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Mass. Fiscal Woes Rattle State's $1B Life-Sci Act; Lawmakers OK Budget Cut from $15M to $10M

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This is an updated version of a story first published on June 17.

Budget problems have taken their toll on the $1 billion, 10-year Massachusetts Life Sciences Act, which will see its budget cut from $15 million to $10 million under a $27.4 billion spending plan approved by state lawmakers Friday, and now awaiting the signature of Gov. Deval Patrick

Days before the vote, the official charged with overseeing the spending of funds under the life sciences act expressed optimism in an interview that her agency will have the funds it needs in the fiscal year starting July 1 to continue addressing industry issues and subsidizing researchers and their companies.

Susan Windham-Bannister, president and CEO of the quasi-public Massachusetts Life Sciences Center, spoke with BioRegion News days before a legislative conference committee hammered out the $27.4 billion spending plan, which was approved Friday afternoon by the House of Representatives and state Senate. The budget requires the signature of Gov. Deval Patrick, who signed the life-sci act into law on June 16, 2008.

This year Patrick, a Democrat expected to seek re-election in 2010, had called for the center to maintain the $15 million for operations that it received in the current fiscal year, set to end June 30. But both houses of the state legislature, which are Democratic-controlled, agreed to spend just $10 million in FY 2010 — with up to $3 million of that usable for administrative and operational costs.

Both sums fall well below the $25 million per year authorized by the law for annual operating costs.

"Given that everybody is having to take some pretty significant cuts right now, we've been able to do more with less. That having been said, though, realistically, it certainly means that we would not be able to program to the extent that we would like," Windham-Bannister told BRN Monday. "We're sitting tight and waiting to see exactly what is going to happen. Our hope is that we will receive that $10 million. We think that we'll be able to do some good things with that."

The operational funding at issue does not include the $25 million in tax credits the center is allowed to award each of the 10 years of the life-sciences act — the first tax credit winners among 86 applicants will be announced in September — or any additional capital funds that the center uses toward subsidizing life-sci projects under the law's $500 million, 10-year capital fund. This past fiscal year, the agency received $15 million from the Massachusetts Life Sciences Capital Program.

"We are hopeful that we will get an increase in that budget this year. It would be great if we could get twice that, but we'll see," Windham-Bannister said.

This past fiscal year, the life-sci center agreed to award the following amounts from its capital funds:

• $5.2 million to the town of Framingham to begin upgrading its wastewater collection system for a manufacturing expansion project by Genzyme, part of a $12.9 million funding earmark for the project within the life sciences act.

• $10 million for extensive renovations to the Loeb Laboratory Building of the Marine Biological Laboratory in Woods Hole. That award leveraged another $15 million from the Howard Hughes Medical Institute for the project — but the combined $25 million won't be enough to build the project, MBL has cautioned [BRN, April 17].

• $9.5 million toward the $33.7 million cost of the New England Regional Biosafety Laboratory at Tufts University’s Cummings School of Veterinary Medicine in Grafton.

How much the MLSC ultimately wins in capital funds for FY 2010, she added, will be based on how many projects are ready to start construction, and what other capital projects are seeking those funds, both in and outside the life sciences.

"We really have to wait and see, first of all, what the state is comfortable with in terms of the sale of bonds, and then what the determination is around our share. But we've been having some great conversations already with the folks at [administration and finance] about a number of life sciences projects that could make use of those capital dollars. So I think we'll be in good shape," Windham-Bannister told BRN.

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The coming year's capital fund would be used to establish any or all of several grant programs called for under the life-sci law. They include

• A $5 million Massachusetts Life Sciences Education Fund that would award grants to vocational and technical schools for purchasing or leasing equipment used in student training;

• The Dr. Craig C. Mello Small Business Equity Investment Fund, which would award up to $250,000 to small life sciences businesses with the life-sciences center, and would take an equity position; and

• The Dr. Judah Folkman Higher Education Grant Fund, which would award up to $15,000 a year in living expenses for graduate-level and doctoral students and post-doctoral fellows studying or employed, and earning no more than 300 percent above the federal poverty level, at a college, university, independent research institution, or an academic medical center in Massachusetts.

"They are programs for which we're anticipating getting an increase in the number of our capital resources next year," Windham-Banister said.

Other reasons for optimism on next fiscal year's finances, she said, include the $25 million available in tax credits, the likelihood that the center will draw private investors to help fund some initiatives, and the possibility of a share of funding from the $787 billion American Recovery and Reinvestment Act, the economic stimulus measure enacted in February by President Obama: "We're going to be having some conversations to see whether or not there's some economic stimulus dollars that might be able to be awarded through the center."

How much funding Massachusetts receives through ARRA will influence how much the life-sciences center chips in toward another set of projects earmarked under the life-sci act — the Albert Sherman Center, a 300,000-square-foot research and education facility planned for the University of Massachusetts Medical School in Worcester. The facility would house an "Advanced Therapeutics Cluster" consisting of the RNAi Institute, Center for Stem Cell Biology and Regenerative Medicine, and the Gene Therapy Center; the Department of Quantitative Health Sciences; and the Center for Experiential Learning and Simulation.

The RNAi Institute is a center for research in RNA interference intended to continue the work of Craig Mello, winner of the 2006 Nobel Prize in medicine — as well as a Stem Cell Bank and Registry, for which the center will continue to fund during fiscal year 2010 at the same combined $8.2 million the facilities received in FY '09. The bank and registry are expected over time to generate revenue by serving as a source of stem-cell lines to scientists nationwide, and by generating National Institutes of Health research grants.

During the winter, a state task force envisioned ARRA paying for $330 million of the project's $420 million cost for the Sherman center's core and shell, with the remaining $90 million to be distributed to UMass by the life-sciences center, since that money has been set aside in Patrick's Life Sciences Act.

The MLSC's cloudy funding picture comes as lawmakers continue scrambling to plug a $3 billion revenue shortfall that officials blame on lagging tax collections due to the ongoing economic upheaval. The amount of revenues lawmakers have assumed for FY '10 has slid with the economy, from $19.5 billion in January to $17.9 billion now. To fill the fiscal hole, the state House and Senate have approved an increase in the state sales tax from 5 percent to 6.25 percent, a measure opposed by business groups but sought by officials since it would generate $900 million, including $275 million intended to shore up the state's Massachusetts Turnpike and mass transit systems. Lawmakers have also approved a 1.25 percent hike in the restaurant meal tax, set to generate $108 million; a surcharge set to add $3.50 to the average monthly bills of satellite TV customers, and $11 million to state coffers; and a rule raising the amount of capital gains taxes the state must save into its rainy-day "Commonwealth Stabilization" fund. The state's capital gains tax collections are projected by Widmer's group to fall from $2.1 billion in FY '08 to just below $1.1 billion this fiscal year, and again to $666 million in FY '10.

"By the time we're through, we're going to be in extended fiscal problems, because we're using so much one-time money in fiscal '09 that we're setting ourselves up for a longer haul, a longer siege," said Michael Widmer, president of the Massachusetts Taxpayers Foundation, a Boston public policy group focused on fiscal, tax, and economic policies. He cited Patrick's use of $934 million in ARRA funds in FY '09, plus plans to use at least another $1.5 billion from the federal stimulus measure in FY '10.

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One option not under consideration, Widmer said, was rolling back any of the state's current economic incentives, let alone those within the MLSC — an option being weighed by lawmakers in the nation's other top-tier biotech state, California [See story, this issue].

Busy Second Year Planned

Windham-Bannister spoke with BRN as part of a series of media interviews held to mark the first anniversary of the Life Sciences Act. The measure sets aside $500 million in capital investments for construction and improvement projects; $250 million in tax credits for life-science companies in return for new jobs in the state; and $250 million for direct grants for researchers, including seed money to address federal funding shortfalls.

The law retained and expanded the life-sci center, created in 2006 by Patrick's predecessor Mitt Romney with $10 million. The center's first director, Romney appointee Aaron D'Elia, was forced out of the job six months into Patrick's term.

During its second year, she said, the life-sci center will continue its "SAM" strategy, short for seeding, accelerating, and matching research projects: "We're looking for important research initiatives, or projects or programs that need seed money," Windham-Bannister said. "We're looking to accelerate good work that's being done, accelerate the ability of young companies to cross that [dearth of post-angel early stage funding] chasm, and we're looking to attract matching dollars."

Windham-Bannister also said the center will tackle several issues cited often by life-sci leaders. One such key issue, she said, will be expanding the state's life sciences workforce, so that the industry can fill the 11,000 jobs projected to be created by the year 2014 — the focus of the first project funded by the MLSC, the Life Sciences Talent Initiative report released last September by the state-funded UMass Donahue Institute, Growing Talent: Meeting the Evolving Needs of the Massachusetts Life Sciences Industry [BRN, Sept. 22, 2008].

MLSC says it has begun addressing the need for a larger state life-sci workforce through its $500,000 Life Sciences Internship Challenge program, which will place at least 100, and could place up to 200, students with area life-sci employers this summer. As of Wednesday, the program has matched nearly 90 interns, among more than 500 applicants, with more than 80 participating companies and research institutions. The center also plans to complete in FY '10 a $2 million, two-year second round of matching grants for new investigators, set to award $100,000 per year over two years for up to 10 researchers, to be matched by the research institutions where the investigators are working.

During FY 2010, the center "really would like to issue a [request for proposals] if possible" from academic institutions interested in developing a professional masters of science program in the life sciences, a need she said has been identified by life-sci employers; and will explore further how it can help expose K-12 students to careers in the life sciences.

"We would like to continue to focus on workforce activities, including grants to new investigators in FY '10. We will absolutely continue to focus on the capital projects, because one of our priorities is to get more parts of Massachusetts life-sciences ready. Young companies with promising technologies are another big priority for us."

Talk of the center's commitment to younger companies comes less than a month after one regional business group, the Small Business Association of New England, complained to the Boston Herald that the MLSC needed to award more funds to smaller life-sci companies faster.

"I think on balance, if you look at the evidence, that statement is just really not correct," Windham-Bannister said, adding that the center has had talks with SBANE representatives since then, with plans for a roundtable discussion in about a week. She also cited the center's recent awarding of $3.4 million to seven smaller companies through its Accelerator Program, which awards up to $500,000 in loans to early-stage companies engaged in life sciences R&D, commercialization and manufacturing. Eighty-eight small companies applied for those grants.

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An eighth smaller company frequently cited by the center as benefiting from its help is RainDance Technologies, a provider of droplet-based solutions for human health and disease research. Its president and CEO, Chris McNary, has credited the life-sciences act with the decision last fall to relocate his company's 54-person headquarters from Guilford, Conn., to Lexington, Mass.

RainDance and David Weitz, professor of physics and applied physics at the Harvard University School of Engineering and Applied Sciences, won a three-year, $250,000-per-year, cooperative research grant to develop a new form of fluorescence-activated cell sorter for collecting biochemical information about individual cells.

Another issue the center will tackle this year, Windham-Bannister said, is developing standards governing the use of intellectual property developed through research funded by MLSC.

Still another priority on the second-year agenda, Windham-Bannister said, will be developing a presence for the center in each region of the state. The law requires the state to create five "Regional Technology and Innovation Centers,” state life-sci outposts to consist of existing facilities, with a total $30 million available toward lab space build-out projects they identified. The centers are designed to help the agency fulfill one of its key reasons for being — to help spread the benefits of the state's life-sciences industry beyond the Boston/Cambridge hub.

"This year, we've really gotten a good sense of where we see emerging clusters, what the needs are around the states. We solidified our own understanding of where the various segments — diagnostics, devices, pharma, biotech — where there are major concentrations, and also what useful role these RTICs would play," Windham-Bannister said. "We wanted intentionally to wait until the second year to really decide what the functions should be so that the form could follow the function."

It has not been decided, she said, if each center would focus on a specific life-sci specialty, in addition to a given region of the state.

Windham-Bannister said the life-sci center will continue what she called its "aggressive" recruitment of out-of-state companies, especially those from California; the MLSC noted that Patrick has been the only governor to attend the Biotechnology Industry Organization's annual international conventions each of the past three years, including the Atlanta BIO convention held last month. In February, she was part of a Patrick-led trade delegation from Massachusetts that spent four days visiting three West Coast states, hoping to persuade life sciences companies to at least expand their operations in Massachusetts, if not relocate existing operations in the Bay State [BRN, Feb. 9].

The delegation played up California's budget woes, which have worsened since then into a $24 billion budget shortfall that term-limited Republican Gov. Arnold Schwarzenegger and Democratic legislative leaders are scrambling to fill in the budget they are crafting for the fiscal year that starts July 1.

Windham-Bannister said the center was in discussions with three California companies interested in expanding into Massachusetts. She would not name the companies, citing the ongoing talks, but added: "There are three very, very active initiatives. One of them is in the diagnostic space, one in the bioinformatics space, and the third company is in biotech."

Cost-Benefit Dispute

Speaking with BRN, Windham-Bannister said the approximately $46 million spent so far by Massachusetts under the life-sci act was more than justified by what she said were two key first-year results — creation of about 950 new life sciences jobs, and $357 million in additional spending by businesses subsidized through the law as well as the federal government.

"I think we have had a very, very successful first year, and we are poised to continue to deliver this very high leverage and return on investment," she declared. "We have gotten the center absolutely up and running and staffed. That was one of our top priorities. We have gotten many of our core programs up and running, some of which were absolutely market driven and others were required by statute."

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In May, the MLSC completed its move into new offices in the Boston suburb of Waltham, where Windham-Bannister leads a staff of 10 people, two away from the dozen she contemplated the center having last year: "We're going to take a look and see what our funding is like for the coming year, and then decide on the timing of those last two hires. But our senior team is in place."

Another life-sci employer funded through the MLSC, Organogenesis, won a $7.4 million, two-year grant from the center toward an expansion projected to create 280 new jobs and generate $6 million in annual tax revenues by 2013. Also, 16 academic institutions received a total $10.6 million in grants requiring matches from them and/or corporate sponsors, resulting in a total $21 million generated through the program.

MLSC is also seeking corporate sponsors willing to join Johnson & Johnson as members of the agency's Corporate Consortium program, under which companies give at least $500,000, matched by the life-sci center, to fund the center’s Life Sciences Accelerator flagship fund, and other activities

The life-sci center's showering of economic benefits on a relatively small number of employers has drawn fire from a state Senator who has sought in recent weeks to defund the agency.

State Sen. Richard Tisei (R-Wakefield) told BRN on Tuesday that Massachusetts should not throw its economic development muscle behind any single industry — as it did two decade ago when it tried to compete with Silicon Valley for software and IT companies — but instead lower taxes for all.

In an interview, Tisei cited a recent meeting with "the president of one of the larger life-science companies in the United States," who he would not identify, but who he said was less than impressed with the economic incentives available through the MLSC:

"What would have been more important for him, as far as expanding in the state, would be to deal with all the other costs of doing business. We're a very costly state in which to do business. With the billion dollars we're going to put into life science over the next 10 years, why not put a billion dollars instead into improving the business climate and lowering the cost for all businesses in Massachusetts?" Tisei told BRN. "We should be providing relief for everyone."

Or at least, not placing life-sci companies not subsidized by the state at a competitive disadvantage over companies funded by the MLSC, he added.

Last month, the state Senate voted down a budget amendment submitted by Tisei to eliminate the life sciences center, in a 32-7 vote hailed by the MLSC as a sign that lawmakers remain interested in supporting the state's life-sci industry [BRN, June 5].

"We're going to bring it up from time to time, and probably submit it either as an amendment to future budgets, or as a standalone piece of legislation," Tisei said in the interview.

"All businesses in the state right now are in pretty tough shape, and in Massachusetts we're increasing our sales tax by 25 percent. We also are increasing our meals tax. You have the restaurant industry really getting it socked to them by the state in terms of higher taxes," Tisei told BRN on Tuesday. "We're not treating all industries equally, and that's what our problem is. Biotech is a growing industry and we do want them to come into the state and grow in the state. But to single them out for special tax advantages and tax breaks at a time when we can't even pay our bills for basic human services for the state doesn’t make sense."

Neither, Tisei added, does advancing the biotech industry with the MLSC, while at the same time, the state in March completed regulations barring biotech, pharma, and medical device companies from providing gifts to doctors, and forcing those doctors to report all payments above $50 for consulting and speeches.

"On the one hand, you're giving the drug companies a benefit. And on the other, you're making Massachusetts as a non-friendly place for businesses to come to," Tisei contended.

Labor Pains

Another critic of the life-sci center has been organized labor. Local 103 of the International Brotherhood of Electrical Workers has been joined by several other state-based unions in advocating that the MLSC limit its grants and loans to companies and research institutes that agree, in return, to use only union workers on their construction projects.

After a labor coalition, under the name Stop Biotech Looting, generated publicity for its campaign against the life-sci industry practices in construction hiring and CEO compensation, Patrick used his address at the annual meeting of the Massachusetts Biotechnology Council on April 14 to urge life-sci leaders to resolve their differences with the unions: "I would ask you, as your friend, your partner and your governor, to give them a fair shake." [BRN, April 17]

One biotech employer has taken that message to heart, Windham-Bannister said. She declined to name the company, but did say it is in talks to set aside most jobs in an upcoming construction project for union labor, and that it has not sought subsidies through the life-sci center.

"[The company has] reached a great agreement where I think about 80 percent of the jobs in a facility that they're planning to build will go to the unions. That has come through some good negotiation, and I believe both the company and the unions are feeling good," Windham-Bannister said. "I think between the center and the governor's message, there is a heightened awareness and sensitivity to the issue, and I think that companies are doing the best they can to respond."

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