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BioOhio Plans to Ask State for Subsidies to Sustain State’s Life-Science Momentum

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Ohio’s life science industry association is preparing to ask state officials for subsidies to help companies ramp up their training of new employees, and companies looking to produce biofuels in the state’s rural areas.
 
Those initiatives, BioOhio argues, will help the industry sustain the sharp growth recorded in a report the group released last month. The latest edition of BioOhio’s annual Ohio Bioscience Growth Report credited the industry with generating $146 billion in economic activity in 2006, accounting for 1.2 million jobs and nearly 18 percent of the gross state product.
 
The report can be read here.
 
The association’s definition of the bioscience industry is broad enough to encompass not only commercial biosciences, but medical colleges and even “hospitals and healthcare.”
 
Looking at just the private sector, revenue generated within the state by its commercial bioscience industry swelled to $16.2 billion in 2006 from $1.8 billion in 2004 by the previous bioscience growth study, released in August 2006.
 
During that two-year period, the number of jobs at Ohio’s bioscience companies rose to 48,485 from 37,592.
 
“It’s very clear to us that in order to keep our growth going, and to be able to provide the kind of talent that allows for new companies to come into the state, we need to have a much more aggressive, much more strategically positioned workforce initiative,” BioOhio president and CEO Anthony Dennis told BioRegion News. “Workforce clearly is going to get a great deal of attention.”
 
The group is working with businesses and other employers to develop legislation to create new workforce training programs, he said. The program would build on the work of Ohio’s $1.6 billion, 10-year Third Frontier Project, created to expand Ohio's high-tech research capabilities and promote company formation in the life sciences and other tech specialties.
 
Third Frontier encompasses several subsidy programs devoted to funding research, equipment — and in one case, assisting public-private partnerships win competitions to establish federal research centers.
 
Yet few if any of Third Frontier’s programs subsidize workforce development. One exception is the Third Frontier Internship Program, under which the state reimburses businesses up to 50 percent, to a maximum $3,000 per year for wages paid to student interns in bioscience and five other tech specialties — advanced manufacturing, advanced materials, power and propulsion, instruments controls and electronics, and information technology.
 
To qualify for the reimbursements, participating businesses are expected to hire as interns students enrolled at least as a college sophomore level or beyond, and who are attending a two- or four-year college or university majoring in math, science, or engineering.
 
One sign of impending change to the state’s workforce training effort is that, as of Jan. 7, visitors to Third Frontier’s website clicking onto the internship program’s separate website are greeted with the words: “Under Construction and Program Revision.”
 
Colleges and universities may also qualify for a subsidy program focused on personnel whose duties may include training students. Ohio’s Research Scholars Program provides grants to state universities and colleges aimed at helping them hire “senior research talent and related facilities and equipment” and promote “unique collaborations needed to build and sustain scientifically and commercially promising lines of research.”
 
For the 2008-09 academic year, Jan. 7 was the deadline for filing statements of intent for institutions interested in funds; less formal “letters of intent” were due Nov. 21, 2007.
 
BioOhio will devote some public attention to the topic Jan. 31 when it joins Columbus State Community College’s Business and Industry Training Services to host a workshop dedicated to presenting “strategies designed to improve employee selection, development, and retention.” More information about the workshop is available here.
 
Fueling Growth
 
Another area where BioOhio hopes to focus attention in 2007, Dennis said, is in a greater state role in developing biofuel businesses, especially in the state’s agricultural rural sections.
 
The industry group hopes Ohio will go beyond previous efforts. The current state budget for the 2008 and 2009 fiscal years — Ohio budgets on a two-year cycle — sets aside $4.5 million for programs to increase availability statewide of soy biodiesel as well as ethanol. One such program gives gasoline retailers a tax credit of 15 cents per gallon in FY ‘08 and 13 cents per gallon in FY ’09 for each gallon they sell of E85, a compound that is 85 percent ethanol, 15 percent gasoline, or B20, a compound that is 20 percent soy biodiesel, 80 percent petroleum diesel.
 
A state spending watchdog group last week questioned whether the Buckeye State was in strong enough fiscal shape to offer additional subsidies to life science, whether in workforce development, biofuels, or other areas.
 
“Our housing market is definitely hurting here, and energy costs are hurting us as well. Our job losses keep growing. And as far as available revenue at the state, our revenues have been impacted by the tax reform that started in 2006-07 and is being implemented,” Wendy Feinn, policy and planning associate specializing in tax and fiscal policy with the Center for Community Solutions, told BRN.
 
Feinn cited a state budget forecast concluding that Ohio stands to lose more than $673 million in the 2008 fiscal year, which ends on June 30, and about $1.6 billion in FY ’09, as a result of two years of state tax-law changes — a tax-cut plan enacted in 2005 by then-Gov. Robert Taft II, a Republican term-limited out of office in 2006, and additional tax changes enacted last year by the General Assembly, where Republicans still control both houses.
 

“It’s very clear to us that in order to keep our growth going, and to be able to provide the kind of talent that allows for new companies to come into the state, we need to have a much more aggressive, much more strategically positioned workforce initiative.”

The losses, Feinn said, come as Ohio’s economy is struggling to grow given year-over-year job shrinkage — the state lost 8,000 jobs in the year ending November 2007 — and the residential real estate slump touched off by the meltdown of the subprime mortgage market. The Governor’s Council of Economic Advisors has forecast economic growth of just 1.6 percent through mid-2008.
 
Statewide, according to the Ohio Association of Realtors, the number of homes sold between January and November of 2007 shrunk 7.8 percent from the same 11 months of 2006 — from 132,428 to 122,115 units. Sales volume fell 9.9 percent, from $20.3 billion to $18.3 billion. But the average sale price of a single-family home dipped by just 2.3 percent, from $153,622 to $150,124.
 
“Despite the challenges that exist, we’re on pace to have a solid level of sales activity [in 2007], one that will likely go in the books among our best five on record,” association president Patrick O’Neill said Dec. 28. in a press release.
 
According to the budget forecast, prepared in March 2007 by Taft’s Democratic successor, current Gov. Ted Strickland, Ohio can expect to generate $726 million in FY ‘08 and $749 million in FY ‘09 from a 0.5-percentage-point hike in the state sales and use tax, to 5.5 percent. A hike in the cigarette tax should generate $416 million in FY ‘08 and $407 million the following fiscal year.
 
And by eliminating a scheduled 10-percent rollback on local property taxes for commercial and industrial properties, the state expects to receive another $329 million in FY ’08 and $348 million in FY ’09.
 
According to Strickland’s Office of Budget and Management, those gains would be more than wiped out by the following losses:
  • $1.2 billion in FY ’08 and $1.7 billion in FY ’09 from a 21-percent cut in the personal income tax rate phased in over five years, with residents with less than $10,000 in taxable income paying no tax;
  • $971.3 million in FY ’08 and more than $1.33 billion in FY ’09 from a phase out of the corporate franchise tax. However, the state is replacing that tax with a commercial activity tax projected to net the state slightly more, namely $975.5 million in FY ’08 and $1.34 billion in FY ’09; and
  • $931.6 million in FY ’08 and almost $1.3 billion in FY ’09 from a phase-out of the state’s tangible personal property tax.
The OBM also noted that state lawmakers last year approved extending the rollback to all senior citizen and permanently disabled homeowners, regardless of income, and for them also increased their exemption from local property taxes to the first $25,000 of market value, multiplied by their local residential tax rate.
 
The change will cost the state $128.5 million in FY ’08 and $257 million in FY ’09. The state sought to make up for that by collecting additional taxes by charging more to nonresidents who purchase cars in Ohio, lowering the vendor discount for sales tax, and eliminating the $300 per month tobacco product importation exemption from sales taxes.
 
Yet overall the state will still lose $4.5 million in FY ’08 and $193 million in FY ’09.
 
Strickland’s report acknowledged that revenues from the new commercial activity tax were above projections, but did not quantify by how much. But the report also said the revenue losses from the income tax cut and corporate franchise tax phase-out were larger than projected, again without specifying by how much.
 
During November 2007, tax revenues were below estimates by $114.5 million, according to the Dec. 10 Monthly Financial Report to the Governor. The monthly report blamed the income tax and corporate franchise tax cuts, but shied away from any long-term forecast: “It is hard to draw any conclusion about what this may indicate from a one-month variance.”
 
Dennis countered that the tax cuts will ultimately stimulate additional private investment in the state’s economy and especially its life sciences sector, which has grown as a result of Third Frontier.
 
According to BioOhio’s 2007 report, life sciences development and commercialization projects accounted for 55 percent of the $637 million awarded to all tech sectors under Third Frontier between January 2002 and June 2007 — about $350.4 million. That spending generated an additional $2.7 billion in cost sharing or co-investment by private investors in Ohio while creating or retain­ing 4,850 jobs.
 
As a result, Dennis said, he foresaw many of the programs comprising Third Frontier being extended past the scheduled expiration of the umbrella program.
 
“The intent behind the program was to get those matching dollars, with the eye to having the matching dollars provide evergreen and self-starting funds, so the winners perpetuate themselves,” Dennis acknowledged. “Third Frontier was originally designed to have a 10-year horizon, although we’re all … so excited about it that it’s likely we will find the mechanisms to refresh it when it begins to come to its end in 2012.”

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