Proposal Could Hurt Med Business

September 13, 2002
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LANSING — The Michigan Economic Development Corp. warns that funding for the state’s medical business will drop by nearly $24 million over the next two years if voters approve November’s Healthy Michigan proposal.

The MEDC said that if the measure becomes an amendment, the Michigan Life Sciences Corridor — a coalition of hospitals, universities, medical and research businesses from West Michigan to Ann Arbor — would likely get $76.2 million in tobacco-settlement money instead of the $100 million it expects.

And, according to the CEO and president of MEDC, the cut in funds would come at a crucial time.

“Within the past six months many states have announced that they have eliminated or significantly curtailed their life sciences initiatives,” said MEDC’s Doug Rothwell. “Michigan, on the other hand, has received national acclaim for its continuing commitment to the program and the positive results that have been achieved.”

In addition to heading MEDC, Rothwell chairs the Life Sciences Steering Committee.

“Approval of the ballot proposal would significantly reduce funding for the Life Sciences Corridor and associate Michigan with other states that are pulling back, rather than moving forward, in this important industry sector,” added Rothwell, who is leaving the agency at the end of the year.

The MEDC, the state’s economic development agency, also claims that the proposal would divert more than $300 million annually from the state’s budget.

But Citizens for a Healthy Michigan, backers of the initiative, feels otherwise. The group — supported in part by the American Cancer Society, the American Heart Association and the American Lung Association — claims the proposal will not strain the state budget and blames state politicians for keeping the money from reaching the settlement’s intended recipients.

“The Healthy Michigan Amendment does not increase state spending or the state budget by a single penny. The Healthy Michigan Amendment would simply spend the state’s tobacco settlement on smoking prevention, research and on health care for people who are sick and dying from tobacco — where the funds were supposed to go from the start,” said Art Knueppel, campaign chair for Citizens for a Healthy Michigan.

“It is dead wrong to continue falsely claiming that the Healthy Michigan Amendment would somehow bust the state budget. Of course, the claims are largely coming from the politicians who hijacked the funds from health care and smoking prevention to begin with,” he added.

The funding for the corridor comes from Public Act 120, which created an initiative in 1999 to support basic and applied research in health-related areas with an emphasis on the aging process. Lawmakers appropriated money from the tobacco settlement for the effort, and then earmarked $1 billion over 20 years — or roughly $50 million per year — to help develop businesses in the corridor.

Funding for the corridor was $50 million for fiscal years 2000 and 2001, and $45 million for FY02 and FY03.

But an approved Healthy Michigan proposal would amend the constitution and change how the tobacco funds are distributed. About 90 percent of the settlement money would go toward smoking prevention programs, research and health care. The remaining dollars would go into the state’s general fund.

Of that 90 percent, 13 percent would fund a prescription drug program for seniors; 46 percent would go to nonprofit hospitals, nursing homes and clinics to treat people suffering from tobacco-related illnesses, and 31 percent would go to research and education.

Of that research and education money, 13 percent would go to the Life Sciences Corridor — or about $12 million less per year for the next two years than the initiative now gets.

The state has estimated that the corridor will receive nearly $12.2 million less in fiscal year 2004 with a voter-approved ballot proposal than it would without one, and $11.6 million less the following fiscal year.

Raile Kerppola, Michigan Life Sciences Corridor (MLSC) managing director, told the Business Journal that the loss of those dollars would keep the MEDC from backing new ventures in the corridor.

“Current programs wouldn’t be cut,” she said. “We would have less funding available to fund new projects, and that is where the pain would be felt.

“If our funding is cut, there will be fewer projects that can be funded, and that definitely is an issue because this year we received far more high-quality proposals than we had funding for,” said Kerppola.

Kerppola said the MLSC would face another barrier if voters approve the measure.

“The proposal allocates the funding not on the basis of dollars, but as percents of tobacco-settlement revenues.

“Since the tobacco-settlement revenues are not known until these are actually paid out, the additional problem we would have is knowing how much funding we would have for each fiscal year,” she said.

“We would likely have to wait, or estimate the funding, until the exact numbers are known.”

The first state budget likely to be affected by an approved amendment would be the one for FY04 — at least that is the current assumption.

Kerppola said since lawmakers allocated funds for the corridor through this fiscal year, she doesn’t expect that any of those dollars will be recalled. Nor does she believe that a constitutional change in how the tobacco money is distributed would be retroactive to FY00, the first year of funding for the corridor.

The MEDC reported that there are about 300 life sciences businesses located in the state that employ more than 16,500 workers and have annual sales of $1.6 billion.

Twenty-two new life-sciences companies sprang up in Michigan last year. Almost $3 billion in private and public money has been invested in the corridor since it began three years ago, resulting in 2,000 new jobs for the state.

Citizens for a Healthy Michigan has estimated that the state will get from $300 million to $364 million annually from tobacco companies for 25 years, or close to $8 billion over the length of the agreement.

The proposal will be on the ballot on Nov. 5.

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