COLUMBUS, Ohio — Ask most people touched by Ohio Third Frontier whether the state’s largest economic development project ought to be renewed and you’ll get a resounding “Yes!” A tougher question: How much money should the state borrow to extend the program beyond fiscal 2012, when its term ends?
Third Frontier is the 10-year, $1.6 billion project to re-energize Ohio’s economy by investing in emerging technologies in five industries, including biomedical. In 2005, voters approved issuing $500 million in bonds to raise money to support the program — that after turning down a similar bond issue in 2003. The rest of Third Frontier’s grant money comes from Ohio’s general fund, so it is subject to state budgetary issues.
By one independent analysis, Third Frontier created an economic impact of $6.6 billion, 41,300 jobs and a return on the state’s investment of 10-to-1 in its first seven years. A recent analysis led by business people who sit on the Third Frontier’s commission and advisory board concluded the project likely would pay back taxpayers by 2014 — with just sales and payroll taxes generated by businesses and industries it helped.
The effort to renew Third Frontier began late last year when two legislators proposed issuing $1 billion in bonds to fund an additional five years’ of grants from the program. Two weeks ago, the Ohio House trimmed that to a $950 million bond issue. Last week, the Ohio Senate halved the original bond issue to $500 million.
Because the bond issue amounts differ, Ohio legislators will have to agree on an amount to meet a Feb. 3 deadline for getting a renewal of the project on the May 4 ballot. “There’s a lot of work in a short time period that has to be done,” said John Griffin, director of the Ohio Department of Development’s Technology and Innovation Division and one of Third Frontier’s administrators.
In the midst of a budget crisis, how much money should the state borrow from investors — and ask taxpayers to repay — to fuel its technology economy? Here are some answers from Third Frontier stakeholders:
Mark Collar, venture partner, Triathlon Medical Ventures; founding chairman, Third Frontier Advisory Board: We should enthusiastically renew the Third Frontier, which is the most effective, free-market driven initiative across the state in rebuilding our economy around technology driven industries like biomedical devices, polymers, advanced sensors and controls and photovoltaics with the potential to drive growth and create jobs for years to come. Third Frontier has helped Ohio stand out among other states, has helped dynamic entrepreneurs and companies to start-up or relocate here, has people working together across the state and from different sectors on exciting projects, and is creating revolutionary new products and services to replace what we have lost.
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I would increase Third Frontier funding to at least $200 million per year ($1 billion bond issue for five years) recognizing the recession-driven challenges are even greater and the return to Ohio has been so high on the money we have been investing. Third Frontier is working — we should courageously bet on the program and change the course for the state over the next decade. I believe this is our shining moment to make a choice that helps solidify Ohio in its rightful place among the nation’s leading economic engines.
Richard Fearon, chief financial officer, vice chairman, Eaton Corp.; Third Frontier commissioner: I believe the Third Frontier project should be renewed, as I believe the program is achieving its objective of bringing enhanced vitality to sectors of the Ohio economy critical to the future of the state, the program is generating substantial employment, and the program is essentially self-funding, since the tax revenue from income and sales taxes are quickly paying back the investments made thus far. I do believe that long-term it would be ideal if we can build a large and vibrant venture capital sector in Ohio to do funding of the types done by the Third Frontier program without governmental assistance — but we are not at that point yet.
It is important to keep the funding program of Third Frontier at relatively consistent levels in order to incent potential participants in the Ohio economy and to ensure that we don’t diminish funding of current programs that are working well. I believe keeping annual funding in the neighborhood of $125 million to $135 million per year would be adequate to achieve the above objectives. Of course, the size of any state bond issue needs to be sized with a view to the state’s financial capacity. I understand that a recent study of that topic concludes that the state does have capacity to do a bond issue up to $1 billion in size for the Third Frontier fund.
Eric Fingerhut, chancellor, Ohio Board of Regents; Third Frontier commissioner: House Joint Resolution 12, as passed by the Senate Finance and Financial Institutions Committee, represents a cut of 21.9 percent in the annual amount of funds committed to the Third Frontier. It would be impossible to mount a successful campaign for such a reduced program. More importantly, it would send a vote of no confidence to Ohio’s budding entrepreneurs, research centers and venture capitalists who are working every day to create the jobs of the future. Many of them would, I believe, begin looking elsewhere to build their future. I respectfully request that you give the voters the opportunity to fully fund, or even increase, the Third Frontier.
Bob Schmidt, chairman, Cleveland Medical Devices: Renewing the Third Frontier for Ohio is absolutely critical for the state’s employment future. When things are bad, that is the time to invest, and we should invest the most we can; and that is an amount that the politicians should decide. Having funding to grow established high-tech companies, fund new start-ups and expand the Third Frontier internship program is extremely important if we are to continue to compete with the rest of the world.
John Griffin, director, Technology and Innovation Division, Ohio Department of Development: The program has met or exceeded all of its expectations in its first eight years. That gives us confidence that the program’s purposes are achievable, that its programming has been effective in stimulating technology-based economic development and that there is a growing demand in the economy for the type of technology that Third Frontier promotes. There’s no reason not to continue the Third Frontier funding at least at the current level of $160 million per year, on average. Monies from voter-approved bonds allow us the greatest grant-making flexibility.
Norm Chagnon, executive director, Third Frontier Commission: Building a tech-based economy is no short-term endeavor. If we are to have a transformational effect on the state’s economy, we need to continue to make the kinds of investments we have over a long period of time. Voter-approved bonds give us the greatest assurance that the funding for Third Frontier is there. That allows us to plan.
Barbara Snyder, president, Case Western Reserve University; Third Frontier Advisory Board member: We should renew the Third Frontier because research shows conclusively that the program has had an enormously positive effect on Ohio. Beyond the numbers are thousands of stories about people who now have jobs, of patients who now have hope. This spring, we have the opportunity to continue this impressive momentum — it is in our state’s best interest to do just that. I supported the billion-dollar proposal originally submitted to the legislature.
Ray Leach, chief executive, JumpStart Inc.: It is our desire to maintain the level of support that has been available. Ohio has grown venture capital investment at two times the national rate over the last five years, which is a result of Ohio Third Frontier, as determined by an independent report. In Northeast Ohio, companies have raised over $1.1 billion in the last five years, in part due to Ohio Third Frontier programs. A Third Frontier program of less than $160 million per year ($800 million over five years) would put this momentum in jeopardy.
Jon Snyder, president, CEO, Neuros Medical Inc.: We should DEFINITELY renew the Ohio Third Frontier Project. It was instrumental in my returning to Cleveland from Chicago via my CEO-in-residence role at BioEnterprise, which is supported by the Third Frontier’s Entrepreneurial Signature Program. Without this project, I may not have returned, founded Neuros Medical, raised nearly $2 million in funding, hired employees, embarked on product development in Ohio with Battelle, or had any economic impact here in Ohio.
Baiju Shah, president, CEO, BioEnterprise: The Third Frontier has a demonstrated track record of creating sustainable jobs. An independent report showed that high-tech jobs and venture capital have increased in Ohio faster than in the nation, largely because of Third Frontier. These results are more impressive considering the effort to rebuild Ohio’s economy started just eight years ago. The Third Frontier program must be sustained to fuel accelerated development. Even in these challenging fiscal times, the Third Frontier funding should be kept whole at between $150 million and $160 million per year.
Jonathan Murray, managing director, Early Stage Partners; president, Ohio Venture Association: This program has been very valuable in creating technology in the state’s research institutions, supporting the commercialization of that technology in companies, and supporting company formation and capital formation throughout Ohio. As I travel to other states, particularly in the Midwest, the Third Frontier program is held up as an example to follow. I don’t have a particular amount of funding in mind, other than that amount which achieves the result.
