The Palmetto Insider

A recent article in The Nerve  reveals that the S.C. Joint Bond Review Committee has authorized another $4.1 million in taxpayer dollars to prop up Innovista, a ghost town of office space in downtown Columbia. The request will be taken up for final approval when the Budget & Control Board meets later this week on Thursday.

On top of that, Innovista may also be one of the special interests benefitting from a proposed new tax credit (H 4778) for developers of incubator buildings for start-ups. You can track the progress of such legislation on South Carolina Votes.

Innovista is the University of South Carolina’s 500-acre research campus, rolled out in 2005. It was going to be a surefire driving force for the area’s economy. Five years and more than $140 million later, it is mostly unoccupied, and has failed to attract the private sector investment upon which the project was sold to taxpayers.

Innovista was billed as a center for research and technology—the government’s attempt to artificially create a technology “cluster” in the state capital. Unfortunately, but predictably, building office space and dubbing it a “research campus” doesn’t mean private sector tech companies are going to flock to Innovista. State governments have previously used cluster theory to rationalize taxpayer funded incentives for a variety of questionable technologies, such as hydrogen-fuel vehicles.

But the empty offices of Innovista offer stark testimony to the fact that industry clusters, like Silicon Valley in California, arise organically, not because lawmakers want them to.

Lawmakers in South Carolina, and nationwide, like to point to Research Triangle Park in North Carolina as the model for taxpayer-funded economic development. They call it a success of “cluster theory.” As interpreted by state government, the theory holds that taxpayer-funded incentives will attract a particular industry to an area—film making, aeronautics, automotive, etc.—and that anchor businesses will attract similar or supporting companies.

Cluster theory emerged as a new mantra for government-driven economic development in the early part of the 2000s, including the 2003 launch of South Carolina’s “Council on Competitiveness”—now called New Carolina. But among economists, skepticism was emerging even before state policymakers started to embrace the theory. Economists warned in 1999 that cluster theory might be just another passing fad, and that “cluster theory should come with a public health warning.”

Duplicating RTP, however, will be far more difficult than S.C. lawmakers seem to realize. In fact, not even North Carolina has been able to duplicate its own success. Just look at the Global TransPark Authority, a 20 year old industrial park near Kinston. Today the aerospace cluster venture has racked up nearly $38 million in debt to the state, with no idea how or when the debt will be repaid.

The Carolina Journal reported that even though the park landed an “anchor tenant” in Spirit AeroSystems, a Wichita, Kan.-based company, taxpayers still have to subsidize Global TransPark Authority at a rate of $200,000 per job.

South Carolina has clusters, make no mistake. Textiles, chemicals, forest products, apparel and furniture are just a few. But these clusters evolved naturally—without government incentives other than allowing the free market to create commerce spontaneously. Nonetheless, cluster theory has been exploited by governments looking for a rationale for enacting deals for special interests—and picking winners and losers in the marketplace.

The problem is that nobody, especially not government, can force economic development to happen. South Carolina attempted its own cluster theory economic development experiment, in this case attempting to create a “knowledge-based” cluster. It’s called Innovista. Perhaps you’ve heard of it, or seen its ghost town of mostly unoccupied buildings in downtown Columbia. Either way, you’re definitely paying for it.

In a move that should have surprised no one, University of South Carolina President Harris Pastides said Monday that when the economy improves he will ask the General Assembly for more money for the university.

Pastides, in a talk to the Columbia Rotary Club, said South Carolina now ranks last, with Arizona, in state taxpayer support of higher education, according to The State newspaper, adding that only 15 percent of USC’s funding now comes from state money.

“That’s no way to run a railroad,” he told the group.

No, it certainly isn’t any way to run a railroad – at least a profitable private one – as few railroads get 15 percent of their operating capital from state coffers. And willy-nilly expansion, operating with little to no accountability and pumping money into the rail equivalent of Innovista are also no way to run a railroad.

In fact, were Pastides the chief executive of a railroad and operated it as he does the University of South Carolina, he’d likely be run out of town on a rail by the company’s board of directors.

Pastides said legislatures in states that have successful universities, vibrant economies and educated populaces usually contribute far more money to their institutions of higher education than South Carolina.

But the fact is, if USC is in such difficult straits perhaps it should consider what other organizations do in difficult times, namely pull in their horns and concentrate on core areas, rather than expanding like kudzu on crack. Marshalling resources would enable USC to focus on its strengths, rather than spreading itself too thin.

Collexis Holdings, the Columbia-based public company once held up by the University of South Carolina as a cornerstone tenant for Innovista, has decided it will no longer file information with government regulators about its financial condition.
 
Earlier this week, Collexis told the U.S. Securities and Exchange Commission it was terminating the company’s reporting obligations.

“With the filing of the report, the company’s obligation to file periodic and current reports with the SEC, including Forms 10-K, 10-Q and 8-K, is immediately suspended,” the company said in the filing.

Essentially that means investors will no longer be able to track through the SEC the company’s performance, such as Collexis’ annual report, due earlier this fall. The company’s fiscal year ended June 30.

Collexis announced to great fanfare in 2007 plans to relocate to Innovista. Two years later, it’s simply trying to stay afloat. The company lost more than $5.4 million through the first nine months of its fiscal year.

That came on the heels of an $11.2 million loss during the previous year. Collexis’s stock, which sold for as much as $12 a share in 2007, currently trades for between 4 and 5 cents a share.

Despite the company’s problems and the fact it has never relocated to Innovista, it remains listed among “tenant profiles” on the Innovista website.

Then-University of South Carolina president Andrew Sorensen, a driving force behind Innovista and now a member of the company’s board, pinned high hopes on Collexis in 2007, when he made the announcement about the company moving into the research district.

“I am delighted that Collexis will become part of Innovista,” said Sorensen, who retired as president last year and serves as a distinguished professor at the University’s School of Medicine. “Collexis aligns very nicely with our research in alternative energy and fuel cells, the health sciences and computing. It is exactly the type of company that we want to have here.”

Collexis has been closely tied to Innovista and USC almost from the time it began in Columbia:

• In October 2007, it was announced that USC had signed an agreement with Collexis and SC Launch to create a partnership for hydrogen fuel research. The project was funded with $200,000. SC Launch is an arm of the S.C. Research Authority, created by the General Assembly. SC Launch is partly sustained by contributions to the Industry Partnership Fund, for which contributors receive dollar-for-dollar tax credits;
• Last November, former USC president Sorenson joined Collexis’s board.
• Collexis is a graduate of the USC Columbia Technology Incubator. The Incubator has received $572,000 in state tax dollars since its inception.

Collexis’ difficulties mirror that of Innovista, the 500-acre research campus that was originally touted as a public-private partnership. Despite costing taxpayers more than $100 million, Innovista has just a single tenant, the University of South Carolina’s Arnold School of Public Health. The venture has produced no private sector jobs.

Innovista was intended to be a center for research on hydrogen and other technologies, and a magnet for private companies building spin-off products. Nearly four years later, Innovista’s goals remain largely unrealized as a majority of the buildings constructed can’t even be completed for lack of funds.

The Obama administration has expressed grave doubts about the viability of hydrogen transportation, but that hasn’t kept the South Carolina media from hyping the concept like it’s a no-brainer solution to our nation’s energy concerns.

Take a story that appeared in The Charleston Post and Courier this past weekend. The piece provided a decidedly uncritical look at the tens of millions in tax dollars that have been invested in hydrogen research in South Carolina, even though there’s been little return on that investment.

Highlights from the story:

State taxpayers have chipped in $12.3 million to hydrogen fuel cell efforts, while federal, municipal and private sources have invested an additional $115 million in South Carolina, said Shannon Baxter-Clemmons, executive director of the S.C. Hydrogen and Fuel Cell Alliance.

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Columbia Mayor Bob Coble touted the benefits of Innovista in last week’s State newspaper but it’s difficult to lend credence to his take on USC’s $140-million research campus when he’s clearly out of touch with what’s going on in area technology circles.

For example, Coble never misses a chance to highlight the USC Columbia Technology Incubator, as he did in last Wednesday’s piece, but he seems unaware of what’s going on at the Incubator, which receives funding from the city of Columbia, along with the state and the private sector.

In Coble’s piece on Innovista, he writes that the USC Columbia Technology Incubator has “assisted 63 companies and created 554 new jobs, including 142 jobs held by minorities and women.”

If that’s true, then the Incubator has been stuck in neutral for quite some time. Consider:

• In an op-ed Coble penned for The State back in April he wrote that the Incubator had “assisted 63 companies and created 554 new jobs, including 142 minority and female jobs.”
• Last fall, he wrote to the Free Times newspaper and said that the Incubator had “assisted 63 companies and created 554 new jobs, including 142 minority and female jobs.”
• He said the same thing more than a year ago in another State op-ed, writing that the Incubator had “assisted 63 companies and created 554 new jobs, including 142 minority and female jobs.”
• And in May 2008, Coble again wrote in The State that the Incubator had “assisted 63 companies and created 554 new jobs, including 142 minority and female jobs.”

However, according to Incubator officials, the project has created more than 660 jobs since its inception, including more than 170 minority jobs.

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State lawmakers and University of South Carolina leaders promised to create thousands of private-sector jobs when they announced the Innovista research campus at USC several years ago. But so far promises of private investment and job creation are all that exist despite spending more than $100 million of taxpayer funds on the project.

“Innovista remains a bedrock strategy for stimulating economic development,” USC President Harris Pastides told his trustees. “Innovista is about creating knowledge, jobs and investment.”

Creating jobs sure sounds good, but the reality is the jobs haven’t materialized.

The university tore down a Hardees restaurant that once occupied the corner of Assembly and Blossom streets where the Horizon I building now stands. Other than the claim of a token presence by a few university researchers and the National Science Foundation, the 5-story building sits empty and largely unfinished.

The Hardees restaurant created 20 private-sector jobs. Horizon I, despite its multi-million dollar price tag, has thus far created no private-sector jobs. From the results, if state and university leaders were interested in creating jobs they would have been better off ditching Innovista and leaving the Hardees in place.

Constructing Horizon I eliminated a private-sector business responsible for 20 jobs and replaced it with an empty office building while costing state taxpayers millions of dollars. Not exactly a good return on investment.

These results are obviously a far cry from the “thousands of high-paying jobs” that Innovista was supposed to create as it ushered in the “hydrogen economy of the future.”Innovista’s failure illustrates precisely why government should never attempt to influence winners and losers in the economy.

A single fast-food restaurant did more for the South Carolina economy than Innovista has thus far…and you can’t even get fries with that.

For a detailed recap of Innovista’s failed promises, click here.

Despite the clear failure of the “Innovista” research campus to live up to its promises of private investment and job creation, University of South Carolina President Harris Pastides refuses to stop pouring tax dollars into this increasingly expensive fantasy.  

Pastides pledged his ongoing support of Innovista at a USC Board of Trustees meeting last week, just days after the school was forced to fire the project’s second developer.

“Innovista remains a bedrock strategy for stimulating economic development,” Pastides told the trustees. “Innovista is about creating knowledge, jobs and investment.”

First of all, government bureaucrats – specifically ivory tower educrats – should never be responsible for economic development.

And Innovista isn’t about any of the things Pastides mentioned – because it hasn’t created anything resembling what taxpayers were promised. Instead, it’s been about empty taxpayer-funded buildings and unfulfilled government promises.

At this point, taxpayers have coughed up more than $100 million for Innovista, without much to show for their investment.

Hydrogen transportation research, supposed to be one of the keystones to Innovista’s future, has proven to be a bust so far.

Despite pouring more than $40 million in tax dollars into hydrogen research over the past few years, S.C. Speaker Bobby Harrell conceded recently that just 229 jobs had been created. And, many of those are state-supported academic positions, not private sector jobs.

Those results are obviously a far cry from the “thousands of high-paying jobs” that Innovista was supposed to create as it ushered in the “hydrogen economy of the future.”

In fact, even the free-spending administration of President Barack Obama has concluded that hydrogen transportation research is currently not practical (or profitable) enough to warrant public investment, further jeopardizing Innovista’s sustained viability.

South Carolinians obviously learned the lesson of hydrogen impracticability the hard way. At a combined cost of $2.7 million, our tax dollars purchased two hydrogen fuel filling stations – which is twice the number of hydrogen-powered cars currently operating in the state.

This is precisely why government shouldn’t try to pick winners and losers in the marketplace. Instead of a thriving economic development hub, Innovista has instead turned into a dumping ground for existing university colleges and programs.

In fact, having moved the University’s Arnold School of Public Health into Innovista, Pastides boasted to the trustees that this “fully occupied” building is “teeming with Innovista activity” – although it’s not clear if the school of public health’s “activity” was any different from what it would have been doing in its old facility.

With no private sector prospects to speak of, Pastides was forced to tout the construction of two new taxpayer-funded parking garages, which are about as empty as the buildings they serve.

“There are also two parking garages in Innovista and, as you know, without the vital infrastructure of parking, growth could not occur,” he said.

Nor will it ever occur as long as we leave government in charge of creating it.

For a detailed recap of Innovista’s failed promises, click here.

Collexis Holdings Inc., touted less than two years ago as one of Innovista’s first private tenants, continues to sink slowly into financial oblivion.

Stock in the publicly traded firm, which announced plans in October 2007 to relocate to the University of South Carolina’s development boondoggle, hit a new low this week, dipping down to 5 cents a share.

The collapse of Collexis, which now appears unlikely to ever move into USC’s research campus, has coincided with Innovista’s downfall. Tuesday, USC fired the Michigan developer tapped to build the private portion of Innovista.

USC pulled the plug on a deal with Kale Roscoe because he couldn’t land a loan to build the campus’ first private building — nine months after his deadline for starting construction, according to The State newspaper.

Roscoe is the second developer to leave the project. Roscoe replaced Raleigh developer Craig Davis last year, after Davis failed to build the building or deliver major tenants.

Innovista, originally intended as a center for research on hydrogen and other technologies, and a magnet for private companies building spin-off products, still has no private tenants nearly half a decade after the university announced the undertaking.

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