Contemplating Growth

The exodus, part II. That’s what Rep. Tom Forese (R-District 21) wants to be ready for when California businesses flee the high taxes and mountain of regulations that have accompanied the leadership of Gov. Jerry Brown. The last time this opportunity to get new businesses came Arizona’s way was the 1970s — the first time Brown was governor. “History repeats itself, but not always with the same players,” he says.

Forese has a chance to have an impact as the incoming chair of the House Commerce Committee when the Arizona Legislature reconvenes this month. He wants to help create a business climate that will be more than a quick fix to boost the current recovery. Looking 20 years into the future, he wants to be ready for the megatropolis forecast to stretch from Flagstaff to Tucson along with the population growth expected to come with it. “The question we need to ask is: What kind of megatropolis will it be?”

To build an economy that supports such change, he and other legislators and public policy experts are already setting sights on their targets: economic development, job creation, education, taxation and regulations. Joining Forese on his committee is Rep. Debbie McCune Davis (D-District 14) who says she is “trying to correct the economic direction Arizona has taken.” McCune Davis understands the need to see the big picture. “We need to have [Arizona Legislature] members understand where Arizona wants to go economically,” she says. “They need to have a clear vision and pass legislation that supports that vision.” Without such an understanding, the risk increases of a fragmented economy, McCune Davis warns.

At press time, plans still were being finalized among legislators on the specific actions that will be taken when committees come together in mid-January after the start of the session. But there are ideas already taking shape. Key will be encouraging the growth of businesses to put Arizona on a solid foundation, says Rep. Marcario Saldate (D-District 27) a member of the House Higher Education and Workforce Development Committee. As a result of supporting programs to support that growth, the Arizona economy can improve. Says Saldate, “The better we are in meeting those needs, the better local businesses can do.”

Jobs and Business Creation

The better the businesses do, the more hiring that can occur. Coming from a blue-collar district, McCune Davis says finding ways to create jobs is the reason she requested the chance to be on the Commerce Committee. Getting a good job depends on finding ways to prepare the workers. “Business will encourage more expansion when they see a highly trained work force,” Saldate says. “We need to align [students] with high-skill jobs to drive our economy.” By drawing higher-paying employers to Arizona, students can believe in a future payoff by seeing these jobs in action. “You can’t separate one from the other,” she says.

McCune Davis shares the view that the work force needs to be prepared for more than traditional jobs. She notes that in the past, the economy has relied heavily on such segments as tourism. “I want to redirect the economy toward a sustainable future,” she says. “We need to be more dynamic in our change.”

One way is technology. As an example, McCune Davis cites the advancement of biotechnology in Arizona. The state needs to have this emerging field here “so we can learn from those who are doing good things” and grow even more, she says. Her support for technology was the reason she was endorsed in the primary and general elections by the Arizona Technology Council and recently was one of 10 legislators to receive a 2012 Trailblazer Award from AZBio.

With technology transfer and angel investors becoming part of the business landscape, she sees a place for commercialization of science in Arizona. This works to help the state so it “transitions in a way that grows,” McCune Davis says. Like Forese, she supports ways to make the state a desirable destination for companies looking to move.

There needs to be support of tech incubators appearing in Arizona communities, she says, noting the state has gained a reputation of being open to entrepreneurs. For students to compete in such a world, “we need strong schools to prepare students at whatever capacity they can operate,” Saldate says. “The entrepreneurial economy needs this.” That doesn’t necessarily mean supporting only the universities. Saldate, a veteran educator, says technology training is offered at the community college level, where he taught earlier in his career.

Education

At the core of training is the entire state education system. Saldate, whom many know from his years at the University of Arizona, says there “needs to be a tie between K-12 and the university” so lawmakers identify where education needs to be improved and provide adequate funding, rather than making the system subject to budget cuts. He asked to be on the committee because “education is so vital to our economy and community” and with state budget cuts in the millions, “we can’t allow that to happen anymore.”

In addition, there is the need to “provide necessary encouragement for students who are successful when they seek a particular job,” he says. For example, an algebra course can lead to opportunities in science and high-tech jobs. Students need to compete in the workplace, whether it is working in technology or at a university. “I see a strong need to create a critical mass of individuals who are educated,” Saldate says.

Sharing the desire for the legislature to focus on education are economic development groups in the state. “It’s time to renew our focus on improving our education system statewide,” says Suzanne Kinney, senior vice president of public policy for the Arizona Chamber of Commerce and Industry. In particular, the chamber supports common course standards in the state so students can get through school better prepared for the work force and college, she says.

The Common Core State Standards Initiative is a nationwide movement to define the knowledge and skills students should have within their K-12 education so they graduate from high school prepared for college work and workforce training programs. According to the Initiative, the standards are aligned with college and work expectations; are clear, understandable and consistent; include rigorous content and application of knowledge through high-order skills; build upon strengths and lessons of current state standards; are informed by other top performing countries so all students are prepared to succeed in our global economy and society; and are evidence-based.

Also anticipating a legislative focus on learning is the Arizona Small Business Association. “I expect to see bills focused on workforce development and education,” says Jerry Bustamante, senior vice president responsible for public policy and Southern Arizona for the Arizona Small Business Association. Education is one of the organization’s five areas of focus, the others of which are economic development, taxation, regulation and healthcare.

A key reason for Bustamante feeling that way is the defeat of Proposition 204 in the fall elections. If passed, the ballot measure would have made permanent a 1-cent sales tax surcharge to fund education, among other services. With its failure, the temporary sales tax imposed in 2010 will expire at the end of May. “With Proposition 204 having failed, there’s a perceived need by the education community [for the legislature] to fund education,” Bustamante says.

Business Taxes

On another tax front in 2012, the legislature passed key business measures that were signed into law by Gov. Jan Brewer. They include establishing tax credits for increasing or creating new jobs in Arizona and increasing the exemption amount for the business personal property tax. By improving the Arizona tax climate, “we have a window of opportunity to attract our fair share of businesses and farms from California,” Forese says. As a result of the changes in Arizona, “I don’t expect to see as much interest in [business] tax cuts” at the legislature this session, Bustamante says. If any changes occur in business taxes, he expects it to happen at the federal level, where issues take up 10 percent of ASBA’s focus, while the remaining 90 percent of its focus is occupied at the local level.

But more still can be done. McCune Davis says a group of legislators is studying the Arizona tax code, with some of the conclusions sure to have significance if they come up with solid suggestions. “We’ll be looking to see what is proposed,” she says.

Work also needs to be done on the sales transaction privilege tax, Kinney says. There needs to be more uniformity between taxing jurisdictions. One of the criticisms from companies considering moving to Arizona is this state is one of the most difficult to comply with in regard to such taxes, she says. Currently, what may be subject to taxation in one jurisdiction is not the same as in other jurisdictions. And the tax rate also differs from jurisdiction to jurisdiction. “There needs to be some standardization,” Kinney says. The question also remains on how Arizona should address e-commerce regarding taxation of online sales, she says.

Licensing Processes

For other business attraction, lawmakers need to continue working on streamlining permitting and licensing processes at the state and city levels so there are as few administrative processes as possible, Kinney says. Also, use of technology should be encouraged by finding ways to put more of those processes online and streamline as many of the steps as possible. Such efforts could assist such industries as construction and regulations over such concerns as air quality, Kinney says.

To get the work done, it helps for lawmakers to have experience with the issues they will face. McCune Davis is returning to the Commerce Committee, as is Javan “J.D.” Mesnard, who chaired the committee in the last session. Real-life experience is also a plus, and Forese notes the committee includes a member who is a builder and another whose family owns a business.

Nearly as critical are the partnerships that are created to get the work done. Before the new session, Forese was involved in discussions with Arizona Commerce Authority officials to study a number of potential policies. The idea is to build on the pro-business legislation in Arizona from the past two years, he says. “We have created the right environment,” Forese says.

Kinney and Bustamante say their groups have worked with different committees, such as Commerce and Education, on a variety of topics affecting business. The groups join forces on an issue when needed. On a case-by-case basis, the Arizona Chamber works with other groups, Kinney says, with the goal of business expansion and retention. For example, it has been working with the ACA in an effort to have Arizona designated by the Federal Aviation Administration as one of six U.S. sites for unmanned aircraft development. Such a project offers great potential for the state in light of expected reductions in defense spending that could impact Arizona aircraft manufacturers, she says. “Some issues need legislation, so we team up,” Kinney says. “If we have a strong common interest in a bill, we’re constantly reaching out to them and offer support,” Bustamante says.

With Arizona becoming the star of the region, it makes sense to boost business with neighbors California and Mexico. “We need to reach out internationally [for new business revenue opportunities],” he says, “so in 15 to 20 years we’re not looking at a social welfare nightmare [to support those who move here].”

All of this work leads to creating the right environment for companies in Arizona, with supporting policies and resulting business investments, Forese says. He uses Atlanta, “the capital of the South,” as a shining example of what can happen to Arizona so that it becomes the capital of the Southwest even if the state reaches the point of 10,000 to 15,000 people moving here every month, which is predicted with the megatropolis. “We need to make policies and investments that create the right environment,” he says.