Startup Priorities in the President’s Budget Request

On Tuesday, President Obama sent his final budget request to Congress and it amounted to a whopping $4.1 trillion. In reality, the President’s budget request is typically little more than legally mandated political theater. It’s an opportunity for Democrats and Republicans to rally their bases and duke it out over fiscal strategy and funding priorities. This year’s budget request will likely go largely unfulfilled by the Republican-led Congress. In fact, it was declared “dead on arrival” by Republican lawmakers, and, in an unprecedented move, House and Senate Budget Committee leadership have elected to forgo hearings on the request entirely.

Still, if nothing more than a wish list, the President’s budget lays the groundwork for future policies and, this year in particular, represents a roadmap for the next Administration to espouse or eschew. There are a number of proposals in the President’s request worth highlighting—policies and programs that, if championed by Congress, would support innovation and entrepreneurship.

Investing in Tomorrow’s Workforce

One of the startup community’s most persistent challenges is accessing a pipeline of skilled talent in order to both help startups grow and create news ones. While the Obama Administration has been an unwavering champion of immigration reform to bolster the country’s pool of high-skilled workers, immigration represents only part of the solution (and unfortunately, neither high-skilled immigration reform nor comprehensive reform appears to be going anywhere for the time being). The other piece is ensuring that we are training tomorrow’s entrepreneurs and tech workers here in America.

The President’s budget request includes $4 billion for improved computer science education through its recently announced Computer Science for All initiative. The funding would support states’ efforts to expand CS programming and focuses largely on training teachers and expanding access to quality instructional materials. The Administration has also called on local leaders, educators, and the tech industry to get involved in expanding CS education.

The budget also proposes creating two new funds: a $75 million American Technical Training Fund, which would provide competitive grants to support evidence-based, tuition-free job training programs in high-demand fields, and a $2 billion Apprenticeship Fund, which would build on the Administration’s successful American Apprenticeship Initiative strategy and aim to spur new innovations in apprenticeship.

Finally, the budget proposes creating more than 50 new “Talent Hot Spots” that would “prioritize a sector and make a commitment to recruit and train the workforce to help local businesses grow and thrive, attract more jobs from overseas, and fuel the talent needs of entrepreneurs.” The Administration estimates that this program could create a pipeline of more than half a million skilled workers in just five years, talent that could feed entrepreneurial growth.

Expanding Broadband Access

Earlier this year, the Federal Communications Commission reported that there are still 34 million Americans (or about 10 percent of the country) who lack access to broadband at sufficient speeds. Startups depend on a healthy and competitive broadband market, and it is essential that federal policies encourage connectivity. The President’s budget request includes continued investments in existing federal programs that support the expansion of high-speed broadband to all Americans. Additionally, the budget request calls for future spectrum auctioning, which will allow for more internet service providers to participate in the mobile broadband market.

Promoting Innovation

Federal investments in research and development can help spur innovation in the private sector and the creation of new companies. The President’s budget includes $152 billion in funding for research and development, an increase over last year’s request. Much of this investment is targeted for innovative technologies such as Big Data services, supercomputing, robotics, and nanotechnology. The budget also includes $4 billion for autonomous vehicle R&D, representing an unprecedented level of investment by the federal government in this new market and a huge win for proponents of this growing technology.

Making the Tax Code Work for Startups

Finally, the budget request includes a number of proposals that would streamline and improve tax benefits for startups and entrepreneurs. The President proposes simplifying the existing Research and Experimentation (R&E) tax credit. Last year, the R&E credit was modified to allow small companies to claim it against payroll taxes, instead of income taxes. This made it available to startups, many of which could not claim the credit previously due to a lack of taxable revenue. Still, the process of applying for the credit remains complex and difficult to navigate for startups. The President’s budget proposes simplifying the credit’s formula, making it easier for startups to take advantage of.

The Administration also proposes quadrupling the amount of startup expenses (things like legal fees, office supplies, or recruiting costs) that entrepreneurs can deduct from their federal income taxes, increasing the deduction from $5,000 to $20,000. This will make it less costly to start a business and allow innovators to put more money back into their startup more quickly.

Looking Forward

The frustrating truth is that most of the President’s budget proposal won’t receive Congressional consideration. However, we hope that future policymakers can coalesce around some of the proposals outlined above, which represent reasonable policies that would encourage the growth of startups that drive our economic success and are responsible for all net new job growth in the United States. Finding common ground in today’s political climate is difficult, but it is essential to ensuring that America remains a place where the ideas of the future can grow and thrive.

Startup News Digest: 11/13/2015

Our weekly take on some of the biggest stories in startup and tech policy.

#VetsWhoTech on Veterans Week: The passage of Veteran’s Day offered a moment for the tech community recognize the enormous contributions of our service men and women, the lessons we can learn from them, and the plain fact that veterans are very much a part of the tech and startup workforce. We’ve highlighted some of their stories and unique career paths in a booklet that profiles seven successful veterans in the technology industry. Yet, as these stories underscore, the current offerings covered by veterans benefits are woefully outdated. In an oped, Engine Executive Director Julie Samuels called on Congress to fix the challenges facing veterans looking to transition into the tech industry: "Trained as leaders and decision makers in complex situations, many veterans have the fundamentals to quickly learn or adapt problem-solving skills as an entrepreneur launching a startup or an engineer at a tech company.” It’s time policymakers address the limitations of veterans benefits in a changing economy.

Congress' Copyright Listening Tour. Since the spring of 2013, when the Register of Copyrights called for Congress to write “Next Great Copyright Act,” the House Judiciary Committee has held more than 20 fact-finding events to solicit opinions from a variety of stakeholders about what reforms they should pursue. This lengthy “listening tour” took a swing through California this week with stops in Silicon Valley and Los Angeles. The Northern California roundtable featured participants from all segments of the tech sector, from startups and larger tech companies to investors, academics, and advocacy organizations. The conversation was refreshingly in-depth throughout, including a series of exchanges between the Representatives and panelists about the need for fixes to copyright’s statutory damages regime. While participants were generally supportive of the DMCA, they also highlighted the need to address the growing problem of false takedown notices, which disproportionately hurt small companies.

Court Rules ITC Can’t Block Overseas Data Flow. The US Court of Appeals ruled in ClearCorrect v. ITC this week that the International Trade Commission (ITC) does not have the authority to block the electronic transmission of digital data from overseas. The ITC has typically had authority to block the importation of solely material, patent-infringing devices - and the Court confirmed this. This is an important decision because, as Charles Duan of Public Knowledge states, it “helps to ensure that Internet users have unfettered access to the free flow of information that has proved so useful for innovation and free expression.” The entertainment industry, however, is disappointed in the ruling which they hoped would have authorized the ITC prevent the import of pirated movies, books, and other digital goods.

Gig Economy Politics Makes Strange Bedfellows.  Tuesday saw the emergence of an unlikely alliance between gig economy giants and labor groups. In a letter addressed to regulators, the coalition of 37 startups, VCs, labor advocates, and thought leaders called for “a stable and flexible safety net for all types of work […] regardless of employment classification.” The letter presented more of a framework than clear, concrete solutions to the current worker classification conundrum. But the group did highlight the need for easier and more expansive access to the sorts of benefits that are traditionally enjoyed by full-time employees. Notably absent from the letter was Uber, which is embroiled in its own legal battles around this issue.

Clay Shirky on Online Education. In a compelling essay on Medium, Clay Shirky writes that the digital revolution in higher education isn't the future, it is already happening. Millions of undergraduates enroll in online courses every semester and have now for several years. Shirky points out this shift towards online learning is less a pedagogical change than an organizational one that is serving a far wider population of college students than the public conversation about higher-ed tends to focus on. Online education offerings are not only more affordable than traditional college courses, they also meet "a demand for more flexibility by students who have to manage the increasingly complicated triangle of work, family, and school."

Immigration Arguments Making Headlines. A handful of immigration issues made headlines this week. A federal appeals court ruled against the Obama administration's Deferred Action for Parents of Americans (DAPA) plans and Republican presidential candidates sparred over one another's positions on amnesty. Nonetheless, few candidates are discussing proposals to reform or expand the nation's high-skilled immigration system, where problems also persist. This week, The New York Times reported on the particular challenges small companies face in the competition for limited H-1B visas. Large outsourcing companies have flooded the system with requests in recent years and in 2014, just 20 employers acquired 40 percent of the available visas. In other vias news, the Department of Homeland Security is considering amending its Operational Practical Training program to extend the length of time foreign students in STEM fields can remain in the U.S. The agency is accepting comments on this proposed change until Nov. 18.

More Spectrum, Please. Did you know that by the end of this decade, over 50 billion “things” will connect wirelessly - from your thermostat to your car to your fitness tracker? Or that in the same time period, mobile data traffic is projected to increase seven-fold? What about the fact that the federal government controls the vast majority of spectrum, the invisible airwaves that enable these wireless products and services? In the second post in our Broadband Solutions Series, we take a look at why making more government spectrum available for commercial use is essential to improving competition and unleashing the next wave of mobile innovation.  

Broadband Solutions Series: More Spectrum, Please

This is post #2 in Engine’s broadband solutions series where we explore telecommunications policies that encourage entrepreneurial activity. For post #1, click here.

In recent months, Congress has doubled down on efforts to make more wireless spectrum available for commercial use. Committees in both chambers have held hearings, members have introduced bills, the recently passed budget included a spectrum provision, and just last week, the Senate Commerce Committee floated draft legislation that would pay federal agencies to give up their airwaves.

But before we delve too deeply into recent activities, let’s take a step back. The average person likely isn’t worrying about the impending “spectrum crunch.” In fact, most people probably couldn’t even explain what spectrum is. But spectrum—the invisible waves that carry the data for wireless products and services—is essential to our increasingly mobile world.

Spectrum enables everything from mobile phones and wi-fi networks to wearable devices and garage door openers. Demand for these products and services is increasing exponentially. In the U.S., 97 percent of households now have a mobile phone and Ericsson estimates that mobile data traffic will increase more than seven-fold by 2020. The Internet of Things is expected to grow to 50 billion connected "things" by 2020, creating $19 trillion in economic value during that same time period.

All of this growth relies on access to spectrum. And as it currently stands, we are going to need a lot more spectrum to meet this increasing demand and ensure that a number of competitive players can thrive in the mobile marketplace. There’s just one small issue—spectrum is a finite resource, the vast majority of which is held (and often underutilized) by the government.

It is estimated that federal agencies hold between 60 and 70 percent of the spectrum best suited for broadband technologies. In an effort to free up some of this spectrum for commercial use, the National Broadband Plan, published in 2010, called for 500 MHz of spectrum to be made available by 2020. While some progress has been made towards this goal—the AWS-3 auction in March, an agreement in April to allow sharing between the Department of Defense and commercial operations in the 3.5 GHz “innovation band,” and next year’s broadcast incentive auction—there is still a long way to go. By some estimates, the U.S. will need an additional 350 MHz by 2020 to satisfy commercial needs.

If we don’t meet growing demand, consumers and businesses will suffer. When spectrum is limited, phone bills increase, data caps become more stringent, and innovation is hampered. But when spectrum is plentiful, more players can participate in the market and there are improved opportunities for technological innovation.

That’s why Congress should create a comprehensive plan that ensures spectrum needs are met over the coming decades. A strong plan would include a balanced mix of both clearing and sharing, and make available both licensed and unlicensed spectrum. In October, Congress passed a budget that included provisions to require 30 MHz of federal spectrum to be freed up for auction by 2024.  While this is a step in the right direction, it is certainly not enough for the long term.

Fortunately, the Senate Commerce Committee has floated draft legislation, the MOBILE NOW Act, that would flesh out and expand on the budget provisions. The bill requires the government to relinquish a larger amount of spectrum (50 Mhz) over a shorter time period (the spectrum would have to be auctioned by 2020). Additionally, the bill would incentivize agency participation by promising agencies up to 25% of any auction proceeds.

It is our hope that even in today’s partisan climate, adopting a plan to free up federal spectrum for innovation is something that both sides of the aisle can unite behind. High tech startups—particularly those that develop mobile applications—depend on customers being able to access their products via mobile devices and networks quickly and affordably. And spectrum has enabled innovative applications and products like Wi-Fi, Bluetooth, and connected devices to flourish. Finally, increased spectrum and the higher quality service it facilitates allow wireless broadband providers to more effectively compete with their wired counterparts, improving competition in the overall broadband market.

American leadership in the wireless space and the health of our broadband ecosystem depend on a reliable supply of commercial spectrum. Congress should redouble its efforts to provide sufficient access to this fundamental input to mobile innovation.

Engine Broadband Deep Dive: Policies to Promote Broadband Competition

We all know how it feels to have a terrible internet connection, or worse, no connection at all. We’ve experienced the intense frustration of “no service.” The agony of waiting for a video to buffer or a web page to load. The disappointment of paying an outrageous sum for crappy service.

In September—the same week that President’s Broadband Opportunity Council (“the Council”) published a report that included 36 actions that federal agencies will take to better facilitate broadband deployment across the nation—Akamai published its “State of the Internet” report, ranking the U.S. 20th worldwide in terms of broadband connectivity.

While the proximity in timing is pure coincidence, the release of Akamai’s report highlights why it is so important that the government take steps to expand broadband access. The U.S. has a broadband problem. Everywhere you look there is a new data point highlighting deficiencies in the market. Almost 55 million Americans still lack access to advanced broadband and more than 25% of American households do not subscribe to broadband at home.

Beyond this lack of access, there is also a lack of competition.  As the Council notes in their report, “nearly 40% of American households either do not have the option of purchasing a wired 10 Mbps connection or they must buy it from a single provider.” The state of competition in the mobile market is similarly disappointing, with just two dominant wireless companies controlling nearly 75% of the low-band spectrum in the country—the type of spectrum most valuable for mobile Internet use.

This is problematic, since competition is what makes access more meaningful. Competition brings lower prices, higher speeds, and more incentives for companies to build out better networks. Startups depend on this sort of a healthy and competitive broadband market. We’ve elaborated on why competition matters to startups in previous posts, but in short, improved access and competition mean more customers, lower operating costs, and an enhanced ecosystem for innovation.

So what can government actually do to solve this problem?

The Council’s September report and resulting cost-neutral actions represent a step in the right direction. For example, a number of agencies plan to expand existing program support to cover broadband projects, allowing for increased funding for entities building out broadband in un- or under-served areas. Additionally, the report recommends extending the Department of Transportation’s “dig-once” policy to other agencies’ infrastructure projects. Dig-once policies encourage the laying of one tube, through which any provider can later route their fiber or cables. The Federal Highway Administration has reported that these policies can reduce broadband deployment costs by as much as 90%.

However, there is still more that Congress, the FCC (which was not included in the Council because of its status as an independent agency), and specific states or localities can be doing to improve the broadband ecosystem.

Over the next few weeks, we will be highlighting a number of policy actions that could be taken to improve competition in the broadband market and better encourage entrepreneurial activity. We will look at everything from special access services to federal spectrum to municipal broadband and much more, so stay tuned!

Statement on FCC "Lock Up" Investigation

Engine welcomes the Federal Communications Commission’s (FCC) announcement today that it plans to review the business practices of a number of dominant broadband companies that “lock up” demand in the high-capacity broadband market.

Startups depend on a healthy and competitive broadband ecosystem. Improved access and competition mean more customers, lower operating costs, and an enhanced ecosystem for innovation. Currently, the market for high-capacity broadband services is dominated by a few monopoly-like carriers who use their power to engage in anticompetitive “lock up” agreements that distort the market, jack up prices for all users, and restrain buildout by competitors. These anticompetitive practices represent a hidden tax on all startups—money that would be better spent hiring new employees, improving products, and driving growth.

The FCC’s decision to investigate these practices represents an important step towards a more competitive broadband market that encourages economic growth, innovation, and improved access for all.

Startup News Digest 10/2/15

Our weekly take on some of the biggest stories in startup and tech policy.

Rise of the Rest Tour. Engine spent the week traveling with Steve Case on the Rise of the Rest road trip to celebrate entrepreneurship, in all its forms, across America. Check out our posts on our visits to Baltimore, Philadelphia, and Buffalo.

#Visagate2015. An unexpected, last-minute policy change by the Department of State blindsided thousands of highly skilled immigrants seeking green cards, leaving them ineligible to apply and frustrated by yet another delay in the unreasonably tedious application process towards permanent residence. So frustrated, in fact, that a number of them have sued the State Department. This is not the first time immigrants have had their green card hopes dashed by an agency about-face—there was a similar fiasco in July 2007.  And as Emma writes, this represents “yet another indication of how our broken immigration system is plaguing the entrepreneurial ecosystem.”

A Fireside Chat with CTO Megan Smith. On Thursday night, U.S. Chief Technology Officer Megan Smith sat down with Khan Academy founder Salman Khan at the Nourse Theater in San Francisco to talk about the intersection of technology and public policy. As a former Google executive and the founder of her own media company, Megan Smith has a unique understanding of how bringing TQ (or “technology intelligence,” as she has termed it) to the public sector can help build a better government. She touched on a number of issues, including the importance of connectivity, STEM education and even prison reform. We took special note when she called on the audience to work together to improve diversity in tech. “We should be bringing our neighbors’ kids to work,” she said, arguing that diversity should be in the top three priorities at a company, rather than the top 20.

Bringing the ‘Techies’ to Congress. CTO Megan Smith also touched on the need for the “techies in Silicon Valley” to do a “tour of duty” in the government. A new initiative led by the Open Technology Institute hopes to facilitate just that. Beginning in 2016, the Congressional Innovation Fellowship program will place technologists in Hill offices to help “inject greater technical expertise into the policymaking process.” This program represents just another way in which the federal government is trying to bridge the gap with tech and prove that policymakers can be innovators too.

T-Mobile Plans to Buy Enough Spectrum to Cover Entire U.S. T-Mobile CFO Braxton Carter reiterated some good news on Thursday—the company is aiming to purchase enough spectrum in next year’s incentive auction to cover the the entire U.S. We’ve talked before about why competition in the wireless market matters to startups, and we even wrote a letter to the FCC earlier this year advocating for safeguards that would improve the ability of competitive bidders like T-Mobile to play in this historic auction. With Sprint’s announcement last weekend that it plans to sit out the upcoming auction, we are thrilled that T-Mobile is still planning for robust participation.

The Federal Government Wants in on Crowdsourcing. In an op-ed published in Wired earlier this week, Senator Chris Coons (D-DE) revealed the Crowdsourcing and Citizen Science Act, which would give federal agencies the explicit authority to use crowdsourcing. According to Coons, the federal government is not prohibited from collaborating with the public to solve problems, but a lack of explicit authorization deters many agencies from taking full advantage of this option. He notes that “many of our nation’s challenging problems and questions can most effectively be solved and answered with the public’s help if they are given the chance.” We couldn’t agree more, and are happy to see legislation that would encourage these sorts of creative and inclusive approaches to policymaking.

Michael Petricone has “the best job in DC.” A Morning Consult write-up gave Engine Board Member and CEA’s SVP of Government Affairs, Michael Petricone, some much deserved recognition for his efforts to get Washington and tech companies on the same page. It’s a tough job, but somebody’s got to do it! And nobody tells tech’s story better than Michael.