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Florida, Facing a $2B Budget Shortfall, Weighs Scrapping ‘Innovation Incentive’

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A looming $2 billion budget gap has put in jeopardy Innovation Incentive, Florida’s costliest economic-development subsidy, as lawmakers weigh how the state can best use its economic-development muscle as it seeks to grow its life-sciences cluster.
 
For the year that begins July 1, the state Senate is proposing to slash funding for the fund — created in 2006 to stimulate development of larger projects in the life sciences and other technologies — to $25 million from the $250 million that is currently budgeted.
 
Meantime, the state House of Representatives has cut the program entirely. Innovation Incentive does not appear in the House’s formal budget bill, or in earlier versions of the bill, which are posted on the chamber’s web site.
 
“The $25 million in the Senate is reflective of our budget situation. There’s just no additional non-recurring general revenue that’s available for that program,” Greg Giordano, chief legislative aide to the chair of the state Senate’s committee on transportation and economic development appropriations, Mike Fasano (R-New Port Richey), told BioRegion News last week.
 
A spokeswoman for Florida House Speaker Marco Rubio (R-Miami) referred questions on the Innovation Incentive fund to another staffer who was unavailable at deadline.
 
The Senate budget, called Senate Bill 2914, can be seen here. The latest House budget, known as the 2008-2009 General Appropriations Act or House Bill 5001, can be seen here, and the older bill can be seen here.
  
The squeeze on the Innovation Incentive fund comes as lawmakers are scrambling to plug a $2 billion hole in the state budget for fiscal 2009, a shortfall that officials blame on the sputtering economy, reflected in lower-than-expected mortgage taxes and sales taxes tied to new home construction and renovation [BRN, March 3].
 
By contrast, last year, when state coffers were still swelling, lawmakers added $50 million to the fund, which was launched in 2006 with $200 million in state funds.
 
In February, the state’s public-private economic-development agency, Enterprise Florida, endorsed Gov. Charlie Crist’s proposal to set aside $200 million in fiscal 2009 for the Innovation Incentive fund. At the time, EFI expressed hope that funding would be approved at a higher level. An agency spokesman last week said he was not aware of the legislative funding proposals and could not comment.
 
Even if Innovation Incentive survives in fiscal 2009, it likely won’t resemble the fount of funding for life-sciences employers that it has been. The state Senate is reviewing a bill by Fasano that would limit to 50 percent the amount of Innovation Incentive funds that could be awarded to employers in any of seven industries targeted for expansion by the state. The reason for the limit is that Florida’s parade of new research institutes have all but exhausted the Innovation Incentive funding, which was envisioned to benefit not only life sciences but also aerospace, alternative energy, aviation, information technology, nanotechnology, and robotics.
 
“Whether this bill passes or not, I think the biggest question is, ‘How much are [lawmakers] going to be able to fund it? How much are they going to be able to find for the program?’” Kurt Wenner, director of tax research for the budget watchdog group Florida TaxWatch, told BRN last week.
 
“The Senate has pretty much said that if a bill costs money, they’re not going to do it,” Wenner said. “I have seen a couple of exceptions to that rule that they are considering, but I would say anything that reduces tax collections this year has a real difficult row to hoe.”
 
Fasano’s bill (Senate Bill 2778, available here), would also force fund recipients to give the state between 10 percent and 15 percent of royalties and revenue from royalties and naming rights. Ninety percent of that money would be paid into the Biomedical Research Trust for life-science recipients, or the Economic Development Trust Fund for recipients in other industries. The remaining 10 percent would be deposited into the Building Florida’s Future Revolving Loan Guarantee Trust Fund.
 
The bill would also require employers receiving money from the fund to submit quarterly and annual reports detailing their progress in meeting job-creation goals. Those employers would be requested occasionally to appear at the oversight corporation’s board meetings to present their progress.
 
The bill’s new rules would not apply to any of the five life-science institutes that have reached formal agreements with the state for funding through the Innovation Incentive program: the Burnham Institute for Medical Research, the Torrey Pines Institute for Molecular Science, SRI International, the University of Miami’s Institute for Human Genomics, and Germany’s Max Planck Institute [BRN, Jan. 14; Oct. 8, 2007].

 

Also exempt is Oregon Health and Science University’s Vaccine and Gene Therapy Institute, since in January it came to terms with the state for $60 million in Innovation Incentive funds toward constructing a 130,000-square-foot facility at the 120-acre Florida Center of Innovation in Port St. Lucie.
 
The VGTI would also receive a $2.9 million property tax abatement from St. Lucie county, a $1.5 million property tax break from the city of Port St. Lucie, and $53 million in infrastructure improvements the city is building for FCI.
 
Anchors the Way
 
Giordano and a regional economic development leader last week told BioRegion News that the bill, like the uncertainty over the Innovation Incentive fund, reflects less a battle over bucks than a shift in thinking about how the state can best use its economic-development muscle to grow its life-sciences cluster.
 
By looking to life sciences and other tech specialties, Florida sought to broaden its economy, which has been largely based on cyclical and lower-paying industries such as hospitality and agriculture.
 
But until now, Gov. Crist and other officials have continued along the path of Crist’s predecessor, Jeb Bush, in showering nonprofit research institutes with millions of dollars tied to job-creation promises.
 
The nonprofit institutes, state officials reasoned, would anchor the state’s up-from-scratch life-sciences cluster by generating their own for-profit spinouts and draw to Florida dozens of established companies, creating a critical mass of businesses that would generate thousands of jobs and millions of dollars in tax revenues for state and local governments.
 

“At least now all these regional leaders have gotten more cognizant of the fact there’s more to building a bioscience economy than just the research anchors.”

However, Florida’s business- and economic-development leaders in recent months have agreed that the state must do more than lure anchor research centers if it is to build a vibrant life-sciences cluster.
 
“At least now all these regional leaders have gotten more cognizant of the fact [that] there’s more to building a bioscience economy than just the research anchors,” Walter Plosila, senior consultant to the Battelle Memorial Institute, told BioRegion News last month [BRN, March 24]. “They are talking about the need to address workforce, how they’ve got to address capital, got to address these other issues, or that research is not going to get turned into economic value, building the economy.
 
“When Jeb Bush was doing this, all he focused on was building research anchors, as if by themselves they would blossom economically,” Plosila added. “It’s sort of analogous to what the South has traditionally done – what I call smokestack chasing and recruiting auto plants or whatever — and [Florida lawmakers] sort of were in the mindset, at least initially, of thinking of research anchors like building an auto plant. It isn’t the same thing.”
 
Over the past four years, Bush and Crist have used the Innovation Incentive program to fund six of the seven research institutes the state has drawn to Florida since 2003. According to figures compiled by the staff of the state Senate commerce committee, Florida has formally committed nearly $373 million from the Innovation Incentive Fund and $343.9 million from local governments on subsidies for Burnham, Torrey Pines, SRI, UM-IHG, and Max Planck (See table below).
 
With those anchors in place, a key regional economic-development official told BRN, Florida can now shift its life-science economic-development policy from the costly challenge of attracting research institutes to the relatively cheaper use of smaller grants and loans to attract and retain individual businesses and their jobs and potential tax revenue from product commercialization.
 
“If we’re going to get the return on the investment that has been made so far in the research institutes, the best way to do that is to stimulate commercialization of their technologies,” said Larry Pelton, president of the public-private Economic Development Council of St. Lucie County. “The attention is going to begin to shift toward that technology-transfer component. And if there are ways to incentivize that, that’s really where the payoff to the state is going to come from.”
 
As a result, Pelton said, “what you’re going to see is a shift away from recruiting to nurturing of the life science institutes that have established themselves in Florida. There’s a lot of interest in the legislature to come up with support for investment capital and investment funds for spinoff companies. There’s also discussion about the treatment of tax credits for spinoff companies.”
 
Pelton’s group helped draw to Port St. Lucie VGTI and many of FCI’s other occupants. They include an entity of pioneer biomedical entrepreneur-philanthropist Alfred Mann, which plans to develop a 22-acre, 400,000-square-foot research complex; Martin Memorial Health Systems, which has been approved for a 700,000-square-foot patient care facility; Homewood Suites by Hilton; and Torrey Pines, which is building an $80 million, 100,000-square-foot research campus.
 
“We have other projects in the works right now that would bring complementary science and technology and that would locate in that same center,” Pelton said. He declined to identify them, except to say they would bring to FCI “institutes, education, and manufacturing.”
 
Out of Funds
 
The Innovation Incentive fund was created in 2006, three years after Bush thrust Florida onto the life-sciences map by advancing the half-billion-dollar package of state and local government subsidies that attracted the Scripps Research Institute.
 
State and local officials agreed to give Scripps $310 million in state funds, plus another $200 million in local government money toward its construction of a 364,000-square-foot campus now in progress at Florida Atlantic University in Jupiter. Scripps now operates from temporary space at the university.
 
In return for the money, Scripps committed to creating 545 jobs by 2015. As of March 17, the institute created 242 jobs, Scripps Florida spokesman Keith McKeown told BRN last week.
 
“The business plan for us is that we hope over the 10-year period [of state assistance], that the operation will be more than self-supporting,” McKeown said. As a result, he said, “I don’t see us in the future looking for further funding from the initiative.”
 
To oversee its agreement with Scripps, Florida created the Scripps Florida Funding Corp. Fasano’s bill would expand the corporation’s oversight to the Innovation Incentive program, which it would oversee with Florida’s Office of Tourism Trade and Economic Development, and Enterprise Florida.
 
“The Scripps board already had great expertise in the business area, as well as being able to identify and attract new industries,” Giordano said, explaining why the corporation’s board was used rather than a new entity created. “To try to replicate another board like that would have been cost-ineffective. There was also a concern [that]there [are] only so many people who have that type of expertise.”
 
The bill, Giordano said, reflected a desire by Fasano and other senators to bring accountability to the fund, and by extension to a state economic-development effort that has showered more than a billion dollars in tax breaks and other incentives on large employers. Florida’s tight budget was not a factor in drafting the bill, he said, since it was not foreseen when the measure was being crafted.
 
Fasano’s bill has already met with some success, passing the state Senate’s commerce committee March 25 by 7-0, and the government operations committee April 3 by 5-0. The measure has moved to the transportation and economic-development appropriations committee. Wins there would send the measure to the full Senate.
 
The bill has yet to spawn a companion measure in the House.
 
Legislators have also been busy in recent months reviewing a pair of proposals that reflect Florida’s desire to build a life sciences cluster beyond simply subsidizing research institutes.
 
Both proposals are quietly advancing through the Legislature.
 
Crist’s proposed budget would create an R&D tax credit with a 10-year carry-forward, as well as 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 [BRN, March 3].
 
House Bill 733 by Rep. Michael Grant (R-Port Charlotte) and Senate Bill 1398 by Sen. Steve Oelrich (R-Gainesville) would create the R&D credit. The former is in the House economic expansion and infrastructure council, the latter was rewritten by the Senate’s commerce committee, which passed it, and is now in the finance and tax committee.
 
The commercialization grants would be launched by House Bill 593 by Rep. Stephen Precourt (R-Orlando) and Senate Bill 1120 by Sen. Don Gaetz (R-Niceville) would launch the commercialization grants. The House bill passed the economic development committee and is now before the economic expansion and infrastructure council. Gaetz and the commerce committee rewrote the Senate bill before passing it April 1; the bill is now in the governmental operations committee.

 
Highlights of Scripps and Official Innovation Incentive Projects
(Last updated March 17, 2008)
Entity
State Funding Committed
State Funding Released
Local/Other Match
Jobs Required by Agreement/Jobs as of March 2008
Scripps
$310M
$149.9M,
plus $8.4M interest
At least $200M
545/242
Burnham
$155.3M
$51.4M
$155.5M
303/28
Torrey Pines
$24.7M
$11.3M
$71.5M
189/19
SRI
$20M
$11.4M
At least $30M
160/64
University of Miami Institute of Human Genomics
$80M
$20M
At least $100M in private philanthropy has been identified
296/98
Max Planck
$93M
None
At least $86.9M
No contract yet

Source: Florida State Senate Commerce Committee.

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