In This Week's Issue
SSTI News and Analysis
AZ, OH and WI Govs Move to Privatize State Economic
Development
Facing massive government deficits and stagnant regional
economies, many states are exploring new options for their economic
development activities. Three states recently have taken steps
towards eliminating their primary economic development agencies,
and replacing them with public-private partnerships, intended to
reduce state spending and improve the responsiveness of state
efforts.
Arizona
Last week, Arizona Governor Jan Brewer signed off on a
comprehensive economic competitiveness package. The centerpiece of
the legislation is the elimination of the Arizona Department of
Commerce, and the creation of a new Arizona Commerce Authority
(ACA). Brewer says that the restructuring is needed to
streamline the responsibilities that had been accumulated by the
Commerce Department and to clarify the state's
focus on creating new jobs. Many of the programs currently
associated with the department may be permanently eliminated,
including the state's energy efficiency and
renewable energy deployment office, the Rural Economic Development
Initiative (REDI) program, the Arizona Main Street
program and many of the state's technology
programs.
The new organization will have a board comprised of both
business leaders and state officials. ACA would focus on attracting
corporate investment in Arizona and oversee an annual $25 million
deal-closing fund to encourage business expansion and relocation.
The fund will use clawbacks and third-party performance evaluations
to ensure that recipient companies meet their obligations and that
the funds are invested properly.
ACA also would help to target the use of
Arizona's angel investment tax credit. The
credit, which was set to expire at the end of FY11, was extended
through FY16 in the competitiveness package. Under the new
legislation, the asset cap for small businesses to qualify under
the program has been raised from $2 million to $10 million. ACA
would be charged with determining eligible industry sectors. In
addition, the package exempts investment in qualifying small
businesses from capital gains tax.
The Arizona bill includes a 10 percent increase in the
state's Research and Development (R&D) tax
credit, as well as a number of other tax breaks for businesses.
Arizona's R&D credit focuses specifically
qualified expenses related to university research. The credit would
be subject to a an aggregate cap of 10 percent per year.
Read the governor's press release at:
http://www.azgovernor.gov/dms/upload/PR_021711_BrewerSignsLandmarkEconomicLegislation.pdf.
A more complete summary of the bill is available at: http://www.azleg.gov/legtext/50leg/2s/fiscal/sb1001.doc.pdf.
Ohio
Ohio Governor John Kasich signed his own economic development
privatization bill last week. JobsOhio, a new nonprofit corporation
would assume the the business-incentive and job-creating functions of the Ohio Department of Development. A board of
governor-appointed business leaders will direct the new
organization, with $1 million to cover startup costs. Additional
funding decisions will be made within the next six months.
Sequoia Capital's Mark Kvamme was appointed
head of the new corporation, though that appointment is currently
in dispute. Both Kvamme and Governor Kasich have
stressed that JobsOhio will raise significant private support, and
may eventually become self-sustaining.
Read the bill and analysis at: http://www.legislature.state.oh.us/bills.cfm?ID=129_HB_1.
Wisconsin
Wisconsin Governor Scott Walker has signed similar legislation
to replace the Wisconsin Department of Commerce with a new
Wisconsin Economic Development Corporation (WEDC). The new
public-private partnership would, again, focus exclusively on job
creation. Other Commerce Department responsibilities will be
redistributed among other state agencies. The
reorganization would take place after July 2011. The WEDC board,
appointed by the governor, would develop and implement economic
programs to provide business support, expertise and financial
assistance to companies.
Though the legislation provides a charge to assist new startups
and to help existing companies to expand, it is unclear whether the
Department's Technology Commercialization
programs would remain at WEDC.
Read the bill at: http://www.mmaction.org/wp-content/uploads/2010/10/JR1SB-6.pdf/a>.
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Tech Talkin' Govs, Part VI
The sixth installment of SSTI's Tech Talkin' Govs series
includes excerpts from speeches delivered in Connecticut, Illinois,
New Hampshire, New Jersey and North Carolina. The first five
installments are available in the Jan.
5, Jan.
12, Jan.
19, Jan.
26 and Feb.
9 issues of the Digest.
Connecticut
Gov. Dan Malloy, Budget
Address, Feb. 16, 2011
“We are combining our economic development
efforts under one agency so we can have a single powerful voice
when it comes to attracting, retaining, and growing jobs in
Connecticut...like our new First Five initiative
that will offer powerful incentives to the first five companies
that bring hundreds of new jobs to Connecticut.
“This program takes our best job creation
tools, like the Reinvestment Tax Credit, the Manufacturing
Assistance Act and the Job Creation Tax Credit, and allows them to
be combined and the benefits increased for companies that bring
more than 200 new jobs to the state.”
Illinois
Gov. Pat Quinn,
Budget Address, Feb. 16, 2011
“We must support a vibrant entrepreneurial
culture that capitalizes on Illinois' strengths:
our strong work ethic, our history of innovation, and our
world-class universities and research institutions
— including Argonne and Fermi Lab.
“Today, I am announcing the formation of the
Illinois Innovation Council.
“Convening the best minds in business,
academia, and research and development, this group will identify
strategies our state should pursue to foster innovation and
economic growth. ...
“... By harnessing our resources and
coordinating our efforts, by putting scientists and inventors in
touch with businesses and investors, we will create the jobs of
today and tomorrow right here in Illinois.”
New Hampshire
Gov. John Lynch,
Budget Address, Feb. 15, 2011
“Our University and Community College systems
are tremendous resources to our state, and our worthy of our
investments. ...They provide research that helps
businesses grow and create new jobs. They are engines of our
economic future. The restructuring of Unique and the Post-Secondary
Education Commission will allow us to fund the community college
and university systems at 95 percent of their current levels.
“The Community College System will also
receive an additional $2 million a year to create an advanced
composite manufacturing program, which will help make possible the
expansion of Albany International in New Hampshire and attract
additional businesses in this growing field.”
New Jersey
Gov. Chris Christie,
Budget Address, Feb. 22, 2011
“The budget includes $200 million in tax
reductions. ... The package I am proposing will provide almost $2.5
billion in job-creating tax relief and incentives over the next
five years. ...
“We will double our state
research and development tax credit to encourage high tech and
bio-tech entrepreneurs to create their next great discovery, and
the jobs that go with it, right here in New Jersey. ...
“... We will cut the minimum S-corporation
business tax by 25%. Again, this will make us more competitive in
the region and encourage small businesses and entrepreneurs; and we
will exempt from the sales and use tax installation and support of
electronically delivered business software. Taxing such software is
a burden on high tech innovation. ...
“... I propose to keep funding steady for
higher education. After several years of cuts to operating support
to colleges and universities, there will be no further reductions
in this year's budget.”
North Carolina
Gov. Bev Perdue,
State of the State Address, Feb. 14, 2011
“And my job creation package will be more
robust than ever before - investing in incentives to support small
businesses and green companies. ...
“... Tonight I am following through with a
promise I made to North Carolina more than two years ago: a College
Promise. Except tonight I am rebranding it as North Carolina's
Career and College Promise.
“By consolidating existing programs and
nurturing partnerships between high schools and our community
college system, career training and a college degree will be more
affordable to our students than ever before.
“In the budget I will submit to you, any high
school junior who signs up at school for the Career and College
Promise - who meets certain criteria while maintaining high
academic standards will be eligible to earn a two-year college
degree at no cost. These students will be the
workers who fill our 21st century industries and
workplaces.”
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Oregon Budget Would Boost Funds for Innovation Efforts by
19%
Gov. John Kitzhaber recently unveiled a two-year spending plan
that includes an additional $3 million for the Oregon Innovation
Council's (Oregon InC) efforts to facilitate
research and technology transfer. The governor's
budget also recommends enhancements to the Strategic Reserve Fund
used to expand and retain businesses and attract new companies and
additional funding for the Industry Competitiveness Fund, a
resource for industry clusters, statewide and regional economic
development groups, and international trade-oriented
businesses.
The proposed budget would provide $19 million (a $3 million
increase) in lottery funds for the following Oregon InC signature
research centers and programs in 2011-13:
- Oregon Nanoscience and Microtechnologies Institue
— Oregon's first signature
research center established to foster nanoscience and
microtechnology R&D.
- Oregon Translational Research and Drug Institute
— A signature research center that provides
resources for university researchers and biotech or pharmaceutical
companies to fuel drug discovery and commercialization.
- Oregon Built Environment and Sustainable Technologies
Center — A program connecting businesses
with university-based networks of shared-user labs and expertise to
commercialize built environment and renewable energy research into
commercial products, services, and jobs.
- Oregon Wave Energy Trust — A
public-private partnership supporting wave energy development.
- Northwest Food Processors Innovation Productivity Center
— A program to identify and develop more
effective ways to improve productivity and enable innovation in
food processing.
- Drive Oregon Initiative— A new
initiative to establish Oregon as a world leader in the design,
manufacture, and integration of ultra-efficient vehicles and
related infrastructure and technologies.
Total funding for Economic Development is $4.4 billion, down
from $8.2 billion last biennium, with $19.4 million from general
funds, also down from $29.2 million. The
department's main revenue source is lottery
funds. This includes $14.5 million in total funds for the Strategic
Reserve Fund ($2.2 million increase), $2 million for the Industry
Competitiveness Fund ($200,000 increase), and $5 million to
establish a new Business Expansion program.
The program would provide incentives for companies to expand or
relocate in the state based on the increase in new personal income
tax revenue. Companies must hire at least 50 new employees and
guarantee wages of $60,000 or more per year under the proposal.
Gov. Kitzhaber is considering major overhauls to the
state's economic development programs, according
to an article in the Portland Business Journal. Proposals
include the creation of an economic development czar within the
governor's office and changes to the Oregon
Growth Account and Oregon Investment Fund to focus on investments
in targeted industries.
The governor also introduced a number of tax break proposals
aimed at job creation including a proposal to allow individuals to
reduce the income tax on capital gains proceeds that are reinvested
in qualifying companies, according to The Register Guard.
The credit would be available for the second year of the biennium
and would be capped at $25 million.
Oregon's budget shortfall is estimated at
$3.5 billion. View the governor's budget
proposal at:
http://governor.oregon.gov/Gov/docs/priorities/BUDGET_Full_Budget.pdf.
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MI Budget Seeks to Reform Economic Development Incentives
With no significant boost in funding for
Michigan's economic development efforts proposed
in the executive budget, Gov. Rick Snyder outlined steps to reform
the way businesses are incentivized and modify the
state's approach to job creation by better
supporting local and regional initiatives as a means to transform
the state's economy.
The governor's budget includes $199.3 million
in FY12 and $199.8 million in FY13 in total funds for the Michigan
Strategic Fund within the Department of Treasury. Of that amount,
$75 million (the same as last year) is slated each year for the
21st Century Jobs Fund, administered by the
Michigan Economic Development Corporation (MEDC) to invest in
high-tech industries and university research. Most of the funding
($50 million) would be used for business attraction, economic
gardening, innovation and entrepreneurship. The remaining $25
million would support Michigan tourism programs. Budget documents
note that business attraction and retention efforts would be
augmented with an additional $25 million in general funds.
Another $5 million is proposed for “quality of
place and talent enhancement,” an effort aimed at
stemming the state's brain drain by developing
initiatives to encourage immigrants with advanced degrees to move
to the state. Programs would be developed by the Department of
Civil Rights in Michigan's rural and urban
communities.
Much of Gov. Snyder's reforms are focused on
restructuring the state's tax programs and
establishing statewide performance measures. The governor wants to
replace Michigan's Business Tax with a flat
Corporate Income Tax of 6 percent and eliminate tax credits for
brownfield redevelopment, the Michigan Growth Authority, Next
Energy, advanced battery, film, and renaissance zones, among
others. Economic development incentives would instead be awarded
through the appropriations process, according to the
governor's office.
Higher Education funding would be reduced by 15 percent to $1.2
billion under the governor's proposal and a new
formula to allocate funding would be enacted in FY13. Under the
formula, funding would be tied to graduation rates and university
research. Community colleges would receive level funding of $296
million.
Although the state currently operates on an annual budget, Gov.
Snyder outlined spending recommendations for the next two years as
part of his budget reform proposal. The FY12 budget begins with a
budget gap of $1.4 billion. View the budget documents: http://www.michigan.gov/budget.
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Digest Update on Angel Tax Credit Measures: MI
Enacts; NJ Gov Vetoes
SSTI recently reported on two important bills passed by
lawmakers in Michigan late last year and in New Jersey earlier this
year that would provide incentives for taxpayers who invest in
emerging technology companies. As an update to the Dec.
8, 2010 and Jan.
12, 2011 stories, both former Michigan Gov. Jennifer Granholm
and New Jersey Gov. Chris Christie have taken action on the bills
with opposing outcomes. Gov. Granholm signed
HB 5921 into law on December 14, enacting a measure to provide
a 25 percent personal tax credit for individuals who invest at
least $20,000 in qualified seed and early stage companies. Gov.
Chris Christie on Friday vetoed S.2454,
the New Jersey Angel Investor Tax Credit Act, along with 13 other
bills approved by lawmakers in January as part of a jobs package.
The bill would have provided a tax credit of 10 percent of a
taxpayer's qualified investment in emerging technology companies
with less than 225 employees, capped at $25 million annually. Gov.
Christie criticized lawmakers for not providing a funding source
and unveiled this week a somewhat similar package of tax cuts for
business alongside the FY12 executive budget proposal. Read the governor's veto message:
http://www.state.nj.us/governor/news/news/552011/pdf/Stack%20of%20Vetoes%20(2.18.11).pdf.
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U.S. will maintain Top Spot in R&D Spending, but Asian
Countries coming on Strong
In the “2011 Global R&D Funding
Forecast,” researchers from Battelle and R&D
Magazine project consistent and positive global R&D spending in
2011. Global R&D (including public, private and nonprofit
spending) is projected to increase by 3.6 percent from $1.15
trillion to almost $1.2 trillion. However, 2011 R&D as a
percentage of global GDP will remain constant at 1.9 percent. This
increase is attributed to a shift in the geographic distribution of
investment. Asian countries continue to rapidly increase their
investments in R&D spending (China has over taken Japan as the
second largest investor in R&D spending to the U.S.) and the
U.S. and Europe should maintain nearly flat levels of spending.
The U.S. should maintain slow, consistent growth in R&D
spending over the next few years, according to the report. However,
Battelle researchers project that the limited, flat growth R&D
spending seen in 2010 will continue through 2011. In
2011, R&D spending should increase slightly from $446.7 billion
in 2010 to $458 billion, but R&D as a percentage of GDP will
remain constant at 2.7 percent. Researchers attribute the limited,
flat growth to the uncertainty brought on by the changing role of
the federal government. Current and long-term budget constraints
coupled with the change in congressional leadership may lead to
severe budget cuts in defense related R&D spending and flat
budgets in other agencies that support R&D. The U.S., however, is still projected to invest almost triple the
amount of dollars on R&D than China ($458 billion to $153.7
billion). The U.S. also ranks 1st in spending in eight of
the nine technology areas analyzed in the report —
the U.S. finished second to Japan in R&D spending in automotive
& other motor vehicles.
The projections provide insight into the geographic distribution
shift of investments in R&D. Rapidly developing Asian countries
(e.g., China, the Asian Tigers, India) were investing heavily in
R&D spending (upwards of 10 percent of GDP in China) before and
even during the global economic crisis. These countries have
constructed policies around technology-based economic development
because they see R&D as a long-term source of sustainable
economic development. These projections indicate that
those countries will continue to maintain high-levels of
investments that will fuel over 40 percent of the projected $500
billion dollars of growth in R&D spending. Asia should increase
R&D funding from $400 billion to over $420 billion. The authors
contend that this shift will increase due to
China's commitment to R&D spending. They
believe that China is more likely to accelerate R&D spending
than decrease in the near future.
In contrast, Europe only will increase slightly their funding
$268.6 billion to $276.6 billion in 2011. Europe's limited, flat R&D
spending growth is due to the proposed austerity measures and
severe debt issued faced by some of the European Union member
states (e.g., Ireland and Greece). Read the Report...
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States Need an Export Strategy to Compete in 21st
Century, according to a New Brookings Report
U.S. states must develop an export strategy as a component of
the state's “competitiveness
agenda,” according to a new report from the Brookings
Institute. In “Boosting Exports, Delivering Jobs
and Economic Growth,” the authors point towards the
rapid growth of American exports in comparison to the overall
economy's economic growth to highlight the need
for effective and efficient state export strategies. Between the
third quarter of 2009 and the third quarter of 2011, U.S. exports
grew by 12.7 percent almost four times the overall economic growth
(3.2 percent). States, the authors contend, fail to
export efficiently and effectively for several reasons including
lack of data to understand strengths and weaknesses; efforts are
reactive, fragmented and inconsistently funded; or states ignore
exporting efforts by the federal government and other institutions
leading to duplication of and failure to leverage those programs.
The report provides three policy prescriptions to remedy those
issues. They include:
- “Get smart about assessing exports and the
performance of their export promotion activities;”
- “Create an export strategy as part of the
state's economic agenda”; and,
- “Leverage the resources of other
organizations involved in export promotion.”
Read the
Report...
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Staff Picks
Cleveland-Area Community College Fund Provides Model for New
Innovation Fund America
In support of the Startup
America initiative, the White House launched Innovation Fund
America to provide critical access to credit for high-tech
entrepreneurs. Providing a model for the fund, Lorain County
Community College in Cleveland and its Foundation will expand its
highly successful Innovation Fund for replication throughout
community colleges nationwide.
Read more ...
VA Lawmakers Pass R&D Tax Credit
With broad bi-partisan support, lawmakers in Virginia passed a
measure to set up a $5 million R&D tax credit fund, reports the
Washington Business Journal. When signed into law as
anticipated, less than a dozen states will be without an R&D
tax credit program.
Read more ...
Groupon Co-Founder to Lead Illinois Innovation
Council
Gov. Pat Quinn announced in his State of the State address
formation of the Illinois Innovation Council led by Groupon
co-founder Brad Keywell. The council will identify strategies for
the state to pursue and foster innovation and economic growth.
Read more ...
Broadband Map Identifies Gaps
This interactive map
shows availability and speed of broadband across the U.S. and can
be viewed by type of technology available. Data can be sorted to
rank providers' speed, and reports are available
for download.
Read more ...
New York Times: When Factories Vanish, So Can
Innovators
This article from the New York Times describes how losing
an industry or ceasing to manufacture particular products threatens
the U.S. economy. The article poses the question,
How can the U.S. remain competitive in R&D
if we no longer manufacture the products we innovate?
Read more ...
Business Location Decisions Rest on More than Just Tax
Breaks
Governors may be placing too much emphasis on tax breaks for
business as a tool for job creation. Companies consider a wide
range of factors when deciding on location and evidence suggests
there is little correlation between a state's tax rate and its
overall economic health, according to an aritcle in the Wall Street Journal.
Read more ...
Study Finds Innovations Come from Users
In a large-scale survey of consumer innovation, researchers
found the amount of money individual consumers spent making and
improving products was more than twice as large as the amount spent
by all British firms combined on product research and development
over a three-year period.
Read more ...
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