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Lawmakers Say Patrick's Life Sciences Bill May Be Unbalanced

By Michael P. Norton
and Jim O'Sullivan
State House News Service

STATE HOUSE, BOSTON, DEC. 17, 2007.....Top Patrick administration officials on Monday defended Gov. Deval Patrick's $1 billion life sciences industry bill against claims that it was unconstitutional, favored out-of-state companies, and offered preferential tax treatment to one industry but not others.

Members of the Legislature's Revenue Committee, tasked with reviewing seven tax breaks totaling $250 million under the governor's bill, were promised a return on the investment by taxpayers, told the industry is especially in need of public assistance and warned that countries and states are angling to take Bay State jobs and businesses.

Greg Bialecki, the Patrick administration's undersecretary of business development, said the tax incentive portions of the bill would give state officials tools to fashion packages of sweeteners to companies looking to locate in Massachusetts or hoping to grow here. Echoing the refrain that states and countries are courting life sciences businesses, Bialecki said "everyone wants in on it" and cautioned lawmakers that just as Massachusetts lost its edge in the high tech industry in the 1980s, its promising life sciences base is at risk without legislative assistance.

The life sciences industry is especially suited to tax breaks because of "dramatically reduced" federal research funding and the need for upfront cash at companies who sometimes need to spend years on research before they determine whether they have a product to develop and then, hopefully, manufacture.

"Because of the nature of what they are doing, they are strapped for cash," said Bialecki. "They are trying to figure out how to stay in business." Passage of the legislation, he said, would "make some minds up" at companies living from quarter to quarter and being recruited by other states.

Bialecki holds a post recently vacated by former Rep. Robert Coughlin, a Dedham Democrat who left that job to become president of the Massachusetts Biotechnology Council, the industry's leading trade group. The State Ethics Commission is reportedly probing whether Coughlin behaved inappropriately in talks with the council while still working for Patrick.

Committee vice-chairman Rep. William Straus (D-Mattapoisett) said the legislation, by focusing state resources on the life sciences sector, may be "sending an implied message" that Massachusetts isn't fertile territory for diverse growth in other sectors, such as communications.

"Are we creating that risk?" Straus asked, saying the issue has been "gnawing at me a little bit."

"We don't think so," answered Bialecki, noting the reduced federal funding, saying the private markets weren't providing the "necessary" funding," and adding that other industries are more product-oriented and don't face long and expensive research periods. "There is a role for public assistance," said Bialecki.

Patrick has made his bill, which also calls for $500 million in life sciences-related capital funds and $250 million in research grants, a top priority early in his tenure. Filed in July, it remains under review by three committees. Legislative leaders say they intend to act on it early next year.

Straus asked Bialecki how the administration would view a bill that broadened the availability of tax incentives to other industries. Bialecki said he didn't believe the case had been made for other industries and that the administration had done its "homework" before drafting the bill.

Committee co-chairwoman Sen. Cynthia Creem (D-Newton), describing herself as a life sciences industry supporter, said she is worried that tax credits based on job growth pledges will be more beneficial to out-of-state companies with no jobs here than in-state companies with established job bases. "Many of us have great concern about helping the companies that are already in existence in Massachusetts," said Creem.

Bialecki said the administration is concerned as well about in-state companies and the legislation includes tax benefits such as refundable FDA user fees, sales tax exemptions and redeemable investment tax credits that reduce the need for cash among startup companies.

Before letting Bialecki off what she called the "hot seat," Creem asked him whether the bill should treat in-state companies differently. "That's certainly something that should continue to be considered," Bialecki answered.

Creem said the bill leaves her with concerns about new competition for in-state companies and "adverse impacts to the home-grown firms. But Bialecki said local companies would not be squeezed out on the tax credit front.

"There's not a limited pot of these funds," Bialecki told the committee, adding that he believed Bay State companies like Wyeth Pharmaceuticals and Genzyme appear "ready to grow."

Bialecki said the life sciences sector is one that faces the "least risk" from new competition in Massachusetts because the market for its products is a global one and because the industry enjoys "being in a cluster" close to research institutions and a highly skilled talent pool.

"They are not going to be crowding out other existing companies," Bialecki said of out-of-state companies that might establish a presence in Massachusetts should tax breaks prove appealing.

Later, during his testimony in support of the bill, state Revenue Commissioner Henry Dormitzer emphasized the availability of $25 million per year in tax incentives under the bill, which calls for a total of $250 million in tax sweeteners to be made available over 10 years.

Administration officials emphasized that projects seeking tax benefits would be certified first, that the goal was to offset credits with tax income associated with new jobs, and that the bill contains "clawback" provisions to recapture tax incentives if businesses fail to meet job promises.

The "narrow view" of the bill calls for tax benefits to be packages in a way that is revenue neutral to the state, Bialecki said. A larger view, he said, anticipates a "very favorable" net for the state, with multiplier economics suggesting three new jobs for every one job created in the field.

"We will get our return on investment," Bialecki said.

Bialecki, when asked by Rep. Linda Dean Campbell (D-Methuen) which two sectors posed the strongest multiplier effects after life sciences, said he didn't know offhand. Dean Campbell, mentioning the energy sector, wondered whether the bill was so narrowly drafted that it was "crowding out the opportunities."

While Bialecki said companies eligible for tax incentives under the bill would be treated consistently and proportionately, the state's leading business group, Associated Industries of Massachusetts, said the legislation poses constitutional concerns by making tax benefits available to one industry but not others and by potentially unevenly applying benefits among the similarly situated companies seeking them.

"It's tax policy decided on a company by company basis," said Eileen McAnneny, AIM's senior vice president of government affairs. "That sets a bad precedent."

Dormitzer told the committee: "There are no constitutional concerns."

Creem also questioned Bialecki about the mission of the new state-run Massachusetts Life Sciences Center. He said it has been capitalized with $20 million to fill a gap caused by reduced federal funding and competition from other states and that it would "need to inject a lot more money" into the life sciences industry. When Creem asked Bialecki to contrast the center with other state agencies, Bialecki said the center represented a "modest program."

Under questioning from Rep. Fred "Jay" Barrows (R-Mansfield), who asked Bialecki about the number of jobs in the Bay State life sciences industry and the best-case scenario in five years, should the bill pass, Bialecki said estimates put biotech industry employment at between 50,000 and 90,000.

Bialecki said he said he hoped the bill's passage would make Massachusetts a place to research, develop and manufacture life sciences industry products, and that he hoped industry could help "reinvent" Massachusetts and spark a new generation of manufacturing, despite the state's high-cost reputation.

Reps. Cory Atkins (D-Lexington) and Rep. James O'Day (D-Worcester) testified in favor of the governor's bill, with O'Day saying biotech companies are major, growing employers in his district. Atkins touted the potentially life-saving products developed in the life sciences industry and the potential for students from Massachusetts to graduate from colleges here and find jobs in the growing sector.

Sen. Anthony Galluccio (D-Cambridge) said life sciences companies account for seven of the city's 25 largest employers, 30 percent of the city tax base and 18 percent of the employment base. Biotech companies are helping to keep Cambridge's residential property tax rate down and generally produce low volumes of new traffic, according to Galluccio, who reminded lawmakers of the "influx of folks" hoping to take local businesses away.

State AFL-CIO President Robert Haynes praised the bill, saying it provides for adequate workforce investments and calling it "exactly what organized labor stands for."

Leaving the hearing, Straus said the administration faced skeptics in the Legislature.

"I wanted to be assured that the administration had considered the message that would be sent by focusing exclusively on life sciences, while there are many, many research-intensive industries that could arguably benefit," Straus said, adding that he had "not yet" been persuaded.

Straus said he had also been open to reasoning behind special considerations for the life sciences industry. "I didn't hear it today . . . They'll have some work they need to do yet," he said.

Creem said after the hearing she thought the jobs incentive formula could be tweaked to make the bill more beneficial to business already in the state. "The question is: Can it all be done at one time? And there will be a lot of powers in play there," Creem said.