by James A. Bacon
Governor Terry McAuliffe has unveiled a $2.43 billion bond package, about $1 billion of which will go to Virginia colleges and universities for technology initiatives.
“The bond package represents the largest research-oriented capital investment in the Commonwealth’s history as well as the largest state investment,” states the press release issued by the governor’s office. “The chief focus of this bond package will be strengthening research and workforce development in high-demand fields at Virginia’s four-year institutions of higher learning and community colleges.”
Stated McAuliffe in making the announcement at the Virginia Commonwealth University (VCU) Medical Center yesterday: “If we are going to build a new Virginia economy, we must make smart investments in research, higher education, veterans, public safety, tourism and environmental stewardship that will yield returns for decades to come.”
The proposed bond issue will allocate $100 million over two years in “competitive grants for research activities,” and $40 million over two years “in cash incentives for research and matching funds to secure federal grant funding.” Funds will be used to renovate research labs, purchase equipment and attract top talent to higher education institutions. The state will leverage the funds through public-private initiatives and by focusing on centers of excellence.
“The goal of the research component of this initiative is to put Virginia on the map as the best place in the nation for entrepreneurs to start their businesses and design the next generation of revolutionary products,” states the announcement.
Another $850 million will go to new buildings, labs, classroooms and renovations at VCU, VirginiaTech, Old Dominion University, the University of Virginia, Longwood University and several community colleges.
Bacon’s bottom line: The top priority of any bond package is to fit within the financial parameters — debt service accounting for no more than 5% of total revenue — required to maintain Virginia’s AAA credit rating. I presume that McAuliffe scaled the size of the $2.4 billion proposal to the bond-issuing capacity that will be freed up by retirement of old debt and the anticipated growth of state revenue projected over the next two years.
As for funding priorities, McAuliffe’s instincts are right — we need to invest in the industries of the future, not prop up the industries of the past. The assumption underlying his initiative is that pumping money into university buildings, labs and research programs will help build the industries of the future. Such a conclusion seems intuitively obvious but bears examination. As we move in for a closer look, questions arise:
(1) To what degree is R&D lab space and equipment a constraint on recruiting research scientists (and the grant money they bring with them) to Virginia universities? Is McAuliffe proposing the R&D equivalent of shell buildings used to entice manufacturers? Build it and they will come?
One could make the argument that the hard part in building an R&D program is recruiting star scientists, not building buildings and labs for them. Say Virginia Tech, UVa or VCU could land a research scientist who would bring $10 million in federal or industry research dollars with him. Surely it would be a relatively modest a challenge to find him (or her) lab space and equipment in short order. Might there be other ways to recruit star research scientists — to pay them more, for instance, as Texas has used a bond issue to do.
(2) To what extent will higher R&D spending at Virginia universities result in the local commercialization of technology, creation of opportunities for local entrepreneurs and local job creation? Tech, UVa and VCU all can point to anecdotal success stories, and each can point to research parks that have filled up with tenants. But add it all up, and what does it amount to? Do Blacksburg, Charlottesville and Richmond have the support resources — tech-savvy management, early-stage capital — required to leverage R&D into spin-off jobs in the local economy?
Northern Virginia has Virginia’s most advanced technology sector, the deepest technology management bench to recruit from, and the most advanced venture capital sector. If spinning off entrepreneurial opportunities is a key part of the mission, wouldn’t it make sense to build the R&D capacity of Northern Virginia’s largest institution of higher ed, George Mason University? GMU doesn’t even get broken out in the list of universities receiving funding support. What the heck is going on?
(3) Finally, as a practical matter: How would this money be spent? Would it sit in a slush fund like the Governor’s Opportunity Fund used to sweeten the pot for corporate recruitment deals? What restrictions would be put on its use?
The devil is in the details, and I’m sure the General Assembly will give McAuliffe’s plan a closer look. Hopefully, we’ll see a better articulated case for the R&D initiative than can be crammed into a press release.
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