ASTF halts funding of new grant requests

A combination of creative budgeting by the state of Alaska and a year-long nationwide economic slump have forced the Alaska Science and Technology Foundation (ASTF) to stop funding new grant requests and cut its operating budget by 15 percent.

ASTF was started with an endowment in 1988 as a way to diversify the Alaska economy by providing research grants and start-up loans to the private sector.

In past years ASTF has assisted several Valley-based ventures, which run the gamut from agribusiness research to the development of an all-terrain wheelchair.

ASTF also provided grants to develop a patented construction process for modular housing units -- those grants assisted Alaska Manufacturing Contractors, which is the sole shipping tenant at the Mat-Su Borough's Port MacKenzie and employs up to 70 people when construction is in full swing.

As is typical with ASTF grants, the money that went to AMC required private-sector matching funds. Now that AMC is making money, the grants turn into loans the company must pay back. AMC starts paying back to ASTF next year.

About 60 percent of the money generated by ASTF's endowment is spent for non-ASTF purposes, but ASTF executive director Jamie Kenworthy stopped short of blaming anyone for the foundation's predicament.

"Anyone who has put their money into a mutual fund over the last 10 years knows what we're going through," Kenworthy said.

Kenworthy said endowment earnings dropped from $10.4 million in the 2000 fiscal year to $5.2 million in FY01. After a meeting in early October, the ASTF board of directors announced it was directing the foundation to mothball the grant program. Kenworthy said he doesn't know when the grants will resume.

"I can't answer that question until I know when our earnings pick up," Kenworthy said, "Unless we can get rid of the earmarks in next year's budget we are permanently impaired and we can't do any more new projects."

The "earmarks" Kenworthy mentioned are legislative appropriations of ASTF earnings that go to the University of Alaska and to the Alaska Aerospace Development Corp. (AADC). Last year the two appropriations made up about $3.2 million, or 60 percent of ASTF's budget. The remaining funds went toward ASTF grant projects.

Some of the projects receiving ASTF funds are on schedule to receive future payments as they reach milestones developed by ASTF grant administrators in cooperation with the entrepreneurs. The current plan is to continue with those existing projects, but stop offering grants for new projects until the foundation's finances improve or the budget is reorganized.

ASTF beneficiaries say the demise of the grant program means more than the loss of a few million in research dollars. ASTF often spends money in areas deemed too risky by the private sector, and the grants are often referred to as "bridge grants" because they close the gap between academic research funded by the federal government and major foundations, and the development of an application that can attract business investments.

"They've been very capable people for cultivating private industry." said AMC's Bob Gilman. "For them to be sitting idle is kind of a shame."

Gilman started his relationship with ASTF in the late 1990s. Next year, AMC will begin making payments on the last of its ASTF loans. Gilman said he couldn't have sold his ideas in the private sector without the research and development help he received from ASTF.

"I started this thing as a single person with a very limited amount of resources," Gilman said. "Without their grant, I wouldn't have been able to take this from the concept to the design and to the manufacturing."

While Gilman is still running the company, he has a new capital partner in Afognak Native Corp., which purchased 51 percent of the venture in November 2000.

Pete Scorup founded Northern Native Seeds in Palmer after retiring from the University of Alaska agriculture experiment station. Scorup hooked up with ASTF funding in order to study tundra grasses. Scorup said he used grant money to look for a grass that wouldn't attract wild geese, after a much publicized crash of a military jet at Eielson Air Force Base.

When Scorup heard of the waterfowl-related accident, the news triggered a memory of revegetation experiments he had been a part of on the North Slope in the 1970s. Scorup recalled some grass plots where geese refuse to graze.

"When the AWACS (airborne warning and control system) plane went down, I kind of felt like I had a moral obligation to go back and see if something was there." Scorup said.

Northern Native Seeds is a small experimental farm where Scorup works to increase seed on about 60 varieties of Alaskan plants. Scorup starts with small samples he gathers from around the state and then selects for seed production until he has enough seed to plant test plots. It can be a long and expensive process.

Scorup said he's had mixed results, but he also said his tiny seed farm wouldn't have been able to afford the research at all without ASTF.

"It may be that where some of the best ideas come from is the little guy," Scorup said. "ASTF has provided a mechanism where some of these ideas can be explored and yeah, they don't all pan out, but I think there's a real need for it, and I was grateful for the help that I got."

ASTF's endowment is invested parallel to the Alaska Permanent Fund. The foundation pays a fee for that service.

ASTF started with $100 million in its endowment in 1988, and hasn't grown since -- all of its earnings have gone to grants, project

administration, and the legislative appropriations.

According to Kenworthy, the foundation has maintained a flat operating budget since 1995, and last year, salaries for ASTF's top four administrative positions were frozen. "This year all positions were frozen," Kenworthy said.

Even during the bull market of the mid 1990s, ASTF worked to keep from bloating itself on the administrative side, according to Kenworthy.

"When we had extra earnings from the bull market, we did one-time projects like the Kodiak launch facility and putting the Internet into schools, because we thought the state needed those things," he said. "In other words, instead of running the car faster we just maintained our speed, and used the extra money to invest in the one-time projects."

Kenworthy said that both the ASTF administrators and board of directors have worked on internal cuts. They've also discussed solutions for getting the university and aerospace corporation out of the ASTF earnings, most of which involve lobbying in Juneau. In the meantime, ASTF sits in a holding pattern, unable to continue funding its original mission.

"What's been lost is our capability to finance start-up businesses." Kenworthy said. "Remember, we share risks with the private sector. We're not just giving grants away."