SALT LAKE CITY — Back in 2005, then-Gov. Jon Huntsman Jr. said a new program to leverage Utah's homegrown scientific innovation into a powerful economic catalyst would make the state a "haven" for forward-thinking researchers and create a system of returns that would expand with each year.
With annual budgets of $20 million to $30 million, the new agency would recruit "rock star" academics and place them at the state's top two research institutions, Utah State University and University of Utah, and provide funding to fast-track research with commercial potential. It would also create a system of grants to help accelerate entrepreneurial pursuits with science innovation at their core — an area, because of its long development arcs, routinely shunned by private capital markets.
But in 2013 a scathing legislative audit revealed issues with reporting practices, including inflated performance numbers, and led to a wholesale recalibration of the agency, overseen by former Lt. Gov. Greg Bell.
Last week, state legislators reviewed changes called for in a bill passed last session, SB239, that included slashing the Utah Science, Technology and Research initiative's budget by over a third and severing the agency from its long-running connection to, and support of, high-caliber researchers at both the U. and USU. Several members of the Business, Economic Development and Labor Appropriations Subcommittee questioned whether continuing to fund USTAR at all was an appropriate use of taxpayer funding.
"We, as policymakers, have to make policy decisions," said Rep. Marc Roberts, R-Salem. "Is the $20-25 million better spent on this … or is it better spent on roads and other infrastructure that are more, in my mind, justifiable government operations?"
While both the Senate and House sponsors of the bill promised in debate during the session that their intent was not to eliminate the agency, the tone of the discussion at the interim meeting suggested that whether to continue support of the agency was still an unanswered issue.
The lead sponsor of SB239, Sen. Dan Hemmert, R-Orem, told the Deseret News that among some legislators there were still some "legacy concerns" going back to the audit, but that was not the impetus behind drafting the bill.
"Some questions were asked, to be clear, not about whether USTAR is a good program or effective in what they are doing, but rather is it the highest and best use of taxpayer dollars," Hemmert said. "And, second, is (supporting USTAR) the proper role of government."
The goal of the work being done over the interim, according to Hemmert, is to assess what can be done to make USTAR as efficient as possible and analyze if there are ways to combine some of the agency's programs with similar efforts underway at the Governors Office of Economic Development.
"Technically, there are no redundancies between the two, but there are some synergies and similarities," Hemmert said. "We'd like to see if there are opportunities for consolidation."
While some in the Utah Legislature are hawkish about USTAR's mission, a number of well-known names from the world of Utah finance, business and politics are standing behind the agency.
At a USTAR award event earlier this month, U.S. GOP Senate candidate Mitt Romney underscored the advantages of supporting scientific innovation as an economic strategy.
"We’ve been fortunate with Silicon Slopes that we’ve attracted businesses in the areas of software and services that have been instant successes and are growing like crazy," said Romney, who spent decades working in the equity investment industry. "But there are also, if you will, deep technology innovators that also need to be attracted to our state. You might say, 'Well, the venture capital guys will take care of that.' Well, about 90 percent of venture capital in our state over the last five years has gone to software and service businesses. Very little actually gets into some of the deep technologies that are so essential to our long-term growth."
"And, these technologies typically take a long time to generate the kinds of returns that venture capitalists often want," he said. "And that’s, of course, where USTAR fits in."
Zions Bank President and CEO Scott Anderson and Spencer P. Eccles, co-founder and managing director of investment firm The Cynosure Group and former executive director of the Governor's Office of Economic Development, both appeared in a video produced by USTAR highlighting the importance of the agency's work.
Anderson underscored that long development times for innovations born of deep technologies are unattractive to private investors looking for quick returns on investments.
"When you look at the innovation cycle, it’s not always in six months," Anderson said. "It’s not like developing a computer game that you can do in nine months and then you can go out and make a billion dollars on it."
Eccles noted the importance of government participation in supporting science-based innovation as part of broader economic development efforts and that not all of those bets would result in wins.
"The government has to invest in the future," Eccles said. "Sometimes, you have to plant a lot of seeds to see what will grow, and the government can facilitate that."
While not all of USTAR's bets have hit the jackpot, Executive Director Ivy Estabrooke said 85 percent of the companies USTAR has worked with over the last two years are still in business. Over its existence, the agency has aided hundreds of local innovation companies through various grant programs.
One of those success stories is OxEon Energy, a company now based in North Salt Lake that innovated a solid oxide electrolyzer that can produce hydrogen gas fuel from water as well as extract oxygen from carbon dioxide. The device has caught the attention of NASA, which believes it could have applications in upcoming missions to the moon and Mars.
OxEon Energy CEO Lymon Frost confirmed to the Deseret News that the grant funding and access to high-tech equipment at USTAR's Hill Air Force base innovation center was key to advancing their product. He also noted that venture capital funding would not have been a viable option to get the same results.
"A typical venture capitalist is really oriented to a maximum of 3-5 year payout," Frost explained. "Long-term investment in something that may not pay out for a long period of time is problematic for them."
Frost said his company recently signed a $3 million NASA contract and has expanded its operations and hired additional staff. He also noted his company has more than repaid the help it got from USTAR, putting over $1 million back into the local economy in the form of salaries and purchases.
Estabrooke, a neuroscientist who formerly worked in the research realm of the U.S. Department of Defense, explained a number of proposed changes to the interim committee members, including converting some grant-based funding to recourse loans or convertible notes — a modification that could give the state a chance at seeing some returns on innovations investments.
Estabrooke also presented data that outlined the high level of competition that exists among states vying to attract researchers working on innovations with commercial potential. Among the 46 states that currently run USTAR-like efforts, known as Technology-based Economic Development programs, Utah falls 18th in allocated funding, on a per-capita basis. USTAR's annual budget, now at about $14.5 million, pales in comparison to the No. 6 state, Ohio, that puts $161 million into its program or the top state, Texas, that commits $5 billion to building tech-based economic vitality each year.
Gov. Gary Herbert's deputy chief of staff, Paul Edwards, told the Deseret News the governor was in support of the evaluation of USTAR's operation now underway and viewed it as an appropriate exploration of options.
"We are not wedded to a particular structure for seeing that good innovations are commercialized," Edwards said. "It’s really a question of what mechanism we use to support (long-term research) … a model that works at one moment in time is not necessarily the right model for ongoing efforts."8 comments on this story
Whether or not USTAR continues in its current form is unclear. While legislators approved its operations budget as well as grant funding in the last session, the agency has been instructed "not to open any new grant rounds" until the interim process is completed.
Hemmert said the committee will next meet with GOED to assess "synergies" between that agency and USTAR and that a final decision would be made in October. He also deferred from offering any potential outcome scenarios, saying it "wouldn't be fair to the process" to make any predictions before the committee finished its work on the issues.