SSTI Digest

The growth and intensity of higher education R&D (HERD) expenditures varies considerably across metropolitan areas, a recent SSTI analysis of National Science Foundation data finds. New York ($4.3 billion), Boston ($3.2 billion), and Baltimore ($2.9 billion) had the highest overall levels of HERD expenditures in 2016. In that same year, Ithaca, New York (19.1 percent), State College, Pennsylvania (9.5 percent), and College Station, Texas (9.4 percent) had the highest levels of HERD intensity – measured as the share of HERD expenditures to gross metropolitan product. While overall HERD expenditures increased by nearly $7.5 billion nationwide from 2011 to 2016, more than half of this total (50.6 percent) went to the 10 metro areas with the most HERD expenditures in 2016.

In 2016, a study – Skill Demands and Mismatch in U.S. Manufacturing – found that approximately 75 percent of manufacturers showed no signs of hiring difficulties.  This study and others (including a 2015 study from Iowa State University) are reigniting a long held economic development debate over the ‘skills gap’ – a contention that there is a mismatch between the abilities employers seek in candidates and the capabilities of workers developed by the educational/workforce development systems. Challenging the conventional wisdom put forth by employers, pundits, and policymakers, these studies seem to indicate that the problem does not lie with the U.S. workforce development and educational system. Instead, the problem stems from two primary issues at the firm level:

One year from now, at least one-third of the states will have a new person sitting in the governor’s chair due to the retirement or term-limit of 17 current governors. The number of new governors could be higher than the guaranteed 17 new governors because there are 36 gubernatorial seats up for grabs. For those questioning the import of a large new class of governors, one does not need to look beyond the last two major waves of new governors — 2010 when 26 new governors came into office and 2002 when 20 new governors did — to see the impact that large classes of governors can have not just on their individual states, but the field as a whole.

Most of the baker’s dozen of fourth quarter exits SSTI reviewed for publicly-sponsored venture investments reveal local employment likely to remain in place after the deals close, regardless of the deal structure. During the past three months, companies that 20 venture development organizations (VDOs) had invested in participated in at least 10 acquisitions, with seven resulting in operating subsidiaries under the new parent firm. Also in the mix for the quarter are one initial public offering (IPO), one sale of intellectual property and one leveraged buyout. Several of the deal structures suggest that regionally-based funds might have made the difference for those startups making it all the way to exit. Reaching that coveted milestone can be a tricky path, as we discover in some of the stories below. SSTI gleaned the information from Crunchbase, Pitchbook and company websites.

A range of equity-based strategies to support scale-up programming for small-scale manufacturers are among the findings of a recent report from the Urban Manufacturing Alliance (UMA). In Making, Scaling and Inclusion, UMA found that the economic development field is hungry for strategies that remove employment barriers and build the talent of low-income and economically disadvantaged communities to drive economic growth in their cities and the report offers guidance for building equitable innovation economies.

UMA, along with the Pratt Center for Community Development and PolicyLink, launched the Equitable Innovation Economies Initiative in 2015 and piloted a program in four cities to address equity issues more broadly. And while their four pilot cities had seen success, they also faced challenges limiting their ability to replicate and reach scale. Such challenges included a lack of a directive to formalize equity and inclusion, and sparse data on the economic impact of the shifting manufacturing sector.

Eligible small businesses who have not previously won an SBIR/STTR award from the NIH are able to apply for help through a pilot initiative, the Applicant Assistance Program (AAP). The primary goal of the AAP is to increase participation in the SBIR program by businesses that are owned or controlled by individuals who are traditionally underrepresented in the biomedical sciences. The pilot is aimed at helping small R&D businesses and individuals successfully apply for Phase I SBIR/STTR funding from the National Cancer Institute (NCI), National Institute for Neurological Disorders and Stroke (NINDS), National Heart, Lung and Blood Institute (NHLBI). The free program will include the following services:

The executive council of ENDOW, an economic development initiative started by Wyoming governor Matt Mead, has announced its preliminary recommendations to diversify and grow the state’s economy, including statewide programs to support tech-based economic development that total more than $36 million. Notable among the recommendations are $6 million for a proposed Wyoming Research and Innovation Fund that provides matching funds as a way to leverage federal R&D opportunities and $5 million to develop a new organization called Startup:Wyoming, which would administer the Fund and provide support to entrepreneurs throughout the state.

The Republican tax plan passed Congress this week. The legislation, which is part tax cut — $1.5 trillion over 10 years — and part reform — replacing multiple deductions and credits with overall lower rates — will affect the U.S. economy for years to come. Education, employment, capital access and business investment are likely to be directly affected as soon as next year, and, if state budgets hold any value as predictors, regional innovation economies will be particularly affected through future reductions in federal spending.

What the bill does for innovation

The bill’s final, direct impacts on education, science, tech and innovation are more limited than those presented in earlier drafts. Deductions related to higher education affordability remain intact, as do the R&D tax credit, along with most economic development credits, and the ability of startup employees to defer taxes on equity grants. There are several changes likely to affect universities and new businesses:[*]

This past summer Ohio joined a growing number of states that allow community colleges to offer four-year degrees when it enacted legislation allowing community colleges, state community colleges, and technical colleges to apply to offer applied bachelor’s degrees. If approved, the programs will join a growing number of applied baccalaureate degree programs being offered by community colleges across the country. The trend has met with resistance from some higher education institutions, while students and employers voice their support.

Beth Hagan, executive director of the Community College Baccalaureate Association writes in a forthcoming paper that there are approximately 90 community colleges with more than 700 active degree programs in 19 states, and offerings have widened and deepened with more recent degrees focusing on workforce. Those degree designations represent local needs in what might be considered niches of specific demand for that district or state.

States enacted cautionary budgets for 2018 with general fund spending projected to grow 2.3 percent in fiscal 2018, the lowest increase since 2010, according to the most recent NASBO survey. The National Association of State Budget Officers (NASBO) released its Fiscal Survey of the States showing caution on the part of policymakers following two years of sluggish revenue growth and spending pressures. Meanwhile, the survey finds most states are forecasting moderate improvements in their general fund revenue collections in fiscal 2018 (median growth rate of 3.2 percent) and that most states are continuing to strengthen their reserves.

The budgetary process was strained this year with a number of states calling special sessions to deal with their plans and 11 states starting the fiscal year without a fully enacted budget. New funds were directed mainly to K-12 education and Medicaid.

The survey also found that:

Expenditures for R&D from state government agencies increased by 17.3 percent from FY 2011 to FY 2016, reaching $2.3 billion, according to data from the Survey of State Government Research and Development, a survey sponsored by the National Science Foundation’s National Center for Science and Engineering Statistics (NCSES). Nearly two-thirds of this total – 64 percent – came from just five state governments (California, New York, Texas, Florida, and Ohio).

Estimates indicate that R&D expenditures in the United States reached $510 billion in 2016, marking the first time this total has eclipsed the half-trillion mark, according to recently released National Science Foundation data. The majority of R&D expenditures and performance comes from the private sector. From 2011 to 2016, R&D growth kept pace with the economy as a whole, and R&D intensity – measured as R&D expenditures as a share of gross domestic product – was essentially flat. The analysis finds, though, that federal expenditures on R&D decreased during this period.