Category Archives: Technology

“Smart Growth” in Hawaii

BY DENNIS HOLLIER

Land-use planning, more than any other public policy, shapes the way you live. It’s responsible for your 60-to-90-minute commute from Kapolei or Hawaii Kai. It’s why you live in a three-bedroom, two-bath home with a two-car garage. It’s what influences you to work downtown, shop in Kakaako and spend your weekends playing on the North Shore or carousing in Waikiki. In short, the decisions of land use planners affect almost everything you do. However, land-use planners have changed their thinking in recent years and that may change the way your children live.

The Auto Age

For most of the past 50 years – call it the Auto Age – planning decisions made the car central to development. In Hawaii, these policies gave birth to new towns such as Kapolei, Mililani and Hawaii Kai. They turned sleepy villages like Kailua and Kaneohe into prosperous bedroom communities. And they stoked the development of shopping centers like Ala Moana, Pearlridge and Waikele. But they also beggared old urban villages like Kaimuki, Kapahulu and Chinatown. They gave us traffic jams, strip malls and a surfeit of parking lots. And they produced a collection of developments that stretches almost continuously from Kalihi to the Ewa Plain.

The response to this urban sprawl is “Smart Growth,” a set of principles that is the central dogma of land-use planning today. According to John Whalen, a prominent Honolulu urban planner, Smart Growth shifts the focus of development from the suburbs to the urban core. Its principles – mixing residential and commercial land use, providing a range of housing and transportation options, and increased density – are intended to create livable, walkable cities. By channeling growth and people to the core, Smart Growth also aims to “keep the country country.” These principles have broad currency on the Mainland; it remains to be seen whether they can address Hawaii’s needs.

Smart Growth seeks to be a solution to the economic, social and ecological problems associated with auto-age development. Its roots, Whalen says, can be traced to a landmark 1974 report from the federal Department of Housing and Urban Development called “The Cost of Sprawl.” Prior to this study, municipal planners generally felt that development – almost any development – amounted to sound fiscal planning. A growing population, rising property values and the arrival of more businesses led to greater tax revenues and a healthier economy. “The Cost of Sprawl” cast doubt on those assumptions. Its thesis was that, as development moves away from the urban core, the cost of building infrastructure – roads, sewers, schools and emergency services that support any development – outstrips any increase in revenue. The report argues that sprawl costs more than it’s worth.

“That was an eye-opener for a lot of communities,” says Whalen. “The message was, if you continue this pattern of sprawl, although it may seem attractive to a lot of local jurisdictions because of added revenues, there’s a cost to all this. That began a kind of reassessment.” On the Mainland, this reassessment led to a flurry of Smart Growth development, an impressive string of planned communities, urban renewals and innovative attempts at TOD, or transit-oriented development, the first cousin of Smart Growth.

Hawaiian Style

Hawaii, as usual, has been slow to catch on, but some principles of Smart Growth have been used here. Stanford Carr’s Peninsula development in Hawaii Kai, for example, was a scrupulous attempt to mix housing choices. “We used a variety of land-planning concepts and diversity of product to address a variety of household incomes and lifestyles,” Carr says. When it was completed in 2003, homes there ranged from one-bedroom apartments for under $200,000, to waterfront, detached, single-family homes priced at over $1 million. Alley parking, an eclectic mix of architecture, and careful landscaping minimized the prominence of automobiles and gave the Peninsula a human scale. A recreation center and pool, and a small public dock provided community focal points.

But the Peninsula isn’t exactly Smart Growth: It is entirely residential, not mixed use. Shaded sidewalks and a waterfront pathway make the community walkable, but there’s really nowhere to go. The only transportation option for residents, besides their cars, is a bus stop just outside the gated community. The Peninsula, despite its Smart Growth inspiration, offers no relief from rush-hour congestion on Kalanianaole Highway.

Perhaps a better example of Carr’s commitment to Smart Growth is his Royal Kunia-Phase 2 project, a proposed planned community in Central Oahu. According to Carr, “That’s 210 acres of residential, 12 acres of school and parks, 20 acres of business, and 103 acres of light industrial.” Like the Peninsula, the Kunia development will have many price points. “We designed the whole community with mixed income. That includes everything from workforce rentals, to entry-level multi-family, to single-family detached development.”

But it’s the mixed use that gets to the heart of Kunia’s Smart Growth pedigree. One of Smart Growth’s catch phrases is “live, work, play.” The inclusion of so much commercial space – combined with workforce housing – makes that concept plausible for many Kunia residents.

Another development with a commercial and residential mix is Castle and Cooke’s Koa Ridge. According to project manager Dean Minakami, plans here include setting aside about 20 acres for a Wahiawa Hospital medical facility and a “big-box” shopping center. The centerpiece of the community will be a kind of village green, a commons area surrounded by commercial space and high-density housing. “This is where you would have all your neighborhood services,” says Minakami. “Daycare, a grocery store, restaurants, a post office. … This will be the vibrant heart of the community.”

More to the point, this kind of mixed use means jobs – Castle and Cooke estimates 2,500 of them – for Koa Ridge residents. Although that may only represent about 20 percent of the population of the 3,500-unit development, it’s still a big step toward the Smart Growth ideal of a self-contained community.

Challenges and Controversies

Developers like Stanford Carr and Castle and Cooke have their critics. Environmental groups like the Sierra Club, and even many urban planners, point out that the goal of Smart Growth is to focus development on underutilized areas within the urban core – in places like Kakaako, Moiliili and Kaimuki. They believe that green-field developments like those at Kunia and Koa Ridge more closely resemble the sprawl that Smart Growth was meant to cure.

Not surprisingly, the developers disagree. Harry Saunders, president of Castle and Cooke, views Koa Ridge as an excellent example of an infill development. “If you come up about 10,000 feet to look at it,” he says, “you’ll see you’ve got Mililani, Kipapa Gulch, Gentry Homes, Waipahu, Crest View, Sea View – Koa Ridge is circled by residential communities.”

In fact, the business model of Koa Ridge relies upon its advantages as infill. “It gives us a great opportunity to kind of leverage off all those rooftops,” says Saunders. For Castle and Cooke, the 30,000 or 40,000 residents of the surrounding developments represent the initial customer base for the restaurants and retail operations in the first stage of Koa Ridge. “It gives us the base for a different kind of community, one utilizing many of the Smart Growth concepts.”

Saunders also points out that infill, especially in the urban core, has its own problems. One of the charms of Smart Growth is that it can help preserve open spaces; higher densities in developed areas make it possible to lower densities elsewhere. But high density and transit-oriented development can strain the infrastructure. “If you look at TOD and infill,” Saunders says, “you’re going into areas where the infrastructure was developed 50 to 100 years ago. That’s why we have all the broken sewers and water mains.” That means redeveloping areas like Moiliili or Kapahulu would require an enormous investment in infrastructure.

That’s true even for greenfield developments like Koa Ridge. Saunders notes that Castle and Cooke is going to build four miles of transmission line down to the sewage plant. “We could never have done that if we had a 200- or a 400-unit project. The problem with TOD and infill is that you have a lot of small owners, so you don’t have the scale of a single large owner. Here, we’re able to afford to do a lot of this because we can amortize it out over 3,500 units.”

Mainland Models

Despite the challenges, Stanford Carr believes that Portland’s Pearl District and San Diego’s Gas Light District suggest that TOD and infill are possible. “These are all urban redevelopment and renewals,” he says. “People are giving up their cars and their one- or two-hour commutes to live closer to work and services like healthcare, restaurants, arts and retail. That’s what places like Kakaako can be.” Of course, the development of Kakaako can also serve as a cautionary tale, and Carr notes that successful TOD will require a detailed review of land-use ordinances and permitting requirements.

As an example, he explains that current rules still emphasize the automobile. “If we’re committed to transit, then we need to start looking at providing relief from mandatory parking requirements,” he says. “One parking stall adds $35,000 to the price of a unit.”

One surprising voice of skepticism about Smart Growth is the city’s new director of transit-oriented development, Terrance Ware. Ware, who has done TOD in transit hotbeds like Washington, D.C., Atlanta, Denver and Dubai, has seen how TOD can transform neighborhoods, but he also knows its limits. Smart Growth proponents often point to success stories like the Fruitvale neighborhood in Oakland, or the Gas Light District in San Diego, but Ware thinks this is misleading. “This is what we all look at as the image of TOD,” he says. “But I could show you just as many, if not more, examples where nothing has happened as a result of TOD.”

He points to depressed, predominantly African-American communities in cities like Atlanta and Washington, where the areas around many transit stations are just as blighted as they were before mass transit. This is true even in San Francisco, where BART has been running for more than 30 years.

Even putative success stories often camouflage the underlying problems of Smart Growth. In some places, Smart Growth has all the trappings of gentrification, as rising property values drive out the people it was intended to accommodate. It’s also not clear that every neighborhood can absorb the increase in commercial space. Merchants in the much-ballyhooed Fruitvale development, for example, complain that foot traffic isn’t sufficient. Apparently, the Fruitvale BART station is more a point of origin than a destination, a consequence that may frustrate TOD projects in places like Waipahu. As Ware notes, it’s unrealistic to expect every station to be its own little mixed-use village.

“My point,” he says, “is let’s be cautious about our approach to TOD.”

Ware also discounts one of the primary arguments for Smart Growth and TOD: the assertion that higher-density development yields more profit. The data comparing multi-family homes, townhomes and single-family homes don’t support this idea. “In most communities,” he says, “the townhomes are the most profitable, because they’re simple, stick-built construction. In higher density projects, you’ve got fire-code issues, you’ve got vertical-circulation issues, there’s the greater cost of the foundation, higher construction costs. … It just doesn’t quite work out.”

The situation in Hawaii is only magnified. “Here, you’ve got higher land costs, higher labor costs and, quite honestly, infrastructure is a real challenge. There are tremendous infrastructural challenges that have been put off.”

Ware acknowledges that financing all the upgrades to that infrastructure – the new roads, sewers, stations and other amenities necessary to attract private development – may be the greatest impediment to TOD. The most common financing tool for this kind of development is a mechanism known as TIF – tax increment financing. This method works on the assumption that property values around a station will appreciate as a result of TOD. This means that property taxes should also increase. TIF attempts to capture that incremental increase in tax revenue and issue bonds against it to pay for the new infrastructure.

But Ware notes that TIF and similar financing tools that have been used elsewhere aren’t magic bullets. And because they rely on property taxes, they’re particularly complicated in Hawaii. “Let’s say 50 percent of the city’s budget already comes from property taxes,” Ware says. That makes it difficult for the city to forego future increases in property-tax revenues, especially while shouldering higher costs for infrastructure and debt service. He also points out that debt service is already a large percentage of the city’s budget.

His point isn’t that TOD can’t work in Hawaii, just that it won’t happen overnight. “Of course,” he says, “in this environment where we’re struggling to pay for basic services, trying to redirect that flow into infrastructure becomes a real challenge. Because, in the short term, when you’re talking about laying off police and firemen and closing libraries, that’s the citizens’ most immediate need. So, what we’re really talking about here is capturing value over the long term.”

Ware points out that the biggest problem facing Smart Growth and TOD may have nothing to do with policy or financing. It may be as simple as overcoming people’s basic conservatism. He points to a photograph of a tidy, middle-class suburban neighborhood – a world of big houses, big yards and two-car garages – and remarks on the persistence of this model for the American dream. “I would argue that people still believe that this is what America should look like,” he says.

 

Smart Growth offers a different vision for auto-oriented areas like this Pearl City stretch of Kamehameha Highway. Over the next three pages, see how the area could be transformed using Smart Growth ideas. 
Photo courtesy of urban-advantage.com

 

As the transformation begins, buildings – not parking lots – now front the streets. The addition of pedestrian-friendly sidewalks and bike lanes put the focus on people, not cars.
Photo courtesy of urban-advantage.com

 

In the next stage, infill construction and mixed uses create a more urban feel. These pictures are the work of Urban Advantages, a consulting firm that provides clients with visual tools to help explain Smart Growth. 
Photo courtesy of urban-advantage.com

 

In this final illustration, medians, narrower roads and on-street parking help create a more walkable district.
Photo courtesy of urban-advantage.com

 

 

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Diversifying Hawaii’s Economy: Is it worth it?

BY DENNIS HOLLIER

 

When it comes to diversifying Hawaii’s economy, Paul Brewbaker has his doubts. As a longtime member of the state Council on Revenues and the former chief economist at the Bank of Hawaii, Brewbaker’s seen all the hopeful visions of Hawaii as a technological hub – a center of biotechnology or alternative energy or digital media. He’s also heard the endless political debate on what exactly is the right mix of tax policy and government assistance to achieve this vision. None of it, though, fits the classical economic theory through which he views the world. That makes him a rare skeptic in a crowd of believers.

“In Hawaii,” Brewbaker says, “the diversification mantra is something that was handed down to policymakers from Moses along with the Ten Commandments.” Although there have certainly been differences of opinion on how to achieve it, this long-standing faith in diversification is manifest in an alphabet soup of government agencies, programs, nonprofit organizations, public/private partnerships and legislative acts – HTDV, CEROS, HTDC, HTIC, SPIF, HCDC, Act 152, Act 110, Act 221/215, etc. – each of them created, in large measure, to help diversify Hawaii’s economy. “Every politician believes, ‘Thou shalt diversify Hawaii’s economy,’ ” Brewbaker says, “because, by now, everyone expects it.” The question, of course, is why?

The simple answer is money. Underlying most arguments for diversification is the premise that new industries will bring more money into the state in the form of better, higher-paying jobs. Within the tech sector (and most of those arguing for diversification are talking about technology), there’s mounting evidence that it’s already happening.

Last year, the Hawaii Science and Technology Council, a tech-industry trade association, collaborated with the Department of Business, Economic Development and Tourism to produce the first detailed report profiling the “Innovation and Technology Sector” in Hawaii. Perhaps the most impressive finding is the size of the sector today. According to the report, in 2007, combined public and private tech-sector employment totaled 31,106 workers, nearly a 3 percent increase from 2002. Perhaps more important, the average annual earnings for tech workers was $68,935 — 57 percent higher than the state average of $43,963. Collectively, the sector contributed $3 billion, or 5 percent, of the state’s $61 billion economy. Put another way, the tech sector had the same impact on the gross state product as the accommodations industry.

Economist Paul Brewbaker is 
skeptical of government attempts 
to diversify Hawaii’s economy

For many members of the tech sector, these numbers are justification for government efforts at diversification, like the controversial Act 221 tax credits. According to Lisa Gibson, HiSciTech’s executive director, it’s also evidence of the importance of nurturing the budding tech sector. “If you have a company and you have a product,” she says, “you track the performance of your product. You do market research. You look at your organization’s strengths; you look at its weaknesses. It’s completely analogous to diversifying your economy. The sectors are your line of products. We’ve got existing products like tourism, construction and ag. We need to develop new ones, like biotechnology, digital media and dual use.” These are the jobs of the future.

But diversification is not just about jobs. It’s also about creating sustainable tax revenues. “It’s important to say that any revenue generation plan for the state has to be multifaceted,” Gibson says. “It’s no different from your own stock portfolio.” That’s a common view in the tech community.

Bill Spencer, CEO of Hawaii Oceanic Technology and president of the Hawaii Venture Capital Association, notes, “Right now, we have an economy that depends on tourism to survive. Yet, here we are – we don’t even have enough revenue to keep our beach bathrooms clean.” Like Gibson, Spencer believes the solution lies in building a broader base for the economy. “We’re missing one leg of the stool. We need a third leg, some way to balance the economy – because right now, if anything hurts tourism, tourism goes down and we’re in the dump.”

But to Brewbaker, diversification isn’t about jobs – or even revenues, exactly – though he does agree with the analogy of the economy as an investment portfolio. “In classic portfolio theory,” he says, “one seeks diversification as a way of maximizing risk-adjusted returns.” The idea is to reduce risk by carrying a mix of assets. That way, when one class of investments is depressed (stocks and bonds for the individual investor, say, or tourism and construction for the larger economy), the effect is moderated by others in your portfolio (real estate and commodities for the individual, or high tech and film for the state). Economists call this effect “negative cross-correlation.” The problem, according to Brewbaker, is that the government usually approaches economic diversification blindly.

“Nobody,” he says, “actually does any analysis as to whether, by diversifying into a particular industry, the negative cross-correlation of its performance with respect to existing industries’ performances is risk-reducing. The state doesn’t even know what that last sentence means; and yet, it is the actual reason for diversifying a portfolio!”

A Capital Idea

Still, the march toward diversification stumbles on. Broadly speaking, there are two camps in the debate on how to get there. (True skeptics, like Brewbaker, rarely get to make their case.) One camp believes that the main impediment to growing a vibrant tech sector is a shortage of investment capital for promising companies. The other camp, while acknowledging the dearth of capital, believes that the cure is much more complicated and includes better education, workforce development and improved infrastructure. Their debates resemble the old “chicken or the egg” dilemma.

David Watumull, president and CEO of Cardax Pharmaceuticals, believes the problem is capital. He points out that Hawaii is fairly efficient at supporting early-stage companies, helping them with proof of concept. Angel investors and a series of tax credits play a vital role at this level. “(Act) 221 was certainly part of that,” Watumull says. “It did an excellent job of getting startups going.” The difficulty, he points out, is funding the growth stages that produce viable, profitable companies. “That’s traditionally been funded by venture capital,” he says, “and Hawaii’s traditionally venture poor.”

This gap creates a kind of valley of death for Hawaii tech firms. Some stagnate and fail. Others find funding elsewhere and have to move. Watumull intones a short list of Hawaii success stories that left the Islands: Verifone, Digital Island, Pihana. He points out, “Each one probably raised a couple of million dollars and went from 10, 20, 30 people, to hundreds, maybe thousands of employees. If we want that type of growth here in Hawaii – which I believe we do – then we have to find a way to attract capital.”

To illustrate the primacy of capital in the diversification equation, Watumull likes to contrast three cities that have worked hard to create biosciences sectors: San Francisco, San Diego and Baltimore. While the first two cities have been successful, Baltimore’s efforts have been anemic, despite several advantages. Watumull notes, “They have an excellent research institution, Johns Hopkins University; they’re right near D.C.; and they have the largest number of NIH grants. But they still have very little biotech – nowhere near Boston or San Francisco or San Diego.” The reason, he says, is that those cities have capital.

Some of that, Watumull believes, is simply chance. “Each of those places started with just one or two successes,” he says, “people who by hook or by crook got their company to where they could sell it.” These successes, however accidental, provided the capital for further growth in the region. But, while that model could work here in Hawaii, it’s not a good bet. As Watumull puts it, “Here we are in the middle of the ocean, geographically isolated. We’re going to have to be proactive.” He gives several examples of regions with successful diversification strategies: Singapore, which invested its enormous sovereign funds to essentially buy a biotech industry; Arizona, which has used a carefully calibrated set of tax breaks and grants to encourage investment; and especially, Utah, which, with the bold use of a tool called a fund of funds, has managed to both create a homegrown tech industry and lure several major corporations to the state. (See sidebar on page 110.) “There are definitely ways that we could attract some significant amounts of capital,” Watumull says, “enough to have a substantial impact on Hawaii.”

All of these strategies rely on tax credits and similar tools. But Brewbaker remains skeptical about the use of tax credits, particular one-to-one credits like Act 221. “If you’re a high net-worth individual with millions of dollars in income and a $100,000 tax liability with the state, you can simply invest in a qualifying high-technology business (the definition of which is arbitrary, if loosely sensible) and claim a tax credit for the entire amount. In effect, the state has given you back the $100,000 you owed.”

According to Brewbaker, this sort of tax credit can only distort the behavior of investors. He emphasizes this with a parable: “Suppose you and I wanted to set up a company with Bernie Madoff that guaranteed investors would never have to pay state income taxes for as long as they lived, and might, in the process, actually get a return on their investment. We could loot them for millions of dollars and spend it on ourselves. The investors would probably get nothing in return, but they would still be no worse off than if they had given the same amount of money to the state.”

Of course, the whole idea of these kinds of tax credits is to change the equation of risk and reward for the investor. Sometimes, the credit is designed to make some desirable kind of investment (clean energy, low-income housing) pencil out, offsetting some of the cost for the investor. Some credits, like 221, effectively shift the risk from the investor to the state. Brewbaker’s point is that investors need a true metric of risk and reward — economists call it risk-adjusted returns — in order to act efficiently. “Act 221 isn’t just inefficient; it’s outright pernicious,” he says.

Some See a Broader Problem

Ted Liu, director of the Department of Business, Economic Development and Tourism, is one of those who don’t think capital alone will work. Where Watumull says, “Capital comes first, then, the other pieces of it (education, workforce development, infrastructure) will come along later,” Liu believes those other pieces are a big reason there’s no capital in the first place. “I don’t think it’s capital driven,” he says. “Capital will go to places where it can be used.” The key to diversification, according to people in this camp, is not tax credits for wealthy investors, but an emphasis on things like science, technology, engineering and math education programs; worker training; infrastructure, like wet labs and incubators; and even lifestyle issues such as the arts and cultural festivals. Liu poses the question: “Why isn’t the private sector providing the capital now?” The answer, he says, is that “there are better opportunities elsewhere. If we want them to invest here, we have to make those opportunities better here.”

This broader view of diversification has currency in surprising places. Among the leadership of Enterprise Honolulu, for example, there seems to be a general agreement that the process will have to be more comprehensive than simply replacing Act 221 or creating a fund of funds. Board member Mark Ritchie likes to use the example of Ireland, a country that, within a generation, went from last in per capita income in the European Union to first. But the so-called Irish Miracle required an extraordinary level of conversation and consensus within the country. There’s the rub.

Pono Shim, the kahu and new president of Enterprise Honolulu, says this is the challenge facing Hawaii today. “Can we have a simple, open, honest conversation about who we are, where we are and where are we going? Until that happens, there will be no economic development that’s going to span Hawaii’s future.”

Enterprise Honolulu’s leaders are, from left, 
Managing Director Mark McGuffie, Executive Director Pono Shim 
and past Executive Director Mike Fitzgerald.

Outgoing Enterprise Honolulu president Mike Fitzgerald agrees. “Until and unless a new community discussion can take place here among the stakeholders – not just business, not just government, not just unions, not just environmentalists, not just the university, but bring those forces together and have citizens have a stake – this place has marooned itself.”

But Fitzgerald remains stubbornly optimistic. “Just think of these challenges facing Hawaii right now: First, I would argue that it’s the most vulnerable place on the planet because of imported oil and imported fuel.” Hawaii, he says, is also disproportionately impacted by any hiccup in the world economy. “All that said – and those are all challenges – Hawaii has a better set of real assets to deal with these than almost anywhere on the planet: every renewable energy asset, 365 days of growing capacity, clean, blue water for ocean research.” Just solving our own problems, in other words, will create a clean, sustainable, diversified economy.

Of course, according to Brewbaker, this all misses the point. Like most economists, he believes diversification is the wrong goal. According to the theory of comparative advantage, specialization is the better plan for a small, open economy like Hawaii. “The idea,” Brewbaker says, “is that, through production specialization in an economy’s comparative advantage, welfare will be maximized.” It’s best, he says, to simply trade what you do well for all the cheaper stuff we can import from others. Economically speaking, if Hawaii can’t attract venture capital or produce an educated workforce or a modern infrastructure, maybe technology isn’t our proper specialization.

“Tourism seems like the obvious choice to me,” Brewbaker says.

 

The Alphabet Soup of Hawaii Diversification

HTDC: High Technology Development Corp., a state agency that provides incubation facilities, workshops and other resources for tech sector companies.

HTIC: High Technology Innovation Corp., a nonprofit associated with HTDC that attracts high-tech opportunities to the state.

HSDC: Hawaii Strategic Development Corp., a state agency created to develop a sustainable venture capital industry in Hawaii.

SPIF: State Private Investment Fund, created to invest in Hawaii technology. Unfunded.

OAD: Office of Aerospace Development, a state agency to promote aerospace industries in the state.

HiTIP: Hawaii Targeted Investment Program, the state Employees’ Retirement System’s vehicle for investing in Hawaii-based venture funds.

HiSciTech: Hawaii Science and Technology Council, a trade association of tech companies.

Act 221/215: Legislation that provided tax credits to encourage local investors to invest in Hawaii technology companies.

HiBEAM: Hawaii Business and Entrepreneur Acceleration Mentors, a private incubator organization that advises and mentors early-stage tech companies.

Utah’s Model

The state of Utah has taken a bold approach to the capital problem. Using $300 million in refundable tax credits as a guarantee, Utah has attracted more than $100 million in private investment for a state-run fund of funds. Of course, like any large institutional investor, the fund of funds doesn’t invest directly in companies; it invests in venture funds that, in turn, invest in their own portfolios of firms. That much, at least, is classic venture capitalism. The risky part is there’s no guarantee that any of this money will ever come back to the state. To take advantage of the tax credits, all that’s required is that these venture funds “commit to having a working relationship with the Utah Fund of Funds.”

According to Jason Perry, director of the Governor’s Office of Economic Development, it’s the state’s job to convince those venture capitalists to invest the money back into Utah. He points out they have a wide range of incentives. “We have tax credits to expand or relocate. And we offer up to 30 percent credits for sales, income and withholding taxes for up to 20 years.”

It seems to work. Jeremy Neilson, who manages the fund of funds, points out that only $45 million of the fund has been expended so far, “but we’ve had over $165 million invested in Utah companies.” And that’s only counting investments from out-of-state venture funds. “If you count all the money invested,” Neilson says, “there’s a total of $615 million dollars syndicated.” That’s a 12-fold return on investment.

The best part is Utah isn’t out a dime of upfront money. The refundable tax credits that guarantee the fund of funds only come due in 10 years, and only if the investments lose money. Regarding the incentives for companies to come to Utah, Perry points out, “It’s all post-performance. We never give up a penny of state money until we have a dollar in our pocket.”

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Pipeline Micro

Local company solves a big problem: how to cool computers

Photo: David Croxford

The Problem

For decades, engineers have known that heat seriously hinders a computer’s performance. The harder your CPU or graphics card works, the hotter it gets. In fact, some of today’s overworked microchips would explode if the designers didn’t include a cooling system. Until now, those clunky systems had more in common with the air conditioner in your car than the other whiz-bang components of your computer. But the micro-channel, liquid-cooled heat sinks of Hawaii’s Pipeline Micro may change that.

The System

“The cooling loop is really quite simple,” says CEO Wayne Karo, sketching the three-part system. The centerpiece is a tiny copper heat sink mounted over the CPU. Micro-channels (so called because the distance between them is measured in microns, or hundredths of a millimeter) are cut into one side of the copper wafer. In a closed loop, a micro-pump flows fluid through those fins. As it passes through the heat sink, the fluid boils away to a gas, carrying off excess heat. Finally, a small condenser converts the gas back to a fluid.

The Second Problem

According to Seri Lee, Pipeline’s new chief technology officer, thermo-management experts have long considered a system like this. The problem has always been that the bubbles of the boiling fluid disrupt the flow through the micro-channels. But, in 2007, Weilin Qu, a researcher at the University of Hawaii at Manoa, unexpectedly discovered a way to stabilize the boiling fluid. Pipeline licensed this new technology from UH and this December, it raised $7 million in venture capital.

The Market

Heat isn’t a problem just for computers; it’s the bugbear of all kinds of electronics. Pipeline hopes to see its heat sinks in devices as distinct as photovoltaic cells, LED lights and high-tech batteries. For now, though, it’s focused on building prototypes of its cooling systems into the products of some of the biggest players in elec- tronics. According to Karo, Pipeline expects to sign major contracts by the end of the year.

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