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Science-Based Economic Development edited by Susan Raymond
Stephen D. Huntington
Mountain West Management
Butte, Montana
Montana
Science and Engineering Profile
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Actual | 50-State Rank |
|---|---|---|
| General | ||
| Population, 1994 | 856,000 | 44 |
| Civilian Labor Force, 1994 | 437,000 | 44 |
| Personal income per capita | $17,865 | 42 |
| Gross state product, 1992 (billions) | $15.2 | 47 |
| Science and Engineering | ||
| Doctoral scientists, 1993 | 1,581 | 44 |
| Doctoral engineers, 1993 | 111 | 48 |
| S&E doctorates awarded, 1993 | 46 | 46 |
| S&E post-doctorates, 1993 | 32 | 48 |
| S&E graduate students, 1993 | 1,276 | 44 |
| Federal Spending | ||
| Total Expenditures, 1994 (millions) | $4,638 | 45 |
| R&D obligations, 1993 (millions) | $69 | 45 |
| Total R&D performance, 1993 (millions) | $85 | 49 |
| Industry R&D, 1993 (millions) | $14 | 49 |
| Academic R&D, 1993 (millions) | $48 | 48 |
| of which, in life sciences | 67% |
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| of which, in engineering | 9% |
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| of which, in physical sciences | 9% |
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Higher education current-fund expenditures, 1993 (millions) |
$377 | 48 |
| Number of SBIR awards, 1990-93 | 22 | 41 |
| Patents issued to state residents, 1994 | 84 | 45 |
This case study describes science and technology policy as it has been developed and implemented by the state government of Montana. While the elements of science and technology policy in Montana have involved a variety of agencies and institutions, they have been more or less focused on a single entity of state government, the Montana Board of Science and Technology Development and the related staff organization, which together are most commonly referred to as the Montana Science and Technology Alliance (MSTA or the Alliance).
Experience in Montana has shown that the grand vision that characterized public discussion regarding science and technology policy is only sporadically evident in the reality of political acceptance and program implementation. Since 981, when the roots of MSTA were established, many instructive events have occurred in both policy development and program operations. This case study attempts to describe those events, their outcomes, and the factors that influenced them from the MSTAs formative period through very recent times.
Because Montana's current science and technology policy and programs were formed in the early 1980s, descriptions of demographics, economics, and other factors relevant to the policy development process refer mostly to conditions present during that time frame. Information describing current conditions is utilized for comparison or to provide a context for more recent activity.
Background
The following discussion provides a background based on the policy making that has taken place in relation to science and technology and its intended impact on development of the Montana economy.
Population and Geography
The 1980 U.S. Census counted 787,000 Montanans, which ranks Montana forty-fourth of the fifty states. (The 1990 Census counted 799,000 and the estimate for 1993 is 839,000.) With land area of nearly 147,000 square miles (fourth in the U.S.) the state is one of the most sparsely populated, averaging 5.3 people per square mile in 1980. A little more than half of the state's population lives in areas considered urban. Of the seven largest cities, ranging in size from about 30,000 to over 80,000, six are located in the western part of the state and one, the largest, is located in the east-central region. Roughly 40 percent of the western portion of Montana can be considered mountainous; the Rocky Mountains extend from the northern to the southern border. The eastern 60 percent of the state is characterized by high plains.
Montana's location as an inland state in the far northern Rocky Mountain west places it in a position of relative isolation from its nearest major markets. Rail transportation is mostly available on east-west lines only. A single in-state connection has a direct rail link to central and southern California markets. Commercial air transportation is available to the state's seven largest cities but it is expensive, subject to a limited variety of commercial carriers, and is not convenient to one-day, in-and-out business travel. The most rural sections of the state suffer from significant air travel disadvantages.
Industrial Mix and Trends in Income and Employment
Industrial Mix: Montana's economy has traditionally relied on natural resource industries including agriculture and food processing, wood and paper products, and mining and mineral development. Agriculture is prominent in all areas of Montana, metal mining and forest products are most common in the western region, and coal mining and oil and gas recovery are most common in the eastern 60 percent of the state. To a certain degree, Montana's economy, like the rest of the U.S. and the developed world, has been affected by the increasing importance of "derivative" industries, and by declines in economic activity associated with natural resource, manufacturing, and other "basic" industries. For the purposes of this discussion, derivative industries are defined as those involving transportation and public utilities: wholesale and retail trade; finance, insurance, and real estate; and services such as those associated with tourism and entertainment.
Labor Income: In 1979, labor income from natural resource industries in Montana (including associated manufacturing activities) accounted for 18 percent of total labor income, compared to 11 percent for the U.S. By 1990, the dependence of Montana's labor income on natural industries had declined to 15 percent, while the national economy's dependence had declined to 7 percent. Within the period there is also evidence of a revitalization of the natural resource sector in Montana: Natural resource-based labor income showed an overall increase of 41 percent in Montana from 1985 through 1990, compared to a stagnant national average recovery over those years of 1 percent.
Labor income percentages in 1979 for other sectors of the Montana economy included 7 percent for other manufacturing, 8 percent for construction, 19 percent for government, and 48 percent for derivative industries. By 1990, the percentages of total labor income for those industries had declined for construction to 5 percent and for other manufacturing to 2 percent, and had increased to 22 percent for the government sector and 56 percent for derivative industries.
Employment and Unemployment: The industries traditionally and technically considered "basic" to Montana have come to account for a smaller share of the state's overall economic vitality as measured, in both income and employment. Data on employment patterns reinforces and expands conclusions about the general trend apparent in sign labor income towards a more service-oriented Montana economy. Employment in mining as a percentage of total nonagricultural employment fell from 7 percent in con 1947 to about 2 percent in 1991. Manufacturing's share of employment fell from 18.4 percent to 7 percent over the same period. Employment in agriculture also amounted to just over 7 percent in 1991, compared to 12.2 percent as recently as 1970. Both the mining and agriculture experienced a decrease in the actual numbers of people employed. Manufacturing saw a slight increase in the number of people employed.
Employment statistics show an increase in the importance of derivative industries. Jobs in finance, insurance, and real estate as a percent of nonfarm employment nearly doubled from 2.6 to 5 percent between 1947 and 1991. Wholesale and retail trade jobs realized an increase from 25 percent to 27 percent and other services increased from 13 percent to 26 percent of total nonagricultural employment.
While, overall, these percentages do not appear to be terribly significant, it is important to realize that they represent an increasing share of an increasing total. It is also important to note that while the number of jobs increased, significant increases in labor income derived from service industries were not evident in comparisons between 1980 and 1990. This is perhaps indicative of the lower wages associated with the growing number of derivative sector jobs that are replacing higher-paying manufacturing and natural resources jobs.
Unemployment has at times been a significant factor in Montana, especially in the early 1980s, but it has not been one in which Montana has suffered continually greater hardship than the national economy. From 1979 through 1984, unemployment rose from 5.1 to 8.9 percent of the labor force. Unemployment decreased to 7.4 percent in 1984 after Montana began to show signs of recovery from the national recession of the late 1970s and early 1980s.
Total Montana employment including nonagricultural and agricultural jobs was 300,000 in 1970. By 1991, total employment was over 438,000. Within that amount are very few large private sector employers, as might be expected from the state's population and the relatively small size of its cities.
Labor Force, Education Facilities and Science and Technology Infrastructure
Labor Force: Montana's workforce is obviously limited in size but it is one of the most literate in the U.S. The state ranks fourth nationally in the percent of its citizens who have graduated from high school (87.3 percent compared to a nation al average of 71.1 percent), and it also ranks fourth in adult literacy (92 percent). However, in terms of higher education, Montana's workforce is less impressive: only 29.3 percent have attended four years or more of college. This statistic places Montana 23rd in the U.S. Also, the state has only 29.3 scientists and engineers per 1,000 residents (47th of the 50 states). This apparent dearth of technical talent is a likely result of the generally extractive nature of the industries that once dominated the basic sector of the Montana economy, and it stands as a current difficulty to be overcome if the state is to realize significant growth of its technology-based sector.
Education Systems: Like its labor force, Montana's education system exhibits signs of excellence but lacks the attributes needed to serve as a foundation for long term science- and technology- based development of the economy. Based on research conducted for the Montana Science and Technology Advisory Council in 1991, it was concluded that statewide expenditures for kindergarten through high school education, measured on both a per capita and per student basis, are consistently among the highest in the U.S. Montana students score very well on standardized achievement tests and show particular strengths in mathematics and natural sciences.
Research for the Science and Technology Advisory Council further reports that Montana's support for higher education does not match that available for K-12 education. Expenditures for higher education amounted to $214 per capita, or $4,300 per student in 1986. While this level of support ranked Montana 29th among the states, it is a level comparable to surrounding states. The council's report also states that teaching facilities and equipment at the college level are not as sophisticated as many Montana students enjoy at the high school level.
Science and Technology Infrastructure: Significant research capacity has existed in Montana for many years in the form of federal facilities. The National Institutes of Health maintain the internationally recognized Rocky Mountain Laboratories south of Missoula in Hamilton, Montana. The Department of Energy sponsors the only center located west of the Mississippi River for testing, development, and demonstration of environmental remediation technologies at the Western Environmental Technology Office in Butte. Other federal facilities include the U.S. Department of Agriculture's Research station located in the far eastern portion of Montana at Sydney, the Intermountain Fire Sciences Laboratory in Missoula, and the Fish Technology Center located in Bozeman. Other effective outreach activities have linked Montana's agricultural community with relevant technological advancements through the U.S. Department ofAgriculture's Cooperative Extension Service.
Other factors important to the development of science and technology infrastructure in Montana's universities are graduate programs offered in areas that correspond to each institution's research strengths, and National Science Foundation (NSF) financed activities to sponsor, on a matching funds basis with state government, individual research projects through the Experimental Program to Stimulate Competitive Research (EPSCoR), a set-aside financing program for states that have been noncompetitive for NSF financing in the past. Also, NSF has made very substantial contributions through the university system to bolster the state's K-12 science and mathematics education capacity.
In regard to communications infrastructure and technology, Montana's capabilities were slow to develop but have been upgraded to provide the basis for sustained economic growth. As a result of the interest and pressure of stare decision makers and investments by telephone utilities, digital switching capabilities and fiber-optic transmission are available to nearly all Montanans. Montana is a leader in telecommunications applications for education and medicine. The state is providing demonstration sites for advancements in distance learning and in linking rural medical facilities to the more sophisticated capabilities present in cities located hundreds of miles away.
Other Factors
Entrepreneurship: Another instructive point involves the nature of employment opportunities in Montana. Between 1981 and 1985, nearly 42,000 new jobs were created in Montana through the startup of new companies. On the other hand, 43,000 jobs were lost through the closure of old companies or other decreases in employment in established corporations. A significant portion of these losses is attributable to natural resource industries that maintained their level of output but did so with fewer employees through the use of new technologies that make individual workers more productive. In the early 80s, Montana ranked 47th (of 51 including the District of Columbia) in the number of significant company startups according to research done by economist Dr. David Birch of the Massachusetts Institute of Technology. The state was 50th in terms of young companies that grew significantly over the period, and Dr. Birch concluded that Montana was "the least entrepreneurial state in the U.S." While these statistics likely do not account for the activity of "micro" businesses with less than 10 employees, such businesses are reported to be generally representative of survivors who wish to stay in Montana and have no other alternative than to "hang on" through continued operation of no-growth or very slow-growth enterprises.
In that regard, research conducted for the Montana Science and Technology Advisory Council indicated that 3,000 new businesses were established in Montana during each year of the 1980s and that a very respectable 43 percent of the businesses established in 1983 were still alive five years later. Of those, service businesses had the highest survival rate at 79 percent, health services at 70 percent, but manufacturing businesses had a survival rate of only 38.5 percent and mining firms survived at only a 21.5 percent rate. The research showed that 80 percent of the graduates of MSU's engineering school find their first jobs outside the state.
Coincident with the state's small number of engineers, scientists, and entrepreneurial businesses is a limited number of the type of support professionals common to a successful entrepreneurial economy. While there are pockets of people and companies possessing appropriate experience, there is not a broad range of expertise in the fields of early stage finance and securities, intellectual property ownership, and management of rapidly growing enterprises. Necessary financial resources are also lacking with little availability of professionally managed venture capital and an investment climate that does not encourage wealthy individuals and developed companies to put capital into new Montana businesses.
Quality of life:A factor which has always been present in Montana and which is growing in importance as a relocation factor is quality of life. This attribute, historically associated with the state's mountainous and high plains scenery and outdoor recreation, is enhanced by small populations in cities and towns that have not been severely affected by problems such as overcrowding, long commutes and crime that are present in the nation's major cities. This attribute provides an inherent advantage on which to build a science- and technology-based economy, especially through industries and businesses that are not distance dependent.
The Policy Triggers
This section is concerned with the three events or triggers that gave rise to the development of Montana's science and technology policies in the early 1980s. Subsequent sections of this paper will describe the policies and programs adopted as a result of the trigger events, and the evolution of those policies and programs through the early 1990s.
Economic Recession and Industrial Shutdowns
The University of Montana's Bureau of Business and Economic Research characterized 1980 as, "A Year of Setbacks." From the bureau's "Economic Outlook" publication in the spring of 1981 comes the following overview:
Although the 1970s were reasonably good to Montana, the first year of the new decade was full of disappointments. Along with the rest of the country, Montana was affected by recession and high inflation. In addition, with what was very bad timing, the state was hit by several other major set backs. In January 1980, The Anaconda Company announced that it would permanently reduce its statewide labor force by 10 percent. In July, the Butte {Anaconda Company} copper mines were closed by what developed into a long five-month strike. Then in October, The Anaconda Company announced the closure of its smelter in Anaconda and its Great Falls refinery. As if that were not enough, Evans Products [wood products plant] shut down its operations in Missoula beginning in April and the Milwaukee Railroad ceased operation in the state west of Miles City. In far eastern Montana, drought reduced agricultural production.The strike, the drought and the recession are presumed to be temporary. The loss of jobs in the Butte mines and the plant closures are permanent [the Anaconda Company announced permanent shutdown of its Butte operations in 1983]; the Anaconda Smelter, the Milwaukee Road and the Evans Products plant appear to be gone for good.
More recently in 1994, the bureau stated of the period:
The period 1979 to 1982 was disastrous for Montana's economy. Widespread declines among basic industries drove non-farm labor income down by 10 percent. The nation's worst post-war recession combined with state level cyclic declines in wood products and other paper products and other basic industries. On top of that, smelters in Anaconda and Great Falls closed permanently and the Milwaukee Railroad shut down.
The bureau concluded that "the loss of jobs in manufacturing and railroads adds to about 4,500 of the best paying jobs in the state."
Further evidence of the Montana economic "disaster" and its impact on Montana was documented in the 1984 "Economic Conditions in Montana" report published by the Census and Economic Information Center of the Montana Department of Commerce. The report stated that the recession began in the fourth quarter of 1979 and continued until the second quarter of 1982-a period of ten quarters. Montana's recession was not only long but severe. From the cyclic peak in the fourth quarter of 1979 to the trough in the second quarter of 1982, nonfarm labor income in Montana declined 8 percent. The corresponding figure for the U.S. economy was a decline of 2 percent. In other words, the recent recession in Montana was four times worse in Montana than in the U.S. The report further states that:
Taken together, these events have resulted in the permanent loss of about 8,000 jobs and have adversely affected Montana's economic base....The permanent closures and shutdowns are particularly important because they represent a reduction in Montana's base that will not be regained as the economy recovers from the recession.
New National Priorities for Economic Development
Economists and people interested in economic development were talking about economic performance and development strategies in a new way in the early 1980s. First, there was a realization that traditional heavy manufacturing was on the wane, based on decreasing demand for certain products, increasing international competition, or decreased job generation by such industries because of technological advancement. Second, there was growing recognition that new jobs were being generated by small businesses and by service businesses. And third, economic development interests were developing new ways for states to be involved in development of their local economies.
In a publication popular at the time, "Economic Revitalization and Technical Change," the Stanford Research Institute (SRI) concluded that:
The era of low interest rates, limited foreign competition, stable markets and production processes that allowed some key industries to operate in a sheltered environment is gone. That environment has been replaced by a world where money has a high cost, international trade is extensive, markets change rapidly, and sweeping developments in new technologies make industrial competitiveness a paramount concern.In this new economic environment, efforts to promote the economic development of regions, states or localities have taken dramatic new forms. Rather than attempting to relocate existing industries from other regions, new revitalization perspectives attempt to create an environment for entrepreneurs to start new firms and apply technology to renew existing industry. Much of the growth in today's economy comes from new small and medium-sized businesses that have found ways to serve today's markets in a more competitive manner. In fact, job creation appears to be affected less by the exodus or arrival of large corporations than by the ability of communities or regions to produce and nurture small enterprises.
This quote was later included in the publication of the Governor's Council on Science and Technology in 1985. It embodies the nature of economic-development thinking that was prevalent in the early 1980s on the part of states that led the nation in policy development. Also in the 1980s, various so-called "business climate ranking" studies became popular as measurements of the states' economic vitality and their relative hospitality to the advancement of business. These national trends, and the realities of the economic disaster described above, were significant factors that helped to create the atmosphere in which Montana's original science and technology policies were adopted.
Opportunities for the Montana University System
In keeping with the national trend to tie technology to new business development, the nation's research universities became the focus of national and stare programs to apply science to commercial opportunities. On that basis, research universities became ever more competitive in their quest to receive research funds from public and private sources. Elements of the Montana university system, particularly Montana State University in the fields of advanced materials, agriculture, and various engineering disciplines, Montana Tech of the University of Montana in mining technology and metallurgy, and the University of Montana in health sciences, became increasingly interested in bolstering their competitive position to receive research support. The possibility of entering the formula to help the state build its economic recovery provided the opportunity for the units to be part of the policy making process and to enhance their own capabilities. The interest of the university system and its ongoing role in the expectations and realities of science- and technology-based economic development constitute two of the most important aspects of the overall policy process and its evolution into the 1990s.
The Policy: Process and Programs
Economic Development Programs
Executive Branch Efforts: The 1980 gubernatorial campaign in Montana, although held during the beginnings of the "disastrous" economic times that characterized the early I980s, did not involve a heated debate regarding the economy or economic development. While job creation and economic stability were discussed, they did nor form a central theme nor did they leave in place significant programatic expectations of the new administration that took office in 1981. It was during the first year of the new administration, however, that the most serious plant shutdowns and other economic downturns took place. In response to this experience, and to the national attention on new types of state-sponsored economic development programs, the executive administration undertook the Montana Economic Development Project. This project, and a number of other formal and informal planning groups, studied aspects of the Montana economy and formulated recommendations that would form the basis for a new economic development program.
One of the elements of the project that was unique at that time in Montana was the direct involvement of many representatives of the private sector in the review and planning process. This involvement came at the invitation of the governor's office or through contact with the private groups already invited to participate. Private sector participation in formal or informal groups was generally organized according to the sector of the economy with which a participant had experience or a particular inter est. Additionally, much of the project's effort centered on an economic consulting study, conducted with the guidance of the Economic Development Project Steering Committee and financial sponsorship from private sources. This derailed study of the Montana economy focused on its potential for growth and revitalization, including opportunities associated with traditional industries, small business development, and the role that state government should play. Included in the analysis was a review of opportunities associated with science and technology and a "Temporary Committee to Sponsor Creation of a Committee on Science and Technology."
Constitutional Initiative: While the Economic Development Project and other activities were underway, another important event was occurring that would affect the expectations of the Montana legislature and the public, and that would provide resources for use by some of the programs that were eventually adopted. In the general election of November 1982, the voter of Montana passed Constitutional Initiative 95 (1-95), a measure requiring 25 percent of new receipts (after June 30 1983) to the state's Coal Severance Tax Trust Fund he invested in the Montana economy. (One of the taxes paid by coal companies operating in Montana is a Severance Tax, 50 percent of the proceeds of which are deposited in a Constitutional Trust Fund, which cannot be expended without a three-quarters vote of both houses of the 150-person legislature. The fund's purpose is generally to preserve a source of future benefit from nonreplaceable coal that is mined today.)
1-95 provided that "objectives for investment of the permanent Coal Tax Trust are to diversify strengthen and stabilize the Montana economy and to increase Montana employment and business opportunities while maintaining and improving a clean and healthful environment." The measure, primarily developed by leaders of the Montana legislature who were directly involved or interested in the original creation of the trust, received the support of the governor but not the kind of support that could be construed as linking the initiative directly to the governor's policy or program planning.
One of the most significant compromises made in developing final language and gaining support for the initiative from a broad range of influential parties, including the state's banking community, was a provision prohibiting direct investments or loans. All investments were required to be made through financial institutions and they were limited to 80 percent of any total project amount. This requirement is particularly important when taken in combination with another Montana constitutional prohibition against any state funds being invested in "corporate capital stock." This prohibition, interpreted as an absolute prohibition against purchasing private equities using state funds, plus the prohibitions in 1-95, effectively limited the new "In-State Investment Fund" to the position of a credit enhancement vehicle for use by the private lending community.
The conservatism inherent in this policy would eventually be one of the most important considerations for the continued vitality of the science and technology development programs described below.
Build Montana Program: Utilizing the newly created Department of Commerce. an executive agency put in place in 1981 through the combination of the former Departments of Community Affairs, Business Regulation, professional licensing boards, and economic development functions previously housed in the governor's office, the administration introduced its "Build Montana" package of programs to the 1983 session of the Montana Legislature. The Build Montana Program consisted of a variety of elements that entailed the direct appropriation and expenditure of $5.6 million in state funds and a set of credit enhancement programs following the requirements of 1-95. Very instructive of the atmosphere within which the Build Montana package was developed is the following quote from the document that was transmitted to the Montana public and the legislature:
Nationally recognized economist Lester Thurow (MIT), raised in Montana, has suggested that state governments, at best, are capable of affecting only 10 percent of their overall economic activity. With this realistic estimate in mind, let us begin our task. We can chart a new course in Montana's economic history. We can do it prudently and effectively.
Following is a list of some but not all of the elements of the Build Montana Program:
Governors'Advisory Council on Science and Technology
Temporary Committee to Sponsor Creation of a Committee on Science-and-Technology: The motivation of the temporary committee was based on the incentive to put together programs to address the state's economic problems, and on the momentum created by the administration to involve a wide range of interests and sectors in developing state-of-the-art programs for Montana. The twenty-four member committee included senior managers of science-based businesses, representatives of traditional resource-based industries, and many members from the university system including the vice presidents for research from Montana State University and the University of Montana, and the Commissioner of Higher Education. (Twelve of the twenty-four members were associated with the university system.)
The temporary committee recommended the creation of a Board of Science and Technology which would have authority to apply for and accept grants of money from public and private sources including appropriations from the legislature, and to award grants and contracts to individuals, business entities, public agencies, colleges, and universities to conduct research and development projects that complement and support economic development. The recommendation was not accepted by the administration. Instead, the recommendation of the governor, as approved by the legislature, established the Governor's Advisory Council on Science and Technology to "advise the Governor and the Department of Commerce on the application of science and technological research in the development and implementation of economic development programs."
Policy Objective: Speaking to the advisory council at its first meeting, the governor delivered the following charge:
The first order of business for this Council should be applying scientific technologies to existing Montana businesses and industry. Helping Montana businesses, farmers, and ranchers, professionals, and industrialists use state-of-the-art technology in order to compete in tomorrows high-tech oriented business world must be our primary goal. Only after that should we consider starting up new technology-based business in Montana
With the Governor's charge in mind, and recognizing the recommendations of the temporary committee, the advisory council adopted the following objectives:
Policy Process:Membership on the eleven-member advisory council was again drawn from a variety of interests but, unlike the temporary committee, the university system was represented by only three of the eleven. The council established itself as the central focus for coordination and review among nine subcommittees, each established to produce recommendations on a particular field or sector of the economy on which it was assumed that science and technology-based development might have an impact. Subcommittee participation was sought through a networking process that utilized the membership of the temporary committee and the council as the hub from which spokes of an enlarging wheel were extended into business, academia, and government across the state. Members were selected for a particular subcommittee based on their knowledge and experience of the subcommittee's subject matter or on the importance of that subject matter to the region of the state in which a member resided.
Subcommittees included about 150 members organized in the following nine subject areas: agriculture; biotechnology; computers, electronics and material science; commercialization of research and development; energy and energy conservation; forestry; information dissemination; mineral technology; and technical education. Drawing on their own knowledge and experience, and on program models described for them by Department of Commerce staff in regard to science and technology efforts in other states, the subcommittees produced a set of recommendations that, after screening and revision by the full council, were submitted to the governor for consideration by his office and the 1985 legislature.
Program-The Montana Science and Technology Alliance Advisory Council recommendations:
Early in 1985, the Governor's Advisory Council on Science and Technology released its recommendations in final form. It entitled its major recommendation: "A Program for Investment in Technology Development." This program, which was to be managed through a Science and Technology Development Board and administered with staff resources supplied by the Department of Commerce, was entitled the Montana Science and Technology Alliance. In introducing its recommendations, the council stated the following:
Public and private resources should be combined and invested in an alliance organization to provide scientific and technological support for Montana industries and businesses, to improve their competitiveness, and to bring new technological opportunities to the state. Other states are raking similar actions and are investing significantly in indigenous technological development. The Advisory Council believes that Montana, too, must rake bold steps.
The council's recommendations concentrated on making what it considered to be investments of four complementary types involving the areas of the economy around which the Council's subcommittees were established:
The advisory council also recommended the adoption of other measures including expanded budget authority for the university system, plus expenditure of Alliance funds for encouraging university-based research, technology development and small business assistance; developing a system for intellectual property management and transfer from the universities to the private sector; instituting feasibility studies for technology parks; developing advanced telecommunications capabilities; and establishing distinguished research chairs to support the research needs of existing and emerging technology industries.
The budget proposed by the advisory council sought $6 million per year and a commitment of ten years from the Coal Tax Trust to carry out the investment program and to participate in the other identified area.
Legislative Action: In general, the governor and the 1985 legislature were quite receptive to the advisory council's recommendations for its investment program. Through passage of House Bill 812, some changes were made in the manner by which Seed Capital Investments would be administered; the advisory council had recommended that the Montana Economic Development Board should carry out that portion of the investment program, but the legislation kept that authority with the Alliance board and staff Also, while the advisory council's recommendations only contemplated seeking return-on-Investment from applied Research and Seed Capital Investments, the legislation required a financial return to be sought from all types of investments. (The mechanism finally adopted by the Alliance board called for return to be achieved through a royalty paid against revenue received by the recipient of an investment if commercialization or sale of any products or services were generated as a result of the investment. Payback would typically continue until the investee had repaid 2.5 times the amount of the investment.) Also, while the advisory council envisioned requiring 1:1 matching funds only on Applied Technology and Seed Capital Projects, the legislation required a 1:1 match for all project types except Technology Transfer.
The most important deviation between council recommendations and legislative approval was in the Alliance's budget. The governor recommended, and the legislature approved, a budget of $2 million, of which no more than $300,000 could be used for administration. Budget authority was limited to the 1985 through 1987 biennium only; no continuation of the program was guaranteed after 1987 without action by the 1987 legislature.
The source of funds finally decided upon was also important. The governor and legislature agreed to finance the Alliance from a Coal Severance Tax account, but not from the trust fund as was being used for the new credit enhancement programs
Huntington: S&T Development in Montana
Under the In-State Investment Fund administered by the Montana Economic Development Board. By appropriating funds from the non-trust Coal Tax account, rather than allowing investment authority from the trust itself there was no constitutional requirement that the funds be invested according to standards of prudence, and no prohibition against directly "investing" in private companies, provided that the constitutional prohibition against equity ownership was not violated. In other words, there was an up-front recognition that these funds could be lost or that the rate of return could be below the standards of the financial marketplace.
The administrative arrangements associated with the Alliance program should be noted. The Science and Technology Development Board is required to be made up of individuals with expertise in business or technology development, appointed by the governor and confirmed by the state senate. Board positions are essentially voluntary with a small allowance for travel expenses and per diem. The staff of the board is provided through the Department of Commerce with the chief staff person, the executive director, reporting to the director of the Department of Commerce (a cabinet level gubernatorial appointment) rather than to the board. The board is responsible for investment decisions evaluated and recommended by the staff
The Alliance's staff was originally expected to be constituted by the executive director, up to three investment managers, a finance or administrative manager, and a secretary-receptionist The executive director and investments managers arc responsible for promoting investment opportunities, liaison with the program's board and constituency, holding seats on investee company boards of directors or project steering committees, and outreach to the public in general. The executive director, in addition to these duties and general program management, is also responsible for legislative contact and program promotion. This staffing level, with minor fluctuations, has stayed constant through the present day.
The Politics of Program Approval: By 1985, the economy in Montana had stabilized but state finances were beginning to realize the effects of decreased receipts of personal income taxes resulting from economic restructuring earlier in the decade, lower than expected coal production, and a drop in oil and gas extraction activities. Also, most of the other aspects of the Build Montana program were already two years old and a great deal of the momentum associated with the adoption of new economic development programs in 1983 had subsided.
In spite of what might have been a less receptive atmosphere, House Bill 812 received no negative votes on final approval in the 100-person Montana house, and only 8 no votes out of 50 upon final approval in the senate.
The following four reasons have been stated for legislative success:
Policy and Program Evolution
Early Findings
As the Alliance began operating in late 1985 and early 1986 by soliciting investment opportunities to carry out its mission, three factors affecting the program's future became apparent. First, it became obvious that less than $2 million in investable dollars was a very small amount of money with which to meet the type of technology development challenges Montana faced. Second, there arose a much greater demand by private sector entrepreneurs for seed capital investments than was originally anticipated. And third, the return-on-investment mechanism available to the Alliance for both seed capital and the other types of investments would not generate sufficient resources to rebuild the Alliance's investment fund within a reason able period of time.
Additionally, there was response from what appeared to be a significant number of native Montanans, or people very interested in Montana, who possessed special technological skills and entrepreneurial drives, and who would be interested in returning to the state if there was a significant source of capital available to invest in new enterprise respected cross section of the legislature, including people from as with opportunities for significant growth. At the same time, the program's board and staff were becoming more familiar with the concept of profession al venture capital, its importance to a growing economy, and the efforts being under taken by other states to improve their positions in relation to venture capital. It was on this basis, and on the basis of continuing commitment to the research infra structure aspects of MSTA, that a proposal was drafted for consideration by the governor and legislature in the 1987 Session.
By the end of 1986, the alliance had received 173 inquiries and 64 actual funding requests. Of those, about $2.1 million was requested for 22 Research Capability and Applied Technology Research Projects, over $4.9 million was requested in 31 Seed Capital proposals, and over $512,000 was requested in 11 Technology Transfer Project proposals Requests had come from every major population center in the state, plus six from out-of-state, the principals of which intended to come to Montana if projects were approved. MSTA actually participated in 18 projects for a total of $1.6 million, nearly all of the program's two- year allotment for project financing. Of the approved projects, 8 were for seed capital totalling about $1 million.
Huntington: S&T Development in Montana: Sources of Finance
The proposal submitted to the governor and drafted into House Bill 700 for consideration by the 1987 Legislature effectively divided MSTA's funding sources into two distinct elements: a Seed Capital Fund and a Research and Development Fund. The source of finance for the Research and Development Fund was to come in the form of a $2 million appropriation from the same non-trust Coal Tax account that financed the entire program in 1985.
For the Seed Capital Fund, a new source was developed by which MSTA was to sell tax exempt bonds in the amount of $16 million. The $16 million fund, conceptualized to be very much like a limited partnership capital pool typically utilized in the private venture-capital industry, would provide a source for investment in private companies and pay associated management expenses of the board and staff. It was intended to be available for between ten and thirteen years, depending on how long it took to make investments and mature those investments to liquidity. The bonds sold to finance the program, being "zero-coupon" bonds, would require no principle or interest payments until the thirteen-year term was concluded. At the end of that term, return of principle and earnings on seed capital investments would retire the bonds, but if insufficient earnings were available, the legislation provided that the Coal Tax Trust Fund would make up any shortfall.
The bonding mechanism and potential involvement of the Coal Trust was interpreted to constitute an expenditure of trust funds. On that basis, the bill was required to receive a three-quarters vote of both houses of the legislature in order to pass. Again in 1987, the program enjoyed tremendous Legislative success; House Bill 700 received no negative votes on final approval in the house and only nine negative votes upon final approval in the senate, amounts easily enough to meet the requirement for a three-quarters majority.
Reasons for the bill's passage in 1987 mirrored the situation in 1985. Broad cosponsorship in the legislature, a committed and diligently working staff, and vocal support from the program's constituency around the state, combined with one other very attractive feature. Based on the response the program received from private entrepreneurs from 1985 through the end of 1986, it appeared that short-term job creation results were very likely from a strong seed capital effort. The $2 million effort to maintain the research and development side of the program also met with success for all of the reasons stated above, plus the notion that to maintain a lively flow of opportunities for the Seed Capital Fund, science and technology infrastructure needed continued support. MSTA was now poised to begin operating in 1987 with a $20 million fund (the $2 million appropriated in 1985, the additional $2 million for research and development appropriated in 1987, and $16 million in bond proceeds for seed capital financing).
Another aspect of the 1987 legislation was a mechanism for making investments that did not violate the no-equity prohibition of the Montana Constitution but still allowed MSTA to take advantage of the reward that should come from making high- risk investments in companies which eventually become successful. The mechanism involved the use of convertible debentures, or loans, by which MSTA would place funds with a company, assess interest for a period of up to seven years, but collect no principle or interest payments on the note until it matures. The debentures or notes would be secured by a number of shares of stock of the investee company equal to the face value of the note. The best-case scenario for MSTA and the investee company would occur if the value of the stock which secured the note would gain sufficient value over a seven-year period to exceed the principle and accumulated interest due on the note. In that event, MSTA would exit the transaction by selling the note to a third party, or to the investee company, based on the underlying equity value, thereby gaining the value of the equity without actually holding equity shares. The new owner of the note would then convert the note to equity, thereby forgiving the debt and becoming a direct equity holder. This mechanism provided MSTA with the protection of a note in downside situations, the value of equity in upside situations, and made its investments compatible with the private venture capitalists it hoped to attract to its investee companies
Legal Challenge
Bond underwriters and counsel advised MSTA that the terms of House Bill 700, especially the guarantee mechanism associated with the Coal Trust, would have to be constitutionally tested before bonds could be sold. On that basis, the Alliance launched the appropriate questions in a test case which was known as White v. the Montana Science and Technology Development Board In a unanimous 7-0 decision, the Montana Supreme Court struck down the provisions of House Bill 700 on July 21, 1988. The central holding of the court was that it is unconstitutional to pledge the credit of the state to guarantee private obligations of an undetermined size, that the manner by which funds would be invested was insufficiently described in the legislation, and other more technical problems with the manner in which the legislation was drafted. The court also discussed perceived violations of the constitutional prohibition against "using public funds for private purposes," but such a violation was not part of the decision.
By the time the court had rendered its decision, MSTA had moved forward with its investment program in both seed capital and research and development projects using the appropriated $2 million fund source from 1987 and the remainder of funds left over from 1985. The number of program inquiries amounted to 450 and the number of actual proposals reached 171, with 96 in seed capital and 75 in research and development. Total investments had climbed to almost $3 million, $1.25 million of which was in seed capital projects (the pace of financing seed capital projects had declined pending the expected successful outcome of White). All investment activity was halted after the court's decision.
While the legal problems caused for MSTA as a result of the White decision were short-lived, this was the most significant event in MSTA's evolution because it caused the program to focus on its source of funds and on its short term survival. From the standpoint of the program's board and staff, it was most logical to focus the Alliance's efforts in the coming 1989 legislative session on fixing the problems the court identified in White. In doing so, the Alliance turned nearly all of its attention to the seed capital side of the program.
Recommitment
In 1989, the governor's office was changing hands, control of the legislature had changed political parties, and MSTA was in the position of rebuilding knowledge of its investment programs within the executive branch and of gaining reauthorization for essentially all of its investment activities. Three advantages were present: experienced staff direction of the organization remained in place, the program's board remained intact, and most importantly, board and staff took the remainder of 1988 (after the White decision ) to inform the program's broad statewide constituency, including the legislature, of the problems encountered because of the court decision and solicited aggressive support in revitalizing what had become a very popular program.
House Bill 683 was introduced in the 1989 session, again with a cross-section of the legislature as cosponsors and the same legislative leadership standing behind the pro gram as in previous years. The bill contained provisions clearly spelling our the manner by which investment opportunities would be evaluated and commitments made. Seed capital investments were designed to he made through the convertible debenture mechanism described above, and research and development investments would be subject to payback totalling 2.5 times the original investment, payable through royalties if a revenue stream was realized through commercialization or other sales activity Matching finds on a 1:1 basis would be required for all types of investing.
The seed capital financing source was dramatically altered to include a $7.5 mil lion piece of the Coal Trust Fund, set aside for management by the Science and Technology Development Board and separated from provisions related to the In- State Investment program (which prohibited direct investments in private companies). Setting funds aside for management, versus appropriating those funds, was done under the requirement that a market rate of return would be sought through standards that resembled those of the private venture capital industry, and also allowed the board to take into account overall benefit to the Montana economy. The "set-aside" provision was also attractive because it apparently avoided the requirement for a three-quarters vote of both houses of the legislature.
Concern over the three-quarters vote was unfounded; House Bill 683 received final approval in the house with no negative votes, and passed the senate with only three negative votes. MSTA was back in business with statutory authority to operate both seed capital and research and development programs, but this time it did not have a new appropriation for research and development projects. Prior to the end of fiscal year 1989, from the time House Bill 683 became law until the end of June, the alliance committed all of its remaining funds, about $400,000, to the ongoing support of Research Centers of Excellence in cooperation with the Montana University System. It was hoped that this small commitment would keep the research and development side of the program alive until a new financing strategy could be established in the 1991 legislature.
New Research and Development Financing Authority
As MSTA solidified its investment authority and began investments under the Seed Capital Fund, units of the university system, and others interested in science and technology infrastructure, continued to wage their own battles to keep their research and development program efforts competitive with other states. The university system in particular was concerned that it find sources of funds sufficient to match $1.5 million per year that could come to Montana in the form of federal funds available from NSF under its EPSCoR program. MSU was in the final stages of competing successfully for an NSF Center for Interfacial Microbial Process Engineering (the Center for Biofilm Engineering) that would bring Montana $7.4 million in federal funds plus entre to significant infusions of private sector dollars that would sponsor research at the center.
Three units, Montana State University, the University of Montana, and Eastern Montana College of Montana State University were trying to match public and private foundation grants to continue operating the Montana Entrepreneurship Center, an outreach and coordinating vehicle designed to provide Montana entrepreneurs with access to the resources of the university system, and to link them with private business development services and financing opportunities. Other ongoing efforts included Centers of Excellence, in their formative states, at the University of Montana for biotechnology research, at Montana State University for advance materials, and at Montana Tech of the University of Montana for advanced minerals processing.
Interests associated with all of the above efforts, and many other research and development projects, continued to remind MSTA that science and technology development was intended to be more than venture capital. In keeping with its own intentions and the expectations of its constituency, the Alliance set out to identify a means of providing funds for its research and development financing program. The 1991 legislative session was a milestone in MSTAs history because it approved Research and Development Fund authority from the same source as that which provides financing for the Seed Capital Fund. With support from the same constituency that was so valuable to MSTA in the past, and a still impressive range of legislative supporters, the Alliance in 1991 secured $5.1 million as a set-aside for management from the Coal Tax Trust Fund for Research and Development Program investments. This $5.1 million was to be made available as match for NSF funds and for other research capability, applied research, and technology transfer investments.
The nature of the new research and development funding source required that MSTA achieve a return on investment that, in combination with benefit to the economy in general, is representative of the level of return that would be expected in the financial marketplace. While non-state funds for NSF projects, Research Centers of Excellence, and the Entrepreneurship Center were successfully matched and received financing as a result of the 1991 legislature's action, the MSTA hoard found it increasingly difficult to justify research and development investments in the face of the return-on-investment requirements associated with the new fund source.
This uneasiness became more pronounced in the 1993 legislative session in which MSTA sought an additional $8 million in authority for its Seed Capital Fund, and $3 million for its Research and Development Fund from the same source with in the Coal Trust. In order for the research and development portion of the new authority to pass legislative muster, however, the Alliance struck an agreement with the university system by which the system would make annual repayment to MSTA amounting to $250,000 until it had repaid 2.5 times the amount its units received in research and development financing. In spite of this requirement, the legislation received final approval by very thin margins in the house and senate.
By 1994, requirements for secured payback of research and development program funds, sometimes based on a payback term that drove the program's effective interest rate over 15 percent, began to be applied to all the research and development program's proposed financing. It is on this basis that the university system is currently uncomfortable with the method by which the state has made matching funds avail able for federal and other grant-funded projects. Also, MSTA is having difficulty finding willing non-university recipients for research and development program funds because they are subject to the more stringent payback requirements that have come to be associated with the program's current fund source.
Science and Technology Advisory Council
Toward the end of 1990, after MSTA had revitalized its statutory authority and secured a reliable source of funds for its seed capital program, it began an effort to rebuild the constituency for its research and development programs and to put in place the type of science and technology development policies that would build an effective infrastructure for the future. This effort, organized around a new Science and Technology Advisory Council, involved a very large and impressive list of individuals both within and outside of Montana, and addressed a comprehensive set of issues related to science and technology development. In many ways, the methods and organization of the Science and Technology Advisory Council of 1990 closely resembled those of the Governor's Advisory Council on Science and Technology of 1983 that originally recommended creation of MSTA. The new Council, however, had the benefit of a look backward at Montana's experience over the last seven years, the evolution of national science and technology policy, and a more sophisticated expectation of what could be achieved from well-formed state efforts.
The council's efforts were ongoing while MSTA was active in securing renewed funding sources for its research and development investment program during the 1991 and 1993 legislative sessions. While investments made from the new fund source are directly relevant to the goals and objectives of the council, the council's recommendations go far beyond the research and development program as it exists today.
The council was created by executive order in October 1990. Through October 1992, it reviewed and undertook significant economic study efforts, held numerous public hearings, and convened focus groups involving over 150 people according to various economic sectors, to produce a policy and plan, and an action agenda to implement the policy and plan. Council membership was selected based on individuals' experience in science and technology development in both public and private sectors, and on the capacity of those individuals to be effective leaders in implementing the Council's recommendations, especially in bringing credibility to the very aggressive fund raising aspects of the plan and action agenda. Unlike the 1983 council, the 1990 council included the membership of prestigious individuals from outside Montana.
The council, through its focus groups, review and comment by the MSTA Board, and through its own deliberations, produced the following major action recommendations:
Value-adding. Focus Montana state government-supported research and technology on processes that can add value to Montana products. These include animal agriculture, plant agriculture, communications and manufacturing, energy resources, minerals extraction and processing, and forestry and wood products.
Comprehensive inventories: Conduct a comprehensive inventory of materials, resources, capabilities, research and key contacts for each targeted product or economic sector.
Communications and networking. Provide Montana industries with easy access to information through state-of-the art communications and net working. Methods for doing so include:
The Montana Technology Discovery Network to link businesses with statewide service providers including those in the university system who can respond to requests for information and assistance;
creation of a Montana Business Technology Institute to serve Montana manufacturers by facilitating education and training, information dissemination, brokering industry needs with available manufacturing expertise, conducting economic and social research relative to the needs of Montana industry, and coordinating technical assistance needs with appropriate sources for meeting those needs; and creation of a Coalition for Grain and Fossil Fuel Energy Research to promote communication among researchers, research financiers, and industry in relation to innovative fuel technologies.
Skill Training: Provide Montanans with technological skill training appropriate to the needs of Montana industry through involvement in elementary and secondary education, post-secondary education, employee skill training, and teacher training.
University Infrastructure: Provide Montana universities with the facilities, equipment, and staff to effectively serve the needs of Montana industry. Emphasis should be placed on additional investigators and technicians, more advanced research equipment, new research facilities, and expansion of existing research centers.
Role of Government: Refocus government activities to enable industry. Actions include restructuring tax policy, especially as it relates to research equipment, revising permitting processes, and making compliance requirements more realistic in terms of outputs and costs.
Funding: The council recommended a package including $140 million in Coal Severance Tax Trust funds plus private fund raising, amounting to $445 million. The stare's portion of the financing package includes $18 million for seed capital investments and recognizes that the $122 million in research and development investment capacity should be appropriated from the Coal Trust through a three-quarters vote to allow MSTA the flexibility to make grants and to receive less than a market rate of return on infrastructure-building disbursements.
Continuity: The council recognized the need for the state to be served by formal and continuing science and technology policy advice and assistance, especially in regard to interacting with MSTA on the use of the sizable state government financial commitment envisioned in the Action Agenda. In that regard, it recommended establishing the Science and Technology Advisory Council as a formal entity within the governor's office.
The Science and Technology Policy and Plan and the Action Agenda were delivered to the governor in June 1991 and October 1992 respectively. While well received and apparently genuinely appreciated, they did not become the basis for formal policy making by the executive and, consequently, were not submitted for legislative review.
The governorship again changed hands in 1993. Council officials have introduced the Plan and Action Agenda to the new administration, but they are not expected to be included for consideration in the 1995 session. The only issues currently intended to directly involve the Alliance in the 1995 session are approving continued financial support for overall program administration, and identifying an appropriate source, and level of financing, for future research and development activities.
Opposition Conflicts, and Compromises
Fiscal Conservatism and Return-on-Investment The general goals and objectives espoused by the Alliance were popular at the inception of the program and continue to be so today. The concept of linking science and technology to economic development seems to represent an obvious virtue to the state's decision makers and one that can easily be supported. Opposition to the policies and programs of the Montana Science and Technology Alliance, and to other science and technology efforts, has not focused on the intended output, but almost exclusively on financial concerns.
Even though the voters approved 1-95 in 1982, which included approval for a significant portion of the now $512 million Coal Trust to be invested in the Montana economy, the state's decision makers remain very conservative in their approvals for using the trust, and all other government funds for that matter. The negative votes cast in the senate during the years of MSTA's greatest popularity were generally based on opposition to state government's involvement in what were appropriately characterized as risky endeavors, and on concern about a state agency directly financing private developments. The decision in the White case served to further institutionalize those concerns.
In spite of opposition, MSTA has managed to establish a program with $15.5 million in seed capital investment authority and a cumulative total of over $9 mil lion in research and development authority. In recent years, however, the Alliance has made less of an effort to court legislative approval, especially during the interim between biennial sessions. As at least a partial consequence of this lessening effort, there has been a decrease in the legislature's level of understanding of, and commitment to, the long-term nature of benefits that can he derived by the program.
The decreasing level of legislative understanding and commitment has been manifested in growing controversy over the program's return-on-investment performance. Controversy includes both the Seed Capital Fund, which is intended to receive substantial returns when it becomes appropriate for MSTA to obtain liquidity from its most successful venture capital style investments, and the research and development fund, which is not, by its very nature, capable of producing market- style returns. The Alliance's ability to regain legislative confidence, restore satisfaction with the long term nature of benefit from seed capital program, and establish an appropriate source for research and development program financing, are critical to the program's continued existence.
Internal Competition for Funds: MSTA's decision making in relation to the research and development program always involved trying to make the most of very limited resources in an attempt to gain a foothold in the long-term climb of building an appropriate science and technology infrastructure for the state. In doing so, the organization was almost always faced with the competing interests of the university system. These competing interests, the absence of a forceful central planning entity, and the uncertain nature of the alliance's ability to make continued commitments to research and development activities, resulted in compromises which served to diffuse resources, already too small to effectively finance one project, into multiple projects across all the interested units of the university system. Thus, Montana has a variety of research "Centers of Excellence," none of which, except the Center for Biofllm and Engineering that received substantial NSF support, have been financed to the level of national credibility. The Council on Science and Technology's recommendation to institutionalize a controlling presence over future decisions may assist in preventing a repeat of such harmful compromises.
Continuity of Executive Commitment: A great deal of the evolution of science and technology policy, particularly its emphasis on the seed capital program, has risen from the ranks of the Alliance's staff and board. To a significant extent, this has happened because the shorter-term nature of benefits associated with seed capital, versus the long-term infrastructure-building nature of research and development investments, is more readily saleable to legislative decision makers. Also, the personal interests and career goals of senior Alliance staff and the professional experience of board members, have been more oriented to seed capital finance than to research and development activities. Also, unforeseen events to which the organization reacted successfully, such as the decision in the White case, propelled the Alliance along the seed capital path.
While relevant decisions and polity directions were being considered within MSTA, state government underwent two gubernatorial transitions. In each transition process, there was a period of time in which the new executive and his staff had to become acquainted with the Alliance, its reasons for existence, and its means of operating. This knowledge had to be acquired in the absence of a formal science and technology plan or policy that was plainly apparent as a guiding document for the MSTA, the governor, or the legislature. Again, the recommendation of the Council on Science and Technology to formally institutionalize the existence of an advisory body in the governor's office, and the formal adoption of a science plan, would provide a framework for future policy evolution and for transition between administrations.
Outputs and Impacts
MSTA Investment Porfolio
While it is too early in the life of both seed capital and research and development investments to judge their success and impact on the Montana economy, there are a few measures that give evidence of program performance.
The first of these is program investment activity itself. As of December 1994, MSTA had made a total of $7.1 million in seed capital investments in fifteen companies either located in, or doing substantial business from, Montana. The leverage multiple for seed capital financing is 5.4:1. A total of $36 million had been placed in those companies from nonstate sources The alliance estimates that 168 jobs have been created or retained in Montana as a result of activity in those companies. Of the fifteen seed capital portfolio companies, twelve are still in business, and MSTA expects to realize a substantial return on the state's investment after the agency's position in the portfolio is liquidated.
On the research and development side of the program, MSTA has invested $7.9 million in 20 projects. Those projects received other financing totalling $102 million for a leverage multiple of almost 14:1. The Alliance estimates that between 220 and 250 jobs have been created or retained as a result of these projects' activities in Montana.
New Institutions and Businesses
In regard to research capabilities and science and technology infrastructure, the university system has taken significant steps to improve its situation and to leverage support provided by MSTA. Montana State University (Bozeman), the University of Montana (Missoula), and Montana Tech of the University of Montana (Butte) are each home to "Centers of Excellence" directed at financing applied technology research in particular technology fields. The University of Montana, Montana State University, and Eastern Montana College of Montana State University (Billings) house offices of the Montana Entrepreneurship Center.
Most prominent of university-based science and technology initiatives is the Center for Biofilm Engineering, initially financed by the National Science Foundation (NSF) with additional support coming from MSTA and state government. The center, one of a set of NSF centers designed to pursue research that improves the competitiveness of U.S. industries, involves a partnership of NSF, the state of Montana, the federal government through the Idaho National Engineering Laboratory, and industry participants.
Also at MSU are a range of institutional efforts designed to bring the university into contact with local entrepreneurs, to provide technical assistance to manufacturing companies and other enterprises statewide, to transfer technology from research laboratories to commercial applications and to manage the university's intellectual property interests. MSU is also home to the Advanced Technology Park, a development adjacent to the university and owned by its foundation to house technology-based companies. The park is currently expanding to handle demands for space by new and established companies locating in the Bozeman area.
Other research institutions which have received support through the Alliance included the McLaughlin Research Institute in Great jails and the Deaconess Research Institute in Billings. These institutes have developed through the use of federal, state, and private funds to be long-term, private, not-for-profit participants in the national search for cures and prevention of cancer, osteoporosis, and other diseases.
Entrepreneurial activity encouraged by MSTA includes private technology-based companies which have developed in, or located to, several cities around the state. They include a cluster of electro-optics and related firms in the Bozeman area, not including: Nurture, Inc., an innovative processor and manufacturer of naturally- based chemical additives in Missoula which has recently concluded an $8.5 million round of venture capital finance led by major investors from the Boston area; the Mycotech Corporation, a Butte-based firm possessing proprietary technology to grow fungi and fungal-derived products for environmental remediation purposes, which recently completed a $5.5 million round of venture capital financing led by a Baltimore-based investor; and a variety of other companies engaged in computer software production, biotechnology development, and other technology-based industrial sectors in Kalispell, Billings, and other cities.
Economic Indicators
In 1989, Montana led the nation in per capita income growth with a rate of 9.4 percent compared to a 6.6 percent rate nationwide. In 1992, Montana per capita income growth registered 7 percent compared to a national average of 2.4 percent. Nonagricultural employment rose every year from 1986 through 1992, with the total of nonagricultural jobs increasing from 275,400 in 1986 to 312,400 in 1992. Value-added exports from Montana as a percent of total exports from the state increased from 15 percent in 1988 to 29 percent in 1991, indicating that the state is processing a greater share of its raw materials, or is increasing its manufacturing of products based on materials or subassemblies imported to the stare. These indicators and others provide the basis for a number of publications and national firms to rate the Montana economy, and that of the northern Rocky Mountain states, as examples of the most promising in the U.S.
While all of the foregoing is very good news for Montana, there is insufficient evidence to attribute the state's gains to science and technology development. However, there is a basis to at least conclude that economic trends related to science and technology are positive and that the technology sector contributed to the economy's growth. Between 1979 and 1989, the total number of high-technology manufacturing establishments (businesses or company locations) increased by 171 per cent, and employment in high-technology manufacturing increased by 9 percent. These statistics compare to decreases in both categories for other types of manufacturers. Employment in high-technology manufacturing as a percent of total manufacturing increased from 3.8 percent to 4.9 percent over the same period.
High-technology services showed similar signs of growth. The total number of high-technology service establishments increased by 86 percent, and employment in high-technology services increased by 121 percent between 1979 and 1989. All other services showed gains of 27 percent and 34 percent respectively in those two categories. Employment in high-technology services as a percent of total services increased from 0.7 percent to 1.2 percent over the same period.
Postscript
As is evident from the foregoing discussion, Montana has initiated and continues to pursue efforts to improve its situation in regard to science- and technology-based economic development. While the state has committed an amount of financing that, considering Montana's size and propensity for spending, is a relatively large sum of money, the grand policy expressed for science and technology development has yet to take the form of program implementation. Nevertheless, some progress has been made, many more individuals and institutions are now aware of the state's problems and opportunities than was the case ten years ago, and significant knowledge has been gained on which to base future efforts.
The following six general suggestions for science and technology polity and program development are based on the experience of the Montana Science and Technology Alliance since 1983:
Appendix One: List of Persons Interviewed
Ms. Dorothy Bradley, former legislator and sponsor of MSTA legislation, and former Democratic nominee for Governor (1992). She is the current Director of the Montana University Water Resources Center, Bozeman, Montana.
Mr Samuel Hubbard, Executive Director of the Montana Science and Technology Alliance (1985-1988). He is currently Executive Director of the Montana Health Care Authority, Helena, Montana.
Mr. Gary Buchanan, former Director of the Montana Department of Commerce (1980-1984). He is currently Chairman of the Governor's Task Force to Renew Montana State Government, and Manager of Dam Bosworth, Inc. investment office, Billings, Montana.
Mr. Keith Colbo, former Director of the Montana Department of Commerce (1980-1984). He is current President of Colbo Consulting, Helena, Montana.
Mr. David Desch, Senior Investments Manager, Montana Science and Technology Alliance, Helena, Montana.
Mr. Robert Ivy, former Chairman of the Montana Science and Technology Advisory Council (1990-1992). He is current Chief Executive Officer, Ribi ImmunoChem Research, Inc., Hamilton, Montana.
Dr. Robert Swenson, former resource person and Sub-Committee Chairman, Governor's Advisory Council on Science and Technology (1983-1985). He is currently Vice-President for Research and Creative Activities, Montana State University, Bozeman, Montana.
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