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SETTLING THE 'THIRD FRONTIER' 

Almost everyone likes Ohio's tech program. Does that make it right?

Opponents of the "Third Frontier" program — Ohio's initiative to stimulate jobs through investment in cutting-edge tech companies — call it a Jetsons-style pipe dream. It's a gamble that doesn't yield enough direct benefit for taxpayers, they say, but could leave them on the hook for the expense if the promised jobs don't materialize.

When voters go to the polls May 4, they'll decide whether to approve Issue 1, a statewide ballot measure that would renew and expand bond money for the Third Frontier program. As the campaign slogs through its final week, the naysayers remain a fractured and undersized group.

Supporters of Third Frontier say it's a sound investment to bring the jobs of the future here, ensuring that the Rust Belt state realigns its economy for the 21st century to better weather future recessions. The issue's popularity represents a shred of achievement for Governor Bob Taft, whose legacy is otherwise marked by the many scandals that unfolded in state government during his tenure.

Taft originally pushed the Third Frontier measure in 2002, and the program earned voter approval to issue $1.6 billion in bonds three years later. Although the authorization doesn't expire until 2012, state lawmakers are seeking another $700 million to make more investments in promising research and technologies.

If approved, the state would be allowed to issue up to $450 million in bonds through fiscal year 2011, up to $225 million in 2012, and up to $175 million in any year thereafter, along with any amounts that weren't previously issued or committed.

Under the plan, the bonds would be repaid using increased tax revenues generated by the new businesses and jobs created by the program. The initial batch of money should be repaid by 2014, according to an estimate by the Ohio Business Roundtable.

Governor Ted Strickland steadfastly supports extension of the program. "This is a significant investment in Ohio's economy and the cornerstone of Ohio's economic growth strategy," he says.

Since 2005, the program has helped to create, attract, or grow 637 companies through 2009, according to Third Frontier's website. It directly created almost 10,000 jobs and indirectly sparked another 45,000 positions. The total economic impact is pegged at more than $7 billion.

Among the projects funded so far are a computer program that examines how viruses evolve and tries to track how outbreaks spread, techniques that use an electromagnetic process to reshape metal into precision forms, and development of polymer materials for high-temperature applications in the aerospace and defense industries.

Heading east out of Kent, where Main Street becomes Route 59 — past Arby's, Autozone, Acme Foods, and a now-shuttered Ponderosa — a modest sign marks a road leading back to a drab, one-story facility, decorated with the sort of plastic flags favored by car dealers. The rundown exterior is deceptive: Here, AlphaMicron, founded in 1997 by three Kent State University faculty members, developed a liquid crystal dye system that controls transmitted light. In March, the company's subsidiary, AlphaMirror, was awarded a $1 million Third Frontier grant to apply the system to an auto-dimming rearview mirror. It was one of five Northeast Ohio companies to receive grants last month, pulling in nearly $4 million of the $5.7 million awarded at the time.

"The Third Frontier has had a huge impact," says AlphaMicron CEO Bahman Taheri. "It's been incredibly important in our growth." The approximately $8 million the company has received overall has allowed it to expand from one part-time employee to 40 employees, according to Taheri.

Projects are selected through a competitive process that's judged by an independent panel of experts. Still, how the cash has been spent so far has enflamed regional rivalries and allegations of money being targeted to politically connected areas.

Predominantly Republican Cincinnati and Southwest Ohio have received roughly 10 percent of the Third Frontier cash, while smaller cities have gotten more. The lion's share has gone to Northeast Ohio, the state's Democratic stronghold.

State officials deny that politics plays any role in how the money is doled out, adding that the jobs created benefit all Ohioans anyway.

"The Third Frontier program is crucial to our state's growth and job creation," says Candace Klein, co-chair of Cincinnatians for Progress (CFP), a pro-development citizens volunteer group. "Third Frontier funds have helped so many Ohio startups since 2002, and the program sets us apart from other neighboring states. In today's economy, we look to startups for job creation and growth, and Issue 1 is offering a commitment to support this key to our economy."

Issue 1, in fact, has broad bipartisan support. The vote to place it on the ballot was 83-14 in the Ohio House and 30-2 in the Senate.

One of those 14 dissenting voices in the House was state Representative Matt Huffman (R-Lima), who says public money shouldn't be used to pick winners and losers in the private sector.

"This is a bill against future revenues that may or may not pan out," says Huffman. "It's real popular with folks around the Statehouse because we get to borrow dollars that a future state legislature will have to pay back.

"This type of borrowing has caught up with the State of Ohio and is part of the reason we're in a fiscal mess. The concept here is we're taking money away from people and, after the government takes a slice for administrative overhead, we give the rest away for speculative ventures. We may get it back or we may not."

The pro-Issue 1 campaign, United for Jobs Ohio, points to reviews by independent organizations like the Pew Center for the States, which called the Third Frontier program "a comprehensive, professionally run effort to build world-class research capacity, promote interaction between research and industry, and commercialize R&D."

Supporters include both major political parties, the AFL-CIO, the League of Women Voters, the Ohio Chamber of Commerce, and the Association of Independent Colleges and Universities.

Although there is no organized opposition to Issue 1, the few outspoken critics are passionate that the free market should decide how Ohio's economy develops. They also say any government assistance for high-tech firms comes at the expense of other existing businesses.

"That is money that would otherwise be put in banks and they would invest it, or that would be spent buying goods and services from existing businesses," Huffman says. "There are venture capital firms that do this. The government doesn't need to."

Huffman's sentiment is inaccurate, according to Klein.

"Issue 1 is not a tax," she says. "It in no way takes money from anyone or any company. The state is using a fiscally responsible method to invest in new industries."

But who's to say the investment should go to high-tech startups?

"What about all the other businesses that may not be as cool or as sexy?" Huffman asks. "The local print shop in your hometown may go out of business because they don't have access to that kind of money."

Although he's not about to mount a legal challenge, Huffman believes the type of government assistance offered by Third Frontier is unconstitutional.

"That's the purpose of the 'general welfare' clause in the Constitution," he says. "Government spending is meant to be for things that directly benefit everybody, like roads and bridges."

On that point, supporters sharply disagree.

"I would argue that job creation is for everyone's benefit," says Klein. "Government has been involved in incentivizing business growth for hundreds of years. The novel idea of actually providing access to a startup is the unique and innovative approach that Ohio is known for and should be proud of.

"I challenge opponents to look at this program from a private sector — not public sector — investor's point of view. This method of taking an equity position in future earnings has been successful for centuries. Third Frontier companies have delivered a 22 percent return year after year, which is a safer investment than almost anything else the state of Ohio could be involved in."

Kevin Osborne writes for Cincinnati CityBeat. Anastasia Pantsios contributed to this story.

More by Kevin Osborne

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