SCRA: Innovation Centers Unfunded Mandate

April 22, 2010

Investigative Reports

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The NerveWhen it comes to public-private economic development, North Carolina has the Research Triangle, Georgia has Georgia Tech and South Carolina has … the Research Authority?

If you’ve never heard of the S.C. Research Authority, don’t worry, you’re not alone. But if you are interested in the role that government, especially the General Assembly, plays in the Palmetto State’s economy, you might want to cozy up with one of many slick-looking pieces of literature the Research Authority produces and get to know the organization.

Be aware, though: It’s not exactly light reading.

“SCRA is a non-stock, tax-exempt corporation delivering technology-based solutions which resolve complex client problems,” says a 36-page Research Authority booklet printed on card-stock paper.

“SCRA delivers solutions through its core domain competencies and by building and managing collaborations of government, industry, and university experts.”

Created in 1983 under state legislation, the Research Authority extends far-reaching tentacles throughout the business world in South Carolina. Think of the SCRA as the central nervous system of state government’s involvement in the economy.

The legislation – Title 13, Chapter 17 of the S.C. Code of Laws – says the purpose of the SCRA is to:

“Enhance the research capabilities of the state’s public and private universities”;

Foster dialogue in the state’s research community; and

“Promote the development of high technology industries and research facilities in South Carolina.”

As seed capital, the General Assembly gave the SCRA about 1,400 acres of undeveloped land – estimated at that time to be worth $10.7 million – and $500,000, according to a 2005 review of the Research Authority.

The Legislative Audit Council, which acts as the watchdog arm of the Legislature, conducted the review.

The state code goes into great detail about the objectives of the Research Authority and the powers of its board of trustees.

And the law contains some clarifying language as to the public-private nature of the SCRA.

The code says “the project authorized by this chapter is in all respects for the benefit of all the people of the state, for the improvement of their welfare and material prosperity, and is a public purpose and a corporation owned completely by the people of the state.”

One of the Research Authority’s largest ongoing projects involves establishing three Innovation Centers:

  • One in Columbia to work with the University of South Carolina, and scheduled to be completed in June or July;
  • One in Charleston to partner with the Medical University of South Carolina, opened in December; and
  • One in Anderson to team with Clemson University, slated to be finished in the spring of 2011.

The idea behind the Innovation Centers: Attract tenant companies that commercialize research at USC, MUSC and Clemson.The Nerve visited the Charleston facility in March, at which point it had a handful of tenants, including a police department substation.

The Innovation Centers are prescribed under state legislation passed in 2005. To get them up and running, the Research Authority is working in conjunction with SC Launch, a nonprofit SCRA affiliate created to help startup companies grow and succeed.

But to hear Research Authority CEO Bill Mahoney tell it, the Innovation Centers have put a big hit on the SCRA’s bottom line.

Mahoney made that point during a meeting of the Research Authority board Wednesday morning in Columbia.

Half or more of the SCRA’s board members represent public entities, such as the state Department of Commerce and the S.C. Commission on Higher Education.

The board meeting took place in a large conference room on the 17th floor of the Meridian Building, a posh, relatively new addition to the Capital City skyline that houses the headquarters of Nelson Mullins, a heavy-hitter law firm the SCRA retains for State House lobbying services.

Other than 15 Research Authority board members and officials, no one else attended the meeting except The Nerve.

Repeatedly describing the Innovation Centers as a “legislatively unfunded mandate,” Mahoney said the SCRA has taken on $15.5 million in debt to create the three facilities.

He said the Research Authority is required to spend $12 million of its earnings on the effort, and so far has pumped $9.5 million of that total into SC Launch to get the Innovation Centers up and running.

The SCRA’s total investment in the project stands at some $26.3 million, more than double the requirement, Mahoney said.

One of the board members asked whether that message has been communicated to “the Harrells,” presumably referring to S.C. House Speaker Bobby Harrell, a Republican from Charleston who was a key player in the Innovation Centers legislation of 2005.

Yes, Mahoney said, adding that he briefs legislative leaders and staffers three times per year.

Efforts by The Nerve to reach Harrell after the SCRA board meeting were unsuccessful.

As a result of financing the Innovation Centers, Mahoney said, the SCRA’s net revenues and cash flow are expected to be “extremely narrow” over the next few years while “fulfilling the unfunded mandate of the Innovation Centers.”

In discussing risks to the Research Authority on the road ahead, Mahoney said one danger lurks in the possibility of the Innovation Centers failing to attract enough tenants to be self-sufficient.

That could put the SCRA in a position of deficit spending to keep them afloat, according to the board members’ discussion.

If so, one place the Research Authority potentially could look to for savings is its payroll. As The Nerve reported earlier this year, of some 200 people the SCRA employs, 96 earn salaries of $60,000 or more; 46 bring home $100,000 or more; and 12 earn in excess of $150,000, according to the state salary database.

Julia Martin, the Research Authority’s chief financial officer, told the board the SCRA hopes that all three Innovation Centers will be paying for themselves within three to four years.

One development that could be a big help to the USC facility is a plan by the SCRA to locate its headquarters there.

Overall, Mahoney said of the next one to three years, “We are cautiously optimistic.”

But in the future, he said, “We’re going to have to figure out how to recapitalize this business.”

Toward that end, the SCRA board plans to conduct a “visioning process” this summer.

Responding to questions from The Nerve, Mahoney and board Chairman William Masters said one idea in the preliminary discussion phase is to take one of the Research Authority’s largest affiliates – the private, nonprofit Advanced Technology Institute – public.

Reach Ward at (803) 779-5022, ext. 117, or eric@scpolicycouncil.com.