The Beehive State bested Nevada by investing in education rather than prostituting to corporations
On the last day of the legislature, one of the year’s most important bills had still not been passed. It was legislation giving state campuses large amounts of new capital to assemble scientific research teams and build new lab structures to lure corporations to the state. The state’s business community was watching closely.
The bill had long since passed the Senate but had not even been processed in committee in the other house. “Any action will have to be quick,” reported one newspaper. In the hours and days before the final day, business leaders appealed to the public and service clubs for support to get the bill enacted. And on that last day, it was rushed through to passage and soon signed by the governor.
In succeeding years, more than a dozen world class teams were pulled together in fields from energy to nutrition. They helped form new companies. Their expertise soon brought major corporations calling. Some of those corporations moved into the state, bringing jobs and taxes with them. The state became known as the most dynamic research market in the nation.
Needless to say, this did not happen in Nevada.
Creation of USTAR
It happened in Utah in 2006 and since. During 2005, in the months before the Utah Legislature met, state leaders were concerned about troubling trends in the Beehive state, particularly falling wages. The state’s economic base was in decline. Earlier economic development strategies had run their courses. Bankruptcies were drifting upward. Wages were falling, with a concomitant effect on taxes, education, roads. Though no one in the state put it this way, Utah was becoming more like … Nevada.
“We do not have enough high-paying jobs,” said Scott Anderson, president of Utah-based Zions Bank.
The state already had financial incentives for business, but business leaders decided more was needed. A strategy was devised, called the Utah Science Technology Research Initiative. It became Senate Bill 75 at the 2006 Utah Legislature.
It’s worth noting here that times were still pretty good. The recession was still two years away when discussions began. The state’s leaders were not reacting to a problem. They were anticipating a problem and trying to get out ahead of it.
S.B. 75 created the Utah Science, Technology and Research Economic Development Initiative (USTAR). The state ponied up $15 million in annual funding, $160 million for construction, and $4 million for activities supporting businesses around the state.
Here’s what Utah did—it threw all that money at Utah State University and the University of Utah with these instructions: Assemble accomplished, distinguished scientific and engineering research teams in 20 fields to make this state a center of commercial research and consulting in order, over 30 years, to generate 422 new companies, 123,406 new jobs, $62 billion in salaries, and $5 billion in tax revenues.
The campuses, which had actually been a little cautious toward the plan, went to work implementing it. Soon they were throwing a wide net around the nation and the world. An amazing migration of big brains was soon under way from many points of the nation and globe to Utah where they were provided with state of the art laboratory facilities and began developing ideas into marketable products and services.
Some traditional fields, such as transportation and construction, would benefit from the research. Others—wireless communications, digital media, space weather—were on the cutting edge of science and engineering.
Even one of Utah’s less savory industries—nutritional supplements—got in on the act, commissioning USTAR researchers to try to prove that its products have some value.
Practical applications for the work being done by the teams are almost too broad to make a full list possible. It offers new techniques, treatments or practices in everything from Down Syndrome to cartoon animation, building construction to tissue regeneration, diabetes to telecommunications, gambling to transportation.
Some of the team members brought money with them, grants that were awarded not to their previous institutions but to the researchers personally.
USTAR was not an unalloyed blessing to Utah. There were drawbacks to it. It did some damage to the same higher education system it was intended to help. Legislators at the 2006 legislature gave assurances that the money for USTAR would not come out of normal funding for the campuses—one of the apprehensions that had caused higher education officials to be initially reserved toward USTAR. But it did happen to some extent.
There is also the commercialization of research. Higher education in Utah is now firmly tied to the business community, and pure research, research for the sake of research, could find itself having a tougher time of it. Some of humankind’s greatest discoveries occurred without practical applications in mind, including the electron, which is now basic to all scientific research—including that going on in Utah.
In addition, the initial enthusiasm for USTAR in the legislature has not been consistent. That $15 million annually for general operations became $17 million by the time the 2006 Utah Legislature ended. Since then, no legislative session has allocated the full $15 million. The lawmakers did add another one-shot $33 million when federal recession stimulus funding became available.
Nevertheless, the accomplishments of USTAR so far are significant.
As of March 31 (a newer tally is now being compiled), the state has attracted 40 of the world’s top scientists and engineers. Nineteen new companies have been created with USTAR support. There are another 26 business start-ups which were aided by USTAR. More than 300 patents, provisional patents and patent disclosures (applications) are in place.
In addition, in what USTAR marketer Michael O’Malley calls a halo effect, the state is getting more funding because of the existence of USTAR—such as “a $20 million advanced materials grant at the U of U that came our way because of the state’s investment in the new USTAR research [lab]” on that campus. The state is getting about $1.39 in research funding for every dollar the state itself puts into USTAR.
The state’s scientific conferences, such as an upcoming biotechnology event at UU in September, are sought-after affairs.
USTAR has taken on projects in regrowing cartilage, making existing energy technologies cleaner and developing new energy technologies, transfer of electricity between roadway and vehicle, laser technology that can accelerate building construction, rapid gene cloning that can lead to lower-cost pharmaceutical drugs, use of compressed air to cycle ammunition through guns to aid law enforcement target training, development of pilot headsets that ease discomfort and tension, use of microbes to eliminate toxic mining wastes, development of sensors that will help businesses identify costly energy waste, experiments with twin goat genomes to develop stronger and safer parachutes, airbags and artificial tendons and ligaments, restoration of some sight to the blind, forecasting of solar storms and other phenomena that interfere with satellite communications, development of a small hand-helicopter with a video capacity, faster hair analysis for crime scene investigations, prescription drug bottles that verbally instruct patients and medical personnel.
In February, Jim Davis—the Chamber of Commerce president in Davis, Utah—told his local newspaper, “The businessman in me sees an expense as money gone. This [USTAR] is an investment, something that will pay significant dividends for years to come.”
Eventually, Utah bumped Virginia out of its longtime first place in the Forbes magazine list of the best states for business. It has held that spot two years in a row now. (Nevada placed 36.) Some huge corporations have moved to the Beehive State. Others, like Goldman Sachs (from 300 to 1,600 Salt Lake employees this year, its second largest office), have opened or expanded Utah headquarters.
“In fact, Utah is proving to be a draw for a number of big corporate players these days,” Business Week reported in March. “Procter & Gamble chose the state when opening its first U.S. plant in more than four decades last year. … No wonder the state boasts an unemployment rate of 5.7 percent while the national average stands at 8.3 percent.”
West of Zion
While all this was happening in Utah, in Nevada the higher education system was being ravaged. After the system was strengthened under Gov. Kenny Guinn, its budget was reduced by a whopping one-third under the Legislature and governors Jim Gibbons and Brian Sandoval. Gibbons wanted the cuts to be greater but lawmakers balked.
Where Utah was better able to withstand the effects of the recession, Nevada buckled and experienced something it had not seen in the lives of living Nevadans—loss of population. Departing skilled workers made it particularly difficult for the state to compete with adjoining states.
So far, the principal response to the recession has been a bureaucratic one. In 1983, Gov. Richard Bryan won from the Nevada Legislature new tourism and economic development programs that were independent of the governor’s office, set up as agencies of their own. In 2011, Gov. Brian Sandoval asked the lawmakers to reverse that move and put economic development back in the governor’s office.
The legislators went along, but without great enthusiasm. Moving boxes around on an organizational chart, they felt, didn’t really accomplish much. “I wish we had devoted the time and hearings we did on that to something more directly effective,” said one Republican lawmaker.
Nevada was aware of what was happening in Utah, particularly the Nevada Board of Regents that governs higher education. In 2010, Regent Jack Schofield of Clark County visited the University of Utah and took UU electrical and computer engineering professor Rajesh Menon back to a Nevada regents meeting to talk about his work in optical nanotechnologies. Nevada Regent William Cobb of Washoe County got his fellow regents looking deeper at USTAR.
In January 2011, as a new Legislature and governor took office, the Nevada higher education system used USTAR as a model in holding a Nevada conference on diversifying the state’s economy.
USTAR director Ted McAleer spoke at that conference, drawing attention to the differences and similarities between Nevada and Utah. The state populations, he said, were similar—2.8 million in Utah, 2.6 million in Nevada. Both states are heavily urban, 80 percent in Utah and 85 percent in Nevada living in large metropolitan areas. Both states have two public research universities.
But the differences were sobering. Utah is on the cutting edge of industry, with significant footholds in software, digital media and medical devices industries.
Nevada has generally relied on a steadily shrinking gambling industry under competition from other states; construction, which does well when other segments of the economy do well; and mining, which fluctuates wildly with the economy. Moreover, mining—though important to the economies of some counties—is not significant in the state economy.
During the 2011 Nevada Legislature, the lawmakers took a look at USTAR. The outcome was typically Nevadan. Lawmakers have traditionally looked for quick fixes and tried to do things on the cheap. There is no quick fix for the Nevada economy, but a cheap solution was certainly possible. Assembly Bill 449 created a Knowledge Fund to direct funding to academic research with commercial applications. But the Legislature and governor left that fund empty. Bang went two years. The Legislature would not meet again until 2013.
The bill also created a “Catalyst Fund” providing more subsidies directly to businesses. That, they funded, with $10 million.
The delay may have been decisive. While Nevada dallies, legislatures in Wyoming, Idaho, New Mexico, Colorado, Montana and Arizona have enacted measures that follow the USTAR model. The Intermountain West may be USTARing, but the Great Basin is not, at least not yet. If it rouses itself, it will be trodding well-furrowed wagon tracks.
The ease with which understaffed newsrooms can be manipulated can be seen in the news coverage last year of the Knowledge Fund. A KTVN News piece on April 4, for example, reported, “A knowledge fund would also be created. Lawmakers said the program would be aimed at hiring faculty to work closely with local businesses.” It did not mention that the fund was unfunded. A television viewer could easily have gotten the impression that something had been done. Such reports appeared in a number of places.
Meanwhile, the Knowledge Fund became a joke in other places.
University of Nevada, Reno faculty lobbyist Jim Richardson said at an April 12, 2011, hearing, “There is not one dime in it. So, I am not sure what it is going to accomplish, but it is an obvious indication of why we need more revenue.”
Nevada regents minutes/May 6, 2011: “Chancellor Klaich related that Regent Cobb and other regents have led much discussion to try and get a USTAR-type model in Nevada. That is the Knowledge Fund referred to in AB 449. However, while it may be a good thing, it is currently unfunded with no source of funding having yet been identified.”
Economist Elliot Parker/June 12, 2011: “And we created a Knowledge Fund to spur innovation that we don’t even have the knowledge to fund.”
“Only in Nevada would you have the unfunded knowledge fund,” said Walt Borland, executive director of the Nevada Institute for Renewable Energy Commercialization, this past February, a quote that raced around the state.
Klaich says there are legitimate differences between Nevada and Utah. “We’re not a perfect match for Utah for a lot of reasons, but we can’t even do it the Nevada way without money in the Knowledge Fund,” he said last week.
Klaich thinks that if the 2013 Legislature does not act, 449 and its fund will never come to anything. He also said he believes the governor will be supportive of filling the Knowledge Fund.
In the governor’s 64-page economic development plan released in February, the Knowledge Fund is mentioned only four times, and none of them commit him to funding it substantially. The plan says that the state economic development office will seek funding from the governor and stops there. Since the governor convinced the 2011 Legislature to move that office into the governor’s office as a wholly owned subsidiary of the governor, the notion of it seeking funding from him is circular.
In an October 2011 essay, the governor wrote, “One part of the long-term return on investment in Nevada’s new economic development model will come from the Knowledge Fund created by AB449. The fund will allocate money among the state’s research universities, the Desert Research Institute, and a new technology outreach program in order to support commercialization and technology transfer to the private sector—thus putting into practice, and bringing to market, patents and innovations that are conceived right here in Nevada.” The essay did not contain a pledge to put anything substantial into the fund.
In September 2011, reporter Sean Whaley at Nevada News Bureau quoted Gov. Sandoval saying that Nevada will not pursue a “shotgun” approach to economic development. “Once we know what we can be the best at we can focus our economic developments in that regard,” Sandoval said, referring to the upcoming findings of a Brooking Institution report commissioned by Nevada. A shotgun approach is a pretty good description of Utah’s 20 areas of specialization.
The Brookings report studied economic development/academic research models in Texas, Ohio, Georgia and Utah and recommended, “Nevada should look closely at the ‘impact scholars’ model as it seeks to design its own drive to systematically bolster its innovation enterprise with investments tuned to the state industry strategy.”
Klaich said he has heard the governor on the subject, and he is confident that Knowledge Fund money will be recommended: “I have to believe the governor means what he says.”
Star vs. star
Nevada and Utah have different traditions in encouraging business. Where Utah imposes taxes on businesses and uses those revenues to make the state a more attractive lure to business, Nevada’s idea of economic development is just to give money to businesses, usually in some form of forgiven taxes or abatements.
Where Utah created USTAR, Nevada used STAR bonds—plain old subsidies to corporations—and other financial incentives.
In Nevada, the state has tried to lure corporations not with expertise but with money, by paying them to come to the state. One of the failings of that strategy has been that the state often has attracted companies that pay little, require few skilled workers, and fold in hard times. Utah has attracted Fortune 500 companies.
In Nevada, the arrival of a company like Apple is big news. In Utah, the arrival of eBay, Adobe, Boeing, ITT, Home Depot or Campbell Soup’s Pepperidge Farms division is more routine.
In Nevada, the reaction of state leaders to low wages has always been to learn to live with it as the natural byproduct of little-regulated, low-taxed private enterprise. In Utah, low wages were treated as a threat to the state’s future.
Utah makes demands of business. It has a 5 percent corporate tax, imposed four years ago, which has helped pay for USTAR. Nevada has no such tax. Many state leaders are in thrall to the notion that taxes retard economic growth. Politicians live in fear of business leaders like Monte Miller and Sig Rogich, who oppose corporate taxes.
It’s not that Utah doesn’t offer financial incentives to companies. It certainly does. But it doesn’t rely on that technique alone. Incentives are one leg of its strategy. In Nevada, it is the principal tool.
There is a question that has become almost a cliché in Nevada—“If low taxes attract businesses, where are they?” A parallel question should perhaps join it:
If taxes drive off businesses, why does Utah with its 5 percent corporate tax keep attracting major corporations while Nevada with no corporate tax keeps driving them away?
In recruiting its scientists and engineers, Utah even bagged one from UNR—Manoranjan Misra, known as Mano, a distinguished metallurgical engineer who has received several awards for his work on energy. Nevada made his decision of whether to stay or go an easy one.