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Originally published Wednesday, February 29, 2012 at 8:02 PM

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Bill would fund high-tech degrees by shrinking R&D tax credit

State lawmakers are considering downsizing a research-and-development tax break and using the money to produce more high-tech degrees.

Seattle Times higher education reporter

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They support spending more on higher education, but some of the state's business leaders are split over a bill that would downsize a high-tech research-and-development tax credit and put that money toward enrolling more students in high-tech degree fields.

The bill would raise $13.5 million a year for high-tech degrees, an amount that could train at least 650 new engineers each year, by one estimate.

Microsoft has thrown its support behind the bill, and the state's student lobbying group has made it a priority.

But it is opposed by some biotech and high-tech firms that say the tax credit shouldn't be used as a tool to try to solve the state's higher-education funding woes.

On Wednesday, during a hearing before the House Ways and Means Committee, several industry groups — including the Association of Washington Business and the Washington State Biotechnology and Biomedical Association — came out against the bill.

The bill, HB 2532, would change a credit to the state's business-and-occupation tax for research-and-development expenditures. The credit, used by high-tech firms to reduce their tax payments, is to expire in 2015.

Sponsored by state Rep. Reuven Carlyle, D-Seattle, the bill would extend the tax credit to 2022, but shrink it for the largest companies.

Those with revenues of more than $100 million a year — including Microsoft, Battelle Memorial Institute and CH2M Hill — would lose the largest percentage of the credit.

The money would go instead to the Opportunity Scholarship Board, a newly created state board made up primarily of business leaders. The board would award money to public higher-education institutions after reviewing their proposals to increase the number of degrees in science, technology, engineering and mathematics.

"When we're simply running out of money, and eviscerating so much of the core of what we should be doing, we simply need them (high-tech companies) to contribute," Carlyle said.

The Legislature has cut the state's share of higher-education funding by about $600 million over the past four years, a decrease of about 50 percent. Meanwhile, a series of state reports has painted a bleak picture of the state's inability to produce enough bachelor's degrees, especially for high-paying jobs such as computer science and engineering.

Battelle, a charitable trust that gets the maximum $2 million tax credit annually, opposes the bill even though it supports growing the capacity of the state's schools, said Marc Cummings, director of policy and external relations for Battelle.

Battelle manages the Pacific Northwest National Lab in Richland for the U.S. Department of Energy.

"If you're going to stop the cutting and are going to start reinvesting, you've got to have a framework," Cummings said. "You can't just backfill cuts."

Chris Rivera, president of the Washington Biotech and Biomedical Association, echoed those concerns. The association supports increased higher-ed funding, he said. However, "we don't think the current bill is the long-term solution to that problem."

Carlyle described the bill as "not the answer for the macro disinvestment in higher education, but it's a tactical step forward."

Last month, three state agencies projected that 2,863 jobs will be available annually between 2014 and 2019 for those with bachelor's degrees in computer science, engineering, software engineering and architecture.

But in 2010, the state produced only 1,665 degrees in these fields.

Engineering degrees are among the most costly to produce, because they require smaller class sizes and expensive lab equipment. Last year, the University of Washington's College of Engineering turned away 550 applicants — students who were already enrolled in the UW or were trying to transfer from a community or technical college, and were qualified to enter the program.

Programs have not been able to expand, even though student demand is skyrocketing, UW President Michael Young said in a letter to the House Ways and Means Committee.

Three companies — Microsoft, Battelle and CH2M Hill — receive the maximum tax break, $2 million a year. According to state figures, more than 500 firms received nearly $23 million in breaks in 2010.

Among those who testified Wednesday was anti-tax activist Tim Eyman, who said he believed the bill would require a two-thirds majority vote for approval, and called it "a blatant attempt to sneak into law a tax increase."

Carlyle said he believes the bill would require only a simple majority for passage.

Katherine Long: 206-464-2219 or klong@seattletimes.com. On Twitter @katherinelong.

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