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Spending Plans in IA and MA Seek to Balance Cuts with Job Creation Efforts

February 02, 2011

Deep cuts to higher education and reorganizing economic development efforts are common themes in executive budget proposals across most of the country as governors seek to both reduce spending and create jobs. Iowa Gov. Terry Branstad recently introduced legislation to replace the state's existing economic development agency with a public-private partnership. Meanwhile, his budget eliminates the Iowa Power Fund, established by the legislature in 2007 to invest in private sector renewable and alternative energy industries. In Massachusetts, Gov. Deval Patrick recommends $10 million to continue state support for the Massachusetts Life Sciences Center, but also plans to collect $25 million from the state's quasi-public agencies and defer $5 million in tax credits slated for life science companies to help fill a projected deficit totaling up to $2.5 billion.

Gov. Terry Branstad outlined his administration's five-year goals in the 2012-13 budget presented to lawmakers last week. Although the state currently operates on an annual budget, the governor recommends funding levels for FY12 and FY13 consistent with his proposal to institute a biennial budgeting process, which he says will provide additional funding stability to entities dependent on state resources.

To help reach an ambitious goal of creating 200,000 new jobs over the next five years, the governor introduced draft legislation this week to replace the Iowa Department of Economic Development with a public-private partnership called the Iowa Partnership for Progress (IPEP). The new nonprofit authority would be governed by an independent board of directors and chaired by the governor or his designee. A new economic progress board would oversee policy implemented by the partnership.

In his budget address, Gov. Branstand promised to equip the partnership with new tools to market and sell the state to job creators. IPEP could accept private funds for advertising campaigns and marketing under the legislation. Debi Durham, the newly-appointed economic development director, said in a Des Moines Register article that the partnership also could provide a home for the Iowa Innovation Council. IPEP also would be tasked with promoting statewide entrepreneurial education in K-12 and higher education.

A new Economic Progress Fund would replace the Grow Iowa Values Fund within the Department of Economic Development and funding would be reduced by 34 percent over the next two years. The governor recommends $25 million in both fiscal years to provide grants and loans for innovation and commercialization efforts, workforce training through community colleges, and business expansion, among other investments.

No funding is recommended for the Iowa Power Fund, which received $19.6 million in FY11. The fund was set up under former Gov. Chet Culver as a $100 million state commitment over four years to invest in renewable energy development (see the May 7, 2007 issue of the Digest).

To help the state reach its goal of increasing its ranking in the number of business startups from 44th to 25th, the governor will propose legislation allowing startup companies to function free of state income taxes for the first three years and free of state sales taxes for their first three years or $50,000 in taxable purchases, according to budget documents.

Gov. Branstad's 2012-13 budget is available at: https://governor.iowa.gov/wp-content/Iowa%20Budget%20Book%20Fiscal%20Years%202012-2013.pdf.

The governor's $30.5 billion proposed FY12 budget cuts spending by $570 million and calls for increased revenue totaling $627.3 million, which includes $200 million in one-time funds from reserves. As part of the new revenue enhancements, the governor recommends postponing $5 million in tax credits refunded or used by the Massachusetts Life Sciences Center (MLSC) to eligible corporations.

The FY12 budget would provide a third-year of level funding totaling $10 million for the MLSC, contingent upon a FY11 consolidated net surplus, as stipulated by the original legislation. The governor's intent was to provide $25 million annually for the effort. So far, the legislature has approved $35 million for the Life Sciences Investment Fund since passage of the state's 10-year, $1 billion Life Sciences Initiative in 2008 (see the May 7, 2007 issue of the Digest). Other components of the initiative include a capital program, which funded $34 million in capital projects last year, and a tax incentive program capped at $25 million per year.

To date, the center has committed $215 million in state funding and leveraged more than $700 million in outside investment, creating approximately 7,500 jobs.

Another $25 million in revenue would come from the state's quasi-public entities, including Mass Tech Collaborative and the Growth Capital Corporation. The agencies would contribute a total $25 million to preserve certain programs, including Mass Broadband Operations and the Small Business Development Center.

State funding for higher education would be cut by 1.4 percent or $12.2 million in FY12. However, the governor's budget proposes new funding of $500,000 to support science, technology, engineering and mathematics (STEM) education and the STEM pipeline fund, established in 2003 and administered through the Department of Higher Education. The goal of the program is to increase the number of students who participate in programs that support STEM careers, increase the number of qualified STEM teachers and improve the STEM educational offerings.

View the executive budget at: http://www.mass.gov/bb/h1/fy12h1/.

Iowa, Massachusettsstate budget, state tbed, commercialization, broadband, capital, tax credits, bio, higher ed, stem, k-12