The initiative empowered to lead the state into the new economy appears to have lost its momentum and, some say, its sense of urgency.
View full sizeSupporters of wind power asked the Third Frontier Commission to endorse a pilot wind farm off the coast of Cleveland and help them to attract federal support. The commission rejected the idea in what some see as a growing pattern of inaction. CLEVELAND, Ohio -- Supporters of Lake Erie windmills thought they offered the Third Frontier Commission an easy pitch to swing at. They proposed raising several turbines off the coast of Cleveland and lending Ohio a foothold in a growing global industry, with the federal government picking up most of the tab.
They asked for $5 million to compete for a $50 million federal grant and get started on America's first freshwater wind farm.
The commission denied the request with little explanation, to the dismay of many. Not only did commissioners reject a modest investment into green energy, they passed on a chance to do something toward their mission of leading Ohio into new industries.
As some observers questioned what the commission had against wind power, many more wondered what, if anything, the commission favored, and when it might start acting on its desires.
An initiative empowered to lead Ohio into the new economy appears to have lost its momentum and some, say, its sense of urgency. The program ended its fiscal year June 30 having spent only about 20 percent of the $190 million available to invest in promising ideas and ventures. In a year of inaction, the nine-member commission endorsed few new ventures and failed to make decisions on several key programs, including its commitment to entrepreneurship.
The indecision and apparent complacency leads some to wonder whether a program that blossomed with such promise is slouching toward something more political and less powerful. The Ohio Third Frontier, once seen as sailing Ohio into the new economy, is suddenly a slow boat to parts unknown.
"I'm concerned because I cannot tell what direction it's running in," said former Ohio Gov. Bob Taft, who founded the Ohio Third Frontier in 2002. "It's hard to figure out what direction they're taking it."
Taft, who now teaches at the University of Dayton, said he worries the current Republican administration of Gov. John Kasich is impatient with a program designed to seed new, knowledge-based industries over time.
"I hope it just doesn't become a short-term business attraction program," he said. "That's not what it was meant to be. It was designed to build up the Ohio economy through business-research partnerships."
In 2006, Taft handed his creation over to Democratic Gov. Ted Strickland, who steered some Third Frontier money to other uses but left the program largely intact.
"I'm pleased it's been sustained as long as it has been," Taft added. "I just hope it doesn't erode now."
Leaders of the Kasich economic team insist the Third Frontier will not be allowed to erode on their watch. In fact, they say, they have been working behind the scenes to strengthen it with new strategies and programs.
"That has caused things to be put on hold, a bit of a pause, as they rolled out," said Christiane Schmenk, the director of the Ohio Department of Development and chairwoman of the Third Frontier Commission, which administers the program and distributes the money.
Schmenk said a critical review was overdue and should result in a more efficient, cost-effective approach to job creation.
Still, it's hard to fault skeptics who ask if a year of opportunity has been lost.
A pause in the potential
Before the May 25 meeting, at which the pilot wind farm was one of the few investment prospects on a sparse agenda, the commission had not met with its advisory board of experts in nearly a year. The two bodies met again in June for the fiscal-year finale, where the commission left $150 million on the table.
The unspent millions will be rolled into the new year's budget and no money will be lost, Schmenk noted. But economic development experts say there's a cost to inaction, especially in the innovation economy.
Third Frontier money, generated by the sale of bonds, is largely intended to attract larger federal research grants and private investment. The Cleveland software company OnShift illustrates the potential. After being awarded $800,000 in Third Frontier seed money in 2008, the start-up attracted more than $7 million in private investment.
Today, OnShift employs 42 people in downtown Cleveland with average salaries of $79,000.
"I firmly believe we really wouldn't have a company without that assistance," said chief executive Mark Woodka. "We had the software application, but we needed help to bring it to market."
The Entrepreneurial Signature Program is one of the sharper arrows in the Third Frontier quiver. It steers tens of millions to regional economic development agencies, like Cleveland's JumpStart Inc., which offer money and guidance to entrepreneurs.
All the entrepreneurial groups claim to generate many new jobs, but skeptics question some of their numbers. Last year, commissioners gave the ESP program a two-year, $40 million budget. But they also resolved to evaluate the programs and the criteria used to judge success.
Former Ohio Gov. Bob Taft, who teaches a legislative politics class at the University of Dayton, is worried about the Third Frontier program he founded to lead Ohio into the new economy. To date, none of the $40 million has been awarded. At its June 22 meeting, the commission voted to continue funding its entrepreneur programs at previous levels through January, in hopes of reaching consensus at an upcoming staff retreat.
The skepticism and critical review are healthy for a $2 billion program, many say.
"Every couple of years we need to do this, especially after a change in administrations," said Tom Waltermire, the chief executive of the business attraction group Team Northeast Ohio and a member of the Third Frontier's 11-person advisory board.
But Waltermire and other advisors express frustration with the pace of the critique, the lack of direction from state leaders, and the paucity of funds awarded in a year when companies are trying to pull out of a devastating recession.
"The ambiguity causes some angst in our investment community," said John Huston, the founder of Ohio TechAngels and advisory board member from the Columbus area.
"The joke on the street is that surely Ohioans are not doing this to fellow Ohioans. It must be saboteurs from Michigan or Pennsylvania," Huston said. "The point is, by delaying putting out the money, what really happens is we become less competitive against our contiguous states, who are our real competitors."
Huston argues Ohio already has a model economic development ecosystem, thanks largely to the Third Frontier. He and other supporters point to studies that attest to its outsized impact.
In its first seven years, the program achieved a 10-to-1 return on the state's investments, generating $6.6 billion in economic activity and about 41,000 new jobs -- on a public investment of $681 million, according to a study by the Stanford Research Institute.
Last year, a study by Battelle's Technology Partnership Practice upped the number of jobs created to 80,000.
In 2010, Ohio voters overwhelmingly approved a $700 million bond issue extending the Third Frontier program though 2015.
Driving Ohio into the new economy
Reflecting on the beginnings, Taft said he was seeking a way to replace lost manufacturing jobs with new economy jobs. His economic advisors, most notably science and technology advisor Frank Samuel Jr., opted to build upon Ohio's research strengths in biosciences, advanced materials and medical technology.
"The long-term goal was to create more sustainable, high-paying jobs," Taft said.
Economic leaders in the Kasich administration describe a similar goal but hint at a need for new routes to get there.
As the chief investment officer for JobsOhio, the state's private job development agency, Mark Kvamme is a new and influential member of the Third Frontier Commission. Kasich recruited the California venture capitalist and personal friend to lead his economic development efforts.
Kvamme preaches a west coast offense. In a recent interview, he praised the Third Frontier as "a great program" but argued that a broader and more nimble approach to innovation was needed. While Taft stressed university research and patience, Kvamme talks about quicker returns on state investments.
"Looking at the past, I think it was way too focused on 8 to 10-year research," Kvamme said. "We need to have a more balanced approach. We want to see a return in a three to five-year period. It's still too high-research, university focused, in my opinion."
He called the coming changes "tweaks, not a major overhaul" and Schmenk said the new strategies will become apparent in the coming months, as the commission introduces programs that favor loans over grants and embrace smaller ventures with micro loans.
"There will be a lot of funds coming out over the next couple of months," she vowed.
Supporters of a Lake Erie wind farm are not hopeful any of those funds will help them catch a lake breeze. They thought they had met the criteria for Third Frontier support, at least the criteria they knew.
Lorry Wagner, president of the non-profit Lake Erie Energy Development Corp., presented a plan that included partnerships with research universities and businesses. It aimed to attract larger, federal support and was endorsed by the commission's outside evaluator.
"The thinking is, we'll go back and make anther presentation," Wagner said. "But my sense is, there's something bigger going on here. They [the Kasich administration] don't like the way the Third Frontier is working, it's not their program, and they'll do whatever they decide to do with it."