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MA's 2010 Budget Would Cut Life-Sci Initiative's Program-Funding Allowance for Second Year

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The state agency responsible for overseeing Massachusetts' recently enacted $1 billion, 10-year life-science growth initiative would see its program- and administrative-funding allowance cut a second straight year if Gov. Deval Patrick's proposed $28 billion budget for fiscal 2010 becomes law.

The result would force the Commonwealth Life Sciences Investment Program to continue stretching over two years payments to qualifying companies, a move the agency was forced to make last week when it approved a $7.4 million, two-year grant to Organogenesis to help it expand its headquarters in Canton; only the first half will be paid out this fiscal year.

Patrick's proposed budget for the fiscal year beginning July 1 would raise by 33 percent, or from $15 million to $20 million, the maximum annual amount the government would spend on life-sciences center grants and administrative costs covered by the investment program. However, that increase still falls below the $25 million annual limit set by the Massachusetts Life Sciences Act that Patrick signed into law last June [BRN, June 16, 2008].

But in the two years since the life sciences act was enacted, the ongoing national economic and financial upheaval has inflated the state's fiscal 2010 budget shortfall to $1.4 billion and has pushed Patrick and state lawmakers into cost-cutting mode.

For instance, last fall — when the first fiscal year of the MLSA hit the height of the banking crisis head-on — state officials shaved CLSIP's budget by 40 percent, or $10 million, to $15 million.

On Jan. 27, the center's board of directors awarded $3.7 million of that money to Organogenesis as the first of two annual installments meant to help it construct its new three-building, 250,000-square-foot headquarters.

The second $3.7 million tranche would come from the $20 million that had been set aside for the life-science center's investment fund in Patrick's spending plan for fiscal 2010.

Organogenesis is the third CLSIP grant recipient to have its funding shaved due to statewide fiscal 2009 budget cuts. In October, the town of Framingham received $5.2 million of the $12.9 million CLSIP grant it had been promised to help it upgrade its wastewater-collection system. That move was to be made in conjunction with a large-scale manufacturing expansion by Genzyme, a project expected to create 300 new manufacturing jobs in the town [BRN, Nov. 3, 2008].

And the following month, the life-sciences center board authorized spending $10 million to improve the infrastructure as part of a renovation of the Loeb Laboratory at the Marine Biological Laboratory in Woods Hole. But the budget shortfall has forced state officials to split that award evenly over two years, a spokesman for the life sciences center told BioRegion News last week.

"We continue to recognize the need to do our part as the state addresses its overall difficult fiscal circumstances, and we will put the resources that are made available to us through wise investment, with a strong return for the commonwealth," life-sciences center spokesman Angus McQuilken said.

For instance, McQuilken noted that the state has spared from budget cuts the $25 million the center awards annually in tax cuts, and the 10-year, $500 million infrastructure fund.

Not so the investment program, whose purpose, according to the Life Sciences Act, is "to expand life sciences-related employment opportunities in the commonwealth and to promote health-related innovations by supporting and stimulating research and development, manufacturing and commercialization in the life sciences."

The MLSA was created in 2006 by Patrick's predecessor Mitt Romney, and expanded into its current role as overseer of the $1 billion Life Sciences Act by Patrick. That expansion included creation of the CLSIP to subsidize life-sciences companies, underwrite academic research grants, and fund the operations of the life-sciences center.

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Organogenesis President and CEO Geoff MacKay has credited the Life Sciences Act with persuading the company to expand within Massachusetts rather than relocating out of it [BRN, June 4, 2007]. A regenerative-medicine company focused on bio-active wound healing, bio-surgery, and oral regeneration, Organogenesis has spent $10 million to purchase two buildings totaling 175,000 square feet across from its current HQ — a deal the company has said was needed in order to meet short- and longer-term space needs.

Speaking with BRN last week about the expansion, MacKay said Organogenesis was carrying out engineering design work all through this year "to really map out the engineering component, and then from that point in time, the actual building takes place.

"In terms of the complexity of the project, it's really the point that we're approaching right now, which is the engineering design, that's the most complex," MacKay said. "We're not just simply expanding the same process that we have right now. What we really want to do is really have a very high-tech, roboticized, automated cell therapy-manufacturing suite."

MacKay said the ongoing financial upheaval is unlikely to slow or delay the expansion project. "We're a little bit on our own cycle," he said. "We recognize that it's a tough overall climate, but our company, our growth rate, and our product adoption have been increasing very, very significantly over the last five years, and we think it will continue to."

Organogenesis projects it will spend $53 million on the two-phase expansion, which is expected to be completed in 2015. The expansion is expected to boost headcount by around 130 percent to 500 staffers from its current work force of 220, and generate $6 million in additional annual tax revenues by 2013.

When completed, the new Organogenesis headquarters campus will comprise:

• The company's existing headquarters, a 79,000-square-foot building slated to house its main R&D labs and pilot-manufacturing site for smaller product lines;

• A 78,000-square-foot building that includes 40,000 square feet of office space with the remainder open-bay space set aside for future expansion. Organogenesis could expand the building's footprint by another 10,500 square feet;

• A 95,000-square-foot building into which the company would expand its main manufacturing plant, with 60,000 square feet of manufacturing and quality labs as well as shipping/receiving and other support systems. According to Organogenesis, the plant will be the world's largest facility for manufacturing cell therapies.

Bitter Pill

The life-sciences center budget cuts are part of $1.6 billion in total cuts Patrick proposed in his $27.97 billion spending plan for fiscal 2010. The Democratic governor, who faces re-election next year, is looking beyond cuts to balance his budget, mixing in $586 million from the state's rainy-day fund, $74.5 million in higher motor vehicles registration fees that won't apply to hybrid vehicles; and $587 million in new taxes. The latter would extend the 5-cent deposit on bottled water, sports drinks, coffee-based beverages, and fruit drinks, which is expected to generate $20 million annually.

In addition to the fiscal 2010 budget, Patrick announced a second spending proposal for the current fiscal year that he hopes will plug a $1.1 billion budget shortfall. That proposal calls for using $533 million the state is expected to receive under the Obama stimulus bill; $327 million from the state's rainy-day fund, $191 million in additional cuts; and $68 million in tax hikes and new fees.

The latter provision would increase by 1 percent the state's 5.75-percent hotel/motel tax; raise by 1 percent the state's meals tax — which together are expected to raise $150 million in annual revenue — and expand the state's 5-percent sales tax on alcoholic beverages to also include candy, soda and sweetened beverages. Patrick has portrayed the new candy tax, set to raise $121.5 million in annual revenues, as part of a state effort to fight obesity.

One revenue-raising option not being discussed for the current or coming fiscal budgets is casino gambling, an idea long ruled out by House of Representative Speaker Salvatore DiMasi (D-Boston) despite lobbying by Patrick and labor unions. Last week, DiMasi resigned from the state Legislature, ending a 30-year career one month after a friend who is also his accountant was indicted by a Suffolk County jury on campaign finance and lobbying charges. The accountant, Richard Vitale, is also under investigation by a federal grand jury concerning payments he and other friends of DiMasi received from a software company that won two state contracts, Cognos ULC.

DiMasi's successor, Robert DeLeo (D-Winthrop), has said he is open to allowing slot machines in state race tracks, though not casinos.

And Michael Widmer, president of the Massachusetts Taxpayers Foundation, told BRN last week that "whether casinos are going to become a centerpiece of the budget agenda in 2009, I'd say it's too early to tell. The governor has made it clear he's not going to put it forward."

Like many US governors, Patrick is looking to Washington for budget help. His fiscal 2010 budget proposal includes $711 million Massachusetts has projected it will receive for projects the state thinks can be funded by President Obama's proposed $819 billion American Recovery and Reinvestment Act of 2009. That measure advanced last week to the US Senate following a largely party-line, 244-188 passage in the US House of Representatives.

"If these revenues aren't approved — the new taxes and fees, and so forth — then we have to cut deeper," Widmer said. "And already people are naturally screaming about the cuts, and about the revenue raising, and we have a huge budget hole.

"At this point, there's just a resounding outcry across the board from everybody who's affected," he added. "The Legislature is facing the same shortfall the governor is, but they may choose to make some other choices."

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