Governor signs budget preserving bioscience priorities

July 1, 2008

By hammersmith

State bioscience interests achieved an escape worthy of Houdini in the Arizona Legislature’s just-completed budget process.

Early Friday, the Legislature passed a $9.9 billion budget for fiscal year 2009, which begins today, erasing a projected shortfall of $2 billion with a combination of borrowing, spending deferments, and across-the-board cuts that managed to leave intact three of the funding priorities dearest to bioscience advocates.

The seven-bill budget package that Gov. Janet Napolitano signed into law later Friday includes: an expanded tax credit for research and development; another year of funding for Science Foundation Arizona (SFAz); and bonding to pay for $1 billion of deferred infrastructure repairs and new construction at the state’s universities, most notably build-out of the downtown Phoenix biomedical campus.

At various points in the wrangling over the budget, lawmakers considered targeting each of the initiatives championed by the bioscience community to help close the shortfall. They survived in part because of a growing recognition–voiced by Gov. Napolitano and key legislators of both parties–that the current budget difficulties were exacerbated by heavy dependence on breakneck population growth and residential development to fill state coffers. Building up the bioscience sector, advocates declared, would diversify the economy and help the state weather future slowdowns better.

Steven Zylstra, president and CEO of the Arizona Technology Council applauded the passage of the R&D tax-credit expansion. “By focusing renewed attention and resources on research,” he said, “this bill will ensure that Arizona remains a leader in cutting-edge technology.”

The increased tax credit reflects the front-heavy costs of innovation for bioscience and other high-technology companies. Under the new law, beginning in 2009, companies will receive a 22 percent tax credit–up from 20 percent–on R&D expenses up $2.5 million. If their R&D expenses go higher, they will receive a $600,000 base credit–up from $500,000–and an additional 13 percent credit–up from 11 percent–for expenses over $2.5 million.

“Innovation doesn’t just happen–it requires leadership and an environment that fosters creativity,” said Jason Bagley, government affairs manager for Intel Corp. “Choosing to compete [with other states’ R&D incentives] encourages growth of high-wage, knowledge-economy jobs and leads to greater prosperity for Arizona’s future.”

The Legislature reduced the appropriation for SFAz, a public-private partnership now in its second year of grantmaking, from $25 million to $22.5 million for fiscal year 2009, but pledged to make up the loss with a $27.5 million appropriation in fiscal year 2011. Projected funding of $25 million for fiscal year 2010 remains unchanged.

For SFAz to draw down state funds, it must achieve a private-sector match. Further leveraging the state’s commitment, SFAz’s largest grant category, Strategic Research Groups, is structured to foster collaborations between research-performing institutions and industry partners, who commit to match SFAz investments.

The $1 billion commitment for university infrastructure was initially presented by backers as a $1.4 billion economic-stimulus package–estimated to generate 14,000 construction jobs and 16,000 related jobs–that would also help support Arizona’s ballooning university enrollment over coming years, and thereby address workforce-preparation needs.

The initial infrastructure plan included roughly $470 million to complete core construction of the Phoenix Biomedical Campus, along with such projects as new laboratory space for faculty at all three universities, renovation of a health sciences building on Arizona State University’s Polytechnic Campus, and a new environmental and natural sciences building at the University of Arizona.

Precisely which projects will be eliminated or decreased in scope under the smaller plan that the Legislature ultimately approved is not yet clear. The biomedical campus did receive the full requested funding, although a separate $10.5 million appropriation for ASU and UA to design two major facilities on the campus was stripped from the budget.

To repay bonds that will be issued to finance the infrastructure package, the Legislature approved an expansion of the Arizona Lottery. Increased advertising, new prizes, and additional ticket-vending machines should generate an extra $1.2 billion over the next decade.

Not all the budget news was good for higher education, though. As part of the sweeping cuts to close the shortfall, the approved budget includes $50 million reduction in funding for the universities. The Arizona Board of Regents will determine how that belt-tightening will be apportioned between ASU, Northern Arizona University, and UA.

UA president Robert Shelton addressed the budget cuts in a memo to the UA community. “The cut to the system is much less than might have been expected,” Dr. Shelton wrote, “and it is extremely important to note that the Governor and key legislators worked with great determination to limit cuts to higher education despite a record deficit for the state.”

For more information:

R&D Tax Credit Expansion, SFAz funding passes with state budget,” East Valley Living, 06/27/2008.

Budget passes,” Arizona Capitol Times, 06/27/2008

Hard-fought budget sent to Napolitano,” Arizona Republic, 06/27/2008