State budget woes limit biotech investment

State budget woes limit biotech investment – News From The North Carolina Biotechnology Center

NORTH CAROLINA’S NEW $14 billion budget passed by the General Assembly this summer contains less support for biotechnology initiatives than industry executives wanted because lawmakers were constrained by a revenue shortfall for the third consecutive year.

“It was all in all a very difficult year for the leadership of both (House and Senate) chambers,” said Sam Taylor, executive vice president of the North Carolina Biosciences Organization (NCBIO), a trade association. “Given the financial constraints that we faced with declining revenues and increasing fixed-cost demands on the state budget, I think biotechnology came out as well as we had expected but not as well as we had hoped.”

Biomanufacturing initiatives denied

For the second consecutive year, the legislature did not fund a proposed statewide biomanufacturing and pharmaceutical training network intended to prepare workers for jobs in these growing industries.

What the legislature could not provide, however, the non-profit Golden LEAF Foundation did. After the General Assembly adjourned for the summer, a consortium of NCBIO, community colleges and universities submitted a proposal to Golden LEAF seeking funding for the initiative, and $60 million was granted in August. (See the story on page I.)

“Of all the initiatives we are pursuing at NCBIO, this is by far and away the most important because we view it as the key ratelimiting factor on future growth of our industry,” Taylor said. “We believe that the biomanufacturing industry has enormous potential to bring jobs to all regions of North Carolina as biotechnology moves from a research base to a manufacturing base.”

The Golden LEAF grant was supported by Senate leader Marc Basnight and House co-speakers James Black and Richard Morgan. The General Assembly is expected to fund the training program’s operational costs, estimated to be $13 million to $14 million per year.

The legislature did not pass a proposed Life Sciences Revenue Bond Authority intended to help finance the construction of commercial biomanufacturing facilities in the state. Such plants cost tens or hundreds of millions of dollars to build. Revenue bonds to support their financing would help North Carolina “achieve a position of national leadership and innovation” in the industry and create jobs in both rural and urban areas of the state, according to language in the Senate bill that proposed creation of the bond authority.

Taylor said he was optimistic that bond authority legislation would be passed by the 2004 session of the General Assembly.

Biotechnology Center funding up slightly

State funding for the North Carolina Biotechnology Center was set at $5.88 million for the 2003-2004 fiscal year, but the State held back more than $100,000 of that amount in July, dropping the total to $5.77 million.

The appropriation is far less than the Center had sought but more than its appropriation in each of the last two years. The Center received $5.4 million last year and $4.5 million the year before that, after the State took back money through “reversions” during each of those years.

The Center requested $10 million this year, an amount that would have approximated its spending power in 1986, after adjusting for inflation over the intervening years.

“We’re disappointed there’s not more money for our programs, but compared to other state-funded agencies and organizations, we did OK,” said Leslie Alexandre, president and CEO of the Biotechnology Center. “We built good relationships with legislators, and the statewide strategic plan we’re developing will provide a good framework for future investments in biotechnology by the General Assembly.”

Progress on tax policy

The biotechnology industry did claim some smaller victories in Raleigh regarding tax policy.

The legislature extended by three years the Qualified Business Venture tax credit, which allows individuals up to a 25 percent state tax credit for investments they make in qualified small companies.

“The QBV tax credit will be instrumental in getting these companies some funding,” said Monica Doss, president of the Council for Entrepreneurial Development, which joined NCBIO and other business groups in lobbying for the credit’s renewal. Doss said there was a dearth of seed-stage financing for early-stage companies in the current economic climate.

“Early stage companies depend on angel and mezzanine capital – the kind of capital this tax credit targets,” Taylor said.

The reauthorization also expanded the scope of businesses that qualify for the tax credit to include companies that license technology from North Carolina universities.

The legislature also passed a bill allowing countries to establish special economic development and training districts that encourage biotechnology and pharmaceutical manufacturing and related industries to expand. In Johnston County such a district would shield three biomanufacturing companies – Bayer, Fresenius Kabi Clayton and Novo Nordisk Pharmaceutical Industries – from future annexation by the town of Clayton, sparing them from town property taxes.

One other enacted bill clarifies the scope of the state’s existing R&D tax credit, which previously restricted the credit to research and development conducted at a company’s manufacturing site. New language makes it clear that companies can claim the credit for research and development undertaken at non-manufacturing sites as well, Taylor said.


COPYRIGHT 2003 North Carolina Biotechnology Center

COPYRIGHT 2004 Gale Group