State could do more to boost the growth of technology sector

THE BALTIMORE SUN

A YEAR ago, Gov. Robert L. Ehrlich Jr.'s "Pappas Commission" delivered recommendations it described as "critical to Maryland's success" and needed "to be implemented in the near term in order to have maximum impact on the growth of the technology business in Maryland."

But some of its key proposals remain unadopted, including expanding state research and development tax credits, appointing a full-time state technology czar and substantially boosting state pension investments in technology companies.

Is it still the "near term?"

The commission's expression of urgency wasn't just rhetoric. Maryland has reached a critical point in its technology economy.

We're climbing from the crater of the tech bust. Biotech and telecom outfits are seeing improved results. Homeland-defense startups have arrived on the scene. Venture-capital funds are raising money again.

Continued nurturing at this stage will cement technology's presence in Maryland, help counter the threat posed by California's $3 billion investment in stem-cell research and ensure even better results on the next leg up.

The state, especially the Department of Business and Economic Development, has done a good job responding to many of the proposals identified by the commission, which was headed by intellectual-property lawyer George F. Pappas.

Those include making it easier for state universities to use federal research funds to hire people, creating a database of Maryland laboratory resources, boosting efforts to woo overseas capital and appointing a state science advisory board. That board includes such high-powered talent as former Lockheed Martin chief executive Norman R. Augustine and former National Science Foundation chief Rita R. Colwell.

"Maybe I'd give us a B. I think we're above average," says Christopher C. Foster, DBED's deputy secretary and point man on the Pappas brief. "Maybe it's a B-plus," he says on reflection.

Pappas says he's "extraordinarily pleased" with the progress.

But Maryland's pension investment in venture capital is still only about $120 million, or 0.4 percent of its $30 billion in pension assets, a third of the national average. And none of the money has been placed with Maryland venture-capital firms.

"That of course is what we were trying to accomplish," says Frank A. Adams, managing partner of Timonium venture firm Grotech Capital Group and a member of the commission. "Getting them to put money in firms in California is not going to help [Maryland] very much."

Overall, Adams says, the commission has prompted "good progress, but we're probably only scratching the surface."

Maryland's pension board has authorized managers to place as much as 2 percent of state employee's retirement assets into non-public stock, or "private equity," including venture capital, said spokesman Joseph M. Coale. And they've hired an advisor to help steer the money. So far about 1 percent of the assets are in private equity.

Although the Pappas group found that the average state pension allocation to private equity is 4.7 percent, Maryland's authorities haven't discussed going past 2 percent, Coale said, emphasizing the poor returns shown by venture investments in recent years and the risk of investing big chunks at once.

"We think it has long-term potential, but we have to have the process and the familiarization in place before we become more aggressive," he said.

Fair enough, but the pension board's commitment to private equity and venture capital is as much about symbols as substance. How about giving Maryland firms a harder look and boosting private-equity authorization to 3 or 4 percent - and then taking your prudent time in getting there?

And how about the General Assembly reinstalling and expanding the research-and-development tax credit? (It expired last year. "My No. 1 priority" in the legislature, says Foster.) How about DBED appointing a full-time chief technology officer for the state? At the moment Maryland's CTO is Foster, who also runs DBED day-to-day. (The agency is looking for a full-time tech czar, he says.)

Maryland has a history of neglecting its private sector when the federal money flows freely, as now. That's why it's commendable for the Ehrlich administration to be hammering on technology - especially as the federal gravy shows signs of slowing down - and for the Pappas group to keep meeting and looking for opportunities.

"Stay tuned," Pappas says. "We'll continue to give the governor our best advice." The governor and his administration should continue listening.

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