Tech fund out of cash?

Ap­pli­ca­tions halted as of­fi­cials pon­der a $100 mil­lion ques­tion

Austin American-Statesman - - FRONT PAGE - By Lay­lan Copelin and Lori Hawkins

The state’s Emerg­ing Technology Fund has stopped tak­ing ap­pli­ca­tions for fu­ture awards be­cause it is out of money — at least for now.

Al­though the Leg­is­la­ture last year ap­pro­pri­ated $203 mil­lion for it, the fund is tapped out, less than half­way through the two-year bud­get cy­cle and even though the gover­nor’s of­fice has com­mit­ted only about half of the bud­geted amount. What hap­pened to the other $100 mil­lion? Mike Mor­ris­sey, a se­nior ad­viser to Gov. Rick Perry, blames slow fed­eral pay­ments for $50 mil­lion of the short­fall and a $50 mil­lion dis­crep­ancy in the state ap­pro­pri­a­tions process for the re­main­der.

The state fund, cre­ated in 2005, sup­ports re­search and startup com­pa­nies in cut­ting-edge fields, in­clud­ing 26 Austin-area com­pa­nies that have re­ceived a to­tal of $41 mil­lion. The money also has helped draw top sci­en­tists and promis­ing young com­pa­nies from other states to Texas.

Bud We­in­stein, an econ­o­mist with the Cox School of Busi­ness at South­ern Methodist Uni­ver­sity, said sus­pend­ing ap­pli­ca­tions to the fund could set back Texas’ ef­forts to be­come a leader in fields such as biotech­nol­ogy, ro­bot­ics and clean en­ergy.

“The ETF has helped pro­mote Texas as be­ing com­mit­ted to a new econ­omy that’s based on emerg­ing tech­nolo­gies,” We­in­stein said. “Right now is the most im­por­tant time in the busi­ness cy­cle to have those funds avail­able. Eco­nomic re­cov­ery is un­der way, and ev­ery cham­ber of

com­merce and eco­nomic devel­op­ment agency in Texas is out in Cal­i­for­nia try­ing to con­vince busi­nesses to re­lo­cate or ex­pand in Texas. Now is the time you want to have that in­cen­tive out there.

“I’m re­ally dis­tressed to hear that the fund is not tak­ing ap­pli­ca­tions right now.”

The only good news is that 30 com­pa­nies that re­cently cleared the ini­tial ap­pli­ca­tion process still are el­i­gi­ble for the last $64 mil­lion in the pipe­line. Perry, Lt. Gov. David De­whurst and House Speaker Joe Straus have the fi­nal say on whether the com­pa­nies get the fund­ing. The money prob­lem has two sources. Last year, the Leg­is­la­ture ex­pected that about $100 mil­lion would be left in the fund from the pre­vi­ous bud­get cy­cle to carry over for the 201011 bud­get. Then the gover­nor’s of­fice warned law­mak­ers that there would be no bal­ance.

They were both wrong: The bal­ance was about $50 mil­lion.

Mor­ris­sey said Perry was aware of the dis­crep­ancy when he signed the bud­get in June 2009.

De­spite the short­fall, the gover­nor’s of­fice chose to con­tinue op­er­at­ing the fund as it al­ways had.

“The de­ci­sion was that we would run the pro- gram as long as we could un­til we got at this junc­ture,” Mor­ris­sey said.

Then, $70 mil­lion was al­lo­cated to the fund from fed­eral re­im­burse­ments to the state for costs spent on Hur­ri­cane Ike in 2008.

The state is still wait­ing on $50 mil­lion of that, with no cer­tainty when it might ar­rive from the Fed­eral Emer­gency Man­age­ment Agency.

Un­less FEMA makes the pay­ments, the fund could re­main broke for months.

In Jan­uary, the new Leg­is­la­ture, al­ready fac­ing an es­ti­mated $18 bil­lion state bud­get short­fall, would have the op­tion of mak­ing an emer­gency ap­pro­pri­a­tion or let­ting the fund stay broke un­til Sept. 1, 2011, when the new bud­get cy­cle starts.

A top ad­viser to Perry on the Emerg­ing Technology Fund is try­ing to make the best of the sit­u­a­tion.

“We want as much money as we can get,” said Bob Pearson, an ex­ec­u­tive with Weis­sComm Group and chair­man of the board that ad­vises the fund. “But we have to deal with the money we are given.

“We al­ready have a sig­nif­i­cant port­fo­lio of com­pa­nies,” he added. “It’s im­por­tant for us to re­view and see if there are other ways — con­tacts or ad­vice — that we can help them with.”

State Reps. Jim Pitts, R-Wax­a­hachie, Richard Peña Ray­mond, D-Laredo, and Mark Strama, DAustin, said they were caught off-guard by the news that ap­pli­ca­tions are be­ing halted.

Pitts and Ray­mond are chair­man and vice chair­man of the House Ap­pro­pri­a­tions Com­mit­tee. Strama chairs the House Com­mit­tee on Technology, Eco­nomic Devel­op­ment and Work­force.

“I’m very sur­prised,” said Pitts, adding he will want to know more from the gover­nor’s of­fice.

Ray­mond noted that there were only three months be­tween the end of the 2009 ses­sion, when the bud­get was ap­proved, and the start of a new fis­cal year. He said he doesn’t un­der­stand why there would be such a large dis­crep­ancy — $100 mil­lion — be­tween the gover­nor’s of­fice and bud­get writ­ers on what would be spent in those three months.

Strama said that he was re­view­ing ap­pli­ca­tions for the gover­nor’s of­fice just last month and that no one men­tioned to him that the fund could run out of money in a few months.

Strama ques­tioned the move to stop tak­ing ap­pli­ca­tions. What hap­pens, he asked, if the speaker or lieu­tenant gover­nor don’t ap­prove the 30 com­pa­nies that the gover­nor’s of­fice is rec­om­mend­ing for the fi­nal $64 mil­lion?

Strama also said he is wor­ried that re­new­able en­ergy com­pa­nies, which have been rel­a­tively late to the game, might be the ones shut out.

“What we ought to be do­ing is pri­or­i­tiz­ing our very best grant ap­pli­ca­tions,” he said.

The fund has been a cru­cial life­line for young com­pa­nies in emerg­ing technology fields.

Dale Mis­czyn­ski, CEO of Austin-based Monebo Tech­nolo­gies, says his com­pany, which makes wire­less heart mon­i­tors, would have failed if not for the $500,000 grant it re­ceived be­tween 2006 and 2007. The com­pany used seed money from its founders to de­velop its prod­uct, which lets users gen­er­ate their own elec­tro­car­dio­gram at home and wire­lessly trans­mit the in­for­ma­tion to a doc­tor.

The grant pro­vided a fi­nan­cial bridge as the com­pany pur­sued its first cus­tomer or­ders, Mis­czyn­ski said.

“We wouldn’t have sur­vived with­out it,” he said.

With­out the grants, Mis­czyn­ski said, he wor­ries that Texas will be left be­hind in biotech­nol­ogy and med­i­cal de­vice in­no­va­tion.

“Texas is start­ing to be­come a place for start­ing life sci­ences com­pa­nies. It’s nowhere near San Diego or Sil­i­con Val­ley or Bos­ton, but it’s be­gin­ning to hap­pen. ETF grants have helped get com­pa­nies off the ground and get through crit­i­cal times. They’re a key piece of the puz­zle.”

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