Dear Colleagues-



The political news is so depressing these days. Folks are continuing their partisan battles and failing to deal effectively with the very real fiscal crisis in Washington, DC, in Augusta and in our cities and towns. What is most frustrating to me is that most debates are devoid of facts, and instead rely on emotional appeals. So this issue of the newsletter focuses on facts. The most important fact is that innovation is a demonstrably successful economic development strategy, and yet it is being shoved aside in Maine by fights over things that are irrelevant for economic growth. While other states are grasping what looks like a new surge in productivity led by the innovation sector, Maine is falling more and more behind.




Catherine S. Renault, PhD


P.S. Did You Know...


  • Companies who use innovation as a strategy make twice the profit margin as companies who have a strategy of low cost.
  • Employees make $53,000 on the average at companies with a strategy of innovation versus $33,000 on average for companies who have a strategy of low cost. 


The News from Augusta - Budget, Bonds and LD22


The legislature is trying to finish its business by the statutory deadline of June 15, 2011. However, major issues remain, not the least of which is the budget. Governor LePage amended his budget request last Friday, and the changes proposed do not impact any innovation budgets by name. There is a provision for the state to eliminate 279 vacant positions. It does not name the positions, and there are currently four vacancies at DECD: Commissioner, Deputy Commissioner, Director of Innovation and Director of Business Development.


The future of bonds is also still in doubt. The amount of debt service will be stipulated in the budget bill, and this will determine whether there will be any new bonds this year and, if there are, what the total amount will be. When that decision is made, the Appropriations Committee will start to work on which bonds to include. Word is that there is support for transportation bonds, but also that the Tea Party part of the Republican Party is pushing hard for no bonds at all. The Legislature could decide to hold the bond bills over until next year, leaving open the possibility of bonds in 2012 if the economy (and state tax revenues) improves. All of this does not bode well for the several innovation bonds that have been proposed.


The Taxation Committee voted Ought Not To Pass on LD22, the bill that would have expanded the Seed Capital Tax Credit. The Governor's Office indicated that he would not support this measure, and so the Committee decided to kill the bill. In related news, angel investors are increasing their commitments around the country, up 14% in 2010 over 2009, but not here in Maine. Angel investors nationally are reducing their investments in seed and start-up stage companies. 


What Other States Are Doing with Their Budgets?


Governor Bill Haslam of Tennessee announced at $50 million innovation jobs strategy called INCITE: innovation, commercialization, investment, technology and entrepreneurship.


Maryland Gov. Martin O'Malley's budget has passed which included increased funding for stem cell research and provided $8 million in tax credits for biotechnology investments. Lawmakers also allocated $2.4 million to fund nanobiotechnology projects. The Maryland Technology Development Corporation (TEDCO) will receive $15.7 million in FY12, up from $13.9 million approved last year. The budget also includes the governor's recommendation of $8 million for the biotechnology investment tax credit awarded for investments in qualified biotechnology companies and $3.8 million for the Maryland Biotech Center. The new

InvestMaryland program will invest at least $70 million in startup and early stage companies in Maryland following passage by the legislature.


New York Gov. Andrew Cuomo has announced the launch of the NYSUNY 2020 Challenge Grant Program. In its first phase, the program will make $140 million available (up to $35 million per institution) to SUNY University Centers in Albany, Binghamton, Buffalo and Stony Brook for partnerships with the private sector. These partnerships are intended to create new jobs and revitalize regional economies.


Technology companies surge in Silicon Valley again - the leading edge?


According to the Wall Street Journal, technology firms, from tiny start-ups to giants like Google Inc., are again racing to expand, sparking a turnaround in the Silicon Valley office market. Firms like Hewlett-Packard, Dell, and Microsoft are snapping up hundreds of thousands of feet of office space.


The amount of occupied office space in the area is on pace to increase by three million square feet this year, which would be the biggest one-year jump since 1999, according to Jones Lang LaSalle Inc. Rents for the best space in the most highly desired market, downtown Palo Alto, are up 25% from a year ago, while the vacancy rate has fallen to about 7%, the brokerage firm says.


Read more: http://online.wsj.com/article/SB10001424052748704729304576287241623208406.html#ixzz1MEslwc1w


Maine Number One on a Tax Study! But Not What You Think


Ernst and Young's recent study of the competitiveness of the states ranked the effective tax burden on new investment. Guess who came out Number 1 for LOWEST? Maine. According to E&Y's assessment, Maine's business tax structure imposes the smallest burden on new investment for the selected industries analyzed with an overall index of 3.0%, when weighted by capital investment. This relatively low burden is due to the following factors:


Maine uses a single sales factor corporate income apportionment formula. While Maine's corporate tax rate is higher than average, Maine's favorable income apportionment regime more than offsets the rate differential for the hypothetical investments included in the competitiveness index.

Maine has an average property tax rate. Maine's real property tax rate (in Portland) is 1.69% compared to a national average of 1.97%. Personal property tax rates in Maine are slightly above average at 1.77% compared to a national average of 1.65%, but new equipment is exempt from the property tax and any local property tax paid on qualified equipment is refunded through the Business Equipment Tax Reimbursement Program.

Maine has no franchise tax.

Maine's combined state and local sales tax rate is one of the lowest in the nation (5% compared to a national average of 6.2%)


By the way, this is in large part because of BETR, which the legislature regularly tries to repeal!


To read all the details, see http://www.ey.com/Publication/vwLUAssets/Competitiveness_state_and_local_business_taxes/$FILE/Competitiveness_state_and_local_business_taxes.pdf



May 2011 Issue
News from Augusta
Other States
Silicon Valley
Maine #1 on a Tax Study
Mind the Gap
Business Climate

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Mind the Gap!

Deloitte Consulting, LLP, has a new report out about the outlook for state government budgets for this year. As we know from reading the papers in Maine, states are facing their most acute budget shortfalls ever. But Deloitte correctly points out that this is not the only the result of expanded services and eligibility, but also a performance gap between the way state government currently operates and the realities of the new economy.


The report concludes that "states have reached a tipping point; that critical moment when governors and legislators need to rethink and re-examine the contract they have with their citizens." This means real reform, not accounting tricks are needed.


From an economic development perspective, Deloitte recommends that states promote innovation and spur collaboration among academia, industry and government, as opposed to traditional economic development; and reform education by enhancing teacher effectiveness, and encouraging education innovation.


There's more in the report on health care reform and using IT to transform state governments in the full report at http:// www.deloitte.com/us/2011GovtOutlook.


Are State Business Climate Indices Meaningful?

We have heard for so many years how bad Maine's business climate is. How useful are the reports that circulate that claim to measure business climate? A new paper by Jed Kolko, David Neumark and Marisol Cuellar Mejia suggest that many of the factors that are sometimes included in these reports have little or no predictive power. In other words, they are irrelevant. The factors that tend to be most linked to economic growth, such as industry mix and population density, are out of the control of state policies. The authors do like using taxes and costs of doing business as a way of predicting economic growth, particularly within the manufacturing sector. But they note that the factors related to productivity, including quality of life, infrastructure, and human capital do not correlate with economic growth. You can download the full paper, Public Policy, State Business Climates and Economic Growth at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1820080


About Innovation Policyworks, LLC


Innovation Policyworks, LLC, is an innovation strategy and evaluation firm focused on the development and measurement of effective state and regional technology-based policies and programs. This is different from any other offering because we explicitly link policy design and evaluation: recommended programs are appropriately focused on outcomes with a disciplined measurement process in place that allows policymakers and legislators to see what progress is being made and whether improvements need to be considered. 


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