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Despite Economic Turmoil, Fla. Politicians Seek More Subsidies for Life Sci Segment

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Florida lawmakers this year will continue to shower life-sciences employers with economic subsidies even as state officials wrestle to control the state’s budget, which has been hamstrung over the past two years by shrinking state tax revenues.
 
The resulting conflict will reach a head on March 4 as the state Legislature begins its 2008 session.
 
Faced with a budget deficit projected as high as $2 billion and blamed on the sputtering economy, as well as the resulting tax losses and additional cuts mandated by a January ballot referendum, Florida lawmakers face more pressure to contain overall spending than at any time in recent years.
 
With this economic turbulence as a backdrop, Gov. Charlie Crist and the state’s life-sciences and economic-development leaders are pushing for even more tax breaks, credits, and other government goodies to help buck up the industry.
 
They contend that keeping state subsidies flowing holds the best hope of growing the state’s life-sciences cluster — and, especially, drawing more tax-paying businesses and their jobs to a cluster heavy with nonprofit research institutions, all subsidized by the state and local governments.
 
Among Crist’s proposals, which were endorsed by the state’s public-private economic development group, Enterprise Florida Inc., is to create two additional economic-development programs offering potential benefit to life sciences companies:
  • An R&D tax credit, with unused credits allowed to be carried forward for 10 years after the expense was incurred. The state blames the absence of such a credit for its ranking 37th in corporate research and development activity. “We really want to be more competitive in this arena,” said Stuart Doyle, an EFI spokesman . Companion measures have been introduced to create the credit — House Bill 733 by Rep. Michael Grant (R-Port Charlotte) and Senate Bill 1398 by Sen. Steve Oelrich (R-Gainesville).
The R&D tax credit is projected to cost the state $15 million in its first year.
  • A research commercialization matching grant program that would match Florida firms’ federal Small Business Innovation Research and Small Business Technology Transfer Phase II awards with grants of up to 25 percent of project funding. The state hopes to improve on its rank of 31st in advancing startups from the programs’ startup or Phase I Feasibility Assessment phase, to Phase II R&D. Companion measures creating the program have been filed as House Bill 593 by Rep. Stephen Precourt (R-Orlando) and Senate Bill 1120 by Sen. Don Gaetz (R-Niceville).
The commercialization matching grant is projected to cost the state $5 million in its first year.
 
EFI also endorsed Crist’s request to boost its budget for the first time in three years. That deal calls for EFI’s fiscal 2009 budget to grow 24 percent to $15.5 million from the $12.5 million under the governor’s spending plan.
 
Overall, Crist, a Republican in his second year in office who succeeded Jeb Bush last year, has proposed a nearly $70 billion budget for fiscal 2009, which begins July 1, that increased some key economic-development programs used by life-sciences employers while freezing funding for others.
 
Last month EFI endorsed nine of Crist’s recommendations. At the top of the list was Crist’s proposal to spend $50 million less during the coming fiscal year on the state’s Innovation Incentive Fund, a pool intended to stimulate projects in biotech and other technologies projected to create 100 or more jobs. Crist and EFI would set aside $200 million for the innovation incentive fund, down from $250 million last year but a return to the amount budgeted during the fund’s first year of 2006-07.
 
Doyle denied that the lower figure was a response to the chillier climate for state spending expected this year. Asked why the fund was proposed to be cut, and how EFI would manage, Doyle maintained that EFI expects state lawmakers to eventually increase the innovation fund, as they did last fiscal year.
 
“If history repeats itself, that amount [this year’s proposed $200 million] would be higher when awarded,” Doyle said. He recalled how soon after taking office last year, Crist unveiled a budget that proposed $100 million for the innovation fund, which was raised to its current level following advocacy by a coalition of business groups and the state House of Representatives and Senate, both of which have GOP majorities.
 
”Even though we’re in challenging times, it’s really important for us to push forward with our economic diversification and growth plan. In the long term, we won’t meet those goals that we’ve set if we don’t really push as hard as we can now.”
 
Those goals were spelled out in Enterprise Florida’s 2007-2012 Roadmap to Florida’s Future, published last year and available here. The report discussed six goals: Diversifying a state economy still dependent on the cyclical tourism and hospitality industries; building a corps of top talent; ensuring a competitive business climate; promoting “sustainable” development that balances growth with quality-of-life concerns; developing a hub for global business activity; and developing an “innovation” economy anchored on life sciences and other tech industries.
 
To help fulfill the last goal, the state created its innovation fund in 2006. Last year, Crist and state lawmakers agreed to expand the fund to its current $250 million — nearly all of which has either been spent or committed to four nonprofit research institutes, including:
  • Germany’s Max Planck Institute, which is slated to receive $94 million, part of a $180.9 million subsidy package for a new research center on the Jupiter campus of Florida Atlantic University. The package included $86.9 million from Palm Beach County;
  • The University of Miami's Institute for Human Genomics, which opened Dec. 4, 2007, at UM’s South campus and received $80 million of the fund;
  • The Oregon Health and Science University’s Vaccine and Gene Therapy Institute, which will pocket $60 million of the fund to help develop its first satellite campus outside its namesake state. VGTI would open within the Florida Center for Innovation, a 120-acre campus within the master-planned Tradition community in Port St. Lucie, Fla.; and
  • SRI International, which conducts R&D for client government agencies, commercial businesses, and other organizations, which will collect $5 million to build a 200-person marine research and technology facility in St. Petersburg.
Florida created this and several other funds with the goal of benefiting life-sciences employers in the five years since teaming up with Palm Beach County to offer the $510 million in incentives that persuaded Scripps Research Institute to reach Florida’s first deal for an anchor research facility in the state.
 
Scripps is now building a 364,000-square-foot permanent campus — three buildings with laboratory and administrative space — within a 100-acre portion of Florida Atlantic University’s campus in Jupiter. The facility is set to open in the first quarter of 2009. In the meantime, about 250 professionals work in 74,000 square feet of temporary lab space in two buildings at the university.
 
The first group to dip into the original $200 million innovation fund was the Burnham Institute for Medical Research, which received $155.3 million, more than three-quarters of the entire pool, to help it construct its $80 million, 175,000-square-foot campus. The cash would also help it make infrastructure improvements within the 600-acre “medical city” planned as part of the 7,000-acre Lake Nona master-planned community within Orlando.
 
The Torrey Pines Institute for Molecular Research received another $32 million from the fund, which it will put to use on its plan to construct an $80 million, 100,000-square-foot campus at the 120-acre Florida Center for Innovation, within the Tradition master-planned community in Port St. Lucie.
 
“There are more projects in the pipeline,” Doyle said, declining to elaborate. “It’s not really a time to pull back when it comes to bringing in more high-paying, high-value industry jobs in this state.”
 
Mostly Cloudy in Sunshine State
 
Doyle said the agency will make its case to state lawmakers in part with numbers: EFI calculates that every dollar of state economic spending generates $5.24 in economic activity.
 
Whatever the figure, legislators will likely remain warm to state spending on economic development even this year, an observer of Florida’s spending and budget process told BioRegion News.
 
“There’s strong support for [growing the state’s life-science industry],” according to Kurt Wenner, director of tax research for the budget watchdog group Florida TaxWatch. “The legislature would like to do as much of that as they can. It’s too early to tell exactly how it’s all going to fall out. But I don’t think they’re going to forget about economic development.”
 
The state faces a $1.1 billion shortfall in recurring revenue in the current fiscal year, which ends June 30, and $923 million in fiscal 2009, which begins July 1. That recurring-revenue squeeze won’t likely affect decisions on economic development, he added.
 
“A lot of what they’re talking about in terms of economic development at this point is building, capital outlay, and you can use non-recurring sources for that,” said Wenner. “I think they’ll try to maintain what they’re doing now.”
 

“Even though we’re in challenging times, it’s really important for us to push forward with our economic diversification and growth plan.”

The sunny prospects for economic-development spending stand in stark contrast to what is shaping up into a gloomy budget year for the Sunshine State.
 
According to the state bureau of Economic and Demographic Research, during the first half of the fiscal year Florida’s revenues came up $230 million short of projections, with $138 million of that figure coming from January alone; figures for February are expected to come out this week.
 
Crist acknowledged the state’s tough financial times in his spending plan for 2008-09, which is $300 million lighter than the budget he and lawmakers approved last July.
 
The governor said he would balance the budget in part by shifting $740 million to the general revenue fund from specialized trust funds ranging from the state’s tobacco settlement money to funds established for affordable housing and open-space acquisition.
 
Crist’s budget also assumes $600 million in new gaming revenues — including $375 million through a compact with the Seminole tribe to offer Las Vegas-style gambling — and $181.5 million in additional receipts by adding games to the state lottery.
 
The Legislature responded by counter-proposing a new $500 million round of spending cuts for fiscal 2008, of which more than $200 million would be cut from the state’s K-12 public-education system.
 
The governor has proposed hiking K-12 spending by $1 billion and opposes the legislature’s $500 million budget cut. If the lawmakers prevail, it would mark the second contraction of state spending since the current nearly $72 billion budget took effect in July 2007. During the summer, legislators squeezed out $1.5 billion from the budget, trimming $8.5 million from the original $100 million approved for the state’s three Centers of Excellence while halving, to $2 million, money for the State University Research and Commercialization Grant Program [BioRegion News, Oct. 22, 2007].
 
“There will be negotiations going on,” Wenner said. “But at this point it’s ultimately up to the legislature to decide.”
 
In addition, Crist ordered all heads of state agencies to refrain from spending 1 percent of their budgets during every quarter.
 
One probable target of future budget cuts, Wenner said, is the State University System of Florida. Its 11 public universities are bracing for a reduction; state estimates have ranged from $147 million to $92.3 million, though system Chancellor Mark Rosenberg on Feb. 21 told the system’s Board of Governors he anticipated only a $48 million cut.
 
Earlier this year the state’s public university presidents proposed that the Legislature increase by $200 million the system’s budget, now at $2.2 billion, in each of the next five years. Wenner said that plan isn’t likely to fly in light of the budget situation.
 
“Education’s going to just have to hold, at least for the next year,” Wenner said.
 
The universities also want to raise their tuitions, an option opposed by Crist.
 
Florida is scrambling to keep its financial house in order given a statewide drop in home sales — a consequence of the nation’s recent sub-prime mortgage meltdown. And while the absence of hurricanes since 2004 may seem like good news, it has dried up sales tax collections tied to new home construction and renovation.
 
Also drying up is another source of increased revenue: new residents. Over the past six months, state economist Amy Baker has lowered her estimate of population growth for the six months ended October 2008 to less than 1 percent, or around 171,608 people. In August 2007 she projected residency to grow by about 300,000 people.
 
Crist said he expects the state economy to bounce back as a result of a state constitutional amendment approved by voters Jan. 29. Amendment 1:
  • Doubles the homestead exemption for almost all homeowners by exempting the assessed value of their homes from all property taxes except those levied by school districts.
  • Applies the new exemption fully to homesteads valued over $75,000 — with those residents projected to save about $240 a year — and partially to residents with homesteads of between $50,000 and $75,000.
  • Allows homeowners who move within the state to transfer to their new homestead the benefits they accumulated for their old homestead under the state’s Save-Our-Homes law — a feature lawmakers call “portability.”
  • Exempts the first $25,000 in assessed value of tangible personal property; and
  • Limits assessment increases to 10 percent each year for non-homestead property, except for school taxes, under a provision to expire Jan. 1, 2019.
Life-sciences property taxpayers also benefit from Amendment 1, since it includes a new $25,000 exemption for business property, including office furniture, computers, machinery and equipment. Crist had said that the measure would save residential and business taxpayers a combined $9.3 billion in taxes — good enough, he contends, to jumpstart the state’s housing market and pull the state out of its economic doldrums.
 
But the state Bureau of Economic and Business Research countered that Amendment 1 — specifically the portability provision — could hurt the state’s business climate by limiting residential taxation.
 
“Portability will most likely cause an increase in Florida’s already high business taxes. This will further dull Florida’s competitive edge in export-oriented industries,” the bureau concluded in “Economic Implications of Florida’s Proposed Property Tax Amendment.” Click here to read the full report.
 
Quick-Growing Fund
 
In addition to tax cuts, Crist has also sought to increase the state’s appeal to life sciences employers by proposing to maintain for another year Florida’s $45 million Quick Action Closing Fund, which gives cash to companies considering Florida and at least one other state for relocation or expansion projects. But in a sign that tension is growing between the governor and the Legislature, even though both houses are controlled by Republicans, Crist would change who decides on cash recipients by shifting responsibility to Enterprise Florida from the Legislative Budget Commission.
 
Crist last summer convinced lawmakers to cut the quick-action fund from the $70 million set aside by Bush in his final year as governor to $45 million. But the state is on track this fiscal year to approach Bush’s level of quick-action spending anyway. On Dec. 11, 2007, the Legislative Budget Commission approved two transfers from the state reserve fund to the Quick Action Closing Fund — one for $20 million and the other for $3 million — requested by Crist toward quick-action grants to undisclosed companies.

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