San
Jose , CA
Silicon Valley's ( US ) Congressman Mike Honda and
California State Controller Steve Westly received
advice this week on how to fund their California-focused
nanotechnology initiatives. The proposal, from a
small nanotechnology consulting group, came on the
heels of other recommendations made by Honda and
Westly's Blue Ribbon Task Force on Nanotechnology.
(BRTFN).
A
year in the making, their BRTFN consolidated its
findings and made eight recommendations in a report
titled: “NANOTECHNOLOGY. THINKING BIG ABOUT THINKING
SMALL ”. The government leaders lauded the report
with assurances that it would figure into their pursuit
of “innovative state and federal strategies to ensure
that nanotechnology thrives in California .”
One
marquee recommendation called for the launching
of “a ‘California Innovation Initiative' to take
advantage of the powerful convergence of the very
strong base of bio, info, and nanotechnology assets
in California .” However, given that the cost of
the proposals could easily reach the $1billion, the
report was a bit light on identification of non-governmental
funding sources. In most instances, relying on governmental
spending is a way to insure there is someone else
to blame for lack of funding later on. The most creative
one called for exploring the use of California Pubic
Employee and State Teacher Retirement assets as a “'funder
of funds' for seed and early-stage investments in
converging technologies”.
But
instead, the unaffiliated consulting group urged
these government officials to tap into a more practical
and immediately available pot of gold. The path
to this front-end of the nanotechnology rainbow
is provided within the American Jobs Creation Act
of 2004. Intended to “in-source” US jobs and dubbed by some as “The
Homeland Investment Act”, it provided a significant
tax incentive for U.S. companies with operations
abroad to bring home or “repatriate” their earnings
from those operations. Available only for 2005, the
reduced tax rate of 5.25% (IRS Code Sec. 965) resulted
in actual repatriated capital of nearly double what
Congress had initially estimated.
The benefit for nanotechnology falls out of the
Department of the Treasury's Set of Repatriation
Guidance under Section. 965. ( http://www.treas.gov/press/releases/js2436.htm )
There the IRS significantly narrowed the field of
investments to those specifically intended by Congress,
i.e. high-tech R&D, educating and retraining
the workforce, building facilities, funding startups,
etc. Although participating companies were also required
to have a Board of Directors approved “domestic reinvestment” plan,
typically the only public disclosure has been through
the required tax filings. Within those filings the
clue has been when the 5.25% tax has been reported
as a special one-time charge.
However,
in an October 2005 report titled “Homecoming
Victory”, the American Shareholders Association (ASA)
provided the answer to just how many of these new
dollars now reside in corporate bank accounts. See: http://www.americanshareholders.com/news/article.php?article=194
The
ASA quoted the Wall Street Journal saying: “In
nine months the law has increased the flow of repatriated
foreign capital by a whopping $225 billion. J.P.
Morgan estimates that another $75 billion will return
to America in the fourth quarter. About half of these
returning funds were profits from pharmaceutical
companies and much of the rest from such high-tech
firms as Dell, IBM and Intel.” “Intel CEO Paul Otellini
says that some of the $6 billion that his company
repatriated will finance expansions of semiconductor
plants in Arizona , Colorado and Massachusetts ,
creating 1,600-new and high-paying jobs. Dell used
$100 million of its capital to build a 1,500-worker
factory in North Carolina .” During the same month
the San Jose Mercury News reported repatriations
by Merck of $15 billion! Pfizer added $36.9 billion. “Who
better to invest some of this money into our nanotechnology
initiatives than companies like the pharma-giants?
Won't they reap the biggest returns from the nanotech
engineered biomeds?” said Paul Hilton of Pico-Technologies,
one of the supporters of the funding proposal.
Unfortunately
the ASA also identified a potential loophole that
could be draining a lot of these dollars away from
potentially financing nanotechnology initiatives.
It reported: “It's true that much of this cash has
gone to clean up balance sheets, either buying back
stock or retiring debt, but companies that are stronger
financially tend to create more jobs.” Given that
2005 was a year of blockbuster profits, using Homeland
Investment funds in that way seems by all accounts
more like hiding something under the sheets. At the
bottom line, the recommended funding proposal envisions
all of the BRTFN recommendations being amply funded
if even only 1% of that $300 billion is applied to
their intended purposes, i.e. investing in high-tech
R & D, education & retraining, and seed funding.
Representative Honda and State Controller Westly
were asked to use their unique positions, as well
as those of their own prominent BRTFN members, to
ensure that the investments planned for some of that
banked capital underpins their strategies to help
nanotechnology thrive in California . Furthermore
it was suggested that they seek out the help of The
Silicon Valley Leadership Group, who now represent
203 of Silicon Valley 's most respected employers
, and were founded on the premise that local employers
should be actively involved in working with government
to find innovative solutions .
Indeed they were encouraged to THINK BIG, tap that
pot of gold, and enable nanotechnology's rainbow
of possibilities right now.
Contact:Nick Massetti
Nick@nmassetticonsulting.com
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