August 18, 2009

Budget cuts imperil state technology, science push

Several Arizona startup companies that rely on grants from Science Foundation Arizona say they may lay off workers and halt research after the Legislature's decision to slash the foundation's funding.

Science Foundation Arizona committed millions of dollars to private companies and university researchers over several years to encourage the state's efforts to foster research jobs and new technology. But the Legislature cut the group's funding this year as it sought to close the state's $1 billion-plus budget gap.

The result: Startup companies that secured foundation grants to create jobs in sectors such as renewable energy and biotechnology have stalled because they are no longer getting the promised grant money.

Foundation backers warn that the Legislature's funding cuts put at risk efforts to advance research in key technology sectors that can produce high-paying jobs for the state.

"Science Foundation Arizona was really one of the brightest things we were doing in this state for economic development," said Mary Poulton, who heads the University of Arizona's department of mining and geological engineering. "If we don't do something for economic development for this state, we will have a very hard time simply budget-cutting or taxing our way to a healthy economy."

Science Foundation Arizona, a private non-profit group, was formed in 2006 with the goal of pooling public and private dollars to spur research, technology, and science and math education in Arizona. In 2007, the Legislature committed $100 million over four years to the state's 21st Century Fund, a legislative entity created to fund the foundation. In order to secure the state funds, the foundation was required to match the public money with private donations.

Foundation officials said the private sector has held up its end of the bargain, with three business groups footing the bill for the group's operating costs and private donors kicking $25 million each year to match the state's contribution.

The foundation filed a lawsuit that accused the state of reneging on its contracts. A Maricopa County Superior Court judge in June issued an $18.5 million judgment against the state on behalf of the foundation, but the judge also ruled that the court does not have the power to order Arizona to satisfy the judgment.

The Arizona Department of Administration also says the foundation is owed the payments for work done in 2007 and this year.

Foundation representatives have met with Gov. Jan Brewer and legislative leaders in an unsuccessful effort to get the money that had been promised.

"The grants are seriously past due," said Don Budinger, foundation chairman. "The funds have to be restored and be paid. If they are not, the state is in violation of its agreement."

Brewer has grappled with the Legislature for two months over the state's fiscal 2010 budget. The two sides have not yet reached an agreement.

A Brewer spokesman did not provide a timetable for when the governor may address the foundation's funding situation.

"The governor is very aware of the effectiveness of the program and is carefully reviewing Judge (John) Buttrick's ruling," Paul Senseman said.

Arizona Rep. Sam Crump, R-Anthem, led a handful of Republican lawmakers in the charge to gut the foundation's funding. Crump, who did not return calls, said at the time that he philosophically disagreed with funding the foundation because it favored some industries over others.

As the foundation continues to press for money it feels the state owes it, the companies and university researchers that depend on grants from the foundation are quickly running out of cash.

"We're really sweating this," said Ray Woosley, president and chief executive officer of Tucson-based Critical Path Institute, or C-Path. "How do we keep our employees knowing that come January 1, we may no longer have funding?"

The foundation awarded C-Path $8 million over four years to accelerate the group's efforts to ease the regulatory process for pharmaceutical companies. C-Path works as a mediator between drug companies and the Food and Drug Administration to reduce bureaucratic hurdles and improve drug safety and effectiveness.

The non-profit group hired a staff of 24 employees in Tucson, in part, based on the foundation's grant. Now with its funding in doubt, some employees are beginning to look for jobs elsewhere, Woosley said.

"If we lose this (grant), we lose momentum," Woosley said. "The Food and Drug Administration can't count on us to bring companies together, and the whole idea will be lost."

Other ventures that are in jeopardy include an Arizona State University-led research project that seeks to convert algae to jet fuel. ASU scientists have proved that the technology works in the lab. Now, they are growing algae in tubes at ASU's Polytechnic campus for a pilot program to supply biofuel for a yet-to-be-named commercial airline.

If the experiment proves successful, it could reap lucrative investments and a larger commercial venture down the road.

A private company, Heliae Development, has invested $1.5 million in the project, and the foundation pledged $1.5 million to match the private investors. But the foundation does not have the money to make good on its earlier pledge, and the project may soon grind to a halt.

"We're very close to running out of funds," said Rick Shangraw, ASU's vice president for research and economic affairs.

Even more frustrating, Shangraw said, is that similar biofuel projects in other states have secured major investments as the ASU project stalls. Last month, Exxon Mobil said it would invest $300 million in a San Diego-area biotechnology company to convert algae to gasoline.

Shangraw said Arizona has the potential to become a major source of renewable energy from algae and solar, but it requires government funding to grow the burgeoning industries.

Another venture, the Arizona Institute for Mineral Resources, may scale back work on long-term research projects to save cash. That means research projects that focus on water resources, renewable energy and community health will be jeopardized, Poulton said.

William Harris, Science Foundation Arizona president and chief executive officer, said these projects and others were chosen because they had the best chance to develop new technology, jobs and federal grants that could benefit the state's long-term economy.

But if the state does not live up to its commitment, Harris said, private companies may be reluctant to spend money on future research here.

"This is more about trust," Harris said. "Will a company believe they can trust doing research and development in this state? That is key for technology jobs."

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