Editor's Note: Here Today, Gone Tomorrow: Quebec S&T Demise Offers Lessons to All

The previous issue of the SSTI Weekly Digest (June 27, 2003) included a story with the headline "Québec Investing More Than $500M for Biotech." It was the kind of big initiative with a hefty price tag that a few states have launched and most others salivate to replicate. A perfect item for the Digest.

The problem is that big initiative never actually happened.

Had the story run before June 12 – the day the first budget of recently elected Québec Premier Jean Charest was released – it would have been accurate. However, the new Liberal government cancelled all of the biotech initiatives mentioned in that Digest article, and the budget eliminated or reduced several other government programs and tax incentives promoting science and technology (S&T):

• Tax benefits for tech-oriented cluster development in designated sites (12 different tax credits eliminated) - In the states, these are the technology enterprise zones that have become increasingly popular policy to encourage geographically specific and industry-targeted development. Québec's tax credits had also extended to business activity within specific facilities identified as innovation centres, new economy centres, and information technology development centres. In his budget speech, Québec's new Finance Minister, Yves Séguin, points to some of the same criticisms levied against U.S. enterprise zone policy: "This approach led to costs that were disproportionately high compared with the number of jobs actually created. A large percentage of the job we subsidized – up to 40 percent over 10 years – would have been created anyway." Anticipated budget impact: $114 million (Canadian)
• Accelerated depreciation of 125 percent for manufacturing investments (eliminated) - "The measure did not produce the anticipated results, primarily because it did not have enough of a financial impact on the businesses claiming it. From now on, manufacturing businesses in Québec will be entitled to the 30 percent annual depreciation rate in effect in the rest of Canada," Séguin said.
• Tax credits for research and development (reduced) - The budget speech states, "Tax credits for research and development, which are crucial to Québec’s economic growth, will be cut by 12.5 percent." The R&D tax credit for increased spending is eliminating. Combined anticipated budget impact of both measures: $85 million
• The Bio-Levier Fund (eliminated) - This loan capitalization program for small biotech firms was slated for a $50 million increase in the budget covered in the June 27 Digest article. As well as abolishing that increase, the new budget eliminates the fund's current $100 million appropriation for at least one year.

The new administration's budget does include a few positive highlights for the S&T community, including: doubling the province's spending on genomics research to $21 million; phasing out the capital tax for companies whose capital value is less than $600,000; and, exempting companies with payrolls under $1 million from having to spend 1 percent of their payroll on training. In addition, Québec's three major research-granting agencies will receive nearly $149 million to support academic and scientific research and graduate study. Other research and innovation programs will receive more than $55 million for grants and transfers to the research and business communities.

Proponents of technology-based economic development efforts point to many years of targeted investments by the government as contributing significantly to why Québec currently is home to Canada's largest concentration of biotech companies. Some are quoted in Canadian news publications as fearing the abrupt end of so many government initiatives, coupled with the dearth of private equity and investment capital, will cripple the fledgling industry.

While the reversal in policy and commitment to building a tech-based economy in Québec occurred virtually overnight, it is not the only example we can point to this year. The demise of the Alaska and Maine S&T foundations and the attempted, or in some cases successful, raids on several states' economic development budgets should bring the issue closer to home for most readers.

Strong public and private leadership is necessary to create and sustain momentum developed through the programs highlighted on the pages of this newsletter. Public leadership must resonate within and across political parties, ideologies within parties, and branches of government.

More importantly, though, active private sector support and buy-in must be integral to the design, implementation and continuous improvement of all tech-based economic development programs. Attempting to rally troops only after the public sector's commitment becomes threatened demands more resources and energy at a time when programs can least afford either.

A source for inspiration: Surviving and thriving in the current fiscal environment will be on the formal and informal agendas of SSTI's 7th Annual Conference, Building Tech-based Economies: From Policy to Practice, to be held in Seattle on October 21-22. Join your colleagues and peers for networking and professional development in this and other timely topics at the field's most invigorating and rewarding event. More information is available at: http://www.ssti.org/conference03.htm [expired]