The potential for high-paying jobs and rapidly developing high-technology business in Southern Arizona has prompted Gov. Janet Napolitano to introduce a proposal in her budget giving high-tech companies a tax break for working directly with the state's universities.

"We think it's a great idea," said Steve O'Neil, in charge of special projects and outreach services for the University of Arizona Office of Technology Transfer. "This state should look to the universities as a source for technology, since we do a lot of research and development. It would be great to get some of that research out there for people to use."

Incentives are one way to encourage that development, and it is something that has been on the radar screen for some time, said those involved in economic development.

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"At the Innovation Awards (in Tucson late last year), there was a lot of talk about advancing some of the ideas that were discussed," said Patrick Jones, director of the UA tech transfer office. "We think that it's important if the clusters are leveraging that there should be incentives available. It makes it difficult for a small company to leverage off universities now that Prop 102 failed."

Rejected in November, Proposition 102 would have generated a state constitutional amendment allowing universities to invest in companies that commercialize technology that was created through university research. Though many expressed disappointment in the proposition's failure at the ballot box, some say that the state can move forward with other ideas - but that good technology will find its way into the marketplace anyway through collaborative efforts.

"Removing the equity possibility takes one of the tools off the table and perhaps limits the facility that tech transfer may occur," O'Neil said, "but good technicians and entrepreneurial folks will find ways to get together."

"How can that small company do research with a university if all the research universities are built on a sponsored-program model?" Jones said, referring to the current method in which universities gain only equity from start-up or spinoff companies using university-researched technology. "By providing a tax break, it can increase the amount of money that a small company has available in order to leverage and get in on that research." He said that most high-tech firms are small and don't have the cash resources available to provide much equity to universities, which may create a crimp in tech-transfer plans.

But some government watchers are leery about such a plan mostly because of the uncertainty over the state's fiscal situation.

"One thing that is concerning about these incentives that are being proposed is that they would be funded by the state's general fund," said John Dougherty, director of governmental affairs for the Tucson Metropolitan Chamber of Commerce. "And whether there's money in that fund really depends on who you ask. The governor's budget office says there will be a surplus, but the Joint Legislative Budget Committee says the state's in dire straits. We'll just have to wait until there's more information about the state's financial status."

Details of the incentive plans on the floor are sketchy and preliminary, but the response by the high-tech community to the possibility is encouraging and some say, necessary for Arizona to into the 21st-century economy.

"We have great universities, a great environment here and great collaboration between the clusters and the university," Jones said. "We just have to keep up the momentum, and any incentive will help in that effort. The clusters have been very good but you still have to create the environment. You have to look at factors like health care, a well-trained workforce and the tax structure that is in place. But no matter what we say, businesses are about people and that is the bottom line."

David Woodburn may be contacted at dwoodburn@azbiz.com or (520) 295-4239.