Maine’s future rides on R&D

At a time when America’s attention is properly focused on a slowing economy, we can look to opportunities to provide an economic stimulus that will pay off with new jobs and faster growth. I am convinced that one of the greatest steps we can take to fuel our economy is to further encourage research and development, both here in Maine and nationally.

At least two-thirds of our economic growth per capita stems directly from technological innovation, according to the Progressive Policy Institute (PPI). And this pays off in real dollars for the American people. The same PPI study found that, had productivity since 1973 increased at the same rate as it did in the 30 years after World War II, the average household income nationwide would be at least $63,000 per year – $26,000 higher than it actually is today.

Unfortunately, Maine has lagged far behind in research and development – trailing 48 other states in its investment in R&D. Indeed, the Bangor Daily News has sounded the clarion call for better funding, asserting that “if we want highly productive, high-paying careers in the future, now is the time to spend on R&D.” Maine voters backed a $20 million bond in 1998 to support R&D, but we must not continue shortchanging ourselves as a state by shortchanging R&D.

The benefits are clear. Take the case of Applied Thermal Sciences, now a Maine defense contractor. Founded in 1989 in the University of Maine’s small business incubation center in Orono, ATS concentrated its R&D efforts on state-of-the-art computer modeling, fluid dynamics, and missile defense systems. Taking advantage of the low-cost facilities at the university, ATS applied and won government R&D grants to pay for the computers it uses for its work. I have worked closely with ATS and the university to secure funding for a supercomputer system that could help expand the company’s work.

After outgrowing its University-based facilities, ATS located its corporate headquarters in Sanford, where it has a million-dollar payroll. The company’s cutting-edge technology research for energy and hypersonic missile systems helped it become a key contractor with the U.S. Department of Defense, securing $15 million in government contracts in this fiscal year alone. ATS is a vibrant success story, demonstrating the value of our investments in R&D. And company president Karl Hoose wants to spread the word: He’s seeking another federal grant to help construct a business incubator in Sanford similar to the one that helped grow ATS.

To be sure, there are other Maine R&D success stories – from Jackson Laboratories in Bar Harbor, a national leader in genetic research; to Sensor Research in Orono, another successful defense contractor; to the array of smaller start-up companies investing in research.

Academic institutions such as the University of Maine have always been magnets for research, and I’ve been proud to fight successfully in the Senate for more than $10 million in grants to help develop portable sensors for detection of airborne biological or chemical weapons. I also secured funding for the Gulf of Maine Ocean Observation System, which can help us better understand the ocean environment – and offer a whole new range of research opportunities.

How can we create new opportunities for investment? First, we must continue to increase state investment in research and development, targeting our efforts in technology such as biotechnology, nanotechnology and precision manufacturing, information technology, and marine and environmental sciences. These specialties make the most of the University’s facilities and our state’s experience – and offer the best chance for success.

But private industry must become more active as well, and for that, we must provide incentives for them to become so. Certainly, many companies already make these kinds of investments. But a study by the Council on Competitiveness conducted last year found that America’s industry is actually losing ground when compared with other nations, and the PPI study found that U.S. industry actually cut its investments in research by 4.6 percent every year from 1991 to 1995.

To combat this disturbing trend, I’ve joined with Sen.s Orrin Hatch and Pete Domenici on legislation providing U.S. businesses with tax incentives to promote industrial investment in R&D. The Hatch legislation will make permanent the R&D tax credit, permitting companies to incorporate tax incentives into their long-range planning processes. I have also joined with Sen. Domenici to permit businesses investing in research and experimentation to take a credit of 4 percent of their R&D costs, including collaborative research contracted to universities, national laboratories, and small businesses. Of critical importance to Maine, in particular, this bill will provide a phased-in credit for start up companies, and permit these growing businesses to count their filing fees for patents toward0their research expenses so as to maximize the deduction.

This is a crucial component of any successful R&D strategy for companies like ATS and other growing small businesses, often forced to spend significant sums on research and development before generating any sales at all. The Domenici bill I support would give a boost to these emerging businesses as they seek to gain a foothold in the marketplace.

So what kind of benefit could we realize from our research and experimentation legislation? A study by the accounting firm of Coopers and Lybrand found that U.S. companies would invest more than $41 billion in R&D, in today’s dollars, with passage of this type of approach. According to Coopers and Lybrand, this would permit investment in new, life-saving drugs; continued growth within the Internet; improvements in education; and improved job opportunities for all Americans. And our state and nation will benefit too: for every federal dollar we invest in the R&D tax credit, an additional $1.75 in tax revenues is generated in the long run. That’s truly a win-win investment for Maine and America.

I will continue to search for ways to encourage research and development through efforts like our tax credit, which will provide incentives for continuing investments in technology that will set the stage for long-term prosperity. By encouraging private investment and expanding the basis for small business experimentation, we’re harnessing the technological advancements of today, so we can remain at the forefront of productivity and prosperity tomorrow.

Olympia J. Snowe, Maine’s senior senator, is co-chair of the Senate Task Force on Manufacturing.