Horizon, Host: Ted Simons

May 21, 2009


Host: Ted Simons

Reinventing Arizona's Economy


  • Business and political leaders engage in a lively discussion about strengthening Arizona‚Äôs economy through smart investments and tax policies that attract and keep high paying jobs in Arizona. Panelists include: Michael Bidwill, Arizona Cardinals President and Chairman of the Greater Phoenix Economic Council, Representative John McComish, Majority Leader of the Arizona House of Representatives, and Elliott Pollack, Economic and Real Estate consultant.
Guests:
  • Michael Bidwill - Arizona Cardinals President and Chairman of the Greater Phoenix Economic Council
  • John McComish - State Representative, Majority Leader of the Arizona House of Representatives
  • Elliott Pollack - Economic and Real Estate Consultant
Category: Business/Economy

View Transcript
Ted Simons:
Economists say Arizona's labor market is the worst in the nation. Our state also has one of the biggest budget deficits at more than $3 billion. Much of this is due to the national recession, but some of it might have been prevented if our economy was stronger and more diverse. We'll hear what leaders from the private and public sectors think we should do, but first here's a look at some public meetings GPEC has been holding on this very issue.

Jan Brewer:
In order to put Arizona back on the path to prosperity, we need to have the courage to set aside our own partisan political interests and stand together.

David Majure:
The greater Phoenix economic council has been holding community meetings.

Kirk Adams:
We also know tax increases under any circumstances are harmful.

David Majure:
Listening to elected officials, and economists, compiling data, and looking for ways to improve Arizona's economy in the long term, to make our state more competitive, better able to attract high-tech, high-paying jobs, and in the short-term, to balance the state's budget. When it comes to the more than $3 billion deficit, lawmakers have few options. Generally speaking, they can either cut spending, raise taxes, or both. Governor Brewer has recommended raising $1 billion with a temporary tax increase. But Republican lawmakers say it's the wrong time to tax families. A.S.U. economist Tom Rex weighed in during the topic during a GPEC meeting. He says cutting spending and raising taxes are both bat for the economy, but if it's a matter of a billion dollars in spending cuts, or raising taxes by the same amount, Rex says Arizona would lose more jobs from the cuts than it would from raising taxes. Turning to long-term solutions, Arizona needs to diversify its economy, some say.

Barry Broome:
Michigan is less dependent on automotive jobs than Arizona is dependent on construction jobs.

David Majure:
He says Arizona relies too much on construction and retail jobs. What it needs is more high-tech, high-paying jobs, and manufacturing companies that export their products out of state and bring new money into Arizona.

Barry Broome:
Arizona's economy is too dependent upon simple economic outcomes. Destination activity, people moving here, housing construction. Tourism. It comes from manufacturing, engineering, and technology, wealth generation comes from baseline industries that operate in Arizona, and export products around the world.

Eileen Klein:
We've heard from the business community that we do need to make revisions to our tax code, that right now business burden is still too high, particularly for jobs that need to generate a lot of capital. Companies that need to generate a lot of capital to create jobs, we need to figure out how to reduce their burden.

Barry Broome:
Simple math on a $50 million investment over 10 years, on capital, California's about $9 million cheaper than Arizona.

David Majure:
Of course businesses are looking for a state with an educated work force.

Eileen Klein:
Employers have told us consistently that education is one of the keys, so not just a fair and competitive tax and business environment, but a strong education system all the way from K-12 through our state Universities. So that is going to be key that we look out for education and make sure that we are maintaining our pupils' progress and the University graduation rates that our employers need.

Ted Simons:
Joining me is state house majority leader representative John McComish, a Phoenix Republican, and former small business owner. Michael Bidwill, president of the Arizona cardinals and chairman of the greater Phoenix economic council, and Elliott Pollack, C.E.O. of Elliott Pollack and company, and an economic and real estate consulting firm. What can Arizona do, right off the top, to strengthen the state's economy? The best thing we can do right now?

John McComish:
If you think about the Hippocratic Oath, first thing we want to do is cause no harm. I think we have to be very careful in terms of tax policy. I know it was stated on your clip that we -- that it's a better choice to raise taxes than it is to cut. However, I learned a new phrase a couple weeks ago, "false dichotomy." That's not the choice. What we'll have to do is we will have to cut state agencies, we'll have to increase revenue, and we'll also utilize the federal stimulus money in order to get us out of the place that we are. And we need to realize first do no harm, be very careful with tax policy. We don't want to damage the businesses by hurting -- by adding to their tax burden, the same businesses we're going to count on to get us out of the recession we're in.

Ted Simons:
Michael if there's one thing, what do you think it is?

Michael Bidwill:
I think the key is we need a game plan. We don't have a game plan right now. We need the legislature and the governor to come together and put together a new game plan to make a better Arizona. We need to diversify our economy; we can't cut our way out of this problem. I believe we need new revenues. We can't gut our government system, our education system. And all those things with a series of cuts. And what we need to do is we need to have a statewide economic development strategy and plan. And pass new laws that allow to us bring in, export industries so we can have high-paying jobs that have health care coverage and allow for us to grow our way out of this.

Ted Simons:
Elliott?

Elliott Pollack:
I'm going to give you an analogy. Think of the ghost towns in Arizona. They became ghost towns because the reasons for their existence went away. There was a drought, and there was no agriculture, people don't come here because Dillard's is here, but because Intel is here, Boeing is here, they bring in money from the outside and everything else is money moving around. Without them, we don't survive. We need to change our tax codes for a better competitor for those types of industries.

Ted Simons:
Change the tax code. What do you want to see changed?

Elliott Pollack:
Basically a reduction in personal property taxes for export-related industries. Export, I mean the demand comes from out of the state. And I want to see the reality of it, and these large corporations pay no corporate income taxes so put the income tax to zero anyway.

Ted Simons:
How do you get revenue back?

Elliott Pollack:
Basically there will be more of these companies coming in, so there will be more demand for Dillard's and Circle-Ks and baseball stadiums and football stadiums, because that's all the money moving around. Without those companies, nothing exists.

Ted Simons:
Corporate tax cuts make sense in the long run?

Michael Bidwill:
I think they do. I think it creates an environment here in Arizona that's a pro-business environment. It's going tonight private sector that grows us out of this situation, and that's what we need to do. We need a diverse economy. We need to have a diverse set of industries we focus on. We think the industries we need to be focusing on is aerospace and defense. Those are export industries. They're also industries that may be shrinking and going forward. We think there needs to be a strategy there. We think we need large manufacturing here. Intel had an announcement about their new plant going down in Chandler. But it's going in a foreign trade zone. Which is really a federal program that we don't have the benefit that lowers business personal property taxes and property taxes down for businesses so they pay a significantly reduced tax bill. And that is why we have Intel here. You look in the west valley where there's the cancer treatment centers of America, that was another GPEC assist in terms of bringing that 400-job facility to Goodyear. And that was done with -- reduce the tax burden so they chose Arizona over one of our competitor states.

Ted Simons:
I'm hearing high-tech, medical, bioresearch, these grand themes and schemes. Do we have to go so far as tax incentives to get some of these folks out here?

John McComish:
I think we do. But we want to be very careful there. But I think we do need -- we need to target industries, there are certificate goers we need to look at. We can't be all things to all people. So I think we need to target the industries and look at some intelligent tax incentives. I know that Michael and GPEC have been pushing a bill we have in the senate that will promote sustainable energy. Manufacturers who will build things and export them, or bring tax dollars and revenue into our state.

Elliott Pollack:
I want to clarify something. We're not talking about a generalize the corporate income tax cut. We're talking about only those industries that could be in Austin or San Diego could be in Denver. Dillard's isn't leaving. They're chasing income already here. We need to bring more companies in from the outside who's the man comes from -- whose demand comes from the outside who can be elsewhere. High-paying companies, companies that bring money in from the outside and let the money bounce around in the pot. Without them we have nowhere to go.

Ted Simons:
Are we willing to suffer the lost revenue that might happen with the loss of this tax -- until those people come out here, can we get that bridge?

Elliott Pollack:
If you don't do that bridge, basically Phoenix is going to be a town with a lower standard of living. That's the alternative. There is no alternative.

John McComish:
Tax revenue is not a static item. It's dynamic. If you lose a little bit of tax revenue here, and according to what Elliott is saying, I believe him; we will be gaining a whole lot more revenue because of that investment.

Ted Simons:
And yet you mentioned education. Education is getting cuts, various degrees, now obviously stimulus money is helping, but with higher education and K-12, they're targeted, and they're getting cut because the revenue isn't there. How much does that keep a company from saying, geez, we'd like to go to Phoenix, but Austin has a better education system.

Michael Bidwill:
I talk to business people every day. I talked to two of them this afternoon about that very issue. They're trying to bring in top talent into their companies, executive-level people. Talented folks who are concerned about the type of education their kids can get. One was -- it doesn't matter who they were, but the bottom line is, these are folks trying to bring in top talent F they're worried about education, that's exactly what everybody else is worried about. And are we going to have the work force? Is this a place where you can raise your kids and get a good education?

Ted Simons:
What do you think about that?

Elliott Pollack:
Yes, it's important to have a good education, but there are plenty of school districts that are quite good. I think the issue is that, yes, you need good indication, but the preexisting condition is that it's a competitive world, and if somebody can go somewhere else in this country with less bureaucracy and lower tax rate and better return on their investment, that's where they're going.

Ted Simons:
Are you buying that as well? There are states that have less regulation and lower tax rates. And we look at something like California, Massachusetts, these areas, they're throughout roof. They seem to be doing well in these particular biotech industries. Am I wrong about that?

John McComish:
Yes, but I think that's changing, and we're getting businesses drifting and sometimes stampeding from California into Arizona. So I think Elliott and Michael are both absolutely right.

Elliott Pollack:
California is a disaster area. They're losing people and companies so rapidly; it's almost unimaginable by our standards.

Ted Simons:
Are we getting those people?

Elliott Pollack:
We are getting some of them, but a lot of them are going to places in Texas, where they're more competitive. Competition is everything. As far as Massachusetts is concerned, no offense to A.S.U., but if you open up Harvard and M.I.T. right next door, I'm sure we'll draw some biotech companies.

Ted Simons:
State services in general, also getting cut by way of the budget. Is that important as well? Are those businesses looking at these services, these kinds of safety nets?

Michael Bidwill:
I don't know if the businesses are, but some of these incentives are really important. It's the people that work for us who may have a grandmother or grandfather or relative that is really relying on those services. I think it's just part of what government needs to do. But clearly to business education is very important. I think the arts and culture are important too. That's another area where the greater Phoenix area is lagging. And we need to do a better job. I think the bottom line, the punch line here is, this is a huge economic downturn. There are going to be parts of this country that are winners, and parts of this country that are losers at the end of this. We need a game plan; we need an exit strategy from this. It needs to be balanced. I recognize there need to be some cuts. We need to find new revenues. And we need an economic strategy that creates growth and diversifying our economy to come out of this.

Ted Simons:
Are we getting that at the legislature right now, or are we just simply so concerned with balancing the budget that what happens in the next few years is secondary?

John McComish:
Short-term we're focusing on a budget. We have no choice. We've got to get that done. I do believe, however, that because of the economic crisis that we're in, it's going to give us the opportunity and the urgency that we need to change things. In the next slide down comes in the economy, we're not going to be on the front of the slide. I think we have that opportunity now and I think there's becoming an awareness in the legislature that we need to do that. And we're having -- we have some committees that are involved in that right now, representative Rick Murphy has a group that's looking at what can we do with our tax policy. Another one of our freshmen representatives got a bill he's working on, an omnibus red tape remover kind of a thing which can help with the economy. So despite the fact we're really focusing 24/7 on a budget, we realize there is this -- now is providing us an opportunity.

Ted Simons:
Are we too dependent on construction and retail sales in Arizona?

Elliott Pollack:
Well, construction is somebody else's ripple effect. When you're growing, you need houses, you need places for people to work, so industrial and office, you need apartments. And you need retail. People with shops. So one of the reasons we have all this construction is because we're growing so rapidly. What happened is, during the boom, especially four states, Arizona, Nevada, Colorado -- California, and Florida, got so into it, we built essentially about 10 years of housing in four years. And we're now paying the piper for that overbuilding. Interestingly enough, because of that, and because it takes so long to build let's say an office building or industrial building, those were planned when things were good, and now they're coming on stream when things are bad and we're losing absorptions. So it's a real problem.

Ted Simons:
That seems to be the core. When things are good, they're so great no one is thinking were when things aren't going so good anymore.

Michael Bidwill:
That's right. We were riding high for a long, long time. We were number one, number two, number three job producing marketplace in the United States up until about 2006. Today we're at 50th. The Phoenix area grew fewer jobs than the Detroit area over the last two quarters. I'll say that again. We grew fewer jobs than Detroit over the last two quarters. That is -- that's really a failure of our policy. Failure of the fact that we didn't see that coming. It's really a demonstration that structurally we need a change. Now is not the time to make incremental steps or changes. We need some big, bold, dramatic overhaul of our tax structure so we don't get cut -- caught in this boom or bust sort of economy that we've developed for ourselves.

Ted Simons:
Do you see that as well?

Elliott Pollack:
Yes, except I don't think you need a big broad change. I think if you made four our five little changes, maybe big is the word, having to do with things make us more competitive for the companies that could be in Austin or be somewhere else, we would have a major impact. If we don't, we are I'm afraid destined to have a declining standard of living in Phoenix.

Ted Simons:
All right. We'll stop it right there and hope that doesn't occur. But thank you so much for the great conversation. And thank you for being on "Horizon."

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