Government and Economic Development and Technology and Real Estate & Retail

Daniels' economic development plan calls for pricey tools: Three incentive funds would cost more than $100M

May 8, 2006

Indiana's days of economic development on the cheap may soon be finished.

Three major new business-incentive funds are on the Indiana Economic Development Corp.'s wish list, each bearing a significant price tag. The General Assembly will decide next year whether to provide the more than $100 million IEDC requests to form them.

Plans for the three funds are tucked into Gov. Mitch Daniels' comprehensive new state economic development plan, "Accelerating Growth," released April 25. It aims to bring Hoosiers' lagging per-capita income in line with the rest of the nation's by the year 2020.

To reach that goal, Indiana's economic growth will have to outpace the U.S. average by at least 10 percent annually for 15 years.

"It can be done, but it takes more than business as usual," said Jim Wheeler, a senior vice president with Greenfield-based economic development firm Thomas P. Miller and Associates who helped conceive "Accelerating Growth." "We can't use our standard Indiana pay-as-you-go efforts."

Thus, the plan calls for heavy investment on the front end. It lays out a broad agenda with 37 specific initiatives, some of which have already been written into law, such as Daniels' Major Moves highway-privatization initiative and his push to deregulate broadband Internet service.

But other parts are new. The three proposed funds are the most likely to induce sticker shock. Together, they could cost more than the state's established innovation program, the $75 million 21st Century Research and Technology Fund.

Sen. David Ford, R-Hartford City, and chairman of the Senate Economic Development and Technology Committee, said the three funds will have to compete with every other spending initiative considered.

"There've been a lot of ideas we thought were good ones that came out of the economic development committee, then died in the budget committee," Ford said.

IEDC Executive Vice President Nathan Feltman said the three funds are necessary to spur innovation in university laboratories and speed its transfer to businesses.

"Could we still be effective and get started with lesser amounts? Yes," Feltman said. "Will we do as well? That's debatable."

One of the three, for now called the Indiana R&D Growth Fund, could prove an easy sell. IEDC would use its $50 million to give matching grants to universities and companies that solicit research money from the federal government. Many of the grant programs at the National Institutes of Health, National Science Foundation and the like require aspirants to first pony up money of their own.

Feltman estimates IEDC's matching grants should leverage three to five times more in federal money. So the Indiana R&D Growth Fund could boost Hoosier research by $150 million to $250 million.

The Indiana High-Growth Fund, also pegged at $50 million, is designed to be a flexible "deal-closing" tool for IEDC's use in business expansion or attraction deals. Feltman explained it would be used when traditional incentives, such as employee-training grants and tax abatements, aren't enough to sway a CEO.

Other states already have similar flexible deal-closing funds, Feltman said. They're used for all sorts of costs, from the purchase of real estate to the reimbursement of moving expenses.

"[Traditional incentives are] the way we've done economic development for many, many years," Feltman said. "Other states are getting more creative."

Ford said legislators may prove more receptive to the clearly defined R&D Growth Fund than the more open-ended High-Growth Fund.

"I do think the General Assembly will look at the deal-closing fund and want to put some sort of controls or restrictions on it," Ford said. "I don't think the budget agency folks are going to write a blank check and say, 'Here's the dollars. Do what you want.'"

The proposed Indiana Commercialization Fund is smaller, just $2.5 million at the outset. But IEDC is equally enthusiastic about its purpose, which is to pay $100,000 to researchers every time a new technology developed inside state lines is successfully commercialized here, too.

University researchers are not always eager to leave their posts to form companies, Wheeler said. Most existing incentives are targeted toward entrepreneurs. That's why the state needs a tool meant for professors, he said, who could use the cash to improve their laboratories, take on more graduate assistants, or expand their departments.

The Commercialization Fund could also persuade universities to consider the buyer when they license their new technologies. Feltman said promising Hoosier research is often snapped up by California speculators, because they offer the highest price.

"In the past, there's been more thought given to how we gain income for the university, as opposed to where that income came from," Feltman said. "This is a further incentive to make sure those opportunities are first brought to Indiana entrepreneurs and companies."

The three proposed funds' chance of passage depends primarily on two things: the state's fiscal health and Republican control of the Legislature.

Daniels' constant focus on balancing the budget could take care of the former. Election Day in November will decide the latter.

"I don't think the Democrats will be as receptive to the governor as Republicans are," Ford said. "I don't think that's a big shock to anyone."
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