State sells assets of Bioscience Authority, ending 12-year economic development program
Topeka ? The Kansas Bioscience Authority effectively came to an end Friday when Gov. Sam Brownback and legislative leaders authorized the sale of virtually all of the agency’s equity assets for an estimated $14 million.
That’s far less than the $25 million that lawmakers assumed in a budget deal they crafted during the special session in June. But officials say they hope to make up the difference with the sale of KBA’s building and property in a separate deal that has not yet been finalized.
“This is what shows you why the government is not a good investor,” said Sen. Ty Masterson, who is finishing his term as Ways and Means Committee chairman.
Meeting as the State Finance Council, the governor and leaders voted unanimously to accept an offer by Origami Capital Partners, a Chicago-based investment and financial management firm.
Lawmakers had authorized the sale during the 2016 session, and proceeds of the sale were factored into the final budget they passed during the special session in June. It was part of a package of items needed to pay for increased K-12 school funding that the Kansas Supreme Court had ordered earlier in the year.
But the sale also marks the end of a program launched in 2004 that many people had touted at the time as an innovative program to spur growth of high-tech medical and agriculture-related industries in Kansas, but one that many people now argue the state never should have gotten into.
“These funds haven’t been successful, that I’ve seen, anywhere in the country, where the government is picking venture startups,” Brownback said after the meeting. “That’s just a really hard business to be in.”
Since KBA was launched 12 years ago, the state spent a total of $232 million on the program. Of that, $150 million went for various grants, Commerce Secretary Antonio Soave said, including $70 million for research projects at state universities.
Brownback noted that much of the other grant money went toward helping the University of Kansas Medical Center obtain status as a National Cancer Institute, and for development of the National Bio and Agro-Defense Facility near Kansas State University.
“Both of those have broad support and people believe they are good things to do,” Brownback said, “but you didn’t need a KBA to invest in those two. The state could have done it by other means.”
The other $82 million spent on KBA over the years went to the authority itself, Soave said. Some paid for the direct cost of its staff and facilities, while $34 million was invested directly with companies and limited partnership interests. Those are the assets that the Finance Council authorized selling.
Soave said that over the years the state has received about $15 million in interest and dividends from those investments. But he said there has not been any review to find out how many new jobs or businesses have spun off from the university research projects funded through KBA.
“Hopefully we can look at the total amount of jobs and capital that was created, but that’s for another day,” said House Speaker-elect Ron Ryckman Jr., R-Olathe. “Right now, it’s a matter of figuring out the building, the land, our assets and the cash to satisfy this year’s budget.”
Soave said that when KBA was merged into the Commerce Department earlier this year, it had about $19 million in cash on hand. Much of that was for grant commitments it had already made and for maintenance of its property. He said $8 million has already been swept into the state general fund and only about $1 million in uncommitted cash is left.
As part of the budget deal lawmakers brokered this year, they assumed the state would get at least $25 million total from the sale of KBA assets. Any proceeds above that, up to $38 million, was earmarked for the K-12 “extraordinary needs” fund, which helps districts that have experienced unusual enrollment increases or loss of property valuation.
Since then, however, the state has received new revenue estimates showing that even if the state gets the full amount from selling the assets, it still faces a $350 million shortfall to fund this year’s budget. And assuming lawmakers are able to close that gap in the upcoming session, they still face another $583 million shortfall for the next fiscal year that begins July 1.