Business

Kansas City business leaders oppose bill that would kill the Kansas Bioscience Authority

Members of the Senate's budget committee, including, Sen. Jim Denning, R-Overland Park (left); Sen. Ty Masterson, R-Andover, committee chairman; and Sen. Laura Kelly, D-Topeka, held a hearing Monday on a bill apparently drafted by the administration of Gov. Sam Brownback to eliminate the Kansas Bioscience Authority, the state's leading venture capital organization.
Members of the Senate's budget committee, including, Sen. Jim Denning, R-Overland Park (left); Sen. Ty Masterson, R-Andover, committee chairman; and Sen. Laura Kelly, D-Topeka, held a hearing Monday on a bill apparently drafted by the administration of Gov. Sam Brownback to eliminate the Kansas Bioscience Authority, the state's leading venture capital organization. AP

A fast-track legislative effort appears to be underway in Topeka to kill the Kansas Bioscience Authority.

The authority, created in 2004 by the Kansas Economic Growth Act, was designed to spur growth in the state’s bioscience sector and often has benefited businesses in Johnson County. It has evolved in the last two years into a market-based venture capital organization that invests in agribusiness, animal health, human health and life sciences technology.

The Senate Ways and Means committee on Monday held a hearing on Senate Bill 305, which was introduced last week. The entire committee — nine Republicans and two Democrats — is listed as the bill’s sponsor, but actual authorship remains murky.

The measure would fold the authority, commonly known as KBA, into the state Department of Commerce. It would transfer all KBA assets to commerce and deposit KBA funds in the state treasury.

KBA chief executive Duane Cantrell said the current book value of KBA assets held in equity investments in startup companies is $32 million to $34 million. The state has provided dwindling public support to the authority; in 2014, the allocation was $4 million.

“Two years ago, KBA was basically a grant writer,” Cantrell said. But since a reorganization under his leadership, “we hope legislators understand our shift in strategy and the successes we’ve had. Money is pouring in from the private sector to co-exist with us.”

Cantrell said KBA has received back assets worth about $19 million through initial public offerings or startups being acquired among the businesses KBA has funded.

Kansas City area business and civic leaders mobilized quickly to oppose the bill. Nicholas Franano, an entrepreneur in the biochemical industry, went to Topeka Monday to add his voice.

Franano said he has chosen to remain in Johnson County because of the support his startup ventures have received from the authority. He said he fears for the state’s ability to keep the next generation of life science entrepreneurs if the bill becomes law.

KBA supporters said they feared the reason behind the bill was the Kansas budget shortfall because of income tax cuts.

“There are millions in the KBA fund now being used for venture investing that would just go to plug the Kansas state budget,” Franano said.

He said dissolving KBA would put Kansas at a disadvantage in attracting or keeping bioscience businesses and “would present a wonderful opportunity for Missouri and its venture capital programs, which are a lot stronger in St. Louis than in the Kansas City area.”

Steven J. Anderson, a former Kansas budget director for Gov. Sam Brownback, was the sole person to speak Monday afternoon in favor of the bill. Anderson, a CPA specializing in the oil and gas industry who now works in Oklahoma, said the KBA mission is better done by the private sector than government.

Anderson also is a senior adjunct fiscal policy fellow at the Kansas Policy Institute, which describes itself as “the state’s first free market think tank,” formed to “advance free-market principles and limit the growth of state government.”

Attempts were unsuccessful to obtain further comment from Anderson or from Sen. Ty Masterson, an Andover Republican who heads the Ways and Means Committee, or the committee’s vice chairman, Sen. Jim Denning, an Overland Park Republican. The voicemail on Denning’s office phone said the senator's office was closed for the legislative session.

When created under the administration of Democratic Gov. Kathleen Sebelius, the authority was to get about $35 million a year from the state for 15 years. The annual commitment was reduced to $11.3 million in 2012 under Brownback. In 2013, the state cut its allocation to $6.3 million, and in 2014 granted $4 million.

The KBA fund was created by a tax increment financing arrangement connected to state income taxes on bioscience-related jobs. The authority in essence recaptured some taxes paid by bioscience firms and formed a venture capital pool to help attract or keep bioscience enterprises in the state.

Terry Dunn, chairman of the Greater Kansas City Chamber of Commerce, reacted to what he called the “sudden” introduction of the bill. Dunn, who also testified in Topkea, took the unusual step of publishing a letter over the weekend in The Kansas City Star that supported KBA as “a message to the nation that Kansas was open for business, actively supporting and recruiting bioscience companies.”

KBA is credited with helping put the National Bio and Agro-Defense Facility in Manhattan, Kan., gain National Cancer Institute designation for the University of Kansas Hospital, and attract a $25 million Ceva Biomune operation to Kansas as well as providing venture capital for other bioscience enterprises.

“KBA is a unique tool in Kansas’ economic toolbox,” Dunn wrote. “It allows the state to develop and grow a key industry sector — biosciences — creating the kinds of high-paying jobs and economic activity Kansas should want to attract.”

Franano said one of his companies, Proteon Therapeutics, partly financed by KBA, went public last fall, “generating a return to the state of Kansas and a large group of Kansas investors.”

Those who are fighting KBA dissolution say they fear something akin to what happened in 2011 when state legislators voted to fold a previous economic development organization, the Kansas Technology Enterprise Corp., into the state Commerce Department. All former KTEC employees left or were let go, and KTEC’s direct investments in technology startups ended.

The KBA bill says KBA employees would be “offered the opportunity to become officers and employees” of the Commerce Department.

“We are worried,” said Cathy Bennett, vice president of public policy, programming and membership at the Greater Kansas City Chamber. “KBA has been such a valuable tool. It once was the envy of other states who studied and replicated it. It’s allowed Kansas to be nimble with public/private funding.”

Similarly, KBA backers point to the state’s earlier spinoff of the Pipeline entrepreneurial fellowship program, which now supports new companies in Missouri and Nebraska instead of just Kansas. And they worry that Kansas legislators also might want to end the Kansas Angel Tax Credit program.

“In my view,” Franano said, the current legislative legacy will be “the hanging of a ‘Closed for Business’ sign at the state line for startup and early stage, high-growth-potential technology firms.”

The Star’s Dave Helling, dhelling@kcstar.com, contributed to this report. To reach Diane Stafford, call 816-234-4359. Follow her online at kansascity.com/workplace and @kcstarstafford.

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