Friday, February 09, 2007

The Governor's New Budget, Part 2: Good and Bad News for Technology Commercialization

The new state budget proposed by Governor Ed Rendell this week increases total state spending by almost $1 billion, but for the third year in a row, it cuts funding to help support innovation and entrepreneurship, particularly for programs in the Pittsburgh Region.

Two years ago, the Governor cut the funding for the Ben Franklin Technology Development Authority (BFTDA) by 5% or $2.8 million. The BFTDA is the primary funding source for the agencies in the Pittsburgh Region that assist entrepreneurs and help turn research into new businesses, such as Innovation Works, the Idea Foundry, and the Technology Collaborative. The current year's budget (2006-07) did not restore those cuts.

The proposed budget for 2007-08 increases funding to Ben Franklin by $2.5 million. However, all of this increase is dedicated to Keystone Innovation Zones. More funding for the KIZs is a good thing, but not if it means that funding for the other BFTDA programs will see no increase. As a result of the stagnant funding for the basic programs, the cash balance in the Ben Franklin Authority will continue to decrease.

However, on top of this, the budget proposes cutting funding for the Pittsburgh Supercomputer Center by more than half (to $1.2 million from $2.5 million this year), and eliminates the $3 million funding for Digital and Robotic Technology (which goes to the Technology Collaborative here in Pittsburgh). The budget says the cuts are because the current year's appropriations are for "non-recurring projects," but this is disingenuous -- although many of the specific projects differ from year to year, the need for support of the projects that the organizations operate is ongoing.

Each year, the budget cuts funding for these programs only to see them restored by the General Assembly. This is a silly and wasteful process. It forces the small staffs of the Supercomputer Center and the Technology Collaborative to spend time lobbying the legislature rather than doing what we need them to do, which is (in the case of the Supercomputer Center) maintaining a world-class R&D resource and (in the case of the Technology Collaborative) encouraging the development of IT and robotics companies. And given the relatively small amounts of funding involved (less than $5 million out of $1 billion in increased spending) and the potential impact on future job growth and tax revenues in the Commonwealth, these kinds of cuts are penny-wise and pound-foolish.

The budget does propose an increase in funding for Biotechnology, although this is from the Tobacco Settlement Fund, not the General Fund. The budget appropriates another $3 million for the state's three Life Sciences Greenhouses, which likely would translate into $1 million for the Pittsburgh Life Sciences Greenhouse. This is 70% below the funding level the Greenhouse received from the Tobacco Settlement Fund during the first five years of its existence.

In addition, however, the budget proposes a separate $6.7 million line item from the Tobacco Settlement Fund for "Biotechnology Commercialization." It is not clear how these funds would be utilized or allocated. If 1/3 of the Biotechnology Commercialization funds come to southwestern Pennsylvania, it would only bring the state's support for life sciences research and commercialization to about 50% of what it had been over the previous 5 years. This is potentially problematic at a point when a number of small life sciences companies in the Pittsburgh Region are struggling through the lengthy and expensive process of FDA approval and there are many new technology breakthroughs that are reaching the point of potential commercializability.

The budget also proposes another $6.7 million from the Tobacco Settlement Fund for "Health Venture Investment" - investments in private venture capital firms focusing on the life sciences area. This is good news, but only if there is enough earlier-stage capital and assistance to get life sciences firms to the point where they can qualify for venture capital investments, which is a key role the Life Sciences Greenhouse plays.

The Governor has once again proposed creating the Jonas Salk Legacy Fund — a plan to invest $500 million in facilities and equipment for bioscience. However, this is not new money - the $500 million would be generated by cutting the funding currently allocated to biomedical research each year from tobacco settlement payments, and diverting the other half of the funds in order to issue $500 million in bonds. So while $500 million to invest in facilities and equipment would be desirable, a $36 million annual reduction in funding for research would be undesirable. And although the $500 million would be a one-time program, the reduction in research funding would not be a one-time cut - the same $36 million cut in research funding would have to be made every year for the next 20 years in order to support debt service on the bonds. Less funding for research means both fewer immediate jobs and a reduction in the region's ability to create more companies and even more jobs in the future. So the Governor's proposal to cut research funding could cost the Pittsburgh Region jobs.

Funding for biotechnology facilities and equipment is desirable, but it is not necessary to cut research funding in order to generate it - these kinds of projects can be funded through the state's Redevelopment Assistance Capital Program (RACP). This bond-funded program is specifically designed for economic development projects, and priority could be given to facilities that will support biotechnology research and businesses. Using the state's Redevelopment Assistance Capital Program to build research facilities and incubators, while maintaining or increasing funding for research through the Tobacco Settlement Fund, would be a win-win approach to stimulating growth in biotechnology research and business development.

The best news for technology commercialization isn't in the budget per se, but in the Governor's proposed Energy Independence Fund. If passed as proposed, it would provide $56 million to the Ben Franklin Technology Development Authority for an "Energy Independence Greenhouse." Locally, Innovation Works would likely administer the program, which would enable it to provide several kinds of important services and funding for startup firms, such as supporting translational research (identifying the commercial opportunities in research breakthroughs), entrepreneurs-in-residence, incubation, pre-seed funding, and general mentoring and technical assistance. The Governor's plan also includes $50 million for an Energy Independence Venture Capital Program, which would help insure that young energy-related companies can get the growth capital they need. (More information on the technology commercialization opportunities for the Pittsburgh Region in clean energy is available at

So there's both some very good news and some mediocre-to-bad news in the proposed budget. Hopefully both the Governor and the legislative delegation will turn it into all good news by the time the final budget passes.


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