Sunday, January 25, 2004

Taft sticks with high-tech goal

State of State to renew Third Frontier

By John Byczkowski
The Cincinnati Enquirer


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As Ohio Gov. Bob Taft prepares for his State of the State address this week, he must balance a projected budget deficit with a crusade to create meaningful jobs, especially in high-technology fields.

The governor played his cards with Issue 1, a $500 million bond issue rejected by voters in November.

Issue 1 represented the final major funding leg of Third Frontier, a program designed to provide seed capital to develop new industry and jobs in Ohio based on biomedicine and high technology.

But the rebuttal at the polls apparently has not deterred Taft from pursuing Third Frontier's long-term goals.

Administration sources say he plans to talk about the program in his State of the State speech on Wednesday. For Taft, who campaigned heavily for Issue 1, Third Frontier represents a significant element of his legacy when he ends his term as governor.

"Our principal focus right now is sustaining the momentum we've already built with the investments that we've already made ... and make sure that those projects can be sustained and are successful and that we invest further," Taft said during a recent plant tour in Hamilton Township.

The governor called for creation of Third Frontier in his 2002 State of the State address. "Our goals are simple: We'll invest in our strengths, we'll build dynamic new businesses, and we'll create an explosion of high-paying jobs in Ohio," he said.

As originally envisioned, Third Frontier would spend $1.6 billion over 10 years for technology initiatives that would produce jobs. The defeat of Issue 1 didn't kill Third Frontier. It still has a $1.1 billion war chest for a 10-year, brick-and-mortar plan to build high-tech labs, hire researchers and fund startup companies. However, the rejection of Issue 1 cut off $500 million to operate many of those labs and - more importantly - turn much of that research into jobs.

"It was a third of the money, but it was an important third," said Rich Kiley, a consultant to the Ohio Business Roundtable on Third Frontier issues. The Columbus-based Roundtable is made of up CEOs of major Ohio companies.

While administration sources would not provide specifics of Taft's State of the State remarks, they say he has no current plans to return expanded funding for Third Frontier to the ballot anytime soon. But at least one legislator does.

James Trakas, the House majority whip and an Independence Republican, said he's drafting a bill to put an even bigger bond issue on the ballot next November.

Trakas' bill would provide $500 million over 10 years for Third Frontier, but also would earmark $250 million for manufacturing and $100 million for agriculture. He said he won't submit the bill until he has 50 co-sponsors from the 99-member House. As of late last week, he had 31.

The bond issue would pass this time around, Trakas argues, because the presidential election should bring more voters to the polls. And broadening the bond issue "may get some voters who felt it didn't do a lot for their regions or for them to perhaps reconsider that, and understand this is a comprehensive economic development plan," Trakas said.

Public vs. private

Fundamentally, Issue 1 and Trakas' proposal are about public investment and incentives to create what is essentially private enterprise. That's a hot button with critics who say private enterprise should remain private, but it also is a growing practice as states funnel millions of dollars into efforts to compete against one another for coveted high-paying jobs.

In studies comparing the attractiveness of states for high-tech industries, Ohio tends to fall in the middle of the pack, said Ross DeVol, a Lancaster native, Ohio University graduate and director of regional and demographic studies at the Milken Institute in Santa Monica, Calif.

"Ohio has a great university system. There are many great graduates," he said. "But Ohio suffers from the same problem as many other Midwestern states: It loses a lot of its best and brightest. Many see their opportunities better elsewhere." Unless job opportunities improve - particularly in high-tech industries - the state will continue to see its young, educated future taxpayers move away, he said.

Critics, however, say Third Frontier just masks bigger problems - such as an unfriendly tax structure - that discourage businesses from expanding here. Proponents say they want tax and tort reform as well, but Ohio won't even be in the game for jobs without Third Frontier's investments.

So Third Frontier represents a high-stakes game that has deep economic and political implications.

The winner gets the glory, the wealth and, perhaps most importantly, the jobs.

"Everybody's trying to get to the same place," said David Millhorn, director of the University of Cincinnati's Genome Research Institute in Reading, a Third Frontier-funded lab. "There's two things you need to get there: You need good people, and good technology."

At the Genome Research Institute, Third Frontier's investment is being put to the test. The 360,000 square feet of lab space in a former Marion-Merrell Dow Pharmaceutical facility "is filling up much faster than we anticipated," Millhorn said.

The institute, with 300 professionals working on site, is researching genetic causes of conditions such as obesity and diabetes, and hopes to use that research to help develop drugs to treat them.

Millhorn said he's been able to recruit top scientific minds from all over the world. "People like this place. They want to work here," he said.

The institute houses researchers from the university, Procter & Gamble Pharmaceuticals and other companies, and has attracted researchers from six continents. One is Angela Drew, an ovarian cancer researcher who moved to Cincinnati from Melbourne, Australia.

There are many reasons she came here - a great facility, the best equipment, lots of support. But a big reason is the structure of the institute.

"The most unique thing about this place ... is having a pharmaceutical company in the same building, under the same roof, as an academic institution," she said. That keeps research from collecting dust.

"Nobody else in the country's got anything like that, at least as far as we know. That's a great opportunity. We can take the research from the lab, right to the patient's bedside."

It's the kind of mix of research-to-company-to-market that Taft thinks will make Third Frontier pay off for Ohio as a whole.

Pandora's box?

Issue 1 also drew the ire of opponents who objected to its removing a constitutional prohibition against the use of bond money for anything other than capital projects - buildings and equipment. Had Issue 1 passed, the state would have been able to use the Third Frontier bond funds for operating expenses to run the labs. Issue 1 also would have exempted the bonds from the state's debt ceiling.

That's what led the Ohio Farm Bureau Federation to come out against Issue 1, the only major statewide organization to do so. The group feared the constitutional change would open a fiscal Pandora's box.

After the November election, Policy Matters Ohio, a Cleveland-based nonpartisan group that examines economic policy issues, issued a report that found that initial Third Frontier investments by the state produced few jobs and were poorly monitored.

Policy Matters Ohio looked at the Third Frontier Action Fund - a program begun under former Gov. George Voinovich - which had made 80 grants totaling $55 million since 1999. One company that received the funds helped businesses find low-cost suppliers in other countries, instead of here at home. Another, Cincinnati Machine, received three grants to develop a new machine tool, then last year moved production to Kentucky.

John Pestian, head of the Center for Computational Medicine at Children's Hospital, sees the big picture differently. "I know we're going to succeed," he said. "We've succeeded already. We're creating jobs."

The $25.2 million earmarked for his Center for Computational Medicine will help construct two floors for researchers, one big wet lab and a data center, employing more than 200. That center, and others around the state, already have signed corporate partners.

Third Frontier supporters also say oversight and accountability have been improved with the creation of the Third Frontier Advisory Board, headed by Mark Collar, president of P&G Pharmaceuticals.

So as they await the governor's State of the State outlook for Ohio and Third Frontier, those close to the program continue to weigh their options.

"We're now actively looking at ways to provide (funding for) at least some of the commercial and (research and development) activity that was to be funded by Issue 1," said Frank Samuel, the governor's science adviser and a member of the Third Frontier Action Commission, which has final approval of grants under the program.

"The budget's tight and we're not going to be able to find as much as we want, but we are trying to at least make up a part of the difference."


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