Ontario Budget doles out tax cuts to high-tech sector and boosts university-based research funding

Last week's Ontario Budget designated the province's business sector as the prime beneficiary of a booming economy and ballooning fiscal surplus, with a significant component directed towards high-technology firms and health and university-based research. Proclaiming that the provincial books are balanced this fiscal year as well as last, Finance minister Ernie Eves initiated a five-year reduction in corporate tax rates, while taking a hefty portion of the province's budgetary surplus and steering it towards various players in the innovation system.

The Budget's wide variety of S&T measures provide yet another indication that Ontario is firming up a policy framework in which the public sector has a clear and substantive role to play. The new and enhanced initiatives acknowledge the increasingly competitive nature of innovation between provinces and the federal government. General and targeted tax cuts at both the personal and corporate level, while in tune with the government's ideological bent, are also aimed at attracting and retaining the skills Queen's Park realizes are essential if Ontario is to remain a vibrant player in Canada's innovation system (see page 3).

The largest portion allocated explicitly for innovation - $500-milllion - goes towards a tripling of the Ontario Innovation Trust (OIT), the province's endowment for matching awards made by the federal Canada Foundation for Innovation (CFI) for university-based research infrastructure projects. The new funding flows through the SuperBuild Growth Fund and is in addition to the $742 million set aside for universities, colleges and research institutes. It is being charged against FY99-00 ended last March 31. The OIT was created last year with an initial $250-million endowment and the latest funding injection is in response to the federal Budget's decision to extend the CFI with an additional $900 million. Like the CFI, the OIT's endowment is invested to generate additional revenue.

In addition to the OIT ramp-up, university-based research will also be the beneficiary of a new Research Performance Fund (RPF), which was given a minimum of $30 million annually to cover up to 40% of the overhead costs of research. It is the first program in the province explicitly devoted to overhead costs, although the Ontario R&D Challenge Fund (CF) pays up to 30% in some cases, and the Ontario Centres of Excellence (OCE) program pays a similar percentage for the research it funds at universities.

The RPF applies only to provincially funded research and arguably falls far short of the amount required to fully compensate universities. It also comes with a challenge for similar action by the federal government, which has also been grappling with the increasingly urgent issue.

"The real story is the recognition that those who fund research should pay for direct and indirect costs," says Dr Chris Riddle, director of the research, technology and innovation branch at the Ministry of Energy, Science and Technology (MEST). "The province has done a calculation that $30 million will pay for an appropriate portion of research funded by the province."

Challenge Fund

The CF will see a doubling of its FY00-01 budget to $100 million, and its chairman, Dr Calvin Stiller, has been tasked with conducting a review of the research needs relating to cancer and other areas before reporting back to the government. Although the government has not committed the increased funding beyond the current fiscal year, individuals inside and outside of government contend it's likely that the new level of funding will be permanent. But Helen Graham, director of the Ministry of Finance's industrial and financial policy branch, says a decision to extend the increase has not been made and will be based on several factors.

"A funding increase has been announced for (this year) but the government will look at what Dr Stiller brings back and they may recommend more funding at that point," says Graham.

Dr Maurice Bitran, manager of the CF secretariat, says Stiller is expected to report back fairly quickly on new areas where CF funding can be directed. Until then, there likely won't be any new information on how the program will be altered. He adds that the expectation is that the budget increase will be permanent, although the ultimate decision will hinge on the contents and recommendations of the Stiller report.

Many in the S&T community will be anxiously waiting to see whether the report recommends a change in the funding formula that the CF has been using since its inception, which is to require one third of a project's funding to be covered by an industrial partner(s). The provision has proven unwieldy for many projects that deal with longer-term or early-stage research, leading the CF to alter the requirement somewhat so that the industrial contribution can be made in a project's latter stages when its commercial benefits are better understood.

PREA

Also enjoying a doubling of its budget is the Premier's Research Excellence Awards (PREA) program, which was originally financed at $50 million over 10 years. Unlike the CF, the ramp-up is for the remaining nine years of the program. Due to the high response to PREA, expenditures have been running higher than $5 million during the first year, with a total of $19.1 million awarded to 190 recipients.

Riddle says the assumption is that PREA will be able to double the number of awards the program is able to make each year for the next several years. "There's every indication that the quality of applicants is very high. Last year we ran out of money before we ran out of qualified applicants," he says. "The province is willing to recognize success and step up to the plate with new funding for PREA and the Challenge Fund when they can see the benefit."

Win for university-based research

With its strong emphasis on innovation and university-based research, the Budget represents something of a vindication for Dr Heather Monroe-Blum, the Univ of Toronto's VP research and international relations. Monroe-Blum produced a major report for the government on the role of universities in Ontario's innovation system and many of its recommendations were implicitly echoed in the Budget. She says the creation of the RPF represents a personal highlight as it addresses a major gap that has been hindering attempts to establish an innovation system in which all players are adequately funded.

"I would hope this is seen as a commitment to grow the support for full research costs," she says. "It's not at the level I recommended ($225 million when fully implemented) but it's the creation of it that's important. It's a wonderful first step and a major acknowledgement by the province that it wants to have a science and technology framework that's effective and competitive."

The Budget marks a turning point for the government in terms of where it sees its role in the innovation system, with a strong emphasis on university research and skills development. Jim Wilson, minister for Energy, Science and Technology, says there's definitely a strategy at work behind the funding allocations.

"We're trying to encourage bench-level research in a way we haven't before. The Research Performance Fund recognizes overhead costs and we're also targeting money to universities for specific research," says Wilson.

On the chance of an increase to the CF being extended, Wilson says: "We want to do this prudently. With the increased funding, the board will have its work cut out for it. There is an intent for it to be a permanent increase but we need to take advice from all sources. It's part of the budgetary process and we're happy with the $50 million."

The Budget also challenged the federal government to take similar action and begin to fund overhead associated with federally funded research. An Industry Canada official acknowledged that the issue is currently receiving high priority in the department.

Monroe-Blum also lauds the other university-focused measures, in particular the new funding for the CF directed towards cancer research. In her report, she recommended the creation of an Ontario Health Research Council and she contends the CF funding reflects a high priority on health research that may grow over time and fund an increasing amount of basic research. Monroe-Blum's high praise is tempered by the fact that two other pressing university issues - faculty renewal and the lack of general operating funds - were not addressed by the Budget.

"That's the other side of the university coin and this Budget was focused on research," she says.

Dr William Bridger, VP research at the Univ of Western Ontario, is also pleased with some of the elements of the Budget, in particular the RPF and PREA. But he says he's concerned that once again, the critical state of university funding has been ignored.

"I'm disappointed with the absence of a correction to our pitiful operating budgets. Increased enrolment is coming and researchers have less and less time to do research," he says. "This puts us in a less competitive position with regard to other jurisdictions and Ontario is still near the bottom in North America in terms of per student funding."

He contends that part of the problem is the split in responsibility for post-secondary education over two ministries - MEST and the Ministry of Training, Colleges and Universities - with research in one camp and operating grants in the other. "The biggest single item for support of research is operating grants for universities and that comes from a ministry that supports undergraduate teaching."

Bridger is less concerned over the Budget's lack of response to a proposal by the Ontario Council of University Research (OCUR) to create a program to assist institutions in commercializing their research (R$, April 7/00). Bridger chairs the OCUR and he says the concept is being seriously considered within MEST and could be announced in the coming months once an appropriate model is agreed upon. "There's a definite decision to go forward," he contends.

S&T Awareness

Rounding out the university-based budgetary measures is a significant increase in funding for a small S&T Awareness program operated by MEST, which received $5 million over five years. The money will be directed toward community and school-based programs, which previously received a total of only $50,000 annually. The fund has already been ramped up with an in-year re-allocation of $500,000 and will target a large number of small projects ranging from science fairs to the Engineers-In-Residence program. The S&T Awareness program typically pays about one third of the costs of any single project

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