Business starter Ben Franklin says state funding shortfall puts Pennsylvania growth at risk
By ANTHONY SALAMONE | THE MORNING CALL | MAY 03, 2019
Many in the Lehigh Valley might be unaware that Ben Franklin Technology Partners of Northeastern Pennsylvania has been launching businesses since Ronald Reagan was president. But they’re probably familiar with the innovative companies the nonprofit has nurtured.
A very short list includes Bethlehem-area companies OraSure Technologies and Rea.deeming Beauty Inc.; Ciclon Semiconductor Corp., which is now part of Texas Instruments at Ben Franklin’s TechVentures facility; and organic toothbrush-maker Radius Corp. in Kutztown. Once fledgling businesses in Ben Franklin’s incubator, they were aided by money, technical support or office space from the organization, growing into pillars of the Lehigh Valley economy.
Despite those successes, Ben Franklin has faced stagnant state funding or funding cuts several times in its more than 35-year existence, and it’s happening again this budget season. That hurts more than just Ben Franklin, its leaders say: It could keep Pennsylvania from competing for innovative businesses and the jobs they create.
“What we lose by underfunding Ben Franklin now will be lost permanently,” Stephen Brawley, president and CEO of Ben Franklin Technology Partners of Central and Northern Pennsylvania, told the state Senate Appropriations Committee in early March during a budget hearing.
As the organization pressures lawmakers to intervene on its behalf, some say it might be time for Ben Franklin to shift gears and start raising its own money.
The state supplies 99% of Ben Franklin’s operating budget — money it uses to help entrepreneurs spawn their ideas. But since 2007, the state has cut its contribution nearly in half, to a total of $14.5 million, for the four Ben Franklin locations. Besides Ben Franklin Technology Partners of Northeastern Pennsylvania in Bethlehem, the organization has regional operations in Philadelphia, Pittsburgh and State College; the local Ben Franklin is a subsidiary of Lehigh University.
In the last few years, the statewide organization received about an additional $14 million per year via a grant. But that money wasn’t available last fiscal year and isn’t expected this coming year, said R. Chadwick Paul Jr., president and CEO of Ben Franklin in Bethlehem.
In 2016, its most recent tax return on file, Bethlehem’s Ben Franklin reported revenues of $12.8 million and expenses of about $8 million. That year, 55% of its revenue came from the state, while the balance was primarily from federal grants for the completion of a West Wing addition to Ben Franklin’s TechVentures incubator building.
The tax reports, which are public, reveal the organization’s revenue, Paul said. But the organization does not release its financial reports and would not disclose them to The Morning Call. The state Community & Economic Development Department — which administers Ben Franklin’s state money — also declined The Morning Call’s requests for more detailed financial reports, saying because Ben Franklin is a private nonprofit that also deals with private businesses, the data is not public record.
But a nonprofit such as Ben Franklin shouldn’t be so reliant on tax dollars, said Tony Hanna, executive director of the Bethlehem Redevelopment Authority and past chairman of the south Bethlehem Keystone Innovation Zone. Though he and others interviewed acknowledge the positive Ben Franklin has done for the Lehigh Valley economy, Hanna said the organization should fundraise more.
“Why keep coming back to the public trough when the public trough gets smaller and smaller?” Hanna said.
Tom Stine, president of Viddler Inc. in south Bethlehem and a former Ben Franklin board member, called the incubator’s role “meaningful,” particularly for early-stage companies. But he also said some of Ben Franklin’s clients are larger, publicly traded firms that should take on job-retention or expansion activities themselves.
Stine also said existing manufacturers seek help from other state-funded agencies competing with Ben Franklin.
“As the budget pressures continue, I could see these services moving to another complimentary/competitive DCED-funded agency so Ben Franklin can focus the dollars on the early-stage work that it does so well," Stine said.
Ramping up support
When officials launched a business incubator network in 1983, Pennsylvania’s unemployment rate hovered for months above 10 percent. And the Lehigh Valley, like the rest of the state, struggled through job losses and plant closings.
Over the decades, Ben Franklin Technology Partners has helped create high-paying jobs. Between 2012 and 2016, it helped create 11,407 jobs statewide, according to an independent analysis by the Pennsylvania Economy League. It also generated $386 million in tax receipts for the state, and boosted the commonwealth’s overall economy by $4.1 billion.
The League’s most recent independent analysis shows that every $1 invested by the state into Ben Franklin generates $3.90 in state taxes. Among other data in the report: Jobs created by Ben Franklin’s client companies pay an average of $79,364 annually, 52 percent more than the average nonfarm wage.
Locally and statewide, Ben Franklin officials have focused on those sort of statistics as they’ve ramped up advocacy efforts with lawmakers and the public, trying to hammer home the organization’s impact on Pennsylvania’s economy.
However, as a tax-exempt nonprofit and wholly owned subsidiary of Lehigh, Ben Franklin isn’t prohibited from raising funds on its own. But, Paul said, “It’s that much more difficult to get a philanthropic dollar from something that doesn’t sound like a philanthropy.
“What I’m told by funders is a $1,000 gift is nice but it’s a drop in the bucket when I need $3 million," Paul said.
Paul said people do not see the organization as a charity. “And when they are doing their philanthropy, people are investing in safety-net things and the soft arts,” he said.
On its latest federal income tax return, Ben Franklin showed no expenses for professional fundraising fees.
Paul said Ben Franklin has raised money when it sought donations for items besides capital projects. For example, a bronze statue of Ben Franklin at the front entrance of TechVentures was a gift from a client, he said.
The organization also receives rental income from startup companies and anchor tenants at two facilities, the TechVentures facility at Lehigh and Bloomsburg Regional Technology Center.
Ben Franklin, with its headquarters at Lehigh, pays the university to manage its support services, including human resources and retirement benefits.
University spokeswoman Lori Friedman said Ben Franklin relies on the school for “certain aspects of campus infrastructure.” Stine noted Ben Franklin’s team in conjunction with Lehigh invests time and money on joint student projects with established businesses. The goal, he said, has been to improve and keep companies competitive, and retain local jobs.
Asked if Lehigh could provide additional support to Ben Franklin that would shore up its budget, Friedman said, “Unfortunately, we don’t have sources of funding that would enable us to compensate for the limitations to BFTP’s budget.”
State Sen. Pat Browne, R-Lehigh, who chairs the Appropriations Committee that heard from Paul and other Ben Franklin leaders in March, said it’s reasonable for the organization to seek more state money because of past funding from Harrisburg. A chart provided by Ben Franklin shows the local agency received $7.4 million in 1987-88, compared with the current $3.5 million.
“They are an organization that people understand their value,” Browne said. “And if there’s ability to provide additional resources for something that has wide support, it’s just finding those resources.”
In October 2016, Gov. Tom Wolf touted Ben Franklin’s value during a visit to Bethlehem to announce a $1.5 million state grant for the TechVentures expansion.
“We are really interested in growing good companies that provide good family-sustaining jobs, and that is what this place does,” Wolf said then.
And before announcing his proposed $34 billion budget for fiscal year 2020, Wolf suggested that the state would be best served not lamenting losing out on Amazon’s second headquarters, but instead focusing on growing its own tech companies.
But the Wolf administration proposes keeping the statewide Ben Franklin funding at $14.5 million for next fiscal year, which begins July 1. The budget for the Department of Community and Economic Development, which funds Ben Franklin’s operations, would drop about 16%, from $157 million to about $132 million.
“It doesn’t surprise me,” said Don Cunningham, president and CEO of Lehigh Valley Economic Development Corp. He said except for workforce development programs, which have seen an increase in federal funding, nearly all other areas around economic development and community-asset marketing have gotten less from the state.
“From our perspective, Ben Franklin is a fabulous program, because it’s incubating new companies," Cunningham said.
“Gov. Wolf is a big supporter of Ben Franklin Technology Partners and has worked to ensure their state funding is maintained under his tenure,” Wolf spokesman J.J. Abbott said. "As we move into budget negotiations, there will be a lot of requests for additional funding from many worthy interests, but it is too early to speculate on what ultimate funding decisions will be made. "
An analysis by State Science & Technology Institute of Columbus, Ohio, of state support for technology-led economic development programs in 13 comparable and competitive states found that Pennsylvania’s per capita spending of $1.37 was second lowest. The average of $5.67 per capita was more than four times Pennsylvania’s level, according to the organization’s findings.
“Unfortunately, I think on the one hand the states are facing tough budget decisions,” said Jason Rittenberg, policy and development director with State Science & Technology. “I just think it becomes really difficult to find a large portion of legislators that are able to really make that strong commitment to that long-term investment."
Greg LeRoy, executive of the Washington nonpartisan watchdog group Good Jobs First, agreed. “Among state-sponsored technology-adoption programs, they’re not the bright, shining object,” he said of organizations such as Ben Franklin.
By that, LeRoy means lawmakers in many states prefer larger deals, such as for Amazon’s HQ2 or giant warehouses, over economic development projects that do not offer the immediate big bang.
“How do we get politicians thinking they will get reelected by being attuned to small- and medium-sized businesses adopting new technology and remaining competitive?” LeRoy said.
One business’ story
State budget cuts mean less money to dole out to new entrepreneurs such as Kevin Turcotte. Two years ago, Turcotte started Universal Cross-Connection Control; his business helps ensure the safety of drinking water by monitoring backflow prevention valves.
Turcotte is thankful for Ben Franklin Technology and its TechVentures incubator, where he has been able to develop his business. The agency provides entrepreneurs with experts in accounting, finance, marketing and other areas.
Universal Cross-Connection also received Ben Franklin funding — two rounds totaling $150,000 — to help with marketing and sales support for its product, which is used by water companies.
Turcotte sought more but, because of the funding predicament, Ben Franklin officials said, more money wasn’t available.
“As entrepreneurs, we fight the uphill battle every day,” said Turcotte, who learned about the local Ben Franklin while working at Drexel University in Philadelphia. “Entrepreneurs live a life of ‘no.’”
Turcotte and others interviewed did not have suggestions for Ben Franklin to pursue alternative funding sources.
Morning Call reporter Anthony Salamone can be reached at 610-820-6694 or firstname.lastname@example.org.
BEN FRANKLIN NETWORK
Between 2012 and 2016, according to an analysis for the Pennsylvania Economy League of the four regional organizations Ben Franklin Technology Partners, the organization helped create 11,407 high-paying jobs, generated $386 million in tax receipts for the state, and boosted the commonwealth’s overall economy by $4.1 billion.
Jobs created by Ben Franklin’s client industries pay an average of $79,364 annually, 52 percent more than the average nonfarm wage in Pennsylvania.
The most recent independent economic analysis shows that every dollar invested by the state into Ben Franklin generates $3.90 in additional state taxes.