost funding for basic education to historic levels, however.

State spending in FY10 is $1.9 billion lower than in FY09 and $524 million less when federal stimulus dollars are taken into account, according to the governor’s press office. In addition to spending cuts across most agencies, the state will raise cigarette taxes by 25 cents per pack and institute a new tax on small cigars.

Funding is reduced for several programs within the Pennsylvania Department of Community and Economic Development (DCED), including funding for one of the nation’s largest state technology development programs, the Ben Franklin Technology Development Authority (BFTDA). The BFTDA will receive $20 million in FY10, down from $50.7 million. The BFTDA approved $16 million to be allocated equally this year among the four regional Ben Franklin Technology Partners - regional centers that provide seed capital and business assistance for early-stage and established companies in high-growth areas. Last year, the Partners received $27.6 million.

The Keystone Innovation Zone program, which promotes community and university partnerships to generate job growth through technology transfer and entrepreneurship, will continue to be funded under the BFTDA, and $1.5 million was approved by the BFTDA for university research grant funding to encourage and enable technology transfer. Additional DCED appropriations include:

• $20 million ($20 million decrease) for R&D tax credits, which assist the growth and development of technology-oriented businesses, particularly small start-up technology businesses by offsetting state tax liabilities;
• $18.3 million ($5 million increase) for the Opportunity Grant Program, which provides grants to create or preserve jobs in areas including manufacturing and R&D;
• $7.65 million ($6.45 million decrease) for Industrial Resource Centers, which help small- and medium-sized manufacturing enterprises remain competitive; and,
• PennTAP, which received $65,000 last year to provide technical and workforce solutions for Pennsylvania businesses, was zeroed out in this year’s budget cycle.

Spending for basic education will increase by $300 million in FY10, the largest increase in Pennsylvania history, according to a press release issued by the Pennsylvania Department of Education. To restore funding to public institutions of higher education, the enacted budget also includes $93 million from the State Fiscal Stabilization Fund, press materials note.

Level funding of $13.6 million is included for Science: It’s Elementary, a hands-on, inquiry based teaching program for science teachers in elementary schools.

No additional state funding was allocated for the state’s Classrooms for the Future Program, which received $44.7 million last year. The program was launched in 2006 as a three-year initiative designed to engage high-school students in learning through the use of laptops and instructional technology. The Department of Education reports that despite the loss in state funding, $25 million in federal stimulus funds is available to school districts seeking to provide students with laptops, help teachers use new technology to improve classroom instruction and make other technology upgrades.

The FY 2009-10 enacted budget, HB 1416, is available at: http://www.legis.state.pa.us/.

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Michigan Budget Reflects Deep Cuts; Funding for Workforce, Community Colleges Preserved
Gov. Jennifer Granholm signed the final FY10 budget bills last week, cutting nearly $1.9 billion in spending and warning state agencies of a possible 20 percent cut in state spending next year. To help fill the FY10 deficit, the enacted budget incorporates $1 billion in federal stimulus funds. With less than $600 million in federal funds available next year, the state could face a shortfall ranging from $800 million to $1 billion, reports The Detroit News.

The Michigan Strategic Fund, administered by the Michigan Economic Development Corporation, will receive $114.6 million in FY10, down from $152.6 million approved last year. This includes $28.5 million for the 21st Century Jobs Fund, a sharp decrease from last year’s appropriation of $65 million. The fund supports job creation in emerging fields such as renewable energy, life sciences, homeland security, and advanced manufacturing by investing in basic research at universities and providing access to capital. The business incubator program is funded at $1.3 million, a $50,000 boost over last year.

For the No Worker Left Behind Initiative, a workforce training program that provides financial assistance for training in high-demand fields, a total of $124.2 million is appropriated. Most of the funding for the program, which is now in its second year, comes from federal sources. State funding for the program was cut $2.7 million this year, reports The Detroit News. Last year, lawmakers approved $15 million for the initiative, which was later cut in half by executive order.

Michigan State University (MSU) announced a restructuring plan for the MSU Extension and Agricultural Experiment station that focuses on green economy initiatives, following an agreement made with Gov. Granholm to preserve funding for the programs. MSU Extension will assist in developing community-based wind and solar energy projects and support the growth of biomass-based companies. The FY10 enacted budget includes $34.2 million for the Agricultural Experiment Station and $29.5 million for the Cooperative Extension Service.

Higher education spending is reduced by $150 million in FY10 with funding for the state’s Promise grant scholarships eliminated. Beginning with the graduating class of 2007, the scholarships provided up to $4,000 to high school graduates for successfully completing two years of postsecondary education. Community colleges, on the other hand, are spared from any cuts in recognition of their role in training workers for the new economy, reports The Detroit News. Community colleges will receive $299.4 million in FY10, the same amount as last year.

The corresponding budget bills for General Government (SB 245), Energy, Labor & Economic Growth (SB 243), and Higher Education (HB 4441) are available at: www.legislature.mi.gov.

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China Injects $1.31 Billion toward High-Tech VC Funds, NASDAQ-Like Stock Exchange
The Chinese government announced last Friday the launch of 20 venture capital funds, designed to target investments in high-tech sectors within their national economy. As outlined by China's National Development and Reform Commission (NDRC), these sectors include the medical and pharmaceutical industries, information technology, energy conservation and environmental protection, and energy production.

The initial capitalization of the 20 funds comes to $1.31 billion, with three-fourths of the total provided by private investment. The remaining one-fourth originates from a split between the Chinese central government and seven provincial governments (Beijing, Jilin, Shanghai, Anhui, Hunan, Chongqing, and Shenzhen). The funds will be managed by professional investment firms independent from the national or provincial governments, according to the NDRC.

Also last Friday, trading commenced on ChiNext, a new Chinese stock exchange modeled on the NASDAQ and its large share of technology companies. Based in Shenzhen and also known as the Growth Enterprise Market (GEM), the ChiNext initially contains 28 companies, including software developers, drug makers, and film companies. Shares can be purchased by mainland Chinese only and a limited selection of foreign institutions, according to the New York Times.

Yesterday, the World Bank announced its readjusted forecasts for China, estimating the Chinese economy will grow by 8.4 percent in 2009 and 8.7 percent in 2010. The Bank's assessment found China's $580 billion stimulus package (see the Feb. 11, 2009 issue of the Digest) has pushed this growth, with most funds going towards infrastructure-oriented government-led investment.

The New York Times featured the ChiNext's opening in its DealBook section, which can be found at: http://dealbook.blogs.nytimes.com/2009/10/30/china-opens-nasdaq-like-exchange-in-shenzhen/.

The World Bank's latest China Quarterly Update is available at: http://www.worldbank.org/china.

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Election Results
2009 Are Changes in Store for TBED in NJ, VA?
Tuesday’s Republican victories in the gubernatorial races for New Jersey and Virginia mean a shift in political power for both states. With current fiscal conditions continuing to press state revenues lower and unemployment rolls higher, much of the new governors’ attentions could pass over tech-based economic development policies. Alternately, increased investments in TBED may be exactly what are needed right now to help create high-wage jobs in both states.

A look at the posted campaign platforms for the two successful gubernatorial candidates suggests changes are afoot in both states, if actions follow the campaign rhetoric when they take office in January. Highlights for both states follow (energy-related policies will be covered in next week’s Digest).

Virginia
The website for the campaign of Bob McDonnell, a 55- year-old former state attorney general, states the governor-elect will focus heavily on traditional business recruitment/retention strategies, regionalization of job training and university research investments, and increasing higher education graduation rates.

McDonnell promises to appoint the new Lieutenant Governor as the state’s Chief Job Creation Officer, overseeing all economic development programs in the state, and to create the new position of Deputy Secretary for Commerce, who will concentrate on business recruitment in rural Virginia.

The campaign proposed doubling the state’s business inducement account, the Governor’s Opportunity Fund, to $20 million annually. The new administration also plans to re-evaluate the state’s current portfolio of tax credits and bond funding programs to determine those offering the best return on investment for the state. It will assess “whether it makes sense to have so many different incentive grants and whether we should streamline the process and consolidate these various grant programs.”

McDonnell wants to broaden the purpose of the Governor’s Opportunity Fund so it can support expansion of existing firms’ operations in the commonwealth to “allow companies that generate significant additional state and local tax revenue to qualify” even if there is not significant job creation or capital investment associated with the project. Local matching requirements also would be lowered for large projects or strategically located deals.

To reward job creation across the state, regardless of wage level or type, the threshold for the state’s $1,000 job creation tax credit would be cut in half temporarily for most of the state, to 50 new jobs instead of 100, and to only 25 jobs in economically distressed areas.

The governor-elect proposes integrating job training, economic development and advanced research funding based on intergovernmental regional strategic plans developed through public-private partnerships and new performance metrics. “It will allow us to better align university-based research and development activities with the regional potential for private sector investment and commercialization,” the website explains.

His website indicates strong support of university research. “Research and development, especially commercially viable research, is a crucial part of this initiative because it produces an especially large return on the state’s investment.” Singled out is the Commonwealth Research Initiative, a state fund that supported university-research. McDonnell would like to develop sustained support for the initiative, which has been defunded for several years, but added that it needs to include “innovative incentives for commercially viable R&D activities on a regional basis.”

Continuing on the higher education front, critical for an innovation economy, McDonnell promises to award 100,000 additional two-year and four-year degrees over the next 15 years (Virginia governors are limited to a single four-year term, it should be noted). His ultimate goal is to put the state “on track to have 55 percent of Virginians between ages 25 and 64 with college degrees.” To do this, the governor wants to institutionalize increased state support for higher education. “Higher education ought to be among our top priorities for investment,” McDonnell is quoted as saying on the campaign website.

The governor-elect also would like to increase the number of students graduating with degrees in high-demand, high-income fields such as science, technology, engineering and math.  Proposals suggested include tying state support and incentives to progress in STEM graduation rates, encouraging more K-12 students to take STEM-related studies, and recruiting and supporting more STEM educators.

More on the McDonnell campaign platform is available at: http://www.bobmcdonnell.com.

New Jersey
Chris Christie, a 47-year-old former federal prosecutor, proposes to rely predominantly on broad tax reductions – from across-the-board cuts to the income tax and corporate business tax rates to eliminating the investment taxes on NJ-based companies. He also would like to consolidate all state economic development activities into a new public-private agency called the New Jersey Partnership for Action “utilizing the resources of the current Economic Development Authority” and chaired by the Lieutenant Governor.

TBED keywords such as innovation, commercialization, research, and entrepreneurship, are not evident in the governor-elect’s campaign issues. Nor are many specific ideas, perhaps reflecting the tight fiscal constraints under which his administration will assume office. The only specific proposal to encourage economic development within the state’s urban areas is a proposal for Garden State Growth Zones, which would serve as “super zones” consolidating all the existing economic zones, incentives and loan/grant programs into one program.

For higher education, Christie plans to have the Executive Director of the New Jersey Commission on Higher Education to serve as his education advisor and to have a seat at all Cabinet meetings. Two college presidents would serve on the New Jersey Partnership for Action. He also would like to establish an outstanding scholars program to keep high-achieving NJ high school graduates in state at public and private institutions of higher education.

More information on the Christie campaign platform is available at: http://christiefornj.com.

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Useful Stats
Department of Energy R&D Obligations per State FY2002-2006
Marking the first decline in a decade and despite a then-healthy economy, federal R&D for the Department of Energy (DOE) declined from FY05 to FY06. The percentage of total federal R&D obligations dedicated to DOE R&D also declined from FY05 to FY06.

SSTI has prepared a table displaying the amount of R&D obligations associated with the DOE for each state from FY02 to FY06, the five most recent fiscal years for which data is available. The table also shows the percentage of each state's total federal R&D obligations that come from DOE for each of the five fiscal years. This statistic shows the critical importance of energy research for some states, or for states with large amounts of federal R&D coming in, the degree of diversification in the state's R&D portfolio.

U.S. DOE R&D obligations were $7.56 billion in FY06, which represented 7.0 percent of all federal R&D. Only 12 states bested this percentage, showing the highly concentrated nature of DOE R&D spending. Idaho led the states with $203 million in DOE R&D obligations in FY06, representing 68.4 percent of the state’s total R&D dollars from the federal government. Nevada received 64.4 percent of their federal funding from the DOE, followed by New Mexico (58.1%), Tennessee (34.9%), and Illinois (30.6%). In FY06, 29 states received less than 2 percent of their total federal R&D obligations from the DOE, illustrating the sharp differences between the states.

With Sandia and Los Alamos national laboratories, New Mexico led the country with $1.80 billion from the DOE in FY06, just under one-quarter of all DOE R&D obligations. This was followed by California with $1.55 billion, New York with $710 million, Tennessee at $508 million, and Illinois at $405 million. These five states alone captured two-thirds of all FY06 DOE R&D obligations.

In interpreting the data, states should note that all federally funded energy research does not originate from the Department of Energy. Through the 2009 Recovery Act and subsequent federal budgets, various sources within the federal government can be used to complement strategic investments in energy-related technologies.

The National Science Foundation, the source of this data, defines obligations as “the amounts for orders placed, contracts awarded, services received, and similar transactions during a given period, regardless of when the funds were appropriated and when future payment of money is required. Obligations differ from expenditures in that funds allocated by federal agencies during one fiscal year may be spent by the recipient institution either partially or entirely during one or more subsequent years.“

SSTI's table is available at: http://www.ssti.org/Digest/Tables/110409t.htm.

The original data for each state, including the R&D breakouts for every agency in addition to the DOE, can be found at the NSF's Federal Funds for Research and Development series. They can be accessed at: http://www.nsf.gov/statistics/fedfunds/.

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SSTI Job Corner
Complete descriptions of this opportunity and others are available at http://www.ssti.org/posting.htm.

The Software and Information Technology Association of Kansas (SITAKS), a state-wide trade association dedicated to strengthening and expanding Kansas’ software and IT sector, is recruiting for a President/CEO to provide overall leadership and management for the daily operation of SITAKS to insure its viability, growth and adherence to its vision, mission and strategic plan. This position is responsible for the organization’s administration, marketing, financial management, community relations, program development/execution, fundraising and strategic direction.

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