Indicators Suggest Need for Tech-Based ED Growing

A series of separate economic reports, revenue forecasts, and analyses of current trends released during the past week suggests the need for local, regional and state efforts to grow tech-based economies is increasing. As economic development practitioners and policymakers in science and technology prepare for the 2002 program, legislative, and budget cycles, they may want to consider:

• Last month’s official estimate of the federal budget surplus has been slashed by the Office of Management and Budget from $147 billion to approximately $50 billion.
• The Labor Department reports new unemployment claims rose by 58,000 last week, the highest level in over nine years.
• Orders for durable goods dropped for the third straight month, according to Commerce Department statistics released Thursday.
• State revenue collection, already slowing in a majority of states because of the economic environment, will experience another blow as the estate tax cut approved earlier this year by Congress and the President takes effect. National Governors Association estimates of the impact for all states is $50 billion to $100 billion over the next ten years.

The Sept. 26 edition of the New York Times reported the National Venture Capital Association <http://www.nvca.org&gt; says the venture capital industry “is preparing for an extremely difficult economic environment.” The Times says the terrorist attacks have impacted all aspects of the investment cycle from raising capital through determining profitability and initial public offerings.



In SSTI’s Opinion

The need for creative approaches and comprehensive strategies to encourage innovation and public-private partnership for tech-based economic development is heightened in light of these trends. SSTI anticipates increased federal support of research and programs important to state and local tech-based economic development will be difficult to come by when tighter federal revenues are coupled with the economic uncertainty resulting from the terrorist attacks and increased demands on national spending for recovery, military retaliation, and homeland security.



SSTI expects, too, that pressure on state and local budgets from non-economic development sources may make securing funds for new initiatives more challenging. Education, Medicare and welfare (as unemployment figures rise) are likely to capture even more of the political agenda and available revenues. It is important to note, however, that many of the country’s oldest, most enduring state tech-based economic development programs were launched during the deep recession of the early 1980s. Well-conceived strategies with significant support from all critical constituencies will be required for success in tighter fiscal environments.



Additionally, in light of the mood of the venture capital industry, state and local tech-based economic development efforts may plan or expect the demand and role of public sources for research and seed funding to increase in light of shrinking private pools of capital. State technical assistance programs, such as those to help businesses secure federal Small Business Innovation Research (SBIR) or Advanced Technology Program (ATP) funding, also may experience increased demand for their services as companies seek non-internal sources to support their R&D investments.



Return to the top of this page