Tech fund out of cash?
Applications halted as officials ponder a $100 million question
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.”