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Pennsylvania’s New Operating Budget Grants Stay of Execution to Governor’s Biotech Plan

Pennsylvania Gov. Edward Rendell’s plan to boost the state’s biotech spending by $500 million came closer to winning a new lease on life last week when the Democratic governor and legislative leaders from both parties agreed in principle on a new $27.2 billion general fund portion of the state’s operating budget.
The compromise budget won approval July 15 from a House-Senate conference committee, and the state Senate and House of Representatives and Senate were expected to approve it July 16 or soon thereafter. The Senate has a six-hour waiting period before it can vote on legislation from the House or a conference committee; the House, a 24-hour waiting period on legislation from the Senate or a conference committee.
The budget deal, hammered out after Rendell furloughed 23,562 state workers deemed non-essential, came with a promise by the governor that the state Senate would vote on the proposed Jonas Salk Legacy Fund by Nov. 1. The House passed Salk 103-98 on June 25 largely along party lines.
Prospects for Salk winning Senate approval, however, appear as uncertain as they did this past spring, when leaders of the chamber objected to the proposed fund because of its cost and because the fund would be paid for through borrowing. The Senate Republican majority has included Salk in the $2.3 billion of “new debt” generated by new spending programs Rendell proposed in his original $27.3 billion general-fund proposal.
The general fund accounts for 46 percent of the state’s total $59 billion operating budget set for FY 2008. The remainder consists of a $17.5 billion federal fund and $14.3 billion in several state funds, including those that collect lottery proceeds, motor vehicle license fees, and this year’s share of tobacco settlement money.
Rendell “has done an immense amount of borrowing. And the question is, in light of the fact we’ve already passed bills recently that will do additional borrowing, there’s always a question of whether more borrowing is the answer,” Drew Crompton, counsel to state Senate president pro tempore Joseph Scarnati III (R-Jefferson), told BioRegion News.
Even if that question were addressed, Crompton said, many senators still wonder whether to change the state’s current research funding system. It uses 19 percent of the state’s tobacco settlement money to fund biomedical and health services research through non-competitive “formula” grants to hospitals, universities, and nonprofits based on their proportion of the state’s NIH funding; and competitive grants awarded to any applicant in response to a request issued annually through the state’s Commonwealth Universal Research Enhancement program.
Another problem with Salk, he said, is that the bill requires the state to fund institutions now receiving research money at least at the same level over the next five years, whether or not they qualify for funding new projects through the proposed fund, what backers call a hold-harmless provision.
“We could take up to 25 percent of the [Salk] borrow, $125 million out of the $500 million, just to pay for the hold-harmless. And people are saying, ‘I’m not sure that makes sense,” Crompton said. “A lot of our members think there’s nothing wrong with the current system and the current allocation of the research money. It’s a solution looking for a problem. That’s what some of our folks have problems with.”
Kevin Ortiz, a spokesman for the Pennsylvania Department of Commerce and Economic Development, said the Rendell administration would spend the next few months working to persuade state senators that Salk merits their support — in part by promoting its potential for creating jobs.
“There’s a strong case for Salk in terms of attracting top-notch researchers into the state and being able to garner additional NIH dollars on a federal level. This is an initiative that will [bring] at least 13,000 good-paying jobs to the commonwealth,” Ortiz said.
Asked why the state is optimistic about its likelihood of persuading senators opposed to Salk this past spring, he replied: “That’s a great question, but a response at this point would be totally speculative.”
Matthew Brouillette, president and CEO of the Commonwealth Foundation, a policy research group based in the state capital of Harrisburg, Pa., said the promise of a Salk fund decision by November helps Rendell, but only to a point.
“It is a victory [for Rendell] in the sense that they were able to decouple that program and many others from the budgeting process. I think that certainly allows for the consideration of his program based solely on its merits. Given the disinclination to borrow or raise more taxes, [Salk] becomes a difficult program for the governor to achieve,” Brouillette said in an interview.
The new budget would increase state spending by about 3.2 percent or $1.1 billion from the $26.1 billion approved for 2006-07. If $300 million placed in a special state fund for mass transit spending is counted, the state will spend about $27.5 billion or 4.4 percent more than last fiscal year.
State spending is a key issue in Pennsylvania, where voters turned on incumbents last year following a 16- to 34-percent raise in legislators’ base salary, depending on position, adopted during the wee hours of July 7, 2005.
While lawmakers and Rendell agreed to repeal the pay increase four months later, it was not enough to stop several government-reform groups from working to remake the General Assembly, with success. Last year Senate majority leader David Brightbill and state Senate president pro tempore Robert Jubelirer became the first incumbent legislative leaders in the state to lose in primaries since 1964, while House minority whip Mike Veon was unseated — and 55 new legislators won office in November 2006.
While these and other legislative turnovers have aggravated Rendell’s lame-duck status, that has not stopped him from advancing the Salk fund plan. The fund would pay for construction of new biotech laboratories and incubator facilities statewide for institutions and their affiliated medical centers now eligible for health research grants under CURE [BioRegion News, May 7].
CURE recipients could use Salk funding to buy specialized equipment that would be used by faculty newly recruited to colleges and universities throughout Pennsylvania. Institutions receiving Salk funds would have to get matching funds from the state.
The Salk fund would also require the state to direct 2 percent of the tobacco money, or $6.7 million, to a new Health Venture Investment Account to encourage venture capital investments in startup and early-stage life science companies. Another 2 percent would be directed to the state’s three regional biotechnology centers, called Life Science Greenhouses, one each in Philadelphia, Harrisburg, and Pittsburgh.
The $500 million Rendell wants for the Salk fund would come from the state borrowing against 9.5 percent of its tobacco-settlement money. That was a change the governor made this year to his original Salk plan as a concession to legislative leaders who expressed concerns about how the program would be funded.
The change did not stop state senators in the Republican majority earlier this year from questioning why Pennsylvania needed to spend the biotech money.
State Sen. Mary Jo White (R-Franklin) questioned the state’s planned borrowing against tobacco money, arguing the state may collect less of it in future years if smoking decreases, and proposed instead the state fund life sciences research on a “pay-as-you-go” basis. She did not return a telephone call from BioRegion News last week.
“We’ve got to stop raiding these various funds for the program du jour, and I think there are a lot of lawmakers that are recognizing [Salk] is not the appropriate use of those monies,” Broullette said.

“We’ve got to stop raiding these various funds for the program du jour, and I think there are a lot of lawmakers that are recognizing [Salk] is not the appropriate use of those monies.”

Eric Epstein, coordinator with Rock the Capital, a coalition of 11 groups formed after the 2005 pay raise, told BioRegion News lawmakers shouldn’t rule out tobacco funding out of hand.
“It has merit, and it may fly, but I think people need to digest what has transpired over the last two weeks,” Epstein said in an interview. “The Salk program is a noble concept. It’s a great program. The challenge is finding the resources to fund it,” Epstein told BioRegion News.
That challenge, Epstein said, rests squarely with Rendell: “The fate of the Salk program rests on the governor’s shoulders. If this is a priority for him and he puts it at the top, there’s a better chance of getting through.
“The governor needs to decide on a priority,” Epstein added. “Once he does that, we’ll have a better idea of the chances of passage in the fall. Absent any new funding, it’s going to be difficult to get it through the Senate.”
He said Rendell has offered an unfocused sea of priorities in recent months — selling the Pennsylvania Turnpike, funding mass-transit improvements, phasing in mandatory health insurance, pursuing a smoking ban for workplaces and restaurants, and expanding the state’s renewable-energy production.
The governor had hoped to pay for his energy program by tacking on a monthly surcharge to utility bills, but was thwarted by opposition from lawmakers and anti-tax groups. Rendell won $300 million for mass transit and a promise from lawmakers to enact a smoking ban in most public places.
“There’s only so much money to go around,” Epstein said. “You can’t have all the candy canes on the tree.”
The budget agreement also includes $880 million to carry out the expansion of the Pennsylvania Convention Center in downtown Philadelphia — $700 million for the project itself, then another $6 million a year each of the next 30 years toward operating costs. The center would nearly double its contiguous exhibit hall space from 440,000 square feet to 700,000 square feet; while the center’s total area would grow from just under 1.4 million square feet today to 2.4 million square feet.
Rendell has said he expects the project to be fully funded through the state’s $2 billion Gaming Economic Development and Tourism Fund, created in 2004 when the state legalized casino gambling.
The Philadelphia Convention & Visitors Bureau, the convention center’s primary sales and marketing agency, has sought a larger convention center partly in hopes of booking more biotech, life science, medical and healthcare conferences in and around the city. In April the PCVB announced it would work to do so through a new division, the Greater Philadelphia Life Sciences Congress. Among the congress’ aims: Persuade the Biotechnology Industry Organization to stage a future convention in the expanded center; PCVB asked BIO to return in 2010, only to be told the city did not have enough space or hotel rooms to accommodate the growing biotech convention. [BioRegion News, April 30].
“Work should be starting in this quarter” and be completed in the first quarter of 2010, said Sarah Hines, a spokeswoman for the PCVB.
The city Redevelopment Authority awarded a $6 million contract last month to Geppert Brothers, an 80-year-old Philadelphia demolition company, to clear the site between Broad, 13th, Arch, and Race Streets. The authority, acting on behalf of the state, acquired all 27 parcels on the site this spring.

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