Otter: “When we come out of this recession, Idaho is going to lead us.”

I know you all watched the primary election coverage on FOX 12, but after I got done telling you everything you needed to know about the election, you had to flip over to KTVB to watch the rest of the results. And if you did, you saw Governor Otter give a very strange speech.

In rallying the party faithful, Otter proclaimed “when we come out of this recession, Idaho is going to lead us” and “We’re gonna show the nation in the next four years how it’s done.” As a former political consultant I can only surmise that his communications staff did not tell him to say such things. Here’s why.

First of all, according to the Bureau of Economic Analysis, that is, the agency that keeps official tabs on the economy, the U.S. came out of the recession as early as July 2009. In fact, we have now had three consecutive quarters of positive GDP growth.

Secondly, Idaho did not lead the U.S. out of the recession. Fact is, Most of Idaho is still in a recession and the economic driver of the Idaho economy, the Boise-Nampa MSA which generates 50% of the state’s GDP is one of the worst performing metro areas in the country. This chart from Brookings Mountain West’s Mountain Monitor tells the story:

As you can almost clearly see, of the largest 100 metros in the U.S., Boise is 95th in the country in employment losing 10.7% of the job base since the peak of employment. Boise’s housing market is also nearly the worst in the country among the large metros - ranked 96th - among the 100 largest cities. Brookings has the whole report posted at their website.

The one thing that we know for sure is that bravado is not going to do a darn thing to help us get out of this funk, neither is ignoring it, or pretending it isn’t there. The fact is, the U.S. is out of the recession, and Idaho aint, and someone’s got to do something about it eventually.

Running Government like a Business

We’ve all heard the common quip that “government ought to run like a business.” You’d think that if that was going to happen anywhere, it would be Idaho where the Governor and much of his cabinet (like Mike Gwartney and Richard Armstrong) are former business executives. But I’ve noticed in recent weeks that government policy and private sector behavior in Idaho are taking wildly different paths. Consider:

• The Governor is opting out of the high risk insurance pool.
• Idaho has joined a lawsuit against the United States government challenging the Constitutionality of federal health care reform.
• An utterly bizarre new law authored by Chuck Winder of all people, granting health care providers the right to ignore living wills and other advanced directives. The message: don’t die here.
• $247 million in reduced Medicaid spending in the state.

Meanwhile, here’s what is happening in Idaho’s private sector related to health care:

• Massive new investment by St. Alphonsus in area hospitals and clinics.
• A 36% increase since 2005 in the number of beds in assisted living facilities.
• $5 million in new spending at St. Lukes Mountain States Tumor Institute.

I’m not here to advocate for policy one way or another. I just want to point out that just maybe Idaho’s leaders - ostensibly concerned with economic development and economic recovery - might want to take a look at where the private sector is investing. In Idaho, that’s in health care.

Airport to Get Bonding Power? Some Urban Legislators Balk

Any day now my good friend Dave Frazier will be going ballistic over on the Guardian Blog about HOUSE JOINT RESOLUTION 5, which passed the House 57-12-1, and the Senate 34-1. This resolution which will go to a vote of the people this fall would amend Idaho’s Constitution so that Airports can issue bonds without having to get a vote of the people. This is an idea whose time has come as evidenced by the vote. Good on you Senator Stegner for finally designating some authority to jurisdictions other than the state. With luck, this is the start of a new trend.

But there are those who still don’t see the need to devolve power to local governments and other jursdictions. Idaho’s cities and counties (and airports and public hospitals, etc.) have less authority than do the cities and counties in any state west of the Mississippi (see: D, Krane, Rigos N, and Hill M. Home Rule in America : A Fifty-State Handbook. CQ Press, 2000.). Of the 12 Representatives that voted against this measure, half are from urban areas, the other half rural. Thus, the urban rural divide is still in full effect.

I think it is somewhat amazing that anyone from an urban district would vote against this, thus some of these legislators’ votes deserve special attention. Clifford Bayer (R), Boise casts a vote that puzzles me. His district is part of the economic engine of the Valley. The Boise-Nampa MSA is responsible for 50% of state’s GDP. Voting to hamper the airport is no help to this economy or the citizens in his district.

Representative Hartgen (R), Twin Falls is the other mystery here. His vote is interesting first because his own district struggles with urban problems such as providing public transit - so he should be well aware of the need to start devolving authority to the governmental units that can actually solve his people’s problems. Secondly he is a professional economic development consultant. Voting against the public’s ability to provide infrastructure isn’t in any of the textbooks I had on economic development.

Several of the delegation from the CDA area voted against this measure as well, showing that they too do not yet grasp that their region is an urbanized area and also very much needs to have some flexibility to solve regional issues such as the traffic between CDA and Spokane, and also the border crossing to the north. No longer are CDA and Hayden sleepy little mountain towns on the way to nowhere.

Full details on the bill are available over at the Statesman.

Will Boise Lose Hawks Stadium?

There’s been a lot of hullabaloo surrounding Hawks stadium recently, mostly coming from Meridian. I have to hand it to Mayor DeWeerd and the Meridian Development Corporation: they have a vision, and a mission and they are going after it.

This morning the Boise Hawks unveiled a survey that showed a vast majority (75%+) of the 300 people surveyed, favored construction of a new multi-purpose sports facility somewhere in the Valley. It turns out that a plurality of people also identified MERIDIAN as the favored location for a new sports facility. I am guessing that this will have a few people at the City of Boise upset.

In January 2007, a design charrette for the 30th District Master Plan in Boise, revealed that the 200 people in attendance hoped that a new Hawks stadium would be built in downtown Boise. The photo below appears on page 185 of the 30th Street Master Plan, available on the City’s website.

Hawks Stadium envisioned as part of the 30th Street Neighborhood

So what say you, City of Boise officials? Are you working up a deal to make the stadium a centerpiece of a new 30th Street Neighborhood? The implementation plan for 30th Street says that within 1-3 years Boise City and CCDC will:

Identify where land assembly, land acquisition and/or development partnerships would help implement the development concept for each subdistrict. Initiate conversations with property owners to determine their level of interest in selling property, land assembly and/or development.

Where are we on this project? Granted the plan only went forward in June 2009, but with Meridian breathing down your necks, it might be time to kick this project into high gear - unless you really like the sound of “MERIDIAN HAWKS.”

The Mega Project as Economic Development

Economic developers and especially politicians love big signature economic development projects because they provide readily recognizable symbols of their supposed effectiveness. But sometimes those projects go awry. Like Olympic Village in Vancouver. Vancouver lost it’s AAA credit rating when it had to bail out the failed hedge fund that financed the Olympic Village project. Word to local governments everywhere . . .

PDX: $613 Million for new Bike Lanes

Saw a story last week that said Portland just passed a $613 plan to improve bike infrastructure over the next 20 years. I know it’s apples and oranges, but $60 million for a streetcar downtown seems like a bargain by comparison. Full story in the Portland Business Journal.

Building Idaho’s Human Capital

(H/T to Tim Merrick for sending me the data that I used in this post. You can read the whole publication of the Science and Engineering Indicators, published by the National Science Board, at the National Science Foundation’s website: http://www.nsf.gov/statistics/seind10/start.htm The data in this post comes from Chapter 8, the state indicators.)

This is a follow on to the previous post where I tried to illustrate the financial strength of Idaho’s universities relative to regional and national competitors. This was in direct response to the formation of the new lobbying group, the Idaho Technology Council. The Council and its supporters, as you recall, are huge proponents of increasing Idaho’s human capital, especially in relation to the development of Idaho’s technology-based economy. My next post will deal with the technology side of this discussion, today we’ll start with the higher ed component.

I hate always seeming like the bad guy here. I am not. I sincerely hope that the Technology Council is a success, and I would love to live to see the day that Boise State University, my alma mater, actually morphed into a “metropolitan research university of distinction.” However, I have consistently maintained that almost every premise from which we operate in this state, is false. We have lots of grand plans for spinning off university technology, and growing this booming tech sector, but folks, that just isn’t to be Idaho’s lot in life. This state simply cannot be competitive in those areas. It is time to rip out our pre-conceived notions by the roots, and get a new plan. Every economic development plan in this state needs to be scrapped and thought anew.

Mark Rivers has some good insights, here. SPORTS. We can do that. Recreational technology businesses and tourism. We can do that. We’re not doing them very well, but we could. But we cannot and should not expect our universities and state to do is become a sophisticated research hub that will one day cure cancer or even launch an important disruptive technology. Won’t happen. Here’s the evidence:

Academic R&D Output, United States, 2006

Academic Article Output in Science and Engineering, U.S., 2006

The research and development spending at Idaho’s universities is woefully inadequate - that is what the top graph shows. Idaho is at the bottom of the heap when it comes to basic R & D spending at the university level. The bottom graph shows the research output of science and engineering articles among the scientific community. Again, same story. There just isn’t any output here, folks, and there isn’t going to be, because Idaho and Idahoans are not going to make, in fact do not have the capacity to make, the necessary investment of billions of dollars into the state’s universities. Development of widely dispersed and marketable technologies will probably never happen here. Having a more educated local workforce can happen here; we can certainly graduate more bachelor’s degree holders that we currently do.

I would argue that Idaho’s economic development has become “path dependent.” The social and historic conventions established long ago, and chronic underinvestment in education and infrastructure (to name just a couple things) has placed us upon a path from which we cannot escape.

That isn’t to say that there aren’t pockets of hope, areas for growth and opportunity. As noted I think sports, sports marketing, professional services related to sports, etc., is a great place to start and to FOCUS. What will not work is a blanket strategy of “increasing human capital” and targeting the “information technology” sector. That is destined to fail. If the universities in this state are to be called upon to be a part of the economic engine here, they are going to need small, clearly defined, narrow targets that are directly applicable to very specific capacities in the private sector. “Nanotechnology” is not specific. “Green energy” is not specific. Those are HUGE fields dominated by the biggest players.

The longer we maintain the facade that we have at our fingertips all the tools we need to be the next SLC or the next Denver, the more economically and psychologically painful reality becomes. The sooner we replace grand visions, i.e., fantasies, with small victories, the better.

You say you want a research institution, eh?

The buzz this week in Idaho Economic Development land is the newly formed Idaho Technology Council. You can read all about it at the Idaho Business Review.

This is a great and welcome effort, and desperately needed in our state. The only thing that immediately concerns me is that the players in this effort do not seem to understand the price of the things they hope to achieve. What is it that they are asking for? Here’s some snippets from the IBR’s reporting:

“Idaho’s growth as a technology center has cooled, and the Idaho economy cannot afford that,” stated ITC Chairman Rich Raimondi, a recently retired vice president at Hewlett-Packard. “We know the priorities to re-energize growth in this critical sector are human capital, public policy, financial capital and research and development, and we have formed committees with leaders from across the state to work those issues.”

and

“Growing an innovation economy starts with the government, whether it’s federal or state; then it’s research institutions; then it goes to the commercialization of intellectual property. From there you get industry, access to capital and the last part is quality work force.”

Human capital. Research and development. Research institutions. That’s what they want.

And that IS what will work to drive the economy here.

But does anyone realize what this will cost? I do. Here’s the current (at least as of 2007) financial capacity of the WAC and Mountain West Universities as measured by endowments:

1. Hawaii - $ 3 billion
2. Texas Christian University - $1.1 billion
3. BYU $1 billion
4. San Diego State - ($115/ but shares Cal State pool of $875 mm)
5. University of Utah - $700 million
6. La. Tech - ($656 shared)
7. UNLV - $500 million
8. University of New Mexico - $385 million
9. University of Wyoming - $304 million
10. Reno - $240 million
11. Colorado State - $193 million
12. U of Idaho - $188 million
13. New Mexico State - $175 million
14. Utah State - $130 million
15. Fresno State - $113million
16. Boise State - $74 million
17. San Jose State - $50 million
18. Air Force - $15 million (only has a 2 yr old endowment)

So - the picture here is pretty clear. BSU is at the bottom of the pack when it comes to having a big pot of money to fund world-class faculty, graduate students, and lab space. U of I isn’t much better. In this group, the University of Utah is clearly the research powerhouse - but look what they have to operate with: a $700 million endowment.

Don’t get me wrong - in a perfect world we’d do what was necessary to achieve the vision of the Technology Council. However, as I have noted before, there certainly isn’t the private capacity in Idaho to do what this group hopes. If there was sufficient private ability to fund Idaho’s universities at the level of say, the University of Utah, then the “Destination Distinction” capital campaign at Boise State would have a far bigger goal than $175 million. But that goal is the realistic capacity of the private sector in this state.

So that leaves government (and research grants which is another topic entirely) to make up the difference. But with current state support of Boise State running about 22% of BSU’s budget, it’s pretty clear that the requisite financial support of Idaho’s universities is not going to come from the public sector.

Mind you, the Mountain West and the WAC are two of the poorer conference in academe. What if we wanted Idaho’s Universities to be competitive with say, the PAC TEN (which is every Bronco fan’s dream conference) or the Big-10. Well here’s what the financial picture looks like for those schools:

PAC 10

1. Stanford University - $17.2 billion
2. University of Southern California - $3.7 billion
3. University of Washington - $3.2 billion
4. University of California - $2.8 billion
5. University of California, Los Angeles - $2.6 billion
6. Washington State University - $678 million
7. The University of Arizona - $519 million
8. University of Oregon - $498 million
9. Oregon State University - $476 million
10. Arizona State University - $407 million

Wanna be a player in Stanford’s league? Never gonna happen. Even if Boise State is successful in its capital campaign, it still won’t even have half the endowment of ASU. In fact, BSU and U of I combined don’t have the money that ASU has.

What about the Big-10?

Michigan - $7.1 billion
Northwestern - $6.5 billion
Minnesota - $2.8 billion
Ohio State - $2.3 billion
Purdue - $1.8 billion
Penn State - $1.6 billion
Wisconsin - $1.6 billion
Indiana - $1.6 billion
Illinois - $1.5 billion
Michigan State - $1.2 billion
Iowa - $1.0 billion

There is a reason that Michigan, Northwestern, Minnesota, and Wisconsin have world renowned schools of business and/or economics. There is a reason that Illinois has a legendary super computer center. There is a reason that Indiana graduates armies of engineers. MONEY. These schools are rich, rich, rich and can attract the best faculty in the world to their ranks. That is another reason that even the “poorest” school on this list, Iowa, attracts TEN TIMES the research grants of Boise State (Iowa hauls in about $400 million ANNUALLY in research grants and contracts; Boise State is nearing $40 million). They have a lot of money to hire killer faculty that do cutting edge research.

So. You say you want a research institution, eh? Now at least, you know what it’s gonna cost.

Notes on the Governor’s Finance Summit or What I Really Think About HWY 12

The Guv's tool for getting the financial sector to invest

So Mark Solon is pissed off at me because of things I said on Twitter in response to the Governor’s maddening finance summit held a couple days ago. Here’s the story.

The inimitable Norris Krueger live-tweeted the whole event, which was awesome. There came a point in the summit where the VC’s were summoned to the table. I imagine it was much like the previous Governor’s summit where the Governor and his bureaucrats sat on the dais high above the panel presenters, scowling down in barely concealed boredom. So Mark Solon took center stage.

A week or so ago, someone joked to me that Mark would get up there and say simply that, “there’s nothing for us to fund here.” I readily, yet sadly agreed that that would probably be the case. Imagine my *surprise* then when Norris tweeted that his #1 takeaway from Mark Solon was that “there was nothing for them to fund here.” I have several problems with that statement, none of which have anything to do with how and where Mark spends his investors’ money.

Mark may have elaborated; I don’t know. But the accurate statement would be, “there’s nothing to invest in here the way our fund is currently organized.” The distinction is important.

Highway 12 invests in early stage deals. They like to fund companies that have revenues, operating history, and a management team that is getting the job done. That’s what early stage VC’s do. In Idaho, granted, there are few of those deals around. And with the current fund, Solon and his partners probably don’t have any option but to do what they are doing: looking for deals out of state, so they can return a profit to their investors. But my issue with the simple statement “there’s nothing for us to invest in” troubles me because Mark has a ton of information about the system here in Idaho but in my years of experience as an observer and company founder who has been through this mill, it seems that the people that understand the weaknesses in the system aren’t willing to cast blame or enlighten the powers that be.

The Governor and his staff know boo about finance. They don’t even know what questions to ask. The helpful discussion in my mind is one where H12 elaborates to say:

There’s nothing for us to invest in here. Were we organized as a seed level fund, or a mezzanine fund, there would be. Idaho’s problem is getting the solopreneurs up and running so they can grow up and come to us.

But no one is going to point at the Boise Angel Fund, which wants to be a mini-VC, and say very simply “you guys aren’t getting it done.”

So in my mind, the only way that the phrase “there aint nothin’ for us to invest in” is helpful is if it is put into context, and then delivered with a remedy to the bureaucrats that don’t understand this stuff one bit.

Mark also pointed out to me that they just invested in a couple of pre-revenue companies to the tune of $200,000 and $400,000 or something very similar. That’s interesting because it represents a change in investment strategy for those guys. But it doesn’t get at the root of Idaho’s problem which is the complete unavailability of seed level funding of less than $100,000. That isn’t Mark’s problem, but I think it is his duty to tell the governor that where funding is concerned, that is Idaho’s problem.

As long as no one is going to point the finger at BAA/BAF, Idaho is not ever going to have a steady pipeline of gazelles for Solon to fund.

Final note: I like Mark Solon personally, and am glad for the work that H12 does for Idaho’s companies and in the community. I hope everyone understands that. But I also think it is important to speak truth to power. Maybe Mark did that, maybe he didn’t. But if Norris’ takeaway was simply that “there aren’t any early stage deals in Idaho” my fear is that the bureaucrats probably heard the same thing, but understood it less, and we have missed a great opportunity to tell the Governor what is wrong with funding in Idaho.

Too Few Cooks in the Kitchen

Boise State has been a virtual ghost town since the students left. In fact, there isn’t a single source on campus from which to obtain food or drink, and there won’t be until January 4.

At the coffee shop in our modern new, Interactive Learning Center, I was able to grab a gas station style sandwich they had sourced from the cafeteria, which as noted is now closed.

I was intrigued, and encouraged by the label on my sandwich: “Fresh and Local.” Wow! That’s kinda cool! Someone around here is making sandwiches, shrink wrapping them, and selling them to Boise State. Great! If only it were true:

My “fresh” and “local” sandwich as it turns out was trucked in from Spokane, making it neither fresh nor local. This buying of the most basic of foods, the sandwich, from some unfamiliar soul in Spokane seems odd to me. Is there some reason our own culinary school can’t make a business opportunity out of this? Don’t we have a business school here that could help them with a business plan? What about Life’s Kitchen? Certainly they could use the money. But really - all you caterers and restaurants out there looking for business - you might pick up the phone and see if you can make an opportunity for yourself. I know I for one would much rather be eating fresh and local.