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Indiana’s bad bridges focus of a new campaign for more transportation spending (News and Tribune)

Indiana’s bad bridges focus of a new campaign for more transportation spending
There are more than 4,000 deficient or obsolete bridges in the state

INDIANAPOLIS — INDIANAPOLIS — Indiana’s deteriorating bridges and roads are the focus of a new media campaign designed to create political pressure to find a fix for a federal highway program teetering on insolvency.

The campaign, slated for kickoff on Wednesday, is backed by a coalition of labor and industry leaders pushing Congress to spend billions on the nation’s aging infrastructure, creating thousands of jobs along the way.

Dubbed “Build Indiana 2010,” the campaign will feature billboards with an image of one of the 4,111 bridges in Indiana that have been rated “structurally deficient” or “functionally obsolete” by the Federal Highway Administration.

It’s an intentionally unnerving image, said Frank DeGraw, an Indiana officer with the Laborers International Union of North America, which is funding the campaign.

“We don’t need another Minnesota here in Indiana,” said DeGraw, referring to the 2007 collapse of a Minnesota bridge that had been rated “structurally deficient” two years before it fell, killing 13 and injuring 145.

“If it had been up to me, the billboards would say: ‘You made it across this time. You better call somebody to fix this bridge,’” DeGraw said.

The Build Indiana 2010 campaign is part of the Laborers International Union’s Build America 2010 public campaign first launched in Colorado in June. It’s expected to spread to other states soon. Among the union’s allies in the effort are the U.S. Chamber of Commerce and industry associations representing construction companies and suppliers.

The effort is in response to a slowdown in the construction industry brought on by the recession and only temporarily buoyed by federal stimulus spending.

Most of the Laborers International 500,000 members are construction workers, and many remain unemployed, DeGraw said. Union leaders hope the media campaign will mobilize union members to create public support for more federal spending for infrastructure improvement.

There’s a need for it in Indiana, according to a recent report issued by the American Society of Civil Engineers. It says that 29 percent of Indiana’s major roads are in poor or mediocre condition, and 25 percent of its bridges fail to meet federal standards for safety.

The fix isn’t easy, though. It would require Congress find new revenue for the Highway Trust Fund, the pocket of money that pays for infrastructure repair with federal gas taxes.

Since gas tax revenues haven’t kept pace with the amount of money doled out of the fund through a complicated formula that gives some states more money than they’ve paid into the fund, it’s required Congress to come up with a series of short-term bailouts to keep the fund solvent.

One solution would be to raise the gas tax — not a politically palatable option in an election year, said David Miller, a spokesman for the Laborers International.

So the job of the Build Indiana campaign is to make finding a source of revenue, no matter what it is, more palatable.

DeGraw says the message of the campaign will be a simple one: “We need to put people back to work, fixing an infrastructure that’s falling apart. You can’t tell me that we can come up with a way to bail out the banks, but not find the money to put Americans back to work.”

— Maureen Hayden is statehouse bureau chief for CNHI’s Indiana newspapers. She can be reached at [email protected]

July 5, 2010

Gephardt: Medical research can help fuel U.S. economy (Winston Salem Journal) (mentions Metro Mayors)

Medical innovation — fostered with public financing and lighter regulatory burdens — should be “a cornerstone” of the economic recovery, former U.S. Rep. Dick Gephardt told a group North Carolina mayors and biotechnology executives yesterday.

In fact, the health sector is the only major part of the U.S. economy that has grown in the last two years, Gephardt said, adding 700,000 new jobs nationwide.

Gephardt, twice a presidential candidate and a key member of the Democratic Party’s Congressional leadership team for much of his 28 years there, now heads the Council for American Medical Innovation. He’s on a multi-state tour to build support for changes in the way medical research is funded.

Biotechnology programs are expanding across the state, and Winston-Salem has been expanding its downtown Piedmont Triad Research Park in recent years. The Armed Forces Institute of Regenerative Medicine, a multi-institute effort led in North Carolina by Dr. Anthony Atala of Wake Forest University, is about to get a $10 million infusion under the state budget that won final passage yesterday.

Mayor Allen Joines of Winston-Salem, a co-chairman of the Metropolitan Mayors Coalition Biotech Committee, said that biotechnology has become “a strong part of our economy.”

Gov. Bev Perdue said that the industry means $46 billion a year to the state’s economy. And between actual industry positions and the ones they help spawn, it means nearly 250,000 jobs, she said.

Gephardt cited a study from the state’s Biotechnology Center that put the total number of jobs at a more modest 182,000 in 2008.

At any rate, Perdue said she wants North Carolina to lead in biotechnology, despite lingering budget problems that have forced state spending cuts in other areas.

The state already has a grant program to help private researchers get their products to market, and it may start a new loan program to help provide more funding. House Bill 530 — which is being debated at the Capitol — would create new state tax credits to help finance loans to medical research groups.

Joines mentioned the bill and said he planned to lobby for it before heading home. And that, in a nutshell, was Gephardt’s call to action for the politicians and business people at Wednesday’s talk: Lobby the state legislature and Congress, make noise for a growing industry.

“It needs to be the new space program, in my view,” Gephardt said.

Specifically, Gephardt’s group is calling for several changes, outlined in a recent report:

• More public-private funding partnerships to cover the enormous costs of medical research.

• Increase a federal tax credit for medical research and make it permanent, rather than something Congress must reauthorize every couple of years. Gephardt said that uncertainty gives private financiers pause, and he called it “ridiculous.”

• More predictability in the U.S. Food and Drug Administration’s review process.

Gephardt acknowledged that health-care costs have spiraled upward despite the last 50 years of medical breakthroughs, but he said that research and technology remain the surest way to cut health-care costs. He said that delaying the onset of major symptoms for the average Alzheimer’s sufferer by a few years would probably “empty out” half the nursing homes in the United States and save “probably, trillions of dollars.”

“If you don’t have innovation, you’re never going to help health- care costs,” he said.

[email protected]
By Travis Fain

SPECIAL TO THE JOURNAL

Published: July 1, 2010

RALEIGH

State Budget Discussions and Equity 6.28.10

The House and Senate came to an agreement on the budget over the weekend (see article link below). While the final language has not yet been released, I am hearing that the Mobility Fund was included in the budget, but without the supplemental Powell Bill and Interstate Maintenance money. While just rumor at this point, I will send you the final language when released later today or tomorrow.

The rumored plan is to vote on the bill Tuesday and Wednesday and send to the Governor for her signature before the end of the fiscal year.

Discussions of changing the equity formula became a part of the budget negotiations. Senator Nesbitt of Buncombe County advocated that they include an exemption to the state’s transportation equity formula in the budget for the Appalachian Development Highway System federal monies. (See how the exemption would affect your highway division here.) The monies date back to 1965 when Congress designated the federal funds to be spent on the Appalachian Highway System. But, because the monies are required by state law to flow through the equity formula, they are, in effect, spent across the State. Here is an excerpt from an Asheville Citizen Times article on the issue:
“More than $30 million a year is earmarked for the highway system…but the money is going unused because of the way state and federal legislators hand it out. North Carolina law doesn’t allow spending in a region to tilt the formula for spreading road money equitably across the state. So for every dollar that highways like U.S. 74 receive in Appalachian Development Highway System funds, the far-western region has to give up 96 cents in other road funding. That’s because of how the General Assembly wrote the formula and because Congress doesn’t provide extra money for the mountain highways; it simply sets aside for them a slice of the money North Carolina would normally get to build all state highways.” (Asheville Citizen Times, 9/29/09)

The Appalachian Development Highway System monies, if exempted from the State Transportation Equity Formula, will be spent only in Graham, Cherokee, and Clay counties in highway division 14. The total new monies that will be taken from all the other highway divisions and spent in division 14 over a seven year period represent a 75% increase in federal construction highway dollars for division 14. (according to the table above provided by NCDOT)

Additionally, Rep. Hugh Holliman of Davidson County advocated that the first phase of the Yadkin River Bridge project be exempted from the formula. (Phase I is the actual bridge, while Phase II is to widen I-85 north of the bridge included as the first Mobility Fund project.)

There are rumors that the Appalachian Development Highway System funds were exempted from the equity formula in the budget bill. I am told there was much discussion around the issue, and the argument was successfully made that the urban areas had the loop money exempted, so this was in balance to that. I have not heard at this point whether any other changes were made to the equity formula.

As many of you have pointed out to me, the argument that the Appalachian Development Highway System funds were directed by Congress to be spent on the Appalachian Highway, the Surface Transportation Program/Direct Attributable (STP/STP-DA) federal monies are directed by Congress to be spent by metropolitan planning areas containing urbanized areas over 200,000 population. But, like the Appalachian Development Highway System monies, the STP-DA monies flow through the State’s transportation equity formula, and are therefore spent statewide. The metropolitan planning areas containing urbanized areas over 200,00 include Asheville, Fayetteville, Greensboro, Charlotte, Raleigh, Durham, and Winston-Salem (and their MPO member cities, for example, in Raleigh this includes the Capital Area MPO with cities such as Franklinton and Creedmoor).

Democratic Leaders Reach Tentative Agreement On State Budget
http://www.digtriad.com/news/local/article.aspx?storyid=144333&catid=57

Federal agencies team up on livability project (The Hill)

Two federal agencies will spend a total of $75 million on a joint project to integrate transportation and housing initiatives.

The Transportation and Housing and Urban Development departments will spend $35 million and $40 million, respectively, as part of the livable, sustainable communities project aiming to provide more affordable housing options closer to public transportation and good jobs, Transportation Secretary Ray LaHood said Tuesday on his blog.

The Livable Communities Project was first announced June 16, 2009, by LaHood, HUD Secretary Shaun Donovan and EPA Administrator Lisa Jackson.

“When we announced the Obama Administration’s interagency Partnership for Sustainable Communities, this is just the sort of coordinated activity we had in mind. And I am thrilled that DOT is part of it,” LaHood wrote.

Any projects that apply for funding will be streamlined and evaluated in a collaborative effort by both agencies to smooth the process and create a more effective use of federal resources, he said.

Grants for transportation planning portions of successful projects will be funded through the Department of Transportation’s TIGER II discretionary grants program, and grants for housing planning will go through the HUD’s Sustainable Community Challenge program.

“Projects will be considered holistically to better align transportation, housing, economic development, and land use planning,” LaHood said on the blog.

“It’s pretty clear that housing and transportation decisions affect each other, and the best projects build that relationship into their planning. So it only makes sense to build the housing-transportation relationship into how we evaluate those projects for funding awards.”

By Vicki Needham – 06/22/10 01:35 PM ET

Greenville News editorial: S.C. needs to fund road upgrades (S.C. Greenville Online)

At perhaps the worst possible time, improving and maintaining South Carolina’s disproportionately high volume of state-maintained roads is emerging as a top priority for the state. Lawmakers and other state leaders need to work diligently toward finding a solution — our state’s economic strength depends on it.

It’s no secret that South Carolina’s roads are in disrepair. But the magnitude of the problem is startling, particularly as the state budget continues to shrink because of the ongoing recession.

South Carolina will need $29 billion over the next 20 years to take care of its bridges and roads. For next year alone the state estimates it needs $931 million for road maintenance, but just $643 million is available, Greenville News reporter Tim Smith recently wrote.

The state Department of Transportation rates the state’s road system a “D”, meaning roads generally are in poor condition. The needs are exacerbated by the exceedingly high number of state-maintained road miles (more than 41,000) in South Carolina. In addition, South Carolina’s roads are consistently ranked as among the most deadly in the nation because they are poorly maintained and often poorly designed.

Finally, a 2009 report by the transportation research organization TRIP, found that 28 percent of South Carolina’s roads are in poor or mediocre condition.

This should be clear: High quality and well-maintained roads are essential to economic development. Manufacturers demand a reliable transportation system to get goods to and from their plants; and residents are entitled to safe roads to get them to and from work, school and activities.

The numbers demonstrate that maintaining and improving that needed infrastructure can’t be accomplished with current state revenues. There needs to be a serious discussion about where that money will come from, and that discussion shouldn’t be short-circuited by a close-minded aversion to any and all taxes.

Two ideas that have been talked about are public-private partnerships and toll roads. One need only look as far as southern Greenville County — where the Southern Connector toll road has defaulted on its debt — to see the hurdles that need to be
overcome if toll roads were used as a major source of highway funding. The state Legislature has considered — and likely will again — a bill that would expand the use of this mechanism. Though it’s not a statewide solution, if nothing else a bill
should be passed so the Connector can restructure its debt and so toll roads can be tried in other parts of the state where they might be more successful.

That leaves an increase in taxes or fees as the most plausible way to increase available transportation funding.

Transportation Secretary Buck Limehouse has suggested a 10 cents per gallon gasoline tax. A legislatively appointed tax study commission may well suggest that when it releases its report later this year, The News reported. Such a proposal
makes sense. Gasoline taxes are a sensible way to fund road maintenance, and South Carolina — where the gas tax hasn’t been raised in more than two decades — could absorb a modest gas tax hike. Such a tax increase would generate up to $320 million per year.

Yet some legislators say approval of a gas tax hike is unlikely given some lawmakers’ aversion to tax increase of any kind. As Sen. Larry Grooms told this newspaper, many in the General Assembly have signed pledges to not raise taxes.

Such pledges are shortsighted and ignore the reality that, at times, tax increases may be necessary to meet urgent needs. One recent example where a local government rose above the uproar against tax increases to meet pressing needs was Fountain Inn. There, the City Council approved a small 2.4 mill property tax increase to help fund capital projects. Had a majority of City Council members pledged to not raise taxes under any circumstances, such an action would have been impossible.

The disrepair of this state’s roads and the lack of apparent funding from elsewhere represents the sort of critical need that demands bold action from South Carolina lawmakers.

When lawmakers begin to discuss how to address this need, they shouldn’t let politically motivated promises stand in the way of doing what’s right for South Carolina. Every option — including increasing transportation-related taxes — needs to be on the table and seriously discussed.

June 22, 2010

North Carolina Street Gang Nuisance Abatement Act SB372

The Metro Mayors Executive Committee voted this week to support the North Carolina Street Gang Nuisance Abatement Act included in SB372. The bill was heard in the House Judiciary III committee this week and is scheduled to be voted on by that committee next week. The committee is likely to be presented with a proposed committee substitute bill which will not include the NC Street Gang Nuisance Abatement Act provisions. I understand the House feels the provision was a late addition to an unrelated bill and requires its own separate bill and discussion. I will attend the committee meeting next week, continue to follow the bill, and update you if anything changes.

The Metro Mayors are planning to host a stakeholder working group this fall to discuss gang prevention strategies and potential legislation and I will include the Act in the list of possible legislation to pursue next session.

Construction Companies Losing Billions Stuck in Gridlock, AGC Report Finds (AASHTO)

Traffic delays are costing construction companies billions of dollars in lost time each year, according to a report released last week by the Associated General Contractors of America.

AGC CEO Stephen Sandherr warned that, as long as Congress puts off passing new surface transportation reauthorization legislation, the problem is only going to get worse.

“Traffic tie-ups nationwide are sapping productivity, delaying construction projects, and raising costs for construction firms of all types,” Sandherr said during a June 10 conference call. “Given the hardships they are facing, the last thing contractors need is to burn time, fuel, and money stuck in traffic.”

This report is based on survey results collected from 1,200 construction companies nationwide over the past few months. AGC’s survey results show that 93% of firms reported traffic and congestion were affecting their operations.

The contractors also reported that construction projects are delayed an average of one day per job because of traffic congestion, which increases the total costs of these projects. Overall, the total losses the construction industry faces due to delays caused by traffic is estimated by AGC to be $23 billion annually.

Traffic is just another problem that construction companies are facing as the poor economy reduces the number of transportation construction jobs being ordered by states, the report notes. With no guaranteed funding from the federal government in the near future, states are choosing short-term easy fixes, such as repaving roads, instead of major highway expansion projects, according to AGC.

“As larger projects get put on the back burner, traffic stagnates, construction firms have less work, and equipment plants see orders drop,” Sandherr said. “It is hard to think of a better way to undermine the [recovery act] than failing to pass a surface transportation bill.”

Sandherr noted the lack of a new federal transportation bill is causing states to undertake considerably fewer and smaller transportation projects — 17% fewer bid lettings this year worth 29% less than the year before.

Congress and the Obama administration should act quickly to pass new surface transportation reauthorization legislation this summer to generate more projects that will reduce gridlock, Sandherr said.

AGC’s report and a state-by-state breakdown are available at tinyurl.com/AGC-survey.

Oberstar points to road problem: a shortage of federal gas-tax revenue (MinnPost.com)

WASHINGTON — The problem is simple, says Rep. Jim Oberstar, who chairs the House Transportation Committee: There simply isn’t enough money coming in through the federal gas tax right now to meet the nation’s current needs for road and bridge repairs.

And as fuel efficiency increases, drivers will invariably take fewer trips to the gas station and the amount of revenues generated by the gas tax will drastically shrink.

It’s as Transportation Secretary Ray LaHood explained earlier this year:

In the past, the Highway Trust Fund has been largely user-supported through fuel-tax revenue. The idea is that drivers who use the roadways will need to buy gas, and generally how much gas they buy corresponds to how many miles they’ve driven or how much they’ve used our roadways.

However, technology and behavior have changed enough that this approach is no longer sufficient. As we move forward with surface transportation reauthorization, we need lawmakers and experts to think creatively about how we’re going to fund our transportation infrastructure in the 21st century.

The good news is that there are several possible solutions that could bridge the funding gap, including raising the gas tax in the short term and implementing congestion or mileage fees sometime in the next decade.

The bad news: Absolutely none of those ideas seem to have even the remotest chance of passing in the current political climate.

More mileage, more problems
Let’s say that in November, when the Chevy Volt rolls off the production line, I scrounged up the cash, traded in my 122,000-mile-old 2000 Subaru Legacy and actually purchased GM’s new plug-in hybrid.

Currently, my car is rated at 19 mpg city/25 mpg highway, which wasn’t too shabby back then. The Department of Energy estimates that an average driver covers 15,000 miles and spend $1,842 a year in fuel costs, which (at their estimate of $2.58 a gallon) translates to almost 714 gallons of gas a year.

Multiply that by 18.4 cents a gallon for the federal gas tax, and I’m on the hook to Uncle Sam for $132 a year, give or take a few cents. Almost all of that money goes to the Highway Trust Fund, which pays for road and bridge repairs, infrastructure and mass transit projects.

oberstar.house.gov
Rep. Jim OberstarNow say I got the Volt, which is powered for its first 40 miles by an electric battery alone and to which the EPA assigned a (somewhat controversial) 230 mpg fuel economy estimate. If I somehow hit that estimate, my contribution to the highway tax fund would shrink to around $12.

And you simply can’t fund a highway system on $12 a year.

That may be a fairly drastic example, but it’s a simple maxim that, all else being equal, better fuel economy means fewer trips to the pump.

Fewer trips to the pump mean less money spent on gas. The less spent on gas, the less paid on the gas tax, currently set at a flat rate of 18.4 cents a gallon (18.3 cents of which goes to the Highway Trust Fund).

And less gas tax money means a reduction in dollars to the Highway Trust Fund, which is used to fund road and bridge repairs to an infrastructure system that has already begun to show its age.

“With more fuel efficient cars or the alternative propellant forces, you need to increase the user fee,” Oberstar said.

Revenues don’t match needs
Gas taxes were originally conceived as a simple substitute for vehicle miles traveled, under the thinking that those who used the roads more would fuel up more and then pay more. By and large, that’s how it has worked so far.

“For 54 years of the interstate highway program, the public has paid its own way,” Oberstar said. “You use the system, you pay for it.”

Because it is not adjusted for inflation, the federal gas tax has experienced a cumulative loss in purchasing power of 33 percent since 1993 — the last time the federal gas tax was increased.

All in all, there remains a $140 billion gap over the next 6 years between expected revenues and what Oberstar said we “actually need” to bring roads and bridges into good repair.

And not only is there not enough money to do all that, there’s not even enough coming in to keep the fund solvent. Because the Highway Trust Fund is designed to be revenue neutral, any shortfall in the fund would just be partially reimbursed for transportation spending until Congress bails out the fund.

Congress has had to bail out the trust fund twice in the past few years.

“People who are buying more fuel efficient cars are fueling up less but still driving and still using the roads,” said Annette Nellen, an expert on taxation and transportation at San Jose State University.

“You would think that because there’s not enough money going in there right now that this would be addressed.”

Minnesota, which received $581 million in federal highway aid in 2009, is equally impacted with all other states here. Say there were $100 billion in requests, but only $50 billion in the fund. States would be reimbursed at 50 cents to the dollar until the fund is bailed out. For states with cash shortages — like Minnesota — that could be a tough wait.

Fuel economy gains speeding crisis
Presently, vehicles are required to average 27.5 miles per gallon. A 2007 law increases that requirement to 35 mpg by 2020, however an April rule by the Obama administration speeds it up to 35.5 mpg by model year 2016.

Much of the gain in fuel economy currently is coming from the rise of gas-electric hybrids and an increasing willingness to by automakers to produce (and drivers to purchase) smaller cars and trucks.

Hybrid vehicles are increasingly more common, boosted by greater fuel efficiency, wider availability and federal tax credits of up to $3,400 per vehicle. Additionally, automakers have begun selling the kind of small, fuel-efficient cars to Americans that were once only available in Europe.

Last year Volkswagen unveiled a North American version of the Golf, the most popular car across the pond (the TDI clean diesel version of which gets 41 highway miles per gallon). Earlier this year, Ford rolled out an American version of the Fiesta, which gets around 38 miles per gallon.

Automakers are also planning to overhaul their fleets to meet the surging demand for more fuel-efficient vehicles — Chrysler for one plans to increase its fleet-wide fuel economy by 2014.

On the horizon: hyper-efficient plug-in hybrid electric vehicles like GM’s Chevrolet Volt and its 230 miles per gallon.

Several suggested solutions, but scant support
Seeing the need to move off the gas tax, Congress commissioned a bipartisan study of future revenue sources during the last surface transportation reauthorization process. That committee reported its findings in early 2009.

[PDF]

The headline of the press release accompanying the report was direct. [PDF] “The U.S. Should Shift From the Gas Tax to a Mileage-Based Usage Fee by 2020. The current federal motor fuels tax is unsustainable over the long term.”

“We must start transitioning to a new paradigm now,” said Mike Krusee, a commissioner who also served at the time as a Republican state representative in Texas. “If we don’t start, we will never get there.”

Problem is, none of the possible solutions have anywhere close to the number of votes required to pass in Congress.

That gas tax hike Oberstar is looking for? Scuttled by his own party which doesn’t want to push it without Republicans on board.

A White House spokesman, very succinctly, said that “the White House does not support a gas tax increase.”

Rep. Chris Van Hollen of Maryland, a senior House Democrat who heads the DCCC (the organization tasked with electing more House Democrats), said earlier this year that it “certainly won’t fly this year, because we’re going to have to have some kind of bipartisan consensus before you more forward on any kind of funding mechanism like that.”

When Minnesota raised its gas tax in 2008, lawmakers had to override Gov. Tim Pawlenty’s veto to do it, and Republicans who crossed over suffered for it during the campaign.

The conservative Heritage Foundation suggested another idea — scrap the federal gas tax altogether, get the federal government out of road funding and let the states levy the taxes they need. States would then be free to put in whatever system worked best for them.

Republicans would have to have a sizeable majority to have a chance at passing something like that — and even the best projections from the upcoming elections don’t put them anywhere close to a number that big.

At least one Republican on the House Transportation Committee floated the idea of switching the gas tax from a flat fee to a percentage, similar to state sales taxes, so that revenues would go up as prices go up (and down if they go down).

That plan, which Oberstar said he was willing to consider, was ultimately rejected by GOP leaders for looking too much like a tax increase.

Then there’s the idea of counting vehicle miles traveled, either through regular odometer checks or installing a tracking system on cars to see how far they’ve gone. Such systems have been piloted, but haven’t yet gone widespread.

“It’s not viewed as a burning issue yet, and whenever the discussion comes up about tracking vehicle mileage you have to ask how you’re going to measure that,” Nellen said. “First there’s an issue of privacy, and second, is it that dire of a situation yet? And I think it is.”

“You could also have more tollbooths, but that isn’t highly desirable either.”

Oberstar has not specifically endorsed a vehicle mileage tracking solution, rather his surface transportation bill would establish pilot programs to test potential solutions. The best of those would be folded into the 2015 surface transportation reauthorization.

But that bill may not even come up this year, and if it does a lame duck session is the likeliest time for it.

Nellen said solutions (and the unpopular votes needed to pass them) won’t likely be fully realized until lawmakers realize the looming crisis in transportation funding — and that something needs to be done about it.

“And as far as I can tell, no one’s really paying attention to it.”
By Derek Wallbank | Published Thu, Jun 17 2010 8:38 am

Biotech Venture Capital Bill Back on Legislative Menu (Carolina Journal)

Biotech Venture Capital Bill Back on Legislative Menu (Carolina Journal)
Opponents call measure a corporate bailout

RALEIGH — Lawmakers might soon take up a bill that would put North Carolina into the venture capital business by using taxpayer funds to subsidize private investments in biotechnology startups.

Critics call the move foolish in a shaky economy, comparing it to federal government bailouts of Wall Street and the banking industry. Others are concerned that the proposal would run afoul of the state constitution.

“It’s a giveaway for a certain class of people, and it’s a giveaway that is not needed,” said Rep. George Cleveland, an Onslow County Republican.

The measure, known as the Life Sciences Development Act (House Bill 530), would establish a private limited liability company to make taxpayer-funded loans of up to $30 million each to biotech companies. To underwrite the loans, the Life Sciences Development company would sell equity certificates (similar to shares of ownership) to investors.

The goal: spur economic growth, create jobs in a down economy, and increase the state’s attractiveness to outside industry.

Venture capital typically is used to fund early investments in companies that are too risky to attract financing from formal financial institutions such as commercial banks. Businesses seeking venture capital offer the potential for rapid growth and high returns; investors receive a stake in the company’s ownership while assuming a significant risk that the company will fail and all of their money would be lost. In many instances, venture capital investors provide not only money but also management expertise.

It’s the second time in as many years that Democrats have pushed the measure. An initial attempt failed in the waning hours of the General Assembly’s long session last year, when legislators couldn’t reach a compromise on differing House and Senate versions.

Now, the bill could be on the fast track. The measure was on the House’s concurrence agenda the opening day of the short session May 11, but it was later removed from the calendar.

A joint conference committee was appointed June 9 to reexamine the bill, adjust it if necessary, and send it back to the House and Senate floor, where lawmakers only could vote it up or down.

Supporters of the bill didn’t respond to repeated phone calls and e-mails asking for comment. But during debate on the House floor in August, they trumpeted the bill as an economic boon.

“It’s an important public-private partnership that I think helps us move the whole state forward in the life sciences industry,” said House Majority Leader Hugh Holliman, D-Davidson.

Rep. Pryor Gibson, a Democrat from Anson County, said that the bill blazes new territory and is needed. “It’s time for us to do some bold, innovative things,” he said.

‘Totally ludicrous’

One particular provision has stoked the ire of opponents. It would cover investors’ outlays by giving them taxpayer-funded credits if returns from the startup companies weren’t as much as expected. Foes of the proposal say the credits would have taxpayers assume at least part of the venture capitalists’ risk.

“For the state to get involved with private investment and guaranteeing a return out of the taxpayers’ pocket is totally ludicrous,” Cleveland said. “And for the powers to be to say that this is something we really need to spur development in bio fields, or any field, I think is really outrageous.”

In addition to fiscal concerns, opponents say the measure would be unconstitutional. Jason Kay, a senior staff attorney with the N.C. Institute for Constitutional Law, said the bill authorizes the state to lend its taxing authority to a private entity.

“It is a constitutional problem to give a private company the authority to exercise power that is traditionally reserved for the government — the power of taxing or untaxing its citizens,” Kay said. “If voters feel that elected officials have given out too many tax breaks, the voters know where to find them. But when a private company does so, there is no recourse at the ballot box.”

Rep. Rick Glazier, D-Cumberland, a frequent supporter of economic incentives to businesses, said he thinks there will be changes to the bill. Glazier parted company with many of his colleagues in raising concerns about the measure last session.

“I know the constitutional objections are being and have been reviewed at length by a number of stakeholders and supporters of the bill,” he said. “I have not seen another draft yet.”

Biotech risks

Other states have rolled out similar proposals, though North Carolina’s version has a unique twist by using public funds exclusively.

Maryland Gov. Martin O’Malley, a Democrat, unveiled a measure earlier this month that would reward insurance companies with tax credits for investing in venture infrastructure. Florida has had a similar fund for years.

The Tar Heel State already has some experience in biotech funding. The N.C. Biotechnology Center, created in 1984, is a nonprofit organization that’s received more than $200 million from taxpayers to fund biotech projects in the state.

The center claims to have created 55,000 jobs at 500 companies, but Triangle Business Journal reported in 2005 that the center’s biotech investment portfolio had lost 41 percent of its value over the previous two years. The value of its investments had fallen by $11.23 million since 2002, the newspaper reported.

In 2007, the Journal also reported that a $10 million investment by the Biotechnology Center in a venture capital fund was worth only $1.3 million when the fund closed down.

David N. Bass is an associate editor of Carolina Journal.
By David N. Bass
June 16, 2010

Video Poker (NC Insider)

House Majority Leader Hugh Holliman acknowledged that House Democrats are divided over what to do about video sweepstakes games, just over two weeks after sponsors of a bill to prohibit the games said they hoped for quick approval of a ban. Holliman, D-Davidson, said the issue of what to do about the games was discussed extensively in a recent House Democratic caucus meeting. “Some people want to ban it. Some people want to make it legal,” he said. Still, others in caucus prefer to take no action, he said. But Holliman added that legislation affecting video sweepstakes may still be taken up this year.

Supporters of the sweepstakes machines – the latest incarnation of video poker – contradicted Holliman, saying that both House Democrats and Republicans had agreed to delay any legislation until 2011. “We support that decision from the state lawmakers because it allows time to study and review the various proposals on the table that would regulate and tax video gaming in the state,” said William Thevaos, president of the Entertainment Group of North Carolina.(THE INSIDER, 6/16/10).