Industry clusters, workforce training and a new, competitive grant for organizations assisting start-ups are the biggest winners in what is essentially a flat 2017 budget proposal by the Wisconsin Economic Development Corp.
WEDC’s budget, the first that top executive Mark Hogan has overseen since taking the helm in October, was approved by the agency board’s finance committee earlier this month. It will be presented to the full board in July for approval.
Under the proposal, about half of WEDC’s expenditures for services delivered around the state — $18.2 million — would go to businesses and communities for redeveloping contaminated sites, job creation and job and workforce development. Another 20%, or $7.3 million, would go to entrepreneurship and innovation efforts.
The rest of the spending is divided among advancing key industries (19%, or about $7 million), building export capacity (9%, or $3.5 million) and attracting businesses to the state (3%, or just under $1 million).
“WEDC recognizes the need to balance investments in the state’s historical industry strengths with support for next-generation companies,” said Hogan, secretary and chief executive officer.
The largest funding shifts in the proposed budget are:
- WEDC’s Targeted Industry Projects Grants program will gain $1.4 million of funding, bringing its budget for fiscal 2017 to $4 million.The increase will support three new centers of excellence, physical spaces that anchor a cluster around research and development, investment and company attraction. The new centers are: Aerospace and Aviation, Oshkosh; Advanced Composites, location not yet determined; and Food and Beverage, Milwaukee. There is funding available for one more center of excellence that has not yet been determined, WEDC officials said. WEDC already funds three other centers of excellence: Global Water Center, Milwaukee; Energy Innovation Center, Milwaukee; and StartingBlock, a planned entrepreneurial hub in downtown Madison.
- The WEDC’s Workforce Training Grants program will receive an additional $550,000 of funding, bringing its new budget to $1 million. The increase is intended to help companies expand and maintain manufacturing jobs in the state.
- The WEDC is taking $500,000 out of its Capital Catalyst program, which provides funding to organizations that support start-ups, and using it to fund a new Capacity Building grant. This competitive grant will be available to organizations that provide professional service or technical assistance to emerging companies.
“We’re using the flexibility we have as an agency to redirect dollars to what we think are priorities,” Hogan said.
Hogan’s first budget proposal comes at a time when many around the state are concerned about Wisconsin’s ability to grow enough to support a future that matches past economic strengths.
As with past WEDC budgets, many of its programs focus on expanding and retaining jobs in manufacturing and other traditional industries. Yet those are not the industries that the world views as having the most future economic potential.
WEDC identifies six industries as Wisconsin’s strengths: aerospace manufacturing; biotechnology; energy, power and controls; food and beverage; manufacturing; and water technology. Only two of them — biotech and energy, power and controls — have consistently attracted venture capital investments over the past 20 years, according to a PriceWaterhouse Coopers MoneyTree report. Venture capitalists invest in the industries they believe have the highest economic potential.
Wisconsin has struggled to produce start-ups that traffic in the technologies of the future. The state ranked last for start-up activity in the most recent Kauffman Foundation’s annual Index on Start-up Activity released about a year ago. Most areas of Wisconsin were relatively ineffective at creating start-ups after the most recent recession, according to a study by the Economic Innovation Group, a bipartisan think tank in Washington, D.C.
Unfortunately for the state, start-up businesses account for nearly all net new job growth in the United States, according to a 2013 study led by John C. Haltiwanger of the University of Maryland, which echoes what the experts at the Kauffman Foundation have found.
The bottom line: A knowledge economy — like the one Milwaukee’s manufacturers, with their superior engineering, built a century ago — drives future economic growth and wealth creation.
One way to prod high-potential growth would be for WEDC to sharpen its focus and identify specific areas of clusters where the state is more competitive, said Tom Still, president of the Wisconsin Technology Council.
“I don’t think as a state we can or need to compete in every area of bioscience,” Still said. “Where we’ve shown we have expertise, emerging companies and international acclaim would be regenerative medicine, for example.”
It would also be helpful if the state would raise the amount of Early Stage Business Investment Tax Credits an individual company can access to $12 million from the current $8 million cap, an idea that is the subject of a Tech Council white paper, Still said.
“That would immediately increase the use of the tax credits and help the growth companies — the ones that already have traction and want to add jobs at a rapid rate,” Still said.
Since the early-stage credits are not all being used, a legislative committee earlier this month approved moving $8 million from the early stage program per WEDC’s request to one that is aimed at more established firms.
The WEDC also needs to figure out how to take better advantage of the $1.3 billion research engine at the University of Wisconsin-Madison and the $300 million of research in southeast Wisconsin, said Dan Steininger, president of BizStarts Milwaukee.
On the positive side, Hogan and his team are doing site visits and trying to better understand the entrepreneurial community’s challenges, Steininger said.
“They’re taking the time to understand the problem before jumping to solutions,” Steininger said. “That’s a rare approach both in government and business, where the usual tendency is ‘shoot, ready, aim.'”