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September 20, 2004

Host: Michael Grant
Topics:
· Proposition 102;
· Education
In-Studio Guests:
· Attorney Tom Curzon, Osborn Maledon;
· Mark Brnovich, Director, Goldwater Institute;
· John Wright, Director, Arizona Education Association

>>Michael Grant:
Tonight on "Horizon", voters will decide in November if they want to change the state constitution to allow universities to profit from cutting edge research with business partners, and Secretary of Education Rod Paige visits the Valley to promote No Child Left Behind and the importance of education issues. Those stories are coming up…

>> "Horizon" is made possible by the friends of Channel 8, members who provide financial support to this Arizona PBS station. Thank you.

>>Michael Grant:
Good evening, I'm Michael Grant. November 2nd, voters will head to the polls to decide a number of important propositions. Among them, Proposition 102 would authorize a change in the state's constitution that would allow universities to accept equity in private companies. Here's an overview of the question.

>>Reporter:
Since 1999 Arizona universities and lawmakers from both sides of the aisle have moved quickly to attempt to make Arizona more competitive in technology commercialization. Proposition 301 in 2000 was part of that plan. Construction has begun on new research facilities at state universities. Currently research is ongoing, in the bioindustry field, in nanotechnology, semiconductors and information science. Now voters will be asked to consider a tech commercialization constitutional amendment. The governor proposed it last year and the Arizona legislature passed it. The change in the constitution would allow state universities to accept equity in private sector companies and to establish financial partnerships with businesses. Proponents say this will promote a positive impact on the economy, encourage researchers to remain in Arizona, will attract others and will create jobs. Opponents say that businesses that partner with universities will have an unfair advantage over those that don't. They say it's a move away from the traditional notion of free enterprise. If proposition 102 is passed, it will be yet another step toward the creation of a so-called knowledge economy, promoted by ASU president Michael Crow that has been years in the making.

>>Michael Grant:
Joining me now to argue for proposition 102, attorney Tom Curzon of Osborn Maledon, whose practice focuses primarily on serving as outside general counsel to emerging, growth-oriented companies and on entrepreneurial transactions. Also, not officially taking a stand against the proposition, but arguing against it in principle, the director of the Goldwater Institute, Mark Brnovich. Gentlemen, good to see both of you.

>> Mark Brnovich:
Good evening, Mike.

>> Michael Grant:
Tom why should people vote for this, come November?

>> Tom Curzon:
The primary reason is it helps us unlock valuable assets at the universities that are being created by our professors and our students and today the universities themselves can't commercialize the assets but the private sector stands there ready to do it. By passing the amendment we take away one of the barriers. One of the barriers is you have to have cash to play, so it's an unfair advantage to big companies which generally are out of state companies.

>> Michael Grant:
Just a point of clarification here. There is nothing in the constitution that prohibits, as you indicated, somebody walking up and saying, Hey, listen, universities, that's a great idea, I'll buy the patent for a million dollars.

>> Tom Curzon:
That's absolutely right.

>> Michael Grant:
Mark, give me what the Goldwater Institute's concerns are about the concept.

>> Mark Brnovich:
We have a study upcoming, it will be released on October 12th that we've been working on, myself and Dr. Vicky Murray. One of the things we have to emphasize is that this is a radical change in the Arizona constitution. We are talking about a constitutional change that will allow the government to become partners in private companies. These government private partnerships will be in direct competition with other private industry. They will have the advantages that government companies would have, including tax advantages, regulatory advantages, subsidized by the state. This creates all sorts of problems for companies that would be in competition with those industries.

>> Michael Grant
: So one of the primary concerns is the entanglement aspect and unfairness aspect?

>> Mark Brnovich:
There is a provision in the Arizona constitution, article 9, section 7, referred to as the gift clause. That provides the government will not become an owner, shareholder in a private company or the state providing gifts or cash incentives to companies. The trouble is, you have this entanglement with the government will start owning private companies and these private companies will be in competition with other private companies. The worst part is that there is no check, there is no sort of oversight. The potential for public corruption exists, loss of public funds. The very same concerns that provided the rationale for putting article 9, section 7 in the constitution exist with this proposal.

>> Michael Grant:
Tom, what about that? Can the university effectively pick winners and losers in the private market place?

>> Tom Curzon: No. I think that Mark's arguments are framed on a misconception how the real word works here. What's really going on, the university has assets sitting there that are developed and what it's hoping to do is get them out in the market developed by somebody. A better analogy is that it's a supermarket where the assets are on the shelves and you have the private sector competing to bid for the assets and hopefully take them out and commercialize them. The reality, the university if it has, whether it's a stock or royalty stake, his arguments cut to the royalty bearing issues as well, the fact of the matter what will end up, the university will end up with a small passive stake in what is otherwise a company run by the entrepreneur.

>> Michael Grant:
Is the university at Stanford and the recent IPO on Google an illustration of how this thing works, at least at its finest hour?

>> Tom Curzon:
It's Christmas. Yeah, it's exactly what you want, because there, in fact that's an example of innovations by a couple of grad students. They came up with the idea that came out of the university in a spinout. Stanford is going to get $250 million in Google stock.

>> Michael Grant:
Mark, if you have an idea, reposing in the university, patent, research, whatever the case may be, and you want to move that out into the private sector, I assume that's okay. Aren't you going to pick winners and losers? Aren't you going to have to say, okay, I need $50 million, I guess I'm going to give it to you.

>> Mark Brnovich :
One of the differences with this proposal versus what's currently allowed, the viewers should know right now there's nothing that prevents universities from selling, licensing their technology to private companies. I know the Arizona State University is in top half of all universities as far as royalties. We saw in 2003 that there was over 220 patent applications filed by Arizona universities and signed 124 licensing agreements. Universities already have this ability. Why this is such a radical change is the government now through the universities will become owners in the private companies. Now they are no longer selling that for whatever the price, now they are going to have a stake in that company. That means they can pick and choose who to give that technology to, as well as pick and choosing what kind of regulations, what kind of tax structure or other incentives that may be provided. One other thing it's important to remember, what we know about the real world, this provision was part of our constitution based on experience. There's an old saying: those who don't learn from history are condemned to repeat it. This provision is in our constitution as it is in many other western constitutions because of scandals involving railroads and public funds wasted on speculative projects.

>> Michael Grant:
It is a historically correct point, one of the reasons why a lot of state constitutions have this is the railroad barons of the late 19th century canal companies, John D. Rockefeller and Standard Oil, you wanted to back government away from that kind of private enterprise activity. Why don't we have that here, Tom?

>> Tom Curzon:
We're not talking about the government doing much of anything. This research universities have an array of assets that want them commercialized. The decision makers are the folks who have the money. That's going to be the investors and private companies who come and say: We are willing to take the commercial risk to try and figure out how to do this. They are not taking funds of the government. They are not asking for government support or activity. They are trying to get the commercial rights to develop an asset.

>> Michael Grant:
Let me get to the low cap aspect of this. You mentioned there are a number of companies who simply can't pay for this because they are start-up, developmental. Isn't the university then by definition taking a huge risk by moving the technology to these kinds of companies? I'm going to make the assumption that a fair number of these companies fail.

>> Tom Curzon:
Most do. It's only risking the assets and only risking the assets -- well, truth is under most of the license agreements, the way the universities are typically going to work when so enabled, they will license the asset to the private company, have some part of a royalty and also have some small stock kicker. They are going to cover their bets and have the royalty and stock in most cases. If they do that, they'll have the license in place, the company goes bust, the provisions will typically allow the university to grab it back and try it again.

>> Michael Grant:
Mark, isn't the nature of a lot of this information, that you aren't going to have a real healthy, competitive marketplace bidding for this stuff because almost by definition a lot of it is in its infancy? You need some of these incubator risky companies to take it from point A to point B?

>> Mark Brnovich :
Maybe, Michael. Maybe there are specific instances where that's the case. We know the university does have a process and they are bringing the technologies to market. One of the concerns is that we start talking about speculative technologies and ventures, it creates this perverse incentive to try to hit the entrepreneurial home run, that diverts resources away from their the primary mission of educating students and creates this perverse incentive where they've got to spend more and more money to try to hit those entrepreneurial home runs. Additionally, for example, if there is some cancer, cure for cancer or something like that, instances like that, there's nothing in the provision that would prevent the university from diverting that technology to a favored company that decided to relocate to Arizona, maybe someone on the board of regents has a financial interest, a family interest. There's not adequate protection even to protect the public from those kind of closed door, behind the back door deals.

>> Michael Grant:
Would existing conflict of interest statutes and other provisions that prohibit at least blatant hanky-panky? It is sort of a -- I hesitate to call it a blank check, but the universities would have a fair amount of discretion.

>> Tom Curzon:
I think they would, but I think they do have the conflict of interest statutes in place. Enabling statute that goes into effect when the amendment passes addresses conflicts of interest to a degree, particularly at the board of regent's level. I think primarily, Mark's view of the world, is that the government is trying to run amuck and the universities are trying to run amuck with this. The task is simple they are seeking to commercialize these assets that otherwise sit on the shelf. If there aren't people out there who are going to try to take those risks, they will just sit there.

>> Michael Grant:
How do you respond to Mark's point, a fair number of these technologies aren't on the shelf, they're being moved by the universities today without this provision?

>> Tom Curzon:
Some are. In talking to the university officials I know, these are a wealth of exciting things. I think it's great how well they have done so far, but the fact is they have only been able to do those kinds of deals that have been larger companies are willing to come in and pay the royalties and the license fees and the real opportunity is to remove those barriers, you know, this barrier that stands in the way and allow free enterprise to work.

>> Michael Grant:
I was going to say, Mark, obviously the Goldwater Institute known for being a strong backer of free enterprise would seem in many respects this opens up the marketplace a lot bigger than it currently is.

>> Mark Brnovich :
Michael, to address Tom's concern about my world view, my view is government operates best when it doesn't interfere in the private market. These are proposing, a state enterprise model versus a free enterprise model. It combines the worst of all possible worlds by having the government having a stake, an ownership interest in private companies that will be competing in the private market place with little or no oversight. There's nothing about public records, there is nothing about the procurement process. You are going to have the back room deals that were constitutional provision tried to prevent, the possibility exists. In the 1990's, there was great debate about the supercollider project. Same group of people here that are encouraging us to invest all this time and money into these kind of projects are the same people that wanted that. Billions of dollars later, Texas got the project, we didn't, and today it sits as a mushroom farm. I think that's another appropriate lesson we can learn from history.

>> Michael Grant:
On that positive note, we're out of time. Mark, thank you very much for being here.

>> Mark Brnovich:
Thank you.

>> Michael Grant:
Tom, appreciate the input.

>> Tom Curzon:
Thank you.

>> Michael Grant:
"No Child Left Behind" remains controversial despite efforts by the administration to promote it. However, a local school benefited from the attention paid it by a distinguished guest. The Secretary of Education, Rod Paige, visited Madison Heights Elementary to promote the program and tout education issues.

>> Rod Paige:
The president wants me to announce to you today that of all the schools in the United States of America, we pick out 250 elementary schools that we call blue ribbon schools. Guess what. Madison Heights is a blue ribbon school…. (applause.)…

>> Reporter:
The United States secretary of education, Rod Paige is announcing Madison Heights Elementary School has been named a No Child Left Behind Blue Ribbon School. He toured the school earlier in the day meeting students and teachers. Blue Ribbon schools are selected based on one of three criteria, dramatic improvement of student performance at schools with at least 40% of the students from disadvantaged back grounds or schools that achieve in the top 10% on state tests or private schools that achieve in the top 10% in the nation. Paige dismisses claims by critics who say No Child Left Behind is underfunded.

>> Rod Paige:
It is absolutely not consistent with the facts. It really puzzles me. How something that can be so wrong can continue to be bubbling in the country. Especially in the face of the reality. I want to give you some reality. Education is funded in a historical way under President Bush. Never before has so much support flowed from federal government to schools. And yet, people say that. Why do you think they do that? Do you think they don't think the public will take the time to look it up? Do they not think it will get the kind of exposure, because the public won't know?

>> Reporter:
The visit underscores the importance of education issues this election year. With other needs straining both state and federal budgets, it's clear the government wants to reassure parents that their child's education won't suffer in the face of budget choices.

>> Rod Paige:
The federal education spending in this state, in the state alone is $3.6 billion. That's an 83% percent increase in what the president found when he took office. That message is, the president is dead serious about education. Even though we have lots of things competing for the federal dollars, the war in the Middle East, the economy, finding jobs for Americans, but even in the face of all of that, he is protecting the funding for education. Our funding has continued to increase notwithstanding the demands on the federal dollar. That is because we see education as a very important part of our whole national goal. So the president is protecting education.

>> Reporter:
Despite reassurances, there has been bipartisan opposition to No Child Left behind at the state level. A Republican State Legislator called the plan an unworkable federal intrusion.

>> Michael Grant:
Here with me now to discuss the importance of education issues this election year, the director of the Arizona Education Association, John Wright. John, it's good to see you again.

>> John Wright:
Nice to see you.

>> Michael Grant:
Congratulations on your new assignment. $3.6 billion doesn't sound like No Child Left Behind is under-funded, if that is true.

>> John Wright:
The secretary remarked never before has so much money has gone into federal public schools and the amount has increased. We should recognize that I think never before has so much been asked of our public schools and now more and more is being asked by the federal government. The numbers, if you compare, really don't match up within the administration's own budget and its numbers. When we talk about being under-funded we are not making up numbers, we look at the act itself and what was authorized. When the act was written, voted on approved and signed by the president, it had authorized funding. Since then, each consecutive budget following the act, that amount has been under-funded. For instance, in this past budget year, we had an act that authorized about $18.5 billion to fulfill the promise, but the budget calls for only about $12 billion to meet the needs.

>> Michael Grant:
You would agree that it is not an unusual phenomena for a piece of federal legislation to have a budget estimate associated that when you hit the House Ways and Means Committee you're not going to get that level funded.

>> John Wright:
Had the president asked for Congress to appropriate the amount that he said his programs required, we would have been there with him urging Congress to approve the amount. This is the president's own budget. The president's bill under-funds its own budget by about $6 billion. In Arizona, we have lost $92 million that the Bush administration told us we would need but did not budget for us to carry out the requirements.

>> Michael Grant:
One of the other problems that I've had understanding at least some of these arguments is when No Child Left Behind came along, Arizona was quick to say we are at the head of the list here because we have done a whole lot of these things. We have locked in student and school and teacher accountability. We funded some additional money to finance that. We have a testing program, like it or not, in place. Arizona was generally perceived as being at the head of this parade. And now what we hear, hold it we can't even catch up to the tail end.

>> John Wright:
We can teach the federal government about school accountability. We were ahead of the curve on student standards and making those academic standards meaningful in the classroom. We were ahead of the curve on the professional teacher standards and aligning our preparation and our evaluation of teachers against standards. And we were ahead of the curve on putting to the a school accountability system that really measured student achievement, student growth and other factors such as decreasing the dropout rate and increasing the graduation rate. Our AZ Learns program could be a model for the federal government should they choose to pay attention to it. Their AYP, adequate yearly progress, looks at one simple snapshot, one test result and makes a determination about 10s of thousands of students across the state about whether they are in the federal limb succeeding or not.

>> Michael Grant:
I know the superintendent of public instruction has gotten waivers to various requirements of No Child Left Behind. Are they not adequate to get the job done?

>> John Wright:
It's not so much an issue of waivers, we need a meaningful accountability system that supports teaching and learning. We know that tests don't make students more successful, good teaching make students more successful. When we find an identified need, when we look at an assessment and say that students are falling short in this area, the No Child Left Behind answer is to punish them, take funding away and put sanctions in place. Our answer is, let's see where the problem is, let's focus on standards and provide intervention so the students can succeed.

>> Michael Grant:
AIMS is an example, the result we heard earlier, 60% of the sophomores failing math, 40% failing reading and writing. The concept of AIMS was that the diploma should count for something. If an employer hired a high school graduate, they should know that they were equipped with certain basic skills and the piece of paper truly meant something. Do you think it's going to turn out to be that way?

>> John Wright:
I think the high school diplomas count for something now, and we want them to count for more. I don't think a single test is the way to make that determination. You're always disappointed seeing a large percentage of the students not passing an assessment that we are trying to make sure we can teach the materials to be able to master, but this is an exit exam for high school and these are sophomores and it's their first try. This is a situation where we take it very seriously but we don't panic.

>> Michael Grant:
The sophomores were supposed to get more serious about this time around. Some percentage of them did. Did they get more serious about it as they moved to junior and senior?

>> John Wright:
I think we all get more serious about it. Much of that can be directed in a positive way. You need to be sure that districts provide resources and schools provide the time and energy for teachers to teach to the academic standards. We need to be sure parents, families and communities are supporting their students and focusing on academics. We need to make sure that's available to all students. We are not necessarily as focused as we can be. I heard of a number of districts that are still talking about the textbooks they use and how they try to find the standards in the textbooks. That's the reverse of good teaching strategy. You teach the standards and you find the materials that help students achieve those standards. That's where our focus needs to be.

>> Michael Grant:
John Wright, Arizona Education Association, thank you very much.

>> John Wright:
Glad to be here.

>> Reporter:
What happens if you move to a new home but you're locked out? "Horizon" looks at the economic impact of the National Hockey League player lockout. It hurts more than just hockey players and fans. Plus, why you should vote for or against proposition 100, allowing land exchanges between the state and federal government. Tuesday at 7 on "Horizon".

>> Michael Grant:
Wednesday we'll take a closer look at two other propositions on the ballot on November 2 -- 101 and 104. That's Wednesday on "Horizon". Thank you very much for joining us on this Monday evening. I'm Michael Grant. Hope you have a great one. Good night.

 

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