Innovation-Based Economic Development vs. State Budgets
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Innovation-Based Economic Development vs. State Budgets

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Before we get too far into the new fiscal year, we thought we’d go back and look at how the IBED world fared in the last round of state budgets. Tax credits continue to be a favored tool to spur......

Before we get too far into the new fiscal year, we thought we’d go back and look at how the IBED world fared in the last round of state budgets. Tax credits continue to be a favored tool to spur growth and investment in the IBED world. Even though budgets are tight, many states have maintained or increased funding for IBED-related tax credits, and a few, such as Nebraska and Virginia have introduced new ones. Supporting commercialization efforts was also high on the list this legislative season. Ohio’s Third Frontier, for instance, has a new Commercial Acceleration Loan Fund worth $25 million. With waning investment from traditional venture capital firms, several states are stepping in to fill the gap. Maryland’s new InvestMaryland program allocates $70 million for venture capital in the innovation economy sector. And though it was developed back in 1989, Economic Gardening has only recently started to catch hold on the regional and state level. Nebraska, Virginia, Pennsylvania, and Michigan have all introduced new initiatives this year. The trend of the year, though, seems to be the restructuring of state-level economic development efforts, with a particular emphasis on engaging the private sector. Many of these efforts are currently facing some controversy, but we wouldn’t be surprised if once the wrinkles get ironed out, this is a trend that’s here to stay.

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  • 1. PERSPECTIVES Innovation-Based Economic Development vs. State Budgets A Thought Paper by Fourth Economy Consulting November 2011
  • 2. 2 FOREWARD Fourth Economy experts, collaborators and pioneers represent diverse backgrounds and skill sets. Together, we endeavor to share with clients and colleagues our thinking on a variety of topics. Fourth Economy “Perspectives” is designed to advance dialogue and thought leadership on economic development, urban design, innovation strategies and new market development. About Fourth Economy Fourth Economy Consulting is a national economic development solutions provider specializing in market analytics, strategic planning, community assessments and organization building. Our team of experienced practitioners helps businesses, communities and non- profit organizations achieve their market potential. The Fourth Economy Consulting team is committed to investing in the communities where we live, work and play.
  • 3. 3OVERVIEW Before we get too far into the new fiscal year, we thought we’d go back and look at how the IBED world fared in the last round of state budgets. Tax credits continue to be a favored tool to spur growth and investment in the IBED world. Even though budgets are tight, many states have maintained or increased funding for IBED-related tax credits, and a few, such as Nebraska and Virginia have introduced new ones. Supporting commercialization efforts was also high on the list this legislative season. Ohio’s Third Frontier, for instance, has a new Commercial Acceleration Loan Fund worth $25 million. With waning investment from traditional venture capital firms, several states are stepping in to fill the gap. Maryland’s new InvestMaryland program allocates $70 million for venture capital in the innovation economy sector. And though it was developed back in 1989, Economic Gardening has only recently started to catch hold on the regional and state level. Nebraska, Virginia, Pennsylvania, and Michigan have all introduced new initiatives this year. The trend of the year, though, seems to be the restructuring of state-level economic development efforts, with a particular emphasis on engaging the private sector. Many of these efforts are currently facing some controversy, but we wouldn’t be surprised if once the wrinkles get ironed out, this is a trend that’s here to stay. Use the links (k) throughout the interactive, electronic version of this whitepaper to view supporting documentation. Think we missed something? We’d love to hear from you. Please click this link k to share a comment.
  • 4. 4 In an effort to create a one-stop-shop for businesses NEW ENTITIES MANAGING IBED looking to locate in Florida, their new Department of Economic Opportunity k combines the Agency for Workforce Innovation, the governor’s Office of Tourism, Trade, and Economic Development, and some divisions of the Florida Department of Community Affairs. In Georgia, they are integrating the Centers of Innovation and the Georgia Research Alliance k. The goal for integrating the programs is twofold: to develop strategies and tactics to maximize the potential for high-tech companies generated from university R&D to thrive in the state; and, to leverage the resources of Georgia’s research universities to retain and recruit companies in industries considered crucial to the state’s growth. Innovate Washington k is the successor to the Washington Technology Center and the Spokane Intercollegiate Research and Technology Institute. Innovate Washington will serve as the state’s primary agency responding to tech transfer needs and strengthening university-industry partnerships. They will also coordinate the state’s clean energy initiatives. JobsOhio k is a new nonprofit corporation that will assume the business-incentive and job-creating functions of the Ohio Department of Development. The governor has appointed a board of business leaders, though the Governor himself will not head the organization as originally planned, due to pending legislation alleging unconstitutionality.
  • 5. 5JobsOhio will start out with $1 million from GeneralAssembly to cover start up costs, not including salaries.Further funding is expected from leasing of state-controlled liquor operation for 25 years for about $1.5billion, to be complete by January. Also, the ThirdFrontier Commission is collaborating with JobsOhioto form the Jobs Ohio Network. They are giving $14.8million to six regional economic development groups,which will spend the money to help carry out theJobsOhio agenda, including negotiating deals to retaincompanies or attract new ones.Iowa is also turning to its business leaders to runthe new Partnership for Economic Progress k, whichreplaces the Department of Economic Development.The IPEP is actually comprised of the Iowa EconomicDevelopment Authority and the Iowa InnovationCorporation to promote and market the state toattract new investments and jobs. The EconomicDevelopment Authority will be run by a board ofdirectors, appointed by the governor, comprisedof private sector individuals and ex-officio publicrepresentatives. The Iowa Innovation Corporation, anonprofit organization, will focus its efforts on spurringinnovation in the state, using both public and privatefunds.
  • 6. 6 In Kansas, Governor Brownback will chair the new Governor’s Council of Economic Advisors k. The council will have up to 20 members from various industries and business sectors. The council will have three main responsibilities: coordinate strategic planning and economic development resources; evaluate state policies and agencies performances; and conduct research on topics such as Kansas’ basic industries, tax competitiveness, and regulatory structure. The Council replaces Kansas, Inc., whose members were chosen by public leaders, the board of regents, and labor and business owners. Arizona is refocusing on business attraction, retention and expansion in three key industries: aerospace and defense, renewable energy and science-technology. A new public-private organization, the Arizona Commerce Authority k, replaces the Department of Commerce and will have a board comprised of both business leaders and state officials. It is funded through existing payroll withholdings under an annual operating budget of $10 million, plus a deal-closing fund of $25 million. The Authority is currently planning to open offices in Los Angeles and San Jose. The Wisconsin Economic Development Corporation k replaces the Wisconsin Department of Commerce. The new public-private partnership will focus exclusively on job creation. Other Commerce Department responsibilities will be redistributed among other state agencies. The WEDC board, appointed by the governor, will develop and implement economic programs to provide business support, expertise and financial assistance to companies. The new agency will start with $83 million budget, twice what was allocated to the Department of Commerce for economic development.
  • 7. 7The Illinois Innovation Network, which includesbusiness and educational leaders, is the first initiativecreated by the Governor’s Illinois InnovationCouncil k, a public-private partnership launchedin February to accelerate innovative economicdevelopment and job creation efforts in the state’sstartup sector. The IlN will be connected with StartupIllinois, which will let Illinois-based affiliates andentrepreneurs leverage technology, content and toolsto access national resources. The Illinois InnovationCouncil is chaired by Groupon Co-Founder and DirectorBrad Keywell and is made up of key business executivesacross a variety of sectors, along with science,technology and university leaders. The council’smission is to promote, develop and attract innovation-driven enterprises and individuals to Illinois and to alsodevelop policies to cultivate and retain entrepreneurs,innovative researchers and other enterprises.And finally, New York has taken a unique approach increating 10 Regional Economic DevelopmentCouncils k. The goal is to create a community-basedapproach to economic development, which emphasizesthe regions’ unique assets and allows for a single pointof contact. Each Regional Council will develop a planfor the development of their region and will be able toapply for state funding to support projects using a newConsolidated Funding Application, which pools up to $1billion from dozens of existing programs.
  • 8. 8 Louisiana is restarting one and extending two tax credit TAX CREDITS programs. Their Angel Investor Tax Credit k expired in 2009, but now lives again; it provides a transferable tax credit set at 35%, which is projected to raise more than $14 million annually from investors. And both the Technology Commercialization Tax Credit k (40% on up to $250,000 in LA higher ed R&D) and the R&D Tax Credit k (8 – 40% depending on firm size) were extended for six more years. As part of their Talent and Innovation Initiative k, Nebraska is offering $3 million per year in refundable state income tax credits (35 – 40%) for investment in certified Nebraska start-up companies. Pennsylvania increased their R&D Tax Credit k from $40 - $55 million, 20% of which is set aside for small businesses. Maryland has maintained their Biotechnology Investment Incentive Tax Credit k at $8 million for the second consecutive year. A company that invests $25,000 to $500,000 in a Maryland biotech receives a tax credit worth half that amount. The program drew more than 180 applications within three minutes of the window opening.
  • 9. 9As part of his “Opportunity at Work” k campaign,Virginia governor Bob McDonnell has signed a slewof legislation, including a bill to create an R&D TaxCredit for start-ups and stage firms, especially thosecompanies accessing R&D services through Virginia’scolleges and universities. The credit is available for upto 15% of the first $167,000 spent on R&D expenses,or 20% of the first $175,000 if done with a Virginiacollege or university. The cap is set at $5 million peryear.New Jersey has increased their Technology BusinessTax Certificate Transfer Program k from $30 to $60million and their R&D Tax Credit from 50 to 100% ofcorporate liability taxes.And finally, Utah’s legislature has a set side of $1.3million for tax credits under their new Technologyand Life Science Economic Development Act k. TheAct provides tax credits for investors and businessesworking in the life science and technology sectors; thecredits can apply to new state revenues, investments,or capital gains.
  • 10. 10 COMMERCIALIZATION FUNDING Colorado’s Innovation Reinvestment Act takes the net increase in state corporate income tax withholdings within the bioscience and cleantech industry sectors, providing 50% to the general fund, 25% to bioscience and 25% to cleantech. The bioscience’s portion, estimated up to $2 million annually, will go to the existing Bioscience Discovery Evaluation Grant Program k (which was also extended to 2018). This program distributes proof-of-concept grants and provides support for early stage bioscience companies and infrastructure. The Act will also provide $2 million per year for the Clean Technology Discovery Evaluation Grant Program k, which provides matching grants to Colorado’s universities for market assessments of clean technologies, to companies commercializing university clean technologies, and to initiatives that serve to build the infrastructure that moves university technologies into the marketplace. This program was created in 2009, but remained unfunded until this legislation. Maryland continues to fund their Technology Transfer and Commercialization Fund k. The focus of the program is to support company technology development projects that transfer technology to the commercial sector from any university or federal laboratory in Maryland or technology companies in the incubator that have desire to move technology projects forward and are taking advantage of incubator business services. Funds up to $75,000 are available to defray a company’s direct cost of developing early stage technology. In 2011 they awarded $1,125,000 to 15 companies; to date, 145 companies have received over $10 million.
  • 11. 11As part of their Talent and Innovation Initiative k,Nebraska passed the Business Innovation Act, whichprovides up to $7 million in funding to help businessesdevelop new technologies that lead to quality jobopportunities across the state. Competitive grants willprovide funding and technical assistance for researchat Nebraska institutions, new product developmentand testing, and help expand small business andentrepreneur outreach efforts.In addition to funding their existing Open InnovationIncentive at $8 million, Ohio’s Third Frontier has anew Commercial Acceleration Loan Fund k worth $25million. This new program provides loans to companiesmoving products and services into the market. Loanamounts will range from $500,000 to $3 millionand the program will include forgiveness of principal,deferred and/or balloon payments, and low interestrates.Utah has resuscitated its Technology Commercializationand Innovation Act k, which provides $1.8 millionfor the Governor’s Office of Economic Developmentto issue as grants and loans to the various colleges,universities, and licensees in Utah for the purpose ofcommercializing technology.Virginia’s Commonwealth Research CommercializationFund k has been fluctuating between $1 and $10million over the past few years, but this year cameout with $6 million. The Fund provides grants totechnology firms, loans to construct wet-labs and forthe SBIR matching program. Of this amount, $2 millionis earmarked for matching grants for winners of Phase ISBIR awards from the National Institutes of Health.For the second year in a row, the board of theArkansas Science and Technology Authority allocated$1 million to support the Arkansas ResearchAlliance k. The focus of the Alliance is to recruituniversity scholars with a track record of incubating andcommercializing businesses.
  • 12. 12 Illinois has a new law k that allows the state to VENTURE CAPITAL INVESTMENTS invest up to 2% of its portfolio in venture capital firms. The state can now invest an estimated $150 million in venture capital funds, and generate an estimated $300 million of venture capital investment into Illinois companies. Companies may use the funding for R&D, marketing new products, and workforce expansion. InvestMaryland, a program administered by the new Maryland Venture Fund Authority k, allocates $70 million for venture capital in the innovation economy sector. Two-thirds of the funds will be invested in 3-4 private venture firms, and the other third will go to the state-managed Maryland Venture Fund for start up and early stage tech and life sciences companies. The program is being funded through the auctioning of tax credits to insurance companies. Three New Jersey programs will benefit early stage, emerging technology and life sciences companies by providing growth capital to directly fund uses such as hiring key staff, product marketing and sales. The Edison Innovation Angel Growth Fund k provides matching funds of up to $250,000, and the VC Growth Fund k and Growth Stars Fund k provide matching funds of up to $500,000. In addition to funding their existing Pre-Seed Fund at $25 million, Ohio’s Third Frontier has two new funds k. The $1 million Micro Fund will provide between $5,000 and $25,000 for new community- based non-profit investment funds. And the $10 million Growth Fund will make two investments of $5 million each into investment funds. Matching requirements mean that the state’s $10 million investment will make $120 million of new capital available to Ohio companies.
  • 13. 13Utah’s Fund of Funds k is an economic developmentprogram designed to foster entrepreneurship byincreasing the amount and diversity of capital availableto Utah’s established, growth and emerging companies.With $300 million of contingent tax credits, the fundsinvest in strong-performing venture capital and privateequity firms, which in turn explore investments inpromising Utah companies.Virginia’s FY2012 budget includes $4 million inadditional new funding for the Center for InnovativeTechnology’s “GAP” Fund k that makes seed-stageequity investments in Virginia-based technology andlife science firms.
  • 14. 14 Authorized by the Small Business Innovation Act, the ECONOMIC GARDENING Nebraska Economic Gardening Program k will provide grants of up to $10,000 each year to eligible Nebraska service providers and nonprofits. Preference will be given to high growth, early stage businesses with 5 – 50 employees. These grants must be matched by the business to at least 20% of the awarded amount. Virginia’s Hampton Roads Partnership, a consortium of colleges, universities, federal labs, and research institutions has just unveiled its Economic Gardening Network k. The program provides a suite of high-end, high-speed business growth resources to growth- oriented companies identified and selected by local economic developers or entrepreneur support organizations.
  • 15. 15The new Discovered in PA k program will invest $10million in helping small, medium-sized and high-growthbusinesses identify and access appropriate services andfinancing to help them be more competitive and growtheir operations in Pennsylvania.Pure Michigan Business Connect k brings several stateagencies, the MEDC, and several private industriesand organizations to offer economic developmentincentives, startup capital, and support services valuedaround $3 billion to help grow Michigan-based smallbusinesses in emerging industry sectors. Incentivesoffered by some of the participating organizationsinclude $2 billion in lending over four years fromHuntington National Bank and $100 million forsecond stage funding for Michigan businesses withinnovative technologies to accelerate large-scalecommercialization.
  • 16. 16 The Colorado Blueprint k brings together input PLANNING from every county to identify six areas of focus for promoting economic development, including increasing access to capital, workforce educating and training, and cultivating innovation and technology. As part of the larger Georgia Competitiveness Initiative k, a statewide economic development strategy, the Science and Technology Strategic Initiative Joint Study Commission will determine how best to encourage and facilitate the growth and development of the science and technology sector in the state. Missouri just released their five-year Strategic Initiative for Economic Growth k plan to boost Missouri’s competitiveness in a variety of key industries, including advanced manufacturing, energy, bioscience, health science, and information technology. It outlines two-dozen specific strategic and tactical approaches to growing these industries, everything from tuition forgiveness program to help boost Missouri’s workforce, to integrating entrepreneurship programs into K-12 education. New Jersey is investing $2.3 million into their Talent Networks Initiative k to determine how best to create jobs and train workers in key industries including life sciences, advanced manufacturing, health care, and technology and entrepreneurship. The Networks will connect businesses with educational institutions, workforce development agencies, government and community groups to identify the skills and training employers require in prospective employees to remain competitive in the global market.
  • 17. 17OTHER NOTEWORTHY EFFORTS Connecticut is investing $864 million in a project to renovate and expand the University of Connecticut Health Center k. Its goal also is to double federal industry research grants to drive discovery, innovation and commercialization. The initiative includes incubator space to foster new startups and a loan forgiveness program to attract more graduates in medicine and dentistry. New bonding totaling $254 million combined with previously approved bonding of $338 million, $203 million in private financing, and $69 million from the Health Center will pay for the project. Connecticut and New Jersey are both investing in clean and green energy. The Connecticut Clean Energy Fund allocates $32 million per year to several programs design to make clean technology more affordable and bolster the energy industry in the state. The Fund is administered by the new quasi-public Clean Energy Finance and Investment Authority k. New Jersey’s Edison Innovation Green Growth Fund k is a new loan program with a performance grant component to grow the state’s energy efficiency and renewable energy technology companies. The fund offers five-year fixed term loans of up to $1 million to eligible companies that have begun generating commercial revenues and are seeking matching funds. New Jersey is also working on a new technology accelerator program k. The NJ Economic Development Authority allocated $450,000 over the next three years and is soliciting input from the state’s technology community on how best to advance the program. North Carolina is also working on a new accelerator k tailored towards life science companies. Implemented by the $232 million N.C. Innovation Fund, the accelerator will focus on promoting tech transfer.
  • 18. 18 Virginia and Kansas are both focusing on education as a key to economic development, as well. The Virginia Higher Education Opportunity Act of 2011 k aims to increase the number of undergraduates by 100,000 over the next 15 years. It also provides a new higher education funding policy, targeted economic and innovation incentives, and the creation of a STEM public-private partnership. Kansas lawmakers approved $15 million in research grant money for three Kansas universities to expand programs in emerging industry sectors and allocates $10.5 million annually for an initiative to enhance engineering education and increase the number of qualified engineers in the state. Ohio’s Third Frontier has created the Ohio’s New Entrepreneurs Fund k to retain and attract young talent. In collaboration with Ohio State University, the program will recruit entrepreneurs to work under the guidance of seasoned entrepreneurs, industry experts, and investors before pitching their ideas to investors. In Tennesse, Gov. Bill Haslam’s job creation plan seeks to seed startups by pouring $50 million in federal and state dollars into an effort to get them off the ground. Called INCITE k, the initiative depends heavily on $30 million in U.S. Treasury funds allocated to Tennessee last October as part of the State Small Business Credit Initiative. In addition, $10 million will be given to the Memphis Research Consortium to aid its effort to transfer research and development to private-sector enterprises. Another $10 million will be distributed by the state to regional business incubators that will provide support services or startups.
  • 19. 19ABOUT Chelsea Burket Chelsea Burket serves as Community Development Strategist at Fourth Economy. She specializes in sustainable design, workforce development, and organizational planning. Chelsea works to align technology-based economic development with community development strategies. Email: chelsea.burket@fourtheconomy.com Rich Overmoyer Rich Overmoyer serves as CEO at Fourth Economy. Rich is a nationally known thought leader in the emerging economic development opportunities field. He has been responsible for devising innovative market strategies for dozens of public and private sector entities across the country. Email: rovermoyer@fourtheconomy.com
  • 20. Copyright ©2011 All rights reserved. No part of this narrative may be reproduced, or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or by any informational storage or retrieval system, without permission in writing from the author/publisher. www.fourtheconomy.comCreating innovative growth strategies for the modern marketplace.