TOP STORY, MARCH: Follow the money

 

TOP STORY, MARCH: Follow the money

 

Date: December 24, 2011
by: Jean Gruss | Gulf Coast Business Review

 
 

 

Throughout the holiday week, YourObserver.com will be counting down the top 12 stories of 2011 (one from each month) from our Longboat, East County and Sarasota Observers and the Pelican Press. Check back each day for a reprinting — along with any relevant updates — of the biggest news items of the year.

ORIGINALLY PUBLISHED MARCH 24, 2011

Joe Swaja has some advice for decision makers in Sarasota who are now considering millions of dollars in charitable gifts and taxpayer subsidies for The Jackson Laboratory.

“I would go and get a group of individuals who are involved in this industry, understand this business and have nothing to do with Tampa or Sarasota to give unbiased advice,” says Swaja.

Swaja, who retired to Marco Island after serving as vice president of worldwide customer service for production systems at Xerox Corp., was one of eight financially skilled volunteers who examined The Jackson Laboratory project in Collier County last summer. He was part of a little-known group called the Productivity Committee, volunteers appointed by the county commission to review county operations and suggest improvements.

Swaja is blunt about Bar Harbor, Maine-based Jackson Laboratory’s efforts last year to establish a Florida research facility in eastern Collier County, 40 miles east of Naples. “If that was a business plan coming across my desk, I wouldn’t have approved it,” he says. “It’s kind of hard to swallow in today’s world.”

In its quest to boost the local economy, Collier County economic-development officials recruited Jackson Laboratory with the promise of $260 million of taxpayer money, half of which would have come from the state and the other half from the county. In addition, the nonprofit genetics research institute planned to raise another $120 million from private donors and millions more from government grants. Jackson Laboratory would directly employ 244 people, with the promise of thousands more from related operations that would move nearby.

The Jackson Laboratory project in Collier began to unravel when the Productivity Committee questioned Jackson’s business plan and growth assumptions in a report to the county commission in July. “The return wasn’t there for the risk involved,” concludes Stephen Harrison, chairman of the committee and a corporate accountant.

The Collier County effort eventually failed, because Naples resident Gov. Rick Scott and successful Naples entrepreneurs such as Reinhold Schmieding, founder of global Naples-based medical device manufacturer Arthrex, didn’t support the venture as it was proposed.

Three of the eight members of the Productivity Committee who examined Jackson Laboratory’s plan for Collier County agreed to speak to the Gulf Coast Business Review about the questions Sarasota decision makers should now be asking. (Others could not be reached or declined to speak publicly.)

Focus on the returns
When Jackson Laboratory announced plans to locate in Collier County last year, much of the discussion focused on creating an institute for personalized medicine. Using genetic research, scientists hope to tailor medical remedies based on a person’s genetic makeup. It’s an exciting field that promises cures one day for complex diseases.

But members of the Productivity Committee say many people were distracted by the promise of groundbreaking genetic research instead of measuring the return on a $260 million taxpayer investment. “It’s not about genetics,” Harrison says. “It’s about return on investment.”

Members of the Productivity Committee say they couldn’t validate the promise of more than 11,000 jobs and $10 billion in economic impact over a 20-year period. “It required a willing suspension of disbelief,” says Swaja.

“One of the problems we had down here is that people got excited about the medical possibilities of Jackson Lab, when the real issue is, if you’re going to spend (taxpayer money), it has to be to create an economic engine and really bring jobs here,” says Janet Vasey, a member of the committee and former financial analyst with the Department of the Army. Vasey wrote the report on Jackson Laboratory to the Collier County Commission on behalf of the committee.

Besides job creation, the committee noted that Jackson Laboratory’s business plan didn’t include other milestones such as grants, donations, patents and licensing agreements.

In addition, the committee challenged the assumptions made by project’s consultants, the Washington Economics Group, which measured the potential return on the county’s $130 million at 2.6% by 2032, based on net sales tax and net operating revenues. “I’m happy to consider the multipliers, but if it’s not really going to give you the payback, then it’s not worth doing,” says Vasey.

What’s the net benefit?
Sarasota should consider the lost-opportunity cost of funding the Jackson Laboratory, members of the Collier committee suggest.

Spending millions of taxpayer dollars on Jackson Laboratory means that money wouldn’t be available for other equally beneficial purposes. For example, Swaja suggests the taxpayer subsidies might have been better spent helping existing entrepreneurs in Naples grow their businesses.

And the nonprofit fundraising by Jackson Laboratory might take away money from other worthy nonprofit organizations in the community. “There’s only a finite amount of money that’s going to be donated in the county,” Swaja says.

In the end, taxpayers might be better off keeping the money and spending it in the community themselves.That would create a different but significant economic impact too, committee members wrote.

“Get at what the net benefit would be,” says Vasey.

Follow the dollars
“Who is going to benefit from Jackson Lab?” Swaja asks.

For example, Swaja wondered why Jackson Laboratory needed millions of dollars for new buildings. In the early days at Xerox, scientists worked out of existing buildings with reasonable rents. “We worked in labs above toy shops, old houses,” Swaja says. “We didn’t have all this fancy stuff to get started.”

Swaja described Jackson Laboratory’s proposed buildings at Ave Maria in eastern Collier as palatial.

“Why can’t we use all the empty buildings?” he wondered. “I saw the architectural plans for Ave Maria, and I was taken aback.”

Vasey says landowners and others who benefit should have contributed more money to the project. For example, Barron Collier Co. contributed the land for Jackson Laboratory, but the value of the land wasn’t deducted from the county’s contribution. “In Sarasota, who else is contributing?” she asks.

Committee members wondered how Jackson Laboratory would invest taxpayer money before putting it to use, noting that the nonprofit’s endowment had lost money in the recession.

State subsidies
Although legislators had approved funding the Jackson Laboratory project with $130 million, it was conditioned upon federal funding that was eventually trimmed.

What’s more, the Legislature only promised to fund the first $50 million of the project with no guarantees for the rest of the money. And negotiations with state economic development agencies were shrouded in secrecy and complicated by the uncertainty of Scott’s election.

“What happens if no more money comes from the state?” Vasey says. “Nobody ever knew anything, and it was hard to plan.”

If only part of the money for the project came through, committee members worried that local taxpayers would be on the hook for more than $130 million. “We’re a small community, and we were being asked to come up with $130 million. That’s a lot of money,” Vasey says.

Where’s the support?
Committee members wondered why Jackson Laboratory had selected eastern Collier County for its new location.

Apart from the new Catholic University of Ave Maria, Swaja and others wondered why Jackson Laboratory wasn’t locating instead near a research university or teaching hospital. While the University of South Florida had expressed interest in partnering with Jackson Laboratory, it wasn’t certain that USF could fund such an effort.

“We didn’t have the homegrown things to make it successful,” Vasey says.

What’s more, it wasn’t clear to committee members how Jackson Laboratory was going to attract genetic scientists to eastern Collier County. “There are a lot of powerhouses ahead of Jackson Lab in that field,” Swaja says. “There’s a lot of competition for this kind of work today. What’s their competence in this area? Who are they going to hire? Where are they going to get these people?”

In their report, members concluded the Jackson Laboratory effort was fraught with risk because of unanswered questions. “There were lots of things missing,” says Swaja.

UPDATE: The Jackson Laboratory announced in June 2011 that it was withdrawing its request for $100 million in state start-up funding for an expansion facility in Sarasota County, citing a lack of funds in Florida’s constrained state budget.  


Jackson Lab may have to wait until next year
Jackson Lab’s quest for $100 million in state funds faces several challenges — including having no business plan for its Sarasota County endeavor yet available to share with key legislators.

It’s also getting late in the game, according to a key Senate committee chairman and a House subcommittee chairman whose districts could be the Jackson’s new location.

That’s because Jackson Lab must start over in its request for funds after withdrawing its 2010 application. That application put in motion an initial $50 million worth of state funds as part of a $130 million state incentive package. Now, Jackson’s back at the starting line.

Without a business plan to show what taxpayers would receive for their investment, legislators from the region that stands to benefit most are questioning the Jackson’s strategy.

“What we want is return on our investment,” explains Sen. Nancy Detert, R-Venice, chairwoman of the commerce and tourism committee. Her committee looks at economic development incentives in the budget so she’s a key player, and one who’s far from on board.

But with a $4 billion state budget gap, there may be no state money to invest. Detert also sits on two education budget subcommittees feeling the pain, so economic development’s not her only priority.

“Jackson Lab would have to be viable without state funds,” says Detert. There is no money or appetite for this project this year. It is too late in the process. The only way it could happen is if Gov. Scott made it his top priority,” she says.

So far, only Scott’s staff has met with Jackson Lab’s officials.

“If it happened this year, I’d be stunned,” adds Detert.

On the House side, Rep. Doug Holder, R-Sarasota, chairman of the Economic Development and Tourism Subcommittee, shares Detert’s concerns on the timing, though he says he would like to see it in Sarasota.

“In order for it to happen this year it would have to be a very, very heavy lift, and get some really special treatment that I don’t see coming down the pipeline this year,” says Holder. “It’s great for next year.”

Detert compares Jackson’s request to the Scripps Research Institute project she helped deliver with former Gov. Jeb Bush in 2003. “They’re not Scripps,” she says, referring to the Jupiter-based biomedical research campus now with 350,000 square feet of facilities. “Scripps had a payback schedule.”

But to judge return on investment, legislators and Gov. Rick Scott need to see a business plan. And they’ve yet to see one according to Detert and Sen. President Pro-tempore Mike Bennett, R-Bradenton.

“If I were going to sit down with the governor, I would have every bullet available,” says Bennett. “They just don’t have that.”

A business plan provided to Hillsborough County didn’t convince its officials it was worth the investment, according to Hillsborough County Commission Chairman Al Higginbotham. Gene Gray, director of the county’s economic development department, says a public-record exemption keeps that plan private.

Charles Hewett, Jackson’s executive vice president, met with Scott’s staff March 14, in Tallahassee. Sarasota County Administrator Jim Ley and David Bullock, the deputy county administrator, were also in town to talk about Jackson Lab that day.

“Chuck Hewett came away saying the meeting was encouraging, but not conclusive,” says Barry Teater, Jackson Lab’s director of communications, a day after the meeting.

“We first have to see whether this project aligns with Gov. Scott’s vision for economic development before we can go forward,” says Teater, “and that’s what were working on right now with his staff. Until we know that, we can’t go any further.” Teater says additional meetings with the governor’s staff are planned to “… determine whether we can agree on a plan for moving forward.”

Bennett questions Jackson Lab’s political strategy. He says it’s not involving him and other key legislators with the clock ticking, and it also hasn’t put together a strategic lobbying team or economic advisers to help with the business plan.

Says Bennett, who supports the project in concept, but needs more information, says, “The problem is, I don’t know if they know what they’re doing.”

Bennett also isn’t shy about offering the Jackson Lab folks a little free advice: “You’d think they’d want to deal with the same senator who got them the $130 million last year.”
— Jay Brady

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