Washington Lawmakers Ax Life Sciences Fund, Tech Incentives

3/27/14Follow @bromano

Life sciences innovators in Washington state are hoping Gov. Jay Inslee vetoes a budget item that would close the Life Sciences Discovery Fund after its current grant commitments are fulfilled.

That’s one of two big disappointments to emerge from the 2014 Washington legislative session for backers of Washington’s innovation sectors. The other is the failure to renew a high technology tax incentive for research and development, which has been in place for 20 years and was a priority for the technology industry.

On the bright side, a state crowdfunding bill passed easily, and lawmakers set aside $2 million for computer science education at Central and Eastern Washington universities.

The Life Sciences Discovery Fund (LSDF), established in 2005 to distribute up to $350 million of state tobacco settlement money over 10 years to life sciences research, has come under attack before. LSDF executive director John DesRosier says eliminating it completely will erase an important source of funding to shepherd promising scientific discoveries into companies and society. The state budget provides enough funding to fulfill existing grant commitments, but eliminates funding for future grants. That is, unless Gov. Inslee vetoes the budget item by April 5.

DesRosier says he has no insight into the governor’s thinking. Groups such as UW Impact, an advocacy arm of the UW Alumni Association, are encouraging people to write to Inslee in support of the LSDF.

Since it began distributing money in late 2007, the LSDF has made some $96.7 million in grant commitments ($78.6 million of which had been paid out as of last month) to research efforts focused on everything from Alzheimer’s disease detection to “Celiac-safe” wheat. Recently, it helped establish the University of Washington’s Institute for Protein Design and funded work on novel artificial joint materials at Washington State University.

And the LSDF has been a particularly crucial source of so-called gap funding for early-stage ventures working on technologies that may be too risky to attract private investment, DesRosier says. Examples include $250,000 grants for Redmond, WA-based Photonic BioSystems to develop and test a rapid, portable test of water contamination, and BenchMark Medical, a Seattle software company working on a system to link surgical supply data with surgical outcomes to identify potential cost savings.

“I really think we’ve built something of value,” he says. “In the venture capital parlance, we’ve got a great deal flow. We’re pulling in ideas from all over the state. More than half of our [funding] applications are from small companies. This is a lifeline that will be very difficult to replace.”

DesRosier believes the LSDF and its supporters made an effective case for continuing the fund, noting recipients have received more than $445 million in additional funding from other sources, recruited top-flight researchers to the state, and are expected to generate thousands of jobs.

But lawmakers in Olympia feel pressure to find money anywhere they can for education. The Washington State Supreme Court ruled in 2012 that the state is not meeting its constitutional obligation to fund K-12 education. Lawmakers determined they will need to find something on the order of $4.5 billion by the 2017-19 biennium to meet the state’s basic education funding obligation.

“The legislators are looking at that down the road and they are saying, ‘We don’t know where that money is going to come from, but some of it is going to come from making cuts,’” DesRosier says.

Veteran technology industry lobbyist Lewis McMurran agrees, and attributes the failure of the high technology tax incentive renewal in part to the same issue.

“The fact that the R&D tax incentives were coming up for renewal during this time made it a big fat target for folks like the [Washington Education Association and Service Employees International Union]—folks looking to raise taxes for education, and others,” he says.

The incentive, in effect since 1995, gives businesses in advanced computing, advanced materials, biotechnology, electronic devices, and environmental technology, a credit against their business and occupation taxes for research and development expenses, and allows sales taxes on R&D equipment and facilities to be deferred. It remains on the books through Jan. 1, 2015.

“There’s been an unfortunate lack of attention as to what is the economic impact of $8.7 billion of R&D done in Washington state,” McMurran says, citing a recent Washington Department of Revenue report (116-page PDF), which includes the figure for 2012 R&D investment.

If the technology industry rallied to draw attention to that impact, perhaps a case could be made for a quick renewal of what’s on the books now by the 2015 legislature, McMurran says.

Benjamin Romano is editor of Xconomy Seattle. Email him at bromano [at] xconomy.com. Follow @bromano

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  • All Hat, No Cattle

    LSDF is a sterling example of the best that government has to offer. LSDF invests taxpayer dollars in high-risk commercial enterprise where other investors won’t. LSDF doesn’t pick winner and loser technologies, instead filtering applications for commercial, scientific, and healthcare merit. LSDF relies on local commercial experts to review commercial proposals, rather than trying to be the experts. LSDF has shown excellent return on investment, including sustaining jobs in a desirable industry. It’s always been clear that we taxpayers would benefit from more investment in LSDF.

    Instead the electorate has engaged in a poorly thought out clamor for less taxes, and less government. This is what less buys us: less innovation in healthcare, less educational excellence, less job growth in industries that create great futures for new college graduates, less safe transportation. The one thing we get more of is cash stockpiles in the hands of a tiny number of lucky neighbors, contributing nothing for the economy, providing a ludicrous hope that one day we’ll be rich, too.

    We must return to the tax policies of our society’s richest years, and we must invest in our future society through our government. We can ask the Governor to take money from schools to give to life sciences. How about launching a bold movement committing to pay for the things we want? How about more taxes and more investment in our future through good government?

  • Growin’ up

    What happens when some of the K-12 students want to grow up to be scientists in the State of Washington? Gutting such an effective program is a little short sighted.