Conferees Strike a Deal on Programs for High-Tech Startups

Jeff tries to explain how government works to readers of Science.

After 5 years of tough negotiations, Congress has agreed to increase funding for two programs that try to turn scientific discoveries into profitable businesses by increasing how much 11 research agencies must contribute. University lobbyists object to the changes in the set-asides for these programs, arguing that the money would be better spent on funding more basic research. But opponents appear headed to defeat, as a final vote locking in a new spending formula could come as early as Thursday.

The Small Business Innovation Research (SBIR) program was created in 1982 to give start-up companies a shot at competitively awarded research dollars. This year research agencies will spend a total of $2.3 billion on the program, which provides companies with nearly $1 million in two phases to get their technology ready for the marketplace. In 1992 a smaller relative, the Small Business Technology Transfer (STTR) program, was launched to target university start-ups; its budget this year amounts to $275 million.

Each agency that spends more than $100 million a year on research allocates 2.5% of its budget to the SBIR program, and 0.3% to STTR. Under the new legislation, the SBIR set-aside would rise in six steps to 3.2% by 2017, and the STTR allocation in three steps to 0.45%. By 2017, agencies would be spending an additional $750 million on the two programs. Because the allocation is proportionate to the agency's overall research budget, the Department of Defense is by far the biggest contributor, providing about half of the total funding. The National Institutes of Health (NIH) provides about a quarter, followed by the Department of Energy (DOE), NASA, and the National Science Foundation (NSF).

The new formula is one of many changes to the two programs that are designed to give more companies a bigger boost for breaking into the market. Under the SBIR-STTR reauthorization, which is part of a larger bill setting priorities and policies for the Department of Defense, companies owned by venture capital partnerships and hedge funds would be eligible for the first time. (NIH, NSF, and DOE would be able to spend up to 25% of their pot on such entities, with the rest of the agencies capped at 15%.) This clause triggered a huge fight among the entrepreneurial community when it was proposed (Science, 3 July 2009, p. 18), and the final version represents a hard-fought compromise.

In addition, the programs would be reauthorized for 6 years, a huge step toward stabilizing a program that has received numerous short-term extensions since its last reauthorization in 2001. To keep up with inflation, the size of the awards would also be increased, and there would be increased monitoring of the programs.

"This has been an uphill battle, but we made it," said Senator Mary Landrieu (D-LA) in a press statement issued after negotiators came to an agreement over the weekend. The chair of the Senate's committee on small business, Landrieu used the National Defense Authorization Act as a vehicle to push ahead her bill. "Then, last week, at my request, we had several meetings with our House [of Representatives] counterparts to work out the final details and get this agreement done."

In truth, it required a fair bit of arm-twisting. There were internal disagreements within the House on the wisdom of increasing the set-asides. In addition, Republicans wanted a shorter reauthorization, and a warmer welcome for venture capitalists.

But Representative Ralph Hall (R-TX), chair of the House science committee, one of three panels with jurisdiction over the programs, chose to accentuate the positive in his statement. "This agreement will provide thousands of small businesses with the certainty necessary to facilitate innovation and create high-paying jobs," he said. "The legislation will also strengthen the program's research and development output by opening it up to more small businesses, and will ensure the greatest return on taxpayer investment by helping us combat waste, fraud, and abuse."

Although the two programs together constitute a tiny fraction of the overall federal research pie, university lobbyists don't think that they should be growing at all. Last week, a coalition of universities and professional societies warned legislators working on the defense bill that "a mandatory increase in the SBIR-STTR allocation across federal agencies will result in funding cuts for investigator initiated, peer-reviewed grants that are the cornerstone of the nation's research enterprise. ... It takes flexibility away from the agencies at a time when agency directors are being asked to use fewer resources more efficiently."

Speaking after the agreement was reached, a lobbyist for the Federation of American Societies for Experimental Biology reiterated the group's opposition to a larger set-aside. "Although we support SBIR and wanted to see it reauthorized, we don't feel the set-aside increase is justified or necessary," says FASEB's Jennifer Zeitzer. "In the past, the growth in SBIR came at the expense of other research program grants. We remain concerned that the increase will drain resources from other areas of the NIH budget, at a time of great uncertainty for the agency."

The defense bill is expected to be taken up this week in both the House and the Senate and pass by wide margins. However, President Barack Obama has previously threatened to veto it over a clause relating to the military detention of suspected terrorists.

Posted in Funding, Education