PUBLIC HEARING: SB 853

WORK SESSION: SB 470, SB 412

 

TAPES 91, 92 A-B

 

SENATE REVENUE COMMITTEE

APRIL 7, 2005   9:00 AM   STATE CAPITOL BUILDING

 

Members Present:                  Senator Ryan Deckert, Chair

                                                Senator Gary George

                                                Senator Rick Metsger

                                                Senator Floyd Prozanski

                                                Senator Charles Starr, Vice Chair

 

Witnesses Present:                Sen. Frank Morse, District 8

                                                Pat Scruggs, Oregon Economic and Community Development

                                                            Department (OECDD)

                                                John Gorlorwulu, OECDD

                                                Ron Adams, Oregon State University Engineering

                                                Arundeen Pradhan, Oregon Health & Science University

                                                Wayne Embree, Cascadia Partners, LLC

                                                James Bean, U of O Lundquist College of Business

                                                Mason Adair, University of Oregon student

                                                Ralph Groener, AFSCME

 

Staff Present:                          Paul Warner, Legislative Revenue Officer

                                                Mary Ayala, Economist

                                                Barbara Guardino, Committee Assistant

 

 

TAPE 91, SIDE A

005

Chair Deckert

Calls meeting to order at 9:00 a.m.

 

WORK SESSION, SB 412

019

Mary Ayala

Gives overview of SB 412. Begins discussion of SB 412-2 amendments. (EXHIBITS 1, 2). Adds increasing the duration of the plan to the types of future amendments that are substantial amendments which require a notice, hearing and approval procedure required on an original plan.

 

041

Ayala

Begins discussion of SB 412-3 amendments (EXHIBITS 3, 4). Adds a provision that the urban renewal governing authority can exclude a taxing district from participation in the urban renewal plan.

 

049

Chair Deckert

Summarizes the amendments.

 

055

Vice Chair C. Starr

Comments, he prefers SB 412-3 amendments. Is not clear whether extension of the plan as a major change is included.

 

066

Ayala

Correct. A substantial change is covered under this amendment.

 

071

Sen. Prozanski

Prefers SB 412-3 with one reservation – making sure that if there is a change in the plan it would include the bonders.

 

099

Sen. George

Comments that is a decision local governing bodies will look at.

 

110

Chair Deckert

Believes the issuing agency would talk to bond counsels.

 

115

Sen. Metsger

Likes the amendment.

 

119

Vice Chair C. Starr

MOTION: MOVES ADOPTION OF SB 412-3.

 

121

Chair Deckert

ORDER: THERE BEING NO OBJECTIONS THE CHAIR SO ORDERS.

VOTE: 5-0-0

MEMBERS VOTING AYE: GEORGE, METSGER, PROZANSKI, C. STARR, DECKERT

 

125

Vice Chair C. Starr

MOTION: MOVES SB 412 AS AMENDED TO THE SENATE FLOOR WITH A DO PASS RECOMMENDATION.

 

127

Chair Deckert

ORDER: THERE BEING NO OBJECTIONS THE CHAIR SO ORDERS.

VOTE: 5-0-0

MEMBERS VOTING AYE: GEORGE, METSGER, PROZANSKI, C. STARR, DECKERT

 

WORK SESSION, SB 470

135

Paul Warner

Gives brief history of SB 470. Establishes a statutory spending limit. Previously discussed March 14. Explains SB 470-1 amendments (EXHIBIT 5).

 

166

Warner

On page 2 of the bill, line 11 has a blank that needs to be filled in.

 

194

Vice Chair C. Starr

MOTION: MOVES ADOPTION OF SB 470-1.

 

196

Chair Deckert

ORDER: THERE BEING NO OBJECTIONS THE CHAIR SO ORDERS.

VOTE: 4-0-1

MEMBERS VOTING AYE: GEORGE, METSGER, C. STARR, DECKERT

MEMBERS EXCUSED: PROZANSKI

 

198

Vice Chair C. Starr

MOTION: MOVES SB 470 AS AMENDED TO THE WAYS AND MEANS COMMITTEE WITH A DO PASS RECOMMENDATION.

 

201

Sen. Metsger

Will not support this bill as amended. Gives reasons, citing page 1, section 1, lines 29-30. Also asks Warner about page 2, lines 6-7 concerning “allocation” and “appropriation.”

 

223

Warner

Responds, the bill is focused on the general fund. Lottery proceeds would be included as an appropriation for that biennium. It is consistent with current language in terms of the general fund budget.

 

239

Sen. Metsger

Would like to talk to legislative counsel about that interpretation.

 

247

Warner

There is ambiguity in what is known as general funds.

 

265

Chair Deckert

This is part of the reason for referring this bill to the Ways and Means Committee. He can see problems for future legislatures.

 

280

Sen. Metsger

Will vote no on the language as proposed.

 

285

Vice Chair C. Starr

Restates motion.

 

295

Sen. Prozanski

Questions whether it is necessary to vote with a “do pass” recommendation. Would be more comfortable to send it with no recommendation since there is no consensus.

 

308

Chair Deckert

Can go either way on this.

 

314

Sen. George

Asks Warner if there is anything in this legislation that couldn’t be overridden by the next legislative assembly.

 

318

Warner

Suspects that future legislators would find a need to clarify these definitions.

 

322

Vice Chair C. Starr

The split vote will give Ways and Means plenty of heads up to look at this bill closely.

 

331

Sen. Prozanski

Asks Warner question concerning Section 1 (1). Is this list ranked in any priority?

 

341

Warner

No. It is just a listing of the major elements.

 

377

Chair Deckert

ROLL CALL VOTE: 4-1-0

MEMBERS VOTING AYE: GEORGE, PROZANSKI, C. STARR, DECKERT

VOTING NO: METSGER

 

PUBLIC HEARING, SB 853

392

Warner

Gives overview of SB 853-A. Refers to work group packet issued earlier. (SB 853 was heard by the Committee on Education and Workforce on March 23, and then referred to Revenue.) Also see Staff Measure Summary (EXHIBIT 6). Authorizes state universities to set venture capital development funds.

 

419

Sen. Frank Morse

Testifies in favor of SB 853. This bill draws together major components of universities to focus on how to commercialize the concepts, inventions and technologies that come from them. The fund creates a $4 million cap for Oregon Health and Science University and $10 million for Oregon University Systems. The fund is created by donations, and the intent is making grants for the earliest phase of commercialization – known as “the valley of death” concept. Hopes the committee will grasp the importance of this first phase of funding and the funding gap.

TAPE 92, SIDE A

025

Morse

This fund could make grants to secure patents. Added to this is a tax credit recapture component. As commercialization occurs and the income stream returns to university, 20% would come back to the state treasury, thus recapturing the investment with multiple returns.

 

055

Pat Scruggs

Testifies in favor of SB 853. See written testimony (EXHIBIT 7). Oregon Economic and Community Development Dept. has identified three key points:

1)      Oregon needs good entrepreneurial talent at the start-up stages

2)      Research needs to be commercialized much faster than present

3)      Commercialization must be leveraged into more venture capital

 

085

Scruggs

Refers to chart, page 2. Refers to letter from EGI, page 3, from Anne Lunenburg. This is an example of what the drafters of this bill are trying to accomplish.

 

114

Chair Deckert

Asks if there’s any evidence that this tax credit would actually work.

 

122

Scruggs

There are 12 states that offer this tax credit. They range from 20-40% with similar caps. These numbers do come from other working funds. The difference is they don’t spread the tax credit over time.

 

152

John Gorlorwulu

Testifies in support of SB 853. See written testimony paraphrased (EXHIBIT 8). Emphasis is on three sources of impacts:

1)      Research jobs created as a result of this funding

2)      Royalties created by these licenses

3)      Companies developed in association with new ideas

Comments on spread sheet, exhibit 7, page 4.

 

229

Sen. George

Comments on a bill moved out in 1999 to set up research on a transit tracking system. That project collapsed because the university did not have the mechanism to move it forward. This bill is a giant step forward. This project would have benefited transit throughout the world, and should have been done in Oregon.

 

260

Sen. Metsger

If this became law, how would it work in terms of an investor receiving tax credits? Questions the language, “an investor shall be allowed to get a tax credit.”

 

280

Sen. Morse

That language needs to be changed. It was an oversight in the SB 853-2 amendments. Page 1 language should be changed from “investors” to “donors.” In response to Chair’s question, people donate because they believe in what the institution is doing. Also, once people start giving they are more prone to continue and expand their giving.

 

353

Sen. George

Asks, what’s wrong with the concept of profiting from this?

 

 

 

358

Sen. Morse

Responds, that was his first thought. This first stage is better focused on grants than on investments because it is high risk.

 

678

Warner

Comments on spread sheet, exhibit 7, page 4. There would be a wide range of variability. This is a very plausible scenario.

 

414

Ron Adams

Focuses comments on venture fund aspect in regard to proof of concept. Gives example of a printer project at Techtronics, in which he was involved in 1995. It has produced 1,000 new jobs and Techtronics is now headquartered in Wilsonville.

 

TAPE 91, SIDE B

047

Adams

The fund would also provide help for International Patent. Gives example. Closing remarks, this tax credit does two things: results in jobs for Oregon and helps develop Oregon’s future entrepreneurs.

 

053

Arun Pradhan

See remarks (EXHIBIT 9). Most of research at OHSU is funded by the federal government. This creates a “valley of death” – funding that takes research from concept to development. OHSU created an innovation fund a year ago and has a mechanism set up to identify those projects with likelihood of commercial success. They provide valley of death pre-seed funding.

 

095

Pradhan

 OHSU has a panel set up to evaluate research proposals, and funds 4-5 projects a year. Once projects are approved, faculty ensures they meet milestones.

 

097

Chair Deckert

Questions concerning OHSU panel’s process. How would this new tax credit help OHSU at the valley of death stage?

 

105

Pradhan

Responds, once those commercialization milestones are met a company is spun out. A lot of new companies tend to flounder, so the credit could augment valley of death funding to attract a CEO or other individual to shepherd the company.

 

128

Pradhan

Discusses the “springboard” program. Gives example.

 

 

 

145

Wayne Embree

Begins paper version of a PowerPoint presentation: Testimony Supporting Senate Bill 853 (EXHIBIT 10).

Page 2, Facts:

·         Major US research institutions have had a decline in startups

·         Startup companies based on university technology are disproportionately successful

Cities with greater patent and science and engineering capacity show increased innovation commercialization. But…

 

179

Embree

Page 3: Evolution of Private Equity – A Nine-Year Slide in Startup Funding

205

Embree

Page 4: …universities alone provide a huge market in startups each year. Licenses result in 350 to 700 viable startups.

Page 5: It’s about opportunity and IRR

·         Since 1980 nearly 3,400 spinouts

·         70% still in business

 

239

Chair Deckert

Asks, out of that 3,400 what percentage comes from the major research institutions?

 

247

Embree

Does not know, but believes success does not have to do with size. Comments, on a successful small Canadian university whose efforts are aggressive and commercialized. Comments on various U.S. institutions.

 

277

Embree

Page 6: MIT Value Pyramid 1980-1996

Page 7: Furthering Development

 

 

 

296

Embree

Page 8: Effects

·         University of British Columbia

Oregon Resource & Tech. Dev. Corp.

 

 

 

349

James Bean

Testifies in favor of SB 853. See written testimony (EXHIBIT 11). This tax credit is important to filling the valley of death because when a technology is developed, it is not always associated with a market opportunity. Programs provide people to develop business plans to move to a concept that a venture capitalist might be interested in. Independently the three major business schools have developed programs, each with different missions.

 

409

Bean

Explains Portland State University’s lab to market program.

Explains Oregon State venture.

Explains University of Oregon program.

 

 

 

TAPE 92, SIDE B

037

Chair Deckert

Asks Bean to comment on Michigan’s Wolverine Fund, mentioned in his written testimony. Oregon is badly in need of that type of activity.

 

047

Bean

Responds, Michigan has the advantage of size. Oregon schools are smaller and need to work together and, with the help of this bill, to accomplish the same thing.

 

050

Chair Deckert

Comments, this might be one step in the right direction.

 

057

Mason Adair

Gives anecdotal glimpse from his experience at University of Oregon in developing a business plan. Last summer he and his teammates met with representatives from Pacific Northwest National Laboratories and the UO Biosciences Department to review and discuss commercialization potential of technologies. This process moved into a course held in the fall. Three weeks ago his team competed internationally and took the first runner-up position. This opportunity was going to be a function of whether they would receive a one-time gift. This is not just an academic exercise. His team is structured as an LLC and will incorporate as an S-Corporation.

 

104

Adair

Concludes, this process has helped team members develop a network of contacts in the business community that will help them in their careers. They have also identified an exciting market space and first-hand experience.

 

122

Chair Deckert

Asks Dr. Bean if donors at UO would utilize this tax credit.

 

126

Bean

A definite “yes”.

 

145

Ralph Groener

Testifies in support of SB 853 on behalf of AFSCME. See written testimony, OHSU Economic Impact (EXHIBIT 12). Asks that universities be more specific on how these dollars would be spent. Notes, for every $1 received by OHSU, $27 comes back in gifts, contracts, etc.

 

164

Chair Deckert

Closes public hearing on SB 853. Will bring back two reserve fund bills, SJR 29 and SB 841 for work sessions on April 8. Adjourns meeting at 10:37 a.m.

 

 

 

Tape Log Submitted by,

 

 

 

Barbara Guardino, Committee Assistant                                                      

 

Exhibit Summary:

1.      SB 412, Staff Measure Summary, 4/6/05, Ayala, 1 pp.

2.      SB 412, proposed -2 amendments, 4/6/05, Ayala, 16 pp.

3.      SB 412, Staff Measure Summary, 4/6/05, Ayala, 1 pp.

4.      SB 412, proposed -3 amendments, 4/6/05, Ayala, 17 pp.

5.      SB 470, proposed -1 amendments, 3/28/05, Warner, 1 pp.

6.      SB 853-A, Staff Measure Summary, 4/7/05, Warner, 1 pp.

7.      SB 853-A, Testimony of Patricia Scruggs Before the Senate Revenue Committee on SB 853, 4/7/05, 5 pp.

8.      SB 853-A, Testimony Before the Oregon Legislative Assembly: Senate Bill 853 (Proof of Concept Funding for OHSU and OSU), 4/7/05, Gorlorwulu, 2 pp.

9.      SB 853-A, OHSU, Remarks by Arun Pradhan, Director, Office of Technology & Research Collaboration, Oregon Health & Science University, 4/7/05, 1 pp.

10.  SB 853-A, slide presentation, Senate Revenue Committee, Testimony Supporting Senate Bill 853, 4/7/05, Embree, 8 pp.

11.  SB 853-A, University of Oregon Charles H. Lundquist College of Business, testimony of James C. Bean, 4/5/05, 3 pp.

12.   SB 853-A, Oregon AFSCME, OHSU Economic Impact, Groener, 1 pp.

13.  SB 853-A, OSU College of Business letter, 4/4/05, Scruggs, 2 pp.

14.  SB 853-A, Portland State University letter to Senator Ryan Deckert and Members of the Revenue Committee, 4/6/05, Scruggs,2 pp.

15.  SB 853-A, Northwest Technology Ventures, letter to Chairman Deckert and Members of the Senate Revenue Committee, 4/6/05, Scruggs, 3 pp.

16.  SB 853-A, University of Oregon, letter in support of bill from Richard Linton, 4/6/05, Scruggs, 2 pp.