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Fighting Over Future Frontiers

Ohio's Issue 1 would expand state aid for high-tech firms

By Kevin Osborne · April 20th, 2010 · News
If you listen to supporters of the state of Ohio’s Third Frontier program, they say it’s a sound investment to bring cutting-edge high-tech jobs here, ensuring that the Rust Belt state realigns its economy for the 21st Century and can better weather future recessions.

Opponents, however, contend the program is more of a Jetsons-style pipe dream, a gamble that doesn’t have enough direct benefit for taxpayers yet could leave them on the hook for the expense if the promised jobs don’t materialize.

When voters go to the polls May 4, they’ll decide whether to approve Issue 1, a statewide ballot measure that would renew and expand bond money for the Third Frontier program.

Originally pushed by former Gov. Bob Taft in 2002, voters eventually approved issuing $1.6 billion in bonds for the program three years later. Although the authorization doesn’t expire until 2012, state lawmakers are seeking another $700 million to make more investments in promising research and technologies.

If approved, the state would be allowed to issue up to $450 million in general obligation bonds through fiscal year 2011, up to $225 million in 2012 and up to $175 million in any year thereafter, along with any amounts that weren’t previously issued or committed.

Under the plan, the bonds would be repaid using increased tax revenues generated by the new businesses and jobs created by the program. The initial batch of money should be repaid by 2014, according to an estimate by the Ohio Business Roundtable.

Gov. Ted Strickland, Taft’s successor, has said extending the program is crucial. “This is a significant investment in Ohio’s economy and the cornerstone of Ohio’s economic growth strategy,” Strickland said while stumping for the issue.

Since 2005 Third Frontier is credited for creating or assisting 571 startup companies through last summer, which directly created about 10,000 jobs and indirectly sparked another 38,000 positions. Total economic impact is pegged at $6.6 billion.

Among the projects funded so far are a computer program that examines how viruses evolve and tries to track how outbreaks spread, techniques that use an electromagnetic process to reshape metal into precision forms and development of polymer materials for high-temperature applications in the aerospace and defense industries.

Projects that receive funding are selected through a competitive process that’s judged by an independent panel of experts. Still, how the cash has been spent so far has enflamed regional rivalries and allegations of money being targeted to politically connected areas.

For example, Cincinnati and Southwest Ohio — which are predominantly Republican — have received roughly 10 percent of the Third Frontier’s cash, while smaller cities have gotten more.

The lion’s share has gone to Cleveland and Northeast Ohio, the state’s Democratic stronghold.

State officials deny that politics play any role in how the money is doled out. Regardless, the jobs created benefit all Ohioans, they add.

Cincinnatians for Progress (CFP), a pro-development citizens volunteer group, is among Issue 1’s supporters.

“The Third Frontier program is crucial to our state's growth and job creation,” says Candace Klein, CFP’s co-chair. “Third Frontier funds have helped so many Ohio startups since 2002, and the program sets us apart from other neighboring states. In today’s economy, we look to startups for job creation and growth, and Issue 1 is offering a commitment to support this key to our economy.”

In fact, Issue 1 has broad, bipartisan support. The vote to place it on the ballot was 83-14 in the Ohio House and 30-2 in the Ohio Senate.

One of those 14 dissenting voices in the House was state Rep. Matt Huffman (R-Lima), who says public money shouldn’t be used to pick winners and losers in the private sector.

“This is a bill against future revenues that may or may not pan out,” Huffman says. “It’s real popular with folks around the Statehouse because we get to borrow dollars that a future state legislature will have to pay back.

“This type of borrowing has caught up with the state of Ohio and is part of the reason we’re in a fiscal mess. The concept here is we’re taking money away from people and, after the government takes a slice for administrative overhead, we give the rest away for speculative ventures. We may get it back or we may not.”

The pro-Issue 1 campaign, United for Jobs Ohio, points to reviews by independent organizations like the Pew Center for the States, which called the Third Frontier program “a comprehensive, professionally run effort to build world-class research capacity, promote interaction between research and industry and commercialize R&D.”

Supporters include both major political parties, the AFL-CIO, the League of Women Voters, the Ohio Chamber of Commerce and the Association of Independent Colleges and Universities.

Although there is no organized opposition to Issue 1, the few outspoken critics are passionate that the free market should decide how Ohio’s economy develops. Also, they say, any government assistance for high-tech firms comes at the expense of other existing businesses.

“That is money that would otherwise could be put in banks and they would invest it or that would be spent buying goods and services from existing businesses,” Huffman says. “There are venture capital firms that do this. The government doesn’t need to.”

Huffman’s sentiment is inaccurate, Klein replies.

“Issue 1 is not a tax,” she says. “It in no way ‘takes money’ from anyone or any company. The state is using a fiscally responsible method to invest in new industries. (Cincinnati businessman and Reds owner) Bob Castellini said it best on April 7 when he explained that Ohio is a manufacturing state. If we ever hope to offer our citizens jobs in other and more cutting edge industries, it takes an investment to do so. Issue 1 is simply making that investment.”

But who’s to say the investment should go to high-tech startups?

“What about all the other businesses that may not be as cool or as sexy?” Huffman asks. “The local print shop in your hometown may go out of business because they don’t have access to that kind of money.”

Although he’s not about to mount a legal challenge, Huffman believes the type of government assistance offered by the Third Frontier is unconstitutional.

“That’s the purpose of the ‘general welfare’ clause in the Constitution,” he says. “Government spending is meant to be for things that directly benefit everybody, like roads and bridges.”

On that point, supporters sharply disagree.

“I would argue that job creation is for everyone’s benefit,” Klein says. “Government has been involved in incentivizing business growth for hundreds of years. The novel idea of actually providing access to a startup is the unique and innovative approach that Ohio is known for and should be proud of.

“I challenge opponents to look at this program from a private sector, not public sector, investor’s point of view. This method of taking an equity position in future earnings has been successful for centuries. Third Frontier companies have delivered a 22 percent return year after year, which is a safer investment than almost anything else the state of Ohio could be involved in.”

OHIO'S PRIMARY ELECTION is May 4, and CityBeat is partnering with Cleveland Scene on coverage of statewide races and issues. Check out Damian Guevara's story about the Jennifer Brunner/Lee Fisher battle in the Democratic Senate primary here.



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