When Gov. Paul LePage released his proposed two-year budget last week, it contained a surprise for Tom Rainey, the new executive director of the Maine Center for Entrepreneurial Development in Portland.
The governor’s proposed budget zeros out state funding for three business incubators: MCED, the Maine Aquaculture Innovation Center, and Target Technology Center in Orono.
Specifically, the governor’s proposing to cut funding for what’s called the Applied Technology Development Centers System (see page 172 of this document), which was created in 1999 to provide funding for the state’s incubators. The system is currently budgeted to receive $178,838 a year to be made available on a competitive basis to the incubators. The governor’s budget would eliminate that funding for the 2017-18 and 2018-19 fiscal years.
For Rainey, that would throw into question a not-insignificant portion of MCED’s $507,000 budget for this year. MCED’s budget includes $59,600 from the Applied Technology Development Centers System, which is MCED’s only source of state funding, nearly 12% of the total budget, according to Rainey.
Not only that, but the governor’s proposed cut also throws into question MCED’s federal funding, as the state dollars were to serve as a match required to draw down Economic Development Administration grant funding that MCED secured to expand its Top Gun training program to three other locations around Maine.
“Without the state funding as matching dollars, we cannot draw down the EDA funding,” Rainey said. “While MCED has developed a 2017 strategy to further diversify our program income, the state and federal funding is critical to our operations at this time.”
Over the past six years, MCED has received $394,202 from the Applied Technology Development Centers System, according to Rainey.
Still, Rainey said he’s not in panic mode yet.
“It just needs to be addressed,” he said. “It boils down to me needing to do some work educating state officials on the value of their investment. I have to believe that may be part of the issue here. We’re just not communicating well how many people we touch statewide and how many people would be affected if that funding was lost.”
The proposed cuts dumbfounded Catherine Renault, a consultant who previously ran the state’s Office of Innovation and most recently chaired MCED’s board.
She said the proposed cuts are worrying, not only because of the impact they could have on the incubators, but because they send the wrong message about the state’s support of entrepreneurs and innovation.
“It’s difficult to understand why the governor’s budget proposal for 2018-19 zeros out the Applied Technology Development Centers program, while maintaining current levels of funding for all the other elements of the R&D strategy that’s been in place since 1999,” she said.
Cutting incubator funding doesn’t make sense, as they “are providing critical technical assistance to high-growth, young companies, including through the incredibly successful Top Gun program,” Renault said.
Since its inception eight years ago, MCED’s Top Gun accelerator program has trained 144 entrepreneurs whose companies have created hundreds of jobs and tens of millions of investment, according to Renault. According to MCED’s research, Rainey said 121 of them are still in business.
“This is a significant return on the state’s annual $178,838 investment,” Renault said. “The state should be supporting entrepreneurs with incubators and accelerators like these three programs because they increase the survival rate of the startup companies that form the backbone of Maine’s economic future.”
Governor’s office responds
Responding to questions from Maine Startups Insider, Adrienne Bennett, the governor’s press secretary, said the cuts do not reflect an ambivalence on the part of the governor toward supporting innovation in the state
“The implied perception that our governor doesn’t support entrepreneurship simply is false,” Bennett said in a statement she sent to Maine Startups Insider. “The governor is fully supportive of a business-friendly foundation and continued investments in R&D leading to commercialization of Maine products and services.”
As evidence, she pointed to the fact that the Maine Technology Institute is fully funded in governor’s new biennium budget and that he supports the upcoming June bond to provide $45 million in additional funds to MTI for R&D infrastructure and another $5 million to Maine Venture Fund for additional equity investments in Maine businesses.
Bennett also implied that MTI would take over support of the incubators, noting that MTI’s statute allows it, but she did not elaborate. She did not respond to a follow-up question of whether the budget cut was the first step in a formal plan to shift the responsibility of providing state funding to the incubators to MTI.
Brian Whitney, MTI’s president, was not aware of the LePage administration’s plan to propose this budget cut, but he did confirm that MTI’s statute provides it with the ability to fund incubators.
The statute is clear on this point. It reads: “Fiscal duties [of MTI] include the disbursement of funds through grants to private companies, targeted technology incubators and nonprofit research laboratories.”
“I certainly recognize that the $179,000 annually that the three tech centers receive collectively as part of the state’s $6.8 billion biennial budget might seem insignificant at the surface, but the tech centers…do provide valuable services, training, mentoring, networking and technical assistance to many MTI portfolio companies and entrepreneurs to help them achieve and sustain success,” Whitney said. “As a result, MTI will definitely explore opportunities to satisfy the tech center budget gap if needed.”
Co-working fund also on chopping block
There are only two proposed cuts to DECD’s budget. Besides cutting state funding for the incubators, the governor has also proposed zeroing out funding for the state’s nascent Co-working Development Fund, which the Legislature created in 2015 to provide $100,000 a year to help develop co-woring spaces around the state.
Bennett, the governor’s press secretary, didn’t respond to direct questions about the reasoning behind cutting funding for the co-working fund.
Patrick Roche, owner of ThinkTank Co-Working with locations in Portland, Yarmouth and Biddeford, championed the bill when it was before lawmakers. He said he wasn’t surprised by the decision given, but hoped the governor’s office would reconsider the proposal given the economic impact the spaces can have.
“The young people moving to this state are not coming here for jobs. They are coming here with jobs, looking to improve their quality of life,” Roche said. “Where do they work? At coworking spaces. The very same remote workers contribute hugely to the local economies of Maine, bringing not only their capital resources, but intellectual and educational qualifications. They are the future of our workforce.”
He said Maine’s co-working fund is a drop in the bucket compared to what states like Massachusetts are doing to promote remote workers, predicted to break 50% of the entire American work force by 2020. The Massachusetts fund, the TDI Work Bill, has a budget of $2 million and awards grants up to $250,000 for the development of shared work spaces in ‘gateway cities,’ according to Roche.
“Co-working is the over-looked vehicle for job creation in this state, plain and simple,” Roche said. “I would strongly encourage that this administration look again at this fund and take the time to understand what it actually represents. If Maine is Open for business, prove it. Help enable those who enable small businesses through co-working.”