Commerce Eyes Control of Research Program

March 4, 2010

Investigative Reports

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The NerveIn the eyes of S.C. Commerce Secretary Joe Taylor, the state lottery is an annual $10 million cash cow.

The initial version of the 50-page “Economic Development Competitiveness Act” bill, introduced in January by S.C. House Speaker Bobby Harrell, gave the Commerce secretary control over one-third, or $10 million, of the annual $30 million in lottery money earmarked for the S.C. Centers of Economic Excellence, also known as the endowed professor chairs program.

The bill (H 4478), which passed the House Ways and Means Committee and now is on the House floor, has since been changed to give the state Coordinating Council for Economic Development, made up of the heads of 10 state agencies that deal with economic development, control over $10 million in lottery money.

But Commerce would still have plenty of influence over the funds. The agency maintains staffing for the council, and Taylor, as head of Commerce, is one of the council members.

Why Taylor wanted exclusive control over the millions of dollars annually that currently are awarded by the 11-member review board of the Centers of Economic Excellence remains a mystery. Commerce spokeswoman Kara Borie did not respond to written questions submitted last week by The Nerve.

Among other things, Harrell’s bill, which has more than 100 co-sponsors, drops non-state matching fund requirements if the Commerce secretary certifies to the review board that the endowed professor will “directly support a business or industry” that invests at least $100 million at a single site after Jan. 1 of this year.

That provision could, for example, fund research for the Boeing Co., which has promised to invest at least $750 million in an aircraft assembly plant in North Charleston, without requiring any match by Boeing or any other non-state source.

Arik Bjorn, a program manager at the state Commission on Higher Education, which provides staff support for the endowed chairs program, told The Nerve last week that to his knowledge, no one at Commerce consulted with his office before Harrell’s bill was introduced.

“The board (of the Centers of Economic Excellence) never entertained (House bill) 4478,” Bjorn said. “The board had nothing to do with it.”

The board currently has the authority to award $30 million in annual lottery money for the endowed chairs program. Under Harrell’s bill, it would retain control over $20 million, or two-thirds of the total.

Harrell, R-Charleston, who has led the charge in recent years for more state involvement in economic development projects, didn’t respond to written questions submitted last week by The Nerve.

The Centers of Economic Excellence were among a number of state and private groups identified in 2008 in Harrell’s strategic framework “pyramid” for South Carolina’s “knowledge-based economy,” which, according to him, is aimed at creating higher-paying jobs statewide.

Under state law, Harrell appoints three members of the centers’ 11-member review board. The governor appoints three members; the Senate president pro tempore, three; the Senate Finance Committee chairman, one; and the House Ways and Means Committee chairman, one.

The current board chair is Paula Harper Bethea – a Harrell appointee – whose three-year term ends in August 2011. She also is the state lottery’s executive director.

 

Inflated Job Numbers

Established in 2002, the endowed chairs program uses lottery money and non-state matches to pay for high-priced professors and research centers at the state’s three public research universities – the University of South Carolina, Clemson University and the Medical University of South Carolina.

There currently are 46 approved research centers among the three universities. The program provides grants of $2 million to $5 million to each qualifying center.

The program is aimed at attracting new businesses to South Carolina through research in such fields as technology, science and medicine, according to program literature.

But if the program were giving itself a report card, it might be accused of grade inflation.

The program’s annual report for last fiscal year contends it has created nearly 3,200 jobs statewide. In praising the tens of millions of non-state dollars invested so far in the program, Bethea is quoted in the report’s introduction as saying, “Even harder to imagine is 3,200 jobs suddenly disappearing from cities and counties all across the Palmetto State.”

The 3,200 figure, however, is not an actual head count. Page 13 of the 78-page annual report notes that of the total number, 2,000 jobs, or 62 percent, have “likely resulted from the impact of $120 million in extramural research (grant funding over and above the non-state matching requirement) brought into the South Carolina economy by CoEE chairs and their research teams.”

In other words, it’s an educated guess. The report noted that the 2,000 figure came from an analysis by USC’s Darla Moore School of Business.

When asked last week to give specifics of the approximate 1,200 head-count jobs, Bjorn told The Nerve, “I can tell you, rest assured, there’s a name for every position,” though he added he couldn’t immediately provide a detailed list because it would “take me a long time to do it.”

Although he couldn’t provide company names, Bjorn said of 1,224 “head-count” jobs, 899 are at existing companies; 44 are at start-up firms; 38 are endowed chairs and other senior faculty; and 243 are other educational employees, such as junior faculty and lab technicians.

In its literature, the program contends that 895 “high-paying, knowledge-based jobs” were created at new corporate facilities located mainly at the Clemson University International Center for Automotive Research in Greenville. It noted that BMW and another automotive industry company, Timken, collectively created some 500 of those jobs.

But last fiscal year’s annual report and other program literature don’t give specific breakdowns of the 895 figure.

BMW spokesman Bobby Hitt, a member of the 11-member review board, did not respond to The Nerve’s written request for specifics about the number of BMW jobs created through the program.

Timken spokeswoman Lorrie Crum told The Nerve that about 90 new jobs – mainly engineering positions – were created at the Clemson automotive research campus, adding that number has remained “relatively constant” over the years.

 

High-Paid Profs

Among the biggest job winners so far in the program are the professors leading the research centers, or “research superstars” as the program literature describes them. A total of 81 endowed chairs has been authorized so far, though most of them have yet to be filled.

Among the biggest job winners so far in the program are the professors leading the research centers, or “research superstars” as the program literature describes them. A total of 81 endowed chairs has been authorized so far, though most of them have yet to be filled.

The average salary of 22 program professors listed in the state salary database is $189,130, according to an analysis by The Nerve. Salaries for two other hired professors are not included in the database.

The highest-paid professor listed is USC’s Martin Morad, the BlueCross BlueShield of South Carolina Foundation Endowed Chair of Cardiovascular Health. His $373,700 salary is the highest of any USC employee listed in the database and more than $100,000 higher than university president Harris Pastides’ salary.

Coming in a close second in salary is USC’s Jay Moskowitz, the endowed chair in clinical and translational research, who earns $362,135 annually, according to the salary database. USC professor Richard Webb, the endowed chair in nanoelectronics, is third with an annual salary of $232,338.

The lowest-paid professor in the database is John Schaefer, MUSC’s Lewis Blackman Endowed Chair for Patient Simulation and Research for Health Sciences, who earns $75,000 yearly. Still, that’s more than twice the state’s per-capita annual income.

 

Matching Funds Lagging

Since fiscal year 2003, nearly $186.6 million in lottery money has been allocated to the program, plus $156.7 million in matching pledges, or 84 percent of the awarded lottery funds, according to Commission on Higher Education records.

Of the total pledged amount to date, $130.3 million, or 83 percent, has been received, and $115.8 million has been drawn by the three universities, records show.

Since fiscal year 2003, nearly $186.6 million in lottery money has been allocated to the program, plus $156.7 million in matching pledges, or 84 percent of the awarded lottery funds, according to Commission on Higher Education records.

Of the total pledged amount to date, $130.3 million, or 83 percent, has been received, and $115.8 million has been drawn by the three universities, records show.

Under the program, lottery money cannot be released to a research center until a dollar-for-dollar non-state match is received.

Bjorn said through December, the percentage and dollar breakdown of $141.5 million in matching pledges were as follows:

  • Foundations: 33 percent, $46.7 million;
  • Corporate: 28 percent, $39.6 million;
  • Individuals: 18 percent, $25.5 million;
  • Federal grants: 15 percent, $21.2 million; and
  • Health care providers/hospitals (nonprofit and private): 6 percent, $8.5 million.

BMW, for example, gave $10 million to the program at Clemson’s automotive research campus in 2002, while Michelin invested $5 million and Timken chipped in $3 million in 2003, according to program literature.

But donor contributions have plummeted in recent years, from $23 million in fiscal year 2007 to $9 million in fiscal year 2008 to $0 last fiscal year, program records show.

The total amount of lottery money awarded last fiscal year was $14 million, less than half of what was authorized the previous year and the lowest amount since the program started.

Bjorn said he isn’t concerned about the shortfall. He said through the first four years of the program, all of the centers were “fully pledged,” and that there typically is an approximate two-year lag between the lottery award and when matching donations are received.

Reach Brundrett at (803) 779-5022, ext. 106, or rick@scpolicycouncil.com.