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Economic Growth: A Horizon SPECIAL
Original Airdate: 2012-07-06

Economic Growth special.
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Ted Simons: Coming up next on this special edition of "Arizona Horizon," is Arizona destined to be a leader in the global economy? Hear what our panel of experts has to say and the mayor of Chandler is here to talk about how his city's growth has been impacted by Intel and the high tech industry. It's all next on this special economic growth edition of "Arizona Horizon."
Narrator: "Arizona Horizon" is made possible by contributions from the Friends of Eight, members of your Arizona PBS station. Thank you.
Ted Simons: Good evening and welcome. Comments by the leader of a public-private nonprofit whose mission is to diversify and strengthen Arizona's economy seemed to have hit a nerve with the governor's office. At a recent economic summit, the CEO of science foundation Arizona warned that Arizona could become a Third World society if state leaders don't do more to improve public education and develop a highly skilled, more globally competitive workforce. They fired back with an op Ed piece saying that the state is on the right track. She pointed to a balanced budget, recent cuts to business taxes and regulations, newly adopted education standards, and pension reforms that make state government more affordable. What is Arizona's future in an environment of increasing global competition? We recently asked that question to William Harris, president and CEO of science foundation Arizona; ASU economist Dennis Hoffman, director of the research institute for the school of business and Jim Rounds, senior vice-president and senior economist for Elliot D. Pollack and Company.
Ted Simons: Thank you for joining us. Let's start with you. You're one of the reasons we're even having this discussion and your comments, destined for Third World status. What's that all about?
William Harris: I think the editorial today kind of had a good summary of the meeting and I had some really good ideas and probably used the wrong words when saying Third World status. What I've tried to do is talk about a degrading challenge to the United States. I've spent a lot of time thinking about this and my concern is that our educational system as a country is not ranking as a world leader, and my comments were put in that context, and I was talking about how you get to be a world leader and how you have world-class companies and how you make Arizona the place of discovery. And I think that part might not have been in the newspaper article and so the context wasn't there to explain what I was saying. But I did not appreciate that the term Third World would cause so much I guess resentment, repulsion and apparently, Michael Crow might have used that term quite some time ago. I was saying if you don't have a well-educated society, you're not going to be competitive.
Ted Simons: Let's don't use Third World but let's talk about being less behind in a rapidly changing and growing world. Are we in danger of that?
Karrin Kunasek Taylor: I don't think so. I think Arizona like the United States has significant challenges when it comes to education, but we should look at the good things we have going on. Arizona's a leader in school choice, for example. That has led to some stellar charter schools operating in the state. We were ranked one of the top performing public schools in the country, focused on math and science. We need to encourage that type of education. And not focus so much on what's bad but rather focus on and encourage what's good in our system.
Ted Simons: What do you think, Dennis? Focusing enough on what's good in our system?
Dennis Hoffman: Well, I think we need to do more to promote the state. Jim made the argument that we need to do more to promote a positive Arizona in terms of our tourism, a place to be, a place to grow, a place to do business, that's what we've done historically and going all the way back to Arizona highway. So why not the 21st century version of the Arizona Highways in terms of promotion? We've done a lot of good things in the last few years and I think the governor's office reaction, who knows. I didn't talk with them about it. But you know when they took office in 2008, 2009; the fiscal situation in this state was disastrous. And there have been a lot of tremendously positive moves that have been made. I think in terms of business legislation in particular, we've got a lot of good things going in the right direction. Now, I've written extensively about long-term challenges and Bill thinks about them, as well. I can think about long-run challenges. When I say that, I don't think of that as an indictment of any of our current leaders.
Ted Simons: So Jim, I'm hearing a lot of everything's just great. Everything's just wonderful. Is everything great and wonderful?
Jim Rounds: I think it's somewhere in between. When you're dealing with economics and public policy, it takes a while for an economy to change and it takes a while to implement good public policy. It was only two or three years ago that our office ranked Arizona 50th out of all 50 states for its economic programs. And they modified tax codes, some people like it, some people don't but they've been very aggressive. This was the first session that I would have given lawmakers the grade of an "A" because I think they did a great job with the constraints that they had. Here's what people have to think about. We've done a lot of things that is correct impact the economy in the short term. Now, we have to start thinking about mid-term and long-term. It's not about throwing money at a particular issue. It's about trying to use a quantitative analysis to figure out how we can better our economy, short term, midterm and long term and that's really difficult to do.
Ted Simons: Michael Gallus was the national speaker at this particular conference and he was not quite as rosy about Arizona as what I'm hearing so far from our guests. Is he off track here? He was basically saying that Arizona needs another way of thinking as far as the future is concerned. There's no mission statement for the state and no way of implementing that mission statement. He said there was a lot of talk and a lot of meetings and a lot of conferences but not much getting done from a global perspective. Is he wrong?
William Harris: I'm going to want some help on this because Dennis had a conversation with Michael today. I think the thing that having a forum like that, what you're trying to do is have a scorecard and you really don't want a scorecard that says you're perfect because people are like companies. They don't go like this. You go down or you go up. And I have personally a great ambition for the country, I have a great ambition for Arizona, and when I speak, what I'm trying to do is inspire people to really have an ambition for excellence and to have an ambition for their children to succeed. One of the things that I'm very pleased with and I think it's taken Arizona on the right path is the international benchmark standards, the state has signed up for that. It's raised the bar considerably. I think the things that have happened over the last couple of years in terms of allowing kids to go through school when they're ready to go, they can go. All of these things are incredibly innovative activities. So when I was speaking, I'm talking about 30 years down the road and I'm trying to look at changes that are taking place down there and I'm trying to challenge people to recognize that if we're ranked around 30 in science and mathematics, why don't we have the ambition to be number one? I would like for our state and our country to be number one.
Karrin Kunasek Taylor: I think we need to really give a lot of kudos to the governor and this legislature. What they've done in the last several years to diversify this economy, all you have to do is look at where we were three years ago from a job creation standpoint and where we are today. The trajectory is very, very positive from a regulatory environment, a tax environment. We are now competitive and the fruit of those efforts is now paying off and it's not just the governor and the state legislature. I'm seeing it at the local level. We're now seeing mayors out there competing, not just for their own city but for Phoenix as a region and for Arizona. And that's something we didn't see just a few years ago. So I'm very, very encouraged by the efforts that have taken place to put us in a very competitive position.
Jim Rounds: And, in fact, I think it's not that bad to have some people go up to the podium and bang their fists and be upset with something. That's what we need in Arizona a little bit more and I've spent some time talking to Michael, through some work with mag, excellent discussions. The only thing that I slightly disagree with is -- and some others locally bring this up a little bit too much, they want us to get away from being a growth state. I don't think that people look at the numbers and understand what it takes to fully diversify the economy. We're going to be dependent on growth. The key is to manage that growth, and then at the margin see what we can do in terms of public policy, encouraging the private sector, diversifying the economy. So it's okay to have these lofty goals. The expectations are there. In fact, if you don't have lofty goals, you're not going to implement the small policy changes that are needed. Overall, it's okay to disagree on occasion on these matters.

Dennis Hoffman: Mike Gallus builds strategic frameworks for regional economies. That's his business. So part of his comments you have to take in the sense that he was here marketing his framework. I'm quite intrigued by it. I think it's an interesting way of looking at it, that planning infrastructure and planning for growth depends upon a very careful analysis of trade, flows in the economy and where the economy is. It's not just building roads and infrastructure where certain people have property rights and certain developers reside. It's a really thoughtful planning exercise. And so you know since we don't have that right now and he would be willing to offer that to mag, I think that some of his comments were clearly in that direction.
Ted Simons: Back to your idea regarding growth and how Arizona's growth industry has been growth for so long and some see that as a problem, I'm hearing a lot of good moves by the governor, good moves by the legislature, easing regulations and taxes and these sorts of things going with growth and realizing that is important and tourism. Is that enough in a global -- that sounds somewhat parochial to be honest with you. Is that enough when we've got a whole big wide world of folks that are running the 100-yard dash in nine seconds and we might not be breaking 10 yet.
Jim Rounds: We have to realize what we are and we are going to be a growth state for another decade or two. Then you try to maximize those other two opportunities. I think those are the next steps, thinking more globally. On the infrastructure issue, I know Dennis has done a lot of work on this and it's actually excellent work on what are long-term needs. You have to maintain the state's infrastructure. You can't go to the legislature and say I need $10 billion to improve the roadways in one year. You have to maintain it along the way. If we can bring economic development into the transportation discussion, I think that will be very helpful. It's a little more difficult to bring economic development into the education discussion because that's a little bit more of a gray area. The benefits aren't as tangible as a roadway underneath your feet.
Ted Simons: Is there a bit of a cart before the horse here when you're talking about global issues and Arizona is still in many respects trying to get the cart back on its wheels?
Dennis Hoffman: Everybody wants -- that's the buzz and everybody wants to be a global economy, they understand the value of an export-based economy, and the wealth driver based industries that come with it. Everybody is chasing that. I think what we've done is we've laid the foundation, we've put the framework in place that we can build a global economy on this framework. I do want to get back. If you look at economic development metrics. Incentives are important, regulatory environment is important, taxes are important. Infrastructure, transportation infrastructure, proximity in airports and roads, being able to get goods in and out, vital. Quality of workforce and the productivity of that workforce, absolutely vital. And that would be the linkage to education. Where I agree with Jim is, you know, just dumping more dollars into K-12 doesn't necessarily at the other end come out a quality workforce. I think it's an important ingredient. We've got to figure it out. We've got to figure it out in the context of efficient programs. We'll need some dollars, as well.
Ted Simons: I want to get you in a second when you're hearing this? Does this make sense? The whole idea are we trying to run, too, fast before we learn to walk here?
Karrin Kunasek Taylor: I don't think we are. I think when we say infrastructure, I think not just physical infrastructure but you've got from a workforce development standpoint and education infrastructure. We have to be firing on all of these. And I think in my experience we've been doing a lot better job in the last several years because we've had to, because we've been so dependent for decades on the growth industry, when the recession hit. We came face to face with the reality that we had to diversify our economy and it's taking everybody on all these fronts to make sure we do that successfully.
Ted Simons: What do you think, Will?
William Harris: Well, I think the foundation of the future is really going to be an educated workforce and that's what's going to distinguish you. About a year ago, Greg Barrett noted that if Intel were thinking about things now, they might not come to Arizona because of the educational system. I think we have the alignment now with the schools like basis, all the things that have been passed. We have basically the Arizona ready council that's going to be pushing us to higher standards and the most important thing I think we can do as a community is agree to these internationally benchmarked standards for our children and don't back off when we run into a problem. Let's let them graduate. Don't keep them from graduating. Let the community colleges help them reach those standards themselves. That's going to Dennis' idea of a plan. Focus on the human capital and if you want to diversify the economy, you're going to do this in large part with a very significant r and d commitment. If you can get the universities working cooperatively with the industries, you're going to create a lot.
Ted Simons: Very quickly, in 20 years, will we be having the same discussion?
William Harris: No.
Ted Simons: What do you think? 20 years?
Karrin Kunasek Taylor: I hope we are. I hope we continue to challenge ourselves to get to the next level. It should be an ongoing endeavor.
Ted Simons: But really in 20 years, are we going to be worrying about Arizona playing catch-up to everyone else?

Dennis Hoffman: No I'm optimistic that we're going to get this moving in the right track. I think we're so very close on just a couple of margins.

Ted Simons: What do you think Jim?

Jim Rounds: We have a great future.

Ted Simons: Very good. Good to have you on the panel. Thanks for joining us. We appreciate it.

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Ted Simons: Chandler has become a major hub for the state's high-tech manufacturing industry. It's a business sector that's anchored by Intel, which is currently building a $5 billion manufacturing plant in the city. I recently spoke about all of this with Chandler's mayor.

Ted Simons: Good to see you again, thanks for joining us.

Jay Tibshraeny: Thanks for having me, glad to be here.

Ted Simons: We've talked so much about $5 billion. What's the status?

Jay Tibshraeny: It's billion with a "B." It's under construction. It's a significant project. I think sometimes, we take it for granted when we have an Intel in our city or in our state but this is a project of worldwide recognition. It is the second largest construction project in the world. The only project that was larger over the last year has been the London Olympics.

Ted Simons: That bears repeating. Other than the Olympics, nowhere else in the world is something of this size and stature going on.

Jay Tibshraeny: Nowhere, just in Chandler, $5 billion project. Just to get people an idea of the scope of the project, at any one time, there's three or 4,000 construction workers on site. It's like a little city. There is throughout the course of the project, there will be over 7,000 construction workers, different construction workers.

Ted Simons: So let's talk about the economic impact right now with those construction workers, with those contractors. It sounds like the sales tax revenues in a variety of ways are up.

Jay Tibshraeny: Our sales tax revenues are up. The significance of just the sales tax on the construction is -- there's construction sales tax, both for the city and the state. So those numbers are up significantly. And all the workers. There's not a day I can't go downtown on the weekend and see somebody, I came in from the east coast, I'm an iron worker, I'm working at the Intel plant, I'm staying here in your community, I'm using your restaurants in your town. So significant impact just on the construction alone.

Ted Simons: Hotels I would imagine doing very well?

Jay Tibshraeny: Yeah, they are. They are. All of the sales tax related categories are doing well and some of that's because the economy's better, Intel's brought a lot of people into our city.

Ted Simons: Does that change, does that fluctuate? There's a certain point in construction where it moves to "A" and "B" and "C." How do you see that moving out here in the coming years I guess?

Jay Tibshraeny: Well, that particular site that they're on is a 700-acre site. So this is fab 42, just to give folks an idea, we had fab 12, fab 22, fab 32. Now, we have fab 42. There's been a constant stream of construction activity in Chandler. Since 1998, Intel in Chandler has spent $12 billion on construction. So we've had an ongoing stream of activity in our community. This particular project, besides the construction, when it's done and it will be operational about a year and a half from now, because you have the shale and you have all that finite equipment that goes in and that's where most of your $5 billion hits. It's actually in that equipment and setting that up. But when they're done, they'll have a thousand new permanent workers at that plant, high-paid, salaried workers at the plant. We're pretty enthused about that. People are now coming in looking for houses in Chandler so they can be close to the plant, engineer types, high-paid types.

Ted Simons: As far as the city is concerned, what does all this do to offset lower property taxes and to impact other areas of the economy, other areas of city services?

Jay Tibshraeny: It helps. Just those revenues coming in have helped us to weather the recession. We were able to pay down some bonds this year with some one-time moneys. You can attribute that maybe to Intel and other one-time funds that came in and that helped us maintain our property tax rate and with assessed values going down, people in Chandler will see a property rate decrease, at least for the city portion of their tax. Plus, Intel is such a good corporate citizen in our community and all they do in the schools and in the city and in the nonprofits and the social media, very, very good corporate citizen.

Ted Simons: As a city leader, you look at different businesses. You look at different ways to get industry in, different sectors. The high-tech sector, how does that differ? Good things, challenges that a city faces?

Jay Tibshraeny: It's a challenge having -- Chandler has led the state in attracting jobs and industry but this particular industry and the plant itself presents unique challenges as a city. The water and sewer alone on a project like this is $200 million. The city and Intel has to bear the brunt of those costs, putting those infrastructures in. And so there's a real demand on our staff and on the city to make sure we do it right, that Intel pays their fair share, but then just to implement it, put in $200 million of water and sewer to serve that plant is a major undertaking. And so it's very challenging. We are working with the legislature this year because when I talk about $200 million of infrastructure, the city alone can't undertake that and it's very difficult for the company. We are working on a bill that's going through the legislature that would help with infrastructure costs for major manufacturing facilities like this, it's Senate bill 1442. It's worked its way through the house and Senate and it's back in the Senate.

Ted Simons: What kind of response is that getting?

Jay Tibshraeny: It's passed with good votes out of the Senate. It passed with good votes out of the house. They've got some work to do, they want to make sure that we address any concerns the governor has before we send it up to her. That would help when some infrastructure-related costs for major manufacturing facilities in the state and we need that if we're going to continue to attract the Intels of the world.

Ted Simons: For a city like Chandler center and for any municipality, can you be too dependent on one industry, one industry leader? Intel is not just a big gorilla out there. That's a big mastodon. Can you be too dependent on that?

Jay Tibshraeny: A city could be, we try to be very diverse. The size of those projects is so large that there's always probably a little bit of a risk of that, so we do continually try to diversify in Chandler and have other types of sectors in our community. There's no question that that's a big part of our industry base, and both -- they have two plants in Arizona. They're both in Chandler. One on the west side, which does a significant -- a couple of $1 million a year in r and d work, research and development, on 170 acres. They're not quite built out but in south Chandler, they bought 700 acres in the '90s and they have a lot of room to expand on that. But there will continue to be expansion. We have to find a good balancing act there.

Ted Simons: The market is not so volatile that there are concerns somewhere down the road that bumps in the road could be popping up.

Jay Tibshraeny: We always worry about everything. It's a good worry to have but it is a worry. They employ about 11,000 people in our city. Chandler now is the fourth largest city in the state, but at one time, not too many years ago, that was about our entire population in Chandler, 11,000 people, 30, 35 years ago.

Ted Simons: Things are happening out there. It's good to see you again. Thanks for joining us.

Jay Tibshraeny: Nice to see you, thanks for having me.

Ted Simons: That's it for this special economic growth edition of "Arizona Horizon." I'm Ted Simons. Thank you so much for joining us. You have a great evening.

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