Senate Okays Changes to Program for High-Tech Start-Ups

Of the many jobs bills competing for support this month on Capitol Hill, one would have a direct impact on the U.S. research community. But its progress this week has gone largely unnoticed amid the partisan battles between the White House and Congress over how best to stimulate the sluggish economy.

On Tuesday, Senator Mary Landrieu (D-LA) moved heaven and Earth to win Senate approval of a bill reauthorizing the Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs. The largest federal research program for small businesses, SBIR is funded through a 2.5% tax on the budgets of 11 science agencies. Last year, the agencies made roughly $2.5 billion in competitive grants to entrepreneurs seeking to commercialize the latest technologies.

Congress has tried for 5 years to rewrite the rules governing the SBIR program, begun in 1983, and its younger and smaller sibling, STTR, which targets university start-ups. The Senate bill is actually an amendment to a larger bill covering all defense programs, although the terms are nearly identical to a standalone bill, S. 493. However, it differs in several aspects from a version approved earlier this year by three committees in the House of Representatives.

One contentious issue has been the eligibility of companies in which venture capitalists hold a controlling interest. The current rules, adopted in 2002, greatly restrict their participation in the program. The Senate bill (S. 493) would allow three agencies—the National Institutes of Health, the National Science Foundation, and the Department of Energy—to spend 25% of their SBIR budgets on such companies, with other agencies allocating 15%. The House version (H.R. 1425) sets the bar at 45% and 35%, respectively.

Another fight has been over Landrieu's plan to increase the overall SBIR set-aside by 40%, to 3.5% of an agency's overall research budget, in 0.1% increments over a decade. (The STTR set-aside would double over 3 years, to 0.6%.) Those boosts are anathema to biomedical lobbyists, who believe that the agencies' money is better spent on traditional academic research. The Obama Administration also objects to any percentage increase and prefers to see the program grow in step with an overall increase in federal research funding. The House bill doesn't change the set-aside for either program.

A third battle involves how long the new rules should be in effect. The Senate bill provides for an 8-year reauthorization, while the House bill would expire after 3 years. Landrieu argues that the programs, which includes Phase I and Phase II awards followed by commercialization, need to be monitored for several years before the impact of any changes can be assessed. House Republican leaders generally prefer shorter reauthorization, saying they allow any mistakes to be corrected more quickly. They also carry smaller price tags.

Working through the Small Business and Entrepreneurship Committee that she chairs, Landrieu and ranking minority member Senator Susan Collins (R-ME) have tweaked their bill over the years to accommodate many of those criticisms, and a year ago they fell just short of the finish line. "Nobody ever gets 100% of what they want," says one Democratic committee staffer, adding that the key is to continue negotiating until a deal is struck. "The Senate wants to be at the table, and we hope that the House feels the same way."

The chances of that happening any time soon, however, appear slim. After a parliamentary maneuver blocked Landrieu from gaining a vote on S. 493, the SBIR language was attached to the National Defense Reauthorization Act. But that bill contains a provision on the military detention of suspected terrorists that has triggered a veto threat from the White House.

The latest short-term extension of SBIR, the 14th since the expiration of the current reauthorization in 2008, ends on 16 December. Even if Landrieu's SBIR language is retained in negotiations with the House over the defense bill, the House would first need to approve its own version before entering into talks with the Senate. And scheduling time for that House vote on a very busy legislative calendar won't be easy.

Failing that, the legislation could be taken up in January. One Democratic House staffer sees a short window opening up in the winter before the 2012 election campaign precludes bipartisan agreement on anything. And while a Republican staffer on the House small business panel avers that the current Senate bill "will not pass the House," he doesn't rule out a happy ending. "We want to play an active role, and we are negotiating right now," says the staffer.