The Economic Development Bill Starting to Take Shape; It Makes Big Bets on Life Sciences, Clean Technology and Applied AI

The Massachusetts Senate debated S.2856, its version of the biennial economic development bill, last week.  The Senate pared down H.4804, the $3.5 billion version of the bill the House enacted last month and H.4459, the proposal Governor Healey filed back in January, by over $1 billion.    

With the full Senate debate on the bill concluded, a conference committee must resolve the differences between the two branches before adjourning on July 31st, and the Governor must still sign the resulting legislation into law before the plan is finalized.  Some provisions are common to the House and Senate versions and are likely to be in the final version. They include an array of modest investments in municipal infrastructure programs such as:

• $400 million for MassWorks public infrastructure grants
• $150 million for municipal library projects
• $100 million for the Rural Development Program
• $100 million for the Seaport Economic Council grant program
• $100 million for Municipal Financial Assistance Grants to help cities and towns with workforce development
• $100 million in local economic development grants to cities and towns

Other authorizations make capital investments in targeted business sectors:

• $99 million for advanced manufacturing initiatives
• $25 million for Small BusinessTechnology grants to help early-stage companies commercialize new technologies
• $133 million for Research & Development Matching Grant Fund for capital investments in research and development projects
• $35 million for Community Development Financial Institutions for grants to help disadvantaged and underserved businesses
• $10 million for Biz-M-Power for matching grants to small businesses with capital needs.

The real money, however, is reserved for three industry sectors: life sciences, climate technology and applied AI.  While the various plans provide different levels of resources, they all place big bets that these sectors will be critical to Massachusetts’ economic development moving forward. 

The life sciences sector is the darling of state lawmakers.  Both the Governor and the House provide $500 million in bond authorizations to the Massachusetts Life Sciences Center and $250 million in tax credits.  The House also adjusts the Board of Directors to include a representative from the hospital, medical device and digital health sectors and an expert in health equity.  Furthermore, the Center’s charge is expanded, enabling it to provide taxpayer funds to institutions of higher education, nonprofits, other public or quasi-public entities in MA and certified life science companies.  It can also convene an advisory board.  The Senate takes a more measured approach in its authorization, providing $225 million for the Center. The Senate also amends the Center’s mission to include health equity, biosecurity, digital health and artificial intelligence.  These collective changes, along with the House expansion of the tax incentive program and credits from $30 million to $50 million effective January 2025, greatly expand the powers and scope of the Center.  As an offset, both the Senate and House eliminate the angel investor tax credit offered to investors in early-stage life science companies.

Climate technology investments are another key focus of the state’s economic development plan. Both branches authorize $400 million in two tranches – $200 million for a Clean Energy Investment Fund and $200 million for workforce development, research and development and other such investments in wind technology.  In addition, both branches provide $300 million in tax credits to foster growth of this emerging sector in Massachusetts.  

A more modest $100 million investment is authorized for the establishment of an applied AI Hub to facilitate the application of artificial intelligence to many of the state’s other industry sectors, such as healthcare, finance and advanced manufacturing. 

The purpose of these investments is to lengthen Massachusetts’ lead in sectors in which the commonwealth has a competitive advantage. While appreciating that rationale, I think the balance is tipped too far in favor of specific sectors at the expense of businesses and the economy more generally.  These multi-billion-dollar investments are cross subsidized by all other business and individual taxpayers at a time of tax revenue volatility and are not without risk.  

Cracks in the armor of the health/life sciences/pharmaceutical industrial complex in Massachusetts are beginning to emerge and these investments might not have the public payout that lawmakers are anticipating.  Massachusetts has a glut of lab space as several biotech companies are laying off employees.  Pharmaceutical costs are growing at a rate that has payers alarmed and cannot be sustained over time. More fundamentally, does the commonwealth’s well-established life science sector need the proposed level of investment to thrive given its well-established ecosystem?

Clean technology is a key component of Massachusetts’ strategy to meet its climate goals and achieve Net Zero by 2050, and strategic investments will be needed to make that happen. No argument there. But there should be an accounting of the sizable public investments the Commonwealth has already made in transitioning to clean energy before authorizing more money so taxpayers can determine how much is too much.  At a minimum, some guardrails should be put in place, such as requiring the clean technology jobs and manufacturing plants be located here, to make sure Massachusetts residents and the state coffers reap the benefits. This is important given the magnitude of the subsidies.  Massachusetts will spend $5 billion in the next three years just on its energy efficiency program.  An offshore wind developer’s request to cancel its power purchase agreements amid mounting costs highlights some of the real challenges to development of the offshore wind energy sector, despite large state and federal subsidies.  

Meanwhile, none of these investments have translated into lower prices for energy consumers.  In fact, Massachusetts has one of the country’s highest average residential electricity prices, with rates hovering around 29 cents per kilowatt-hour compared to the US national average of 16.68 as of February 2024, according to the Energy Information Administration. Commercial electricity rates of 19.76 cents per kilowatt hour exceed the national average of 16.10 by almost 20 percent. 

Applied AI investment, although the most modest of the three, has the most potential as a nascent industry with a steep growth trajectory.  Massachusetts has the appropriate workforce and industry mix to make it happen.

My overarching point is that the economic strategy being pursued provides very little if any assistance to thousands of struggling businesses across the Commonwealth.  As an alternative or augmentative strategy, lawmakers should consider reducing the cost of doing business across the board by lowering taxes, reducing regulation, or streamlining compliance.  These changes would benefit life science, climate tech, applied AI – and other companies, too.