Innovation-Based Economic Development vs. State Budgets

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A Thought Paper byFourth Economy Consulting

November 2011

Innovation-Based Economic Development vs. State Budgets

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DFourth Economy experts, collaborators and pioneers represent diverse backgrounds and skill sets. Together, we endeavor to share with clients and colleagues our

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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-

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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 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.

OVERVIEW

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In an effort to create a one-stop-shop for businesses 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.

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JobsOhio will start out with $1 million from General Assembly to cover start up costs, not including salaries. Further funding is expected from leasing of state-controlled liquor operation for 25 years for about $1.5 billion, to be complete by January. Also, the Third Frontier Commission is collaborating with JobsOhio to form the Jobs Ohio Network. They are giving $14.8 million to six regional economic development groups, which will spend the money to help carry out the JobsOhio agenda, including negotiating deals to retain companies or attract new ones.

Iowa is also turning to its business leaders to run the new Partnership for Economic Progress k, which replaces the Department of Economic Development. The IPEP is actually comprised of the Iowa Economic Development Authority and the Iowa Innovation Corporation to promote and market the state to attract new investments and jobs. The Economic Development Authority will be run by a board of directors, appointed by the governor, comprised of private sector individuals and ex-officio public representatives. The Iowa Innovation Corporation, a nonprofit organization, will focus its efforts on spurring innovation in the state, using both public and private funds.

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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.

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The Illinois Innovation Network, which includes business and educational leaders, is the first initiative created by the Governor’s Illinois Innovation Council k, a public-private partnership launched in February to accelerate innovative economic development and job creation efforts in the state’s startup sector. The IlN will be connected with Startup Illinois, which will let Illinois-based affiliates and entrepreneurs leverage technology, content and tools to access national resources. The Illinois Innovation Council is chaired by Groupon Co-Founder and Director Brad Keywell and is made up of key business executives across a variety of sectors, along with science, technology and university leaders. The council’s mission is to promote, develop and attract innovation-driven enterprises and individuals to Illinois and to also develop policies to cultivate and retain entrepreneurs, innovative researchers and other enterprises.

And finally, New York has taken a unique approach in creating 10 Regional Economic Development Councils k. The goal is to create a community-based approach to economic development, which emphasizes the regions’ unique assets and allows for a single point of contact. Each Regional Council will develop a plan for the development of their region and will be able to apply for state funding to support projects using a new Consolidated Funding Application, which pools up to $1 billion from dozens of existing programs.

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Louisiana is restarting one and extending two tax credit 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.

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As part of his “Opportunity at Work” k campaign, Virginia governor Bob McDonnell has signed a slew of legislation, including a bill to create an R&D Tax Credit for start-ups and stage firms, especially those companies accessing R&D services through Virginia’s colleges and universities. The credit is available for up to 15% of the first $167,000 spent on R&D expenses, or 20% of the first $175,000 if done with a Virginia college or university. The cap is set at $5 million per year.

New Jersey has increased their Technology Business Tax Certificate Transfer Program k from $30 to $60 million and their R&D Tax Credit from 50 to 100% of corporate liability taxes.

And finally, Utah’s legislature has a set side of $1.3 million for tax credits under their new Technology and Life Science Economic Development Act k. The Act provides tax credits for investors and businesses working in the life science and technology sectors; the credits can apply to new state revenues, investments, or capital gains.

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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.

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As part of their Talent and Innovation Initiative k, Nebraska passed the Business Innovation Act, which provides up to $7 million in funding to help businesses develop new technologies that lead to quality job opportunities across the state. Competitive grants will provide funding and technical assistance for research at Nebraska institutions, new product development and testing, and help expand small business and entrepreneur outreach efforts.

In addition to funding their existing Open Innovation Incentive at $8 million, Ohio’s Third Frontier has a new Commercial Acceleration Loan Fund k worth $25 million. This new program provides loans to companies moving products and services into the market. Loan amounts will range from $500,000 to $3 million and the program will include forgiveness of principal, deferred and/or balloon payments, and low interest rates.

Utah has resuscitated its Technology Commercialization and Innovation Act k, which provides $1.8 million for the Governor’s Office of Economic Development to issue as grants and loans to the various colleges, universities, and licensees in Utah for the purpose of commercializing technology.

Virginia’s Commonwealth Research Commercialization Fund k has been fluctuating between $1 and $10 million over the past few years, but this year came out with $6 million. The Fund provides grants to technology firms, loans to construct wet-labs and for the SBIR matching program. Of this amount, $2 million is earmarked for matching grants for winners of Phase I SBIR awards from the National Institutes of Health.

For the second year in a row, the board of the Arkansas Science and Technology Authority allocated $1 million to support the Arkansas Research Alliance k. The focus of the Alliance is to recruit university scholars with a track record of incubating and commercializing businesses.

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Illinois has a new law k that allows the state to 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. VE

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Utah’s Fund of Funds k is an economic development program designed to foster entrepreneurship by increasing the amount and diversity of capital available to Utah’s established, growth and emerging companies. With $300 million of contingent tax credits, the funds invest in strong-performing venture capital and private equity firms, which in turn explore investments in promising Utah companies.

Virginia’s FY2012 budget includes $4 million in additional new funding for the Center for Innovative Technology’s “GAP” Fund k that makes seed-stage equity investments in Virginia-based technology and life science firms.

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Authorized by the Small Business Innovation Act, the 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.

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The new Discovered in PA k program will invest $10 million in helping small, medium-sized and high-growth businesses identify and access appropriate services and financing to help them be more competitive and grow their operations in Pennsylvania.

Pure Michigan Business Connect k brings several state agencies, the MEDC, and several private industries and organizations to offer economic development incentives, startup capital, and support services valued around $3 billion to help grow Michigan-based small businesses in emerging industry sectors. Incentives offered by some of the participating organizations include $2 billion in lending over four years from Huntington National Bank and $100 million for second stage funding for Michigan businesses with innovative technologies to accelerate large-scale commercialization.

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The Colorado Blueprint k brings together input 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.

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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.

OTHER NOTEWORTHY EFFORTS

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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.

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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: [email protected]

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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: [email protected]

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