Author Archives: Don Harris

About Don Harris

Don Harris is a freelance writer in Phoenix who reports on a variety of business-related topics. He also serves as copy editor/reporter for Arizona Capitol Times. Immediately prior to joining the Capitol Times in 2001, for nearly nine years Harris was a public information officer for two state of Arizona agencies, first with the Department of Commerce and then the Department of Insurance. Harris also covered politics, organized labor and general news events for The Arizona Republic for 19 years, periodically serving as an assistant city editor. At The Republic, Harris covered the Arizona House of Representatives for 10 years, as well as five national political conventions and most major Arizona political races. He has received several journalism awards in Arizona and Chicago, where he had been a reporter for a daily newspaper for a number of years.

Who To Watch: John Chan

John Chan
Interim Director
Phoenix Convention Center

Despite a slumping economy, the newly expanded Phoenix Convention Center experienced a phenomenon expressed some years ago in a movie — “If you build it they will come.”

Indeed, convention delegates came in record numbers in 2009, attracted by the usual Phoenix amenities, including weather and reasonable prices. A new attraction was the convention center itself, which underwent a $600 million expansion project that was completed in December 2008, and tripled the size of meeting and exhibition space.

But John Chan, interim director of the Phoenix Convention Center, sees the recession taking a bite out of convention business in 2010. Looking ahead, Chan says the industry is moving into a tentative mode. Some groups are delaying making decisions on conventions because they don’t have a firm count on delegates. Businesses are deciding to send fewer people, and convention planners are opting against adding an extra day for a possible trip to the Grand Canyon, Chan says.

Still, Chan thinks the scheduled opening in mid-2010 of nearby CityScape, a multiuse project of restaurants and retail amenities that convention delegates always look for, and the existence of light rail service, will make Phoenix that much more desirable — even as the recession puts a crimp in business travel.

“We opened the new convention center during this down economy, and yet, during the last fiscal year we welcomed record numbers of convention delegates into the building,” Chan says. “The reason — most of the business was booked two to three years ago, while it was still under construction.”

In addition, the 1,000-room Sheraton Phoenix Downtown Hotel opened one block from the center.

“Those two events merged to set the stage for the current fiscal year,” Chan says.

Last fiscal year, which ended June 30, saw 276,000 convention delegates enter the center, compared to only 104,000 the previous year, a rousing 160 percent increase.

In a sign that the struggling economy won’t negatively impact the convention industry as much as some fear, in the first three months of the current fiscal year the center already had received 220,000 visitors. Healthy numbers were spurred by major conventions held by the Veterans of Foreign Wars and Best Western International, and a volleyball festival. Best Western held a dinner for 2,400, and earlier, the National Rifle Association staged a banquet for 6,000, the largest sit-down dinner ever in Arizona, according to Chan.

He credits the surge in attendance to the expanded convention center’s ability to provide space for groups of 10,000 to 15,000. What’s more, the design of the building enables the city to host several conventions and groups simultaneously. The Phoenix Convention Center has nearly 900,000 square feet of rentable space and a total of more than 2 million square feet. The increased size has moved Phoenix from the 69th-largest convention center in the U.S. to the top 20.

“It is definitely meeting our expectations,” says Chan, who previously served as Downtown Development Director for the city of Phoenix. “We’re able to host groups we were not able to handle before expansion, and they’re talking about coming back — getting them as part of the rotation. That speaks to good customer service and the quality of food and beverage. It has really put Phoenix on the map of the meeting/planning industry.”

www.phoenix.gov/conventioncenter

Arizona Business Magazine

January 2010

Author Says Parents Should Unplug Their Kids From Electronics And Plug Them Into Nature

Getting kids back in touch with nature is critical to raising healthy children, according to author and journalist Richard Louv. His most recent book, “Last Child in the Woods: Saving Our Children from Nature-Deficit Disorder,” focuses on the relationship between children and nature. Louv links the lack of nature in the lives of today’s electronically hooked generation to rises in childhood obesity, attention disorders and depression.

Louv will be the keynote speaker at Valley Forward’s 40th annual luncheon on Dec. 12, at the Phoenix Convention Center.

Louv is also chairman of the Children & Nature Network, an organization fostering an international movement to connect children with nature. He says direct exposure to nature is essential for healthy childhood development and for the physical and emotional health of children and adults.

Louv says it’s ironic that the largest increase in child obesity occurred in the past 20 years as organized sports for children expanded.

“It’s not necessarily more activity going to more soccer practices,” he says. “As kids, we got moving as soon as we got home from school. We ran outside. Some started baseball games, others ran into the woods and worked on a tree house or dug a hole for a fort. That activity is different than a couple of soccer practices a week, followed by soft drinks and snacks from parents.”

Part of the problem is a paucity of parks, play areas and even roof gardens in city and suburban neighborhoods.

“All research points in the same direction, that children with attention deficit disorder do much better with a little bit of contact with nature,” Louv says.

But Louv is careful “to not demonize electronics,” joking that he conducted this interview while talking on his iPhone. While it’s true that youngsters are plugged into some kind of device an average of 44 hours a week — a factor in childhood maladies — it would be a mistake to focus too much on electronics and perhaps miss a deeper discussion. He mentions urban design.

“We tell kids to walk, but where are they going to walk?” Louv says. “Communities give us manicured lawns, and then have covenant restrictions that prevent kids from playing. Another issue is the over-structuring of childhood. Parents feel they have to fill every spare minute of their kids’ lives to get them into Harvard. You want your kids to get into Harvard? Tell them to go outside. Kids learn better when they’re outside.”

Going for walks, however, presents another problem.

“Parents are scared to death to let their kids go for a walk,” Louv says. “It’s the stranger-danger thing.”

Louv says child abductions by strangers are rare and the rate has been dropping for the past 20 years. He recommends nature clubs, where several families go on a hike together.

“It’s a practical way to deal with fear,” he says.

Other suggestions for healing the broken bond between children and nature include:

  • Maintain a birdbath.
  • Replace part of your lawn with native plants.
  • Collect lightning bugs at dusk and release them at dawn.
  • Make a leaf collection.
  • Keep a terrarium or aquarium.
  • Encourage kids to go camping in the backyard.
  • Give kids a daily “green hour” for unstructured play and interaction with the natural world.
  • Take a hike or organize a neighborhood stroller group that meets for weekly nature walks.
  • Encourage kids to build a tree house, fort or hut.
  • Plant a garden.

www.childrenandnature.org

If You Go
Valley Forward’s 40th Annual Luncheon
11:30 a.m.-1:30 p.m., Dec. 12
Phoenix Convention Center
Information: (602) 240-2408 or info@valleyforward.org

From Eyesore To Eye-Pleasing, Rio Salado Has Changed Dramatically Over The Years

Once an ugly swath of usually dry land that often served as a dumping ground, Rio Salado today offers the best of both worlds — economic development opportunities and a riparian haven for environmentalists.

Options for education and entertainment round out the dream planners had 40 years ago for the Salt River as it winds through Tempe and Phoenix. Tempe Town Lake, a two-mile stretch of sky-blue water that anchors the eastern section of Rio Salado, marks its 10th anniversary on Dec. 12. Meanwhile, in Phoenix the Nina Mason Pulliam Rio Salado Audubon Center, an 8,000-square-foot education facility, opened in October.

Ask Steve Nielsen, who was Tempe’s Rio Salado project manager for more than 13 years, if it has reached its potential, and he replies without hesitation: “Absolutely.”

But he concedes: “With current economic conditions, development around the lake hasn’t progressed as quickly as we had envisioned. At the same time, Rio Salado was the least valuable property in all of Tempe, and now it is the most valuable.”

Nielsen, currently assistant vice president of university real estate development at Arizona State University, says the primary objectives of Rio Salado were flood control, economic sustainability for Tempe and environmental enhancement.

“From that perspective, we achieved every one of those,” he says.

What’s more, Tempe established wildlife habitat areas upstream and downstream from the lake. In Phoenix, at 3131 S. Central Ave. on the south bank of the Salt River, sits the National Audubon Society’s first education center in Arizona. Sam Campana, vice president and executive director of Audubon Arizona, calls the learning facility a centerpiece for Phoenix’s Rio Salado Habitat Restoration Project.

“Birds are the main attraction, but children also learn science, geology and history here,” Campana says.

The five-mile stretch of Rio Salado in Phoenix also features more than 20 miles of hiking and biking trails. Yet, with all that Rio Salado offers, and with 35 schools within five miles of the center, there is a sense that this inner-city paradise is underutilized.

Rio Salado Beyond the Banks is an advisory committee to the city of Phoenix that has a vision of maximizing the long-term educational, recreational and economic benefits of the river to the community. But George Young, an active member of the committee, says, “It’s a very slow work in progress, frustrating at times. The city has budget problems, and that’s kind of thrown a wrench into a lot of our ambitions, especially as far as the promotion of Rio Salado goes.”

Chris Parks, Rio Salado Habitat supervisor for the city of Phoenix, says plans call for restoring the river bottom from 26th Street to 19th Avenue, with trails, equestrian paths and restaurants along the way. Eventually, the city hopes to establish a sense of connectivity with Tempe Town Lake for the public, as well as animals and birds.

Tempe Mayor Hugh Hallman says development around Tempe Town Lake stalled around 1999 and 2000, but picked up in 2004 after services provided by the city’s development department were streamlined to help developers and local residents avoid costly delays. Today, virtually all development around the lake occurred since 2004, and that includes 18 months of the worst economic downturn since the Great Depression.

Tempe Town Lake, along with projects on Mill Avenue and Apache Boulevard, offers developers various paths to success, Hallman says. Tempe, he adds, is well positioned for economic recovery.

“The lake is part of that picture,” he says.

SunCor Development Company, which is developing the Hayden Ferry Lakeside project at Tempe Town Lake, occupies 40,000 square feet in one of the towers. Thus far, SunCor has erected six structures with more than 1 million square feet — two office towers, a loft office building, two condo high rises with a total of 150 units, and a garage. The overall urban infill project encompasses 43 acres from bridge to bridge on Mill Avenue to Rural Road. Nine more towers, more commercial than residential, are planned and will add 4 million square feet of space to the project. Steve Betts, president and CEO of SunCor, says it will take seven to 10 years to complete the project.

“We always thought Hayden Ferry Lakeside was a multicycle project, with ebbs and flows through several up and down cycles,” Betts says.

He expects the project to be one of the first to come back when the economy improves.

“It is literally the geographic center of the Valley surrounded by three freeways, it’s on the light rail, it’s five minutes from the airport,” Betts says, “and you have the only urban lake at your doorstep.”

Light Bulb - Power Center

Local Groups Are Working To Protect The Link Between Water And Energy

It’s a given that oil and water don’t mix, but Arizona’s two key resources — water and energy — are inextricably linked.

Experts from the public and private sectors are exploring the water-energy nexus, how the two resources are connected and what needs to be done so Arizona continues to have a sufficient supply of both.

To highlight the importance of water sustainability, Gov. Jan Brewer formed a blue-ribbon panel in August to focus on increased conservation and recycling. She directed Herb Guenther, head of the Arizona Department of Water Resources, and Arizona Department of Environmental Quality Director Ben Grumbles to work with Arizona Corporation Commission Chairwoman Kris Mayes on a plan. Among the issues being considered is the need to recognize the nexus of water and energy. Grumbles says the missing ingredient in water conservation is energy.

“A deeper understanding of the water-energy nexus is the key to saving more water, energy and money,” he says. “Energy efficiency not only reduces greenhouse gas emissions and ratepayer costs, it also reduces the demand for water. By cutting water consumption and waste upstream, we save energy and money downstream, avoiding big costs for pumping, treating and distributing the community’s lifeblood.”

Michelle De Blasi, a partner with Quarles & Brady and chairperson of the Valley Forward energy committee, cites a connection between energy and water, noting that all forms of solar technology use water to a varying degree. Some rely on super-heated steam and cooling towers, while others need an adequate supply of water to keep solar panels clean.

“A lot of people don’t realize that,” she says. She calls the solar-versus-water conundrum “the green paradox.”

A recent trend, De Blasi says, is the conversion of farms to solar properties. Agricultural property is water intensive, so shifting to solar, which uses a lot less water, is generally well received by the public.

“Farming properties offer tracts of flat land, which are ideal for large solar panels, and they have great water rights,” De Blasi says. “And if they’re near transmission lines, that’s even better. You’re getting a net benefit. They’re offsetting that water use and replacing it with energy-producing carbon neutral technology, in most cases.”

According to the Arizona Department of Water Resources, irrigated agriculture uses about 73 percent of Arizona’s available water supply, down from a high of 90 percent some years ago. The reduction is the result of urbanization of agricultural lands and investment by the irrigated agriculture industry in conservation measures.

Steve Olson, executive director of the Arizona Municipal Water Users Association, a nonprofit corporation established by municipalities in Maricopa County for the development of urban water resources policy, emphasizes the need for conservation as the demands for energy and water continue to grow.

“We recognize that the era of cheap water is over,” he says. “We need to look at more expensive water supplies further from demand, we have to fully utilize effluent, and we have to store water when it’s available.”

Another issue that brings energy and water together, he says, is climate change.

“If we go to a hotter climate, we can expect more variable water supplies,” Olson says. “There is a direct relationship between drought and energy consumption.”

Salt River Project is the epitome of a water-energy nexus organization, providing both resources to Arizona residents and businesses. Karen Collins, SRP water sustainability analyst and incoming chair of the Valley Forward water committee, is involved in a study to determine how much of the state’s energy usage is related to treat and supply water. A California analysis put the figure for that state at 19 percent.

SRP wants the public to know how much energy is linked to water and how the right choice of plumbing fixtures and appliances saves both water and energy.

“People have to understand that these two resources are linked so closely, as we move forward and have increased needs for both,” Collins says. “Anything we do on the water-saving side is going to help conserve energy.”

Grumbles of ADEQ says Arizonans and the agencies that serve them must connect the dots between water conservation and re-use with environmental and economic sustainability.

“Now, more than ever,” he says, “we must work together to connect the drops and the watts so the water-energy nexus gets the attention it deserves and the water-sustainability movement gets the boost it needs.”

Lawrence Olde

Lawrence Odle, Air Quality Director For Maricopa County

Lawrence Odle
Air Quality Director, Maricopa County
www.maricopa.gov

Lawrence Odle’s initial field of study — wildlife toxicology specializing in rattlesnakes — would have kept him busy in Arizona. Yet, that’s not the career he chose.

Odle, the air quality director for Maricopa County, says he was a “starving senior” at the University of California at Riverside when he was hired on a U.S. Environmental Protection Agency grant to set up air monitoring stations throughout California.

“That’s how I got into the field, and I just never got out,” Odle says. “I went into the enforcement arena in air quality and applied what I had learned in my environmental studies.”

During the past 30-plus years, he has been active in environmental regulation, including air monitoring, permitting, research, planning, compliance, legislative, legal and administrative in California, Oregon and Hawaii. He also has a law degree, and is a certified mediator and former registered asbestos consultant.

In one year with the California Air Resources Board, Odle says he learned more about environmental quality than he could have imagined.

“It was a highly educational time of my life,” he says. “I was exposed to a lot of administrative issues, as well as field work. It was the most concentrated experience one can get. It was an education you can’t buy.”

Eventually, Odle became interested in public policy issues and served two terms as president of the California Air Pollution Control Officers Association.

Odle, who joined Valley Forward in 2003 and now sits on its board of directors, began keeping an eye on Maricopa County air quality in October 2008.

“Mostly my heart is in the public policy development area,” he says. “I enjoy identifying what is in the best public interest in regulating environmental air quality. Sometimes there are spirited discussions. There are so many fables and facts that are mixed around air quality issues.

“I admit I’m somebody who worried for years about what kind of world we would be leaving our children,” Odle says. “I went to a Valley Forward awards program and that’s when I saw a sense of responsibility and accomplishment from the business community stepping forward and creating green programs.”

Valley Forward 2010

Valley Forward: Tracy Williams

Tracy Williams
Area Manager
Altrade Supplies
www.altradesupplies.com

Is there a better way to become interested and involved in environmentally friendly issues than with the Girl Scouts?

That’s what opened Tracy Williams’ eyes to recycling and the need to protect our environment. It started when she was a Girl Scout and continues today with six of her daughters, who also are scouts.

Williams is area manager for Altrade Supplies, a Milpitas, Calif.-based distributor of a variety of biodegradable products. Its motto is, “Leading the way to a Green Earth.”

“I’ve been a Girl Scout all of my life,” Williams says. “And six of my eight daughters are scouts. One of the things we do is recycle. We’re serious about Girl Scouting and recycling.”

She’s also serious about the products Altrade Supplies sells, such as biodegradable food service products, including cutlery and eating utensils; biodegradable cleaning agents; industrial safety supplies, including personal equipment to protect an individual in case of a fall, spill-control equipment and traffic safety equipment.

“Finding out about products made out of sustainable materials has really been interesting, such as the biodegradable food service products that I sell,” Williams says. “I was intrigued by that; that’s what really interested me in what sustainability was all about.”

About a year ago, George Brooks, an environmental scientist and the company’s sustainability director, introduced her to Valley Forward.

“We call him our green guru,” she says. “I was all excited to learn about this big green movement that was going on and what my place was in it. Valley Forward is an environmental organization that has been around for about 40 years, has a voice in the community, great knowledge, and has a handle on the sustainability movement.”

She joined to learn more about green efforts.

“Valley Forward is a great program and a great group of people,” Williams says. “People mingle with each other like family. It has enabled me to get out into the world and talk about my products.”

Williams became active in several Valley Forward committees, hoping to match her skills with what Valley Forward offers. She joined the membership committee because she enjoys meeting people, and she served on another panel involved in arranging events and luncheons.

Environmentally friendly products boost Arizona’s quality of life, Williams says, “by lessening our carbon footprint overall.” Her goal for Arizona is the three “R’s”: “Recycle, reuse and reduce.”

Barbara Lockwood, APS

Valley Forward: Barbara Lockwood

Barbara Lockwood
Director of Renewable Energy
Arizona Public Service
www.aps.com

Barbara Lockwood is a chemical engineer who doesn’t consider herself an environmentalist at heart, yet there she is — director of renewable energy for Arizona Public Service.

“It’s not something that’s innate in me,” Lockwood says about the environment. “I got into it from a business perspective. What makes sense to me is that we as a global economy are all tied together on one planet. What truly makes the world go around is our businesses and our connections. Accordingly, to sustain that and be viable long term we must do everything we can to protect and sustain the Earth. I truly believe our businesses run our society.”

At APS since 1999, Lockwood is responsible for renewable energy programs, including generation planning, customer programs and policy. Lockwood began her career in the chemical industry at E.I. DuPont de Nemours in various engineering and management roles on the East Coast. Later she moved into consulting and managed diverse projects for national clients throughout the country.

Lockwood, who joined Valley Forward in 1970 and now is a member of the executive committee, holds a bachelor of science in chemical engineering from Clemson University and a master of science in environmental engineering from the Georgia Institute of Technology.

“I’m a chemical engineer and I stepped into the environment right out of college,” Lockwood says. “It was a hazardous waste treatment operation.”

Although much has changed since Lockwood launched her professional journey, “renewable energy was a natural progression of my career.”

All sources of renewable energy, including solar, wind and biomass, should remain part of Arizona’s energy portfolio, she says. Lockwood mentions a biomass operation near Snowflake that generates electricity primarily by burning woody waste material from nearby national forests.

Lockwood calls Arizona “the best solar resource in the world,” and expects greater use of that renewable energy in the years ahead.

“We’re definitely working on that,” she says. “Solar is the resource of choice in the sunny Southwest.”

The main benefit of renewable energy is what you don’t see.

“It reduces polluting emissions because it is a clean source of fuel, and it offers a stable price,” Lockwood says. “What’s more, it can create jobs in Arizona.”

Lockwood touts APS’ Green Choice Programs as a way to improve the environment. Green Choice involves such things as converting to compact fluorescent light bulbs, renewable energy resources such as solar and wind, and high-efficiency air conditioning.

She also touts APS.

“The company is committed to renewable energy, and I came here because of that reputation,” Lockwood says.

ValleyForward

Valley Forward: Lynn Paige

Lynn Paige
CEO
PerfectPower
www.perfectpowernetwork.com

When Lynn Paige, CEO of PerfectPower in Phoenix, first joined the company six years ago she lacked a background in solar energy. But it didn’t take her long to see the light.

She was brought in to grow the company, which designs and installs solar energy systems, focusing primarily on Arizona.

“I quickly fell in love with the solar industry,” Paige says. “It’s been a six-year crash course.”

Paige, who has been a member of Valley Forward since 2005, brought an accounting degree, an MBA and some 30 years of business experience to PerfectPower. She established solid management systems, hired a professional sales team, facilitated an alliance with a professional training group and instituted strict guidelines for working with commercial and residential clients.

Although Arizona is the sunshine capital of the country, it’s also one of the nation’s heat capitals, which presents a bit of challenge for solar, as well as other energy industries.

“Heat de-rates a solar system, which means it produces less electricity than the same system would in, for example, Kansas City,” Paige says. “Our big goal at PerfectPower is to figure out a way to design a system around that heat factor that will produce more kilowatt hours than it would otherwise. We’ll be using the sun to do that.”

Yet another challenge is convincing consumers that solar energy is cost effective.

“People do not believe that solar is less expensive than producing electricity through nuclear or coal plants,” Paige says. “It pays for itself in a short time with federal and utility incentives and tax credits. There’s really no excuse today for anyone not to be using solar.”

For a commercial customer, solar would pay for itself in 18 months. For residential, depending on the size and type of system, the break-even point is three to seven years, Paige says.

“If you’re not using solar, at the end of seven years you’re still paying the utility company,” she says. “With solar, at the end of seven years you could have all of your energy for free. It’s a no-brainer. I’ve had solar at my home for three years and I have no energy bills. I can’t tell you how liberating that is. It’s kind of heady to be your own little power plant. It’s really a neat thing.”

What’s more, solar improves Arizona’s quality of life.

“It’s cleaner and it produces a steady line of electricity — no sporadic spikes,” Paige says.

Valley Forward: Colin Tetreault

Colin Tetreault
Master of Arts Student
Arizona State University, School of Sustainability
schoolofsustainability.asu.edu

As a student at the Arizona State University School of Sustainability, Colin Tetreault is exploring ways for the business community to play a greater role in enhancing the global environment.


It’s a natural blend of interests for Tetreault, who is pursuing a master’s degree in sustainability and has a bachelor of science degree in marketing from the ASU W.P. Carey School of Business, as well as a minor in sociology. He has a diverse business background and skill set tempered in marketing, business development and philanthropy. His goal is to integrate his business acumen and cutting-edge knowledge of sustainability.

When ASU President Michael Crow said, “Sustainability is a way to grow and prosper while reducing the stress on the planet,” and asserted that sustainability would be a hallmark at ASU, Tetreault says, “I knew this was absolutely something that I not only wanted to pursue, but I felt compelled.”

Tetreault’s background led him to the field of sustainability.

“I grew up hiking and climbing and having an appreciation of the outdoors,” he says, “but my parents are both business individuals. My mother was a professor of marketing and my father was a business executive. I loved being outside, but I also loved what business can do. Business can accelerate change and can act as an advocate for it.”

Some individuals may view business as being unfriendly to the environment, and with some justification, Tetreault says.
“Admittedly, in certain instances they may be right, but now business has done more than ever for the environment and can act as an advocate for the world,” he says. “It marries two areas that I love — a synthesis of business and the entire global perspective of sustainability, which is not just hugging trees and savings animals.”

Sustainability will provide a “meaningful, productive and just way of life,” Tetreault says, adding that it is vital to save the trees and have clean air so humans can live on this planet.

“Sustainability is paramount to that, to help achieve economic viability and a robust society,” he says. “Everything is connected. Our actions have a direct impact on us now and in the future and on everything around us. I feel this is my calling.”

Tetreault, who joined Valley Forward this year, hails the organization for its role in preserving the environment and for being “not only an aggregator of information, but also an advocate for positive change.”

“Valley Forward embodies those type of ideals,” he says.

credit unions reaching out to small business

Arizona’s Credit Unions Are Reaching Out To Small Businesses

Relative newcomers to the field of making business loans, credit unions nonetheless have become key players in today’s tight-money economy. Barely 10 years ago, credit unions concentrated mainly on savings and checking accounts, and made personal, auto and home loans. But the Credit Union National Association says credit unions nationally originated $6.5 billion in business loans in the first six months of 2008, up 36 percent from the $4.8 billion in the corresponding period of 2007.

Credit union business loans in Arizona average about $240,000. Because the loans are relatively small, credit unions focus on small businesses.

For the past six years, Arizona credit unions have been working closely with the Small Business Administration and have emerged as strong SBA lenders. But because of the expertise involved in making such loans, only the larger credit unions are active in that segment of lending.

Steve Dunham, president and CEO of Canyon State Credit Union and board chairman of the Arizona Credit Union League & Affiliates, suggests that credit unions with assets of at least $400 million generally have the ability and staff support, so they are most likely to make business loans.

Then there is the issue of the federal cap, which the credit union industry has been trying to get Congress to increase or eliminate. Under the cap, credit unions may make business loans totaling no more than 12.25 percent of their assets.
The business lending cap comes into play at Arizona State Credit Union, one of the state’s largest.

“We’re getting very close to the cap, so we are being selective about what we do,” says Paul Stull, senior vice president of marketing at Arizona State Credit Union. “We keep bumping into it, and we have to find a way to make room. It’s quite a challenge to manage that.”

Despite the regulatory limits placed on credit unions, opportunities for businesses to borrow are available. Businesses face a combination of challenges, such as finding a money source and finding the right rate, Stull says.

“For many of the people we deal with, the rate is important, but many times they don’t have too many alternatives to look at for financing,” Stull says. “That usually means their needs are somewhat smaller than the targeted range of other providers. It takes just as much work to originate a small loan as it does a large one. Some would prefer to do only larger loans. A small business person might fall outside of that window. When they do, it’s tough for them to get the attention they want and deserve. Certainly small enterprises are not coming up on the radar of some of the larger lenders. That doesn’t mean rate isn’t important. It still is. But clearly you need to talk to somebody before you can get a rate.”

In all phases of lending, credit unions traditionally follow very conservative underwriting principles and only make loans to members. It’s not uncommon for an individual member to approach a credit union with a business loan request.

“The strong suit for credit unions is what it has always been — credit unions take the time to know their members,” Stull says. “That certainly puts us in a better position to meet the needs of a business. Many of our business customers have a personal relationship with us. They like the way we treat them personally, and they realize they can do their business banking with us as well. And that leads to a deeper relationship. The wider use of our business services is a more recent phenomenon. It’s a natural progression, and is indicative of the way we like to know our customers.”

Most experts see the economy beginning a slow turnaround toward the end of this year or early 2010. Consumers for the most part are still on the sidelines. Credit unions and the business community are keeping an eye on the nation’s savings rate.

For the past 20 to 30 years, Americans saved 7 percent of the income. But in recent years, before the recession hit, people were spending and borrowing more and saving considerably less. The U.S. Department of Commerce notes that the U.S. savings rate has been on the rise after almost five years in which consumers barely saved a penny.

Stull calls the rise in savings a good sign-bad sign situation.

“It’s good because people are being more cautious, developing more security,” he says. “The money they save goes to financial institutions and becomes available for lending. But, it’s a bad sign because people are not buying cars, motor homes, washers and dryers, and they’re not dining out as much as they used to. So it’s really kind of a double-edged sword.”

Antigua map

The ACULA Formed A Partnership To Help Peer Credit Unions In Antigua

Arizona credit unions are reaching out to professional colleagues in the former British colony of Antigua, offering instruction, training and guidance to help credit unions on the tiny Caribbean island expand and modernize.

Working through the World Council of Credit Unions (WOCCU), the Arizona Credit Union League & Affiliates has established a partnership with the Credit Union League of Antigua. The term partnership indicates joint interests and benefits, and that’s the nexus of what the industry calls its financial cooperative concept.

Credit union experts from Arizona have traveled to Antigua, which is in the eastern Caribbean north of the equator, to share ideas and strategies for improving services to their members and becoming more sophisticated in the making of loans.

Antigua has an estimated population of 85,000 and was granted its independence in 1981. The largest of the English-speaking Leeward Islands, Antigua is about 14 miles long and 11 miles wide. The island has a handful of credit unions, the largest of which has assets of approximately $24 million, compared to one of Arizona’s largest, the Arizona State Credit Union, with assets of $1.1 billion.

Scott Earl, president and CEO of the ACULA, says the partnership was formed last year to enable Antigua credit unions to see what drives the industry in the United States.

“Typically, partnerships are established with developing countries,” Earl says. “It goes both ways. We send folks to Antigua who did some training there, and they have come up here. We learn from them as well, focusing on the roots of providing services to our members. The exchange helps rejuvenate our industry as well.”

Robin Romano, certified chief executive and CEO of MariSol Federal Credit Union, recalls a trip to Antigua last year. The focus was on bringing Antigua’s credit unions up to today’s standards.

“No matter what country you are in, credit unions pretty much operate in the same basics,” Romano says. “Members are members, and uniformity is comforting. Since Antigua got its independence, credit unions have been trying to improve their regulations and become a little more modern. When I say modern, I don’t mean technology. Most of them are computerized. But, they operate similarly to the way credit unions here did 30 years ago.”

What has changed in the past 30 years? Antigua credit unions were only offering signature or auto loans and savings accounts.

“Many had not ventured into checking accounts, certificates of deposit or money markets,” Romano says. “Few were doing any form of real estate lending.”

Because Antigua has no credit reporting system, much of the training dealt with how to determine the credit-worthiness of potential borrowers.

“We talked about different methodologies,” Romano says. “It’s a small island. You can call around for shared information. We talked about the evaluation of credit to make better decisions. In modern times, more people default. They were having issues with defaults and weren’t quite sure how to handle that. I have expertise in lending and I went to six credit unions, making presentations to staff and board members on how to do things better. We also talked about different collection methods. Collectors there have the same issues we have here. We were able to relate to one another.”

The trip did provide sort of a return on investment for the Arizonans.

“Going back to smaller institutions was a way of refreshing yourself on one-to-one operations,” Romano says. “Somebody comes in and they know that person’s entire life history. That intimate relationship was very rewarding.”

Mary Lee Blommel, a member services consultant for the ACULA for 27 plus years, went to Antigua last year with representatives of three Arizona credit unions. One of the Arizonans visited five Antigua credit unions, conducting sessions onloan underwriting and emphasizing the importance of doing a check with creditors. Another visitor focused on how best to provide services to members.

In addition to the face-to-face exchanges, the league arranges conference calls and Webinars to keep the lines of communication open with Antigua credit unions. Topics have included risk management and asset liability management — making sure they have adequate funds to lend.

“We did a one-hour Webinar on risk management — investment risk, loan risk, and credit union risk in these trying times,” Blommel says. “It went very well. They had the opportunity to ask questions. I could count at least 20 people in that room.”

credit unions transformation

The ACULA Has Transformed Over The Decades

In the 75 years since the formation of the Arizona Credit Union League & Affiliates, the organization’s role has changed markedly as its membership soared. Actually, the first credit union law in Arizona was introduced, passed by the Legislature and signed by the governor in 1929. Thus, Arizona became the 29th state to enact a credit union bill.

Even before credit unions were officially recognized and regulated by the state, a mutual investment group known as Pyramid was launched in Tucson in 1925. Once the Arizona law was passed in 1929, Pyramid Credit Union received one of the first — some say the first — charter to formally operate as a credit union.

Five years later in November 1934, the Arizona Credit Union League, as it was then called, was formed. By 1948, there were 25 credit unions in the state with 3,000 members and almost half a million dollars in assets. Today, 56 Arizona credit unions represent about 1.6 million members, with assets in excess of $11 billion.

Initially, the league focused on organizing new credit unions throughout the state. In the early years, there were just a few state-chartered credit unions. Scott Earl, president and CEO of the Arizona Credit Union League & Affiliates, tells how the league’s efforts fostered growth.

“Field reps would arrange meetings with employer groups,” Earl says. “They’d be driving down the road looking for parking lots outside of businesses. If a lot of cars were parked there, they’d put credit union charter applications on the hoods of the cars. I don’t know how many organizations were created as a result during those years, but I’m sure many were.”

Gary Plank, who retired as president and CEO of the league in 2007, recalls being an organizer when he entered the credit union profession in Iowa in 1966.

“We felt the best way was to talk to the management of the company to see if we could generate interest in a credit union for the good of their employees,” Plank says.

The largest Iowa credit union back then had assets of about $7 million. Today, the assets of that same credit union exceed $1 billion, Plank says.

Plank says two factors triggered the phenomenal growth of credit unions: the addition of share-draft checking so direct deposits, including Social Security benefits, could be accepted; and a decision by the federal government to insure savings accounts.

Indeed, as credit unions grew, officials saw the need to offer more products and services, such as debit and credit cards, individual retirement accounts and first and second mortgages.

“The league was the incubator for a lot of these products and services, helping individual credit unions along the way,” Earl says. “An outgrowth of that cooperation is shared branching.”

Under shared branching, credit unions join networks that enable their members to transact business from virtually anywhere in the country where a joint operating logo is displayed.

“Shared branching addresses one of the competitive disadvantages credit unions had, which was a lack of convenient locations,” Earl says.

In the 1990s, the league’s role shifted dramatically, becoming more of an advocate for credit union legislation at the state and federal levels. In other words — lobbying.

“We put a great deal of resources into that today,” Earl says.

Services the league provides include consulting, governmental affairs activities, regulatory compliance, legal, human resources, education, communications, publications and public relations. The league works in cooperation with Credit Union National Association (CUNA), U.S. Central Credit Union, the World Council of Credit Unions and the CUNA Mutual Group.

Having the support of the league and national and international credit union organizations is helping Arizona credit unions cope with the current recession. Though a few mergers have taken place, Earl says they are not the result of the economic downturn.

“Almost always when a merger occurs it’s to provide better service to the members,” he says.

Yet, the economy is having an impact on credit unions. Many of its members — average Arizonans — have defaulted on loans or gone into bankruptcy. The good news, Earl says, is that credit unions have been reworking those loans to help their members get through difficult times.

“The challenge for the league,” says Earl, “is to find new efficiencies for credit unions to collaborate so they can provide better products and services to their members. We have to keep looking for ways for credit unions to work together.”

Credit unions, which are not-for-profit operations, have good capital and strong reserves, Earl says.

“We built those reserves for a rainy day,” he adds. “And for a lot of consumers, it’s pouring rain. But we will be around. We’ll be just fine and will continue to be of greater service to citizens.”

The Business Community Is Ringing A Cautionary Bell On Further Cuts To The State’s Education System

The Business Community Is Ringing A Cautionary Bell On Further Cuts To The State’s Education System

Good schools are good for business. It’s that simple. Contrary to popular belief, incentives and tax breaks aren’t necessarily the only things businesses take into account when considering a move to Arizona or an expansion of a local operation. Sure, they want to make money, but the quality of the education system, from K-12 through colleges and universities, also is a key element in the decision-making process.

In early July, $3.2 billion in budget funding for the K-12 public education system was restored after initially being cut by Gov. Jan Brewer in a line-item veto. The education budget was also increased by $500 million, which now qualifies the state for $2.3 billion in federal stimulus money. Despite dodging that bullet, schools remain under the threat of future budget cuts, and that has caught the attention of business leaders. But paying attention isn’t enough. They need to be more involved in the process, insiders say, establishing and maintaining working relationships with state legislators who control the purse strings.

The business community has a stake in education on two fronts, says Chuck Essigs of the Arizona Association of School Business Officials (AASBO), which provides professional development opportunities for individuals working in all jobs in the education field.

“One,” he says, “is the ability of the education system, both elementary and secondary and the universities, to prepare an adequate work force, and to make sure schools are adequately funded so they can carry forth their mission of having an educated population. So when the business community hires people, they’re hiring people who have the skills and training to be productive workers.”

The second aspect involves Arizona businesses that are recruiting workers from out-of-state or businesses that are considering an expansion to Arizona from elsewhere.

“If those workers have school-age children, they want to know what the school system is like,” says Essigs, AASBO’s director of government affairs. “If they feel that their kids are not going to get a quality education, it might make them hesitant to leave where they are. They might think twice about taking a promotion and putting their kids at a disadvantage in a school that’s not up to the standards they want.”

Robert E. Mittelstaedt Jr., dean of the W.P. Carey School of Business at Arizona State University, says most businesses are far more concerned about the general education environment.

“I remember a bank official in Philadelphia 25 years ago saying he couldn’t find a receptionist who could read and write,” Mittelstaedt says. “You still hear that. Companies expect to have an education system that graduates students who are qualified to enter the work force in some minimally accepted level.”

If the public schools fall short, perhaps because of inadequate funding, the option of sending children to private schools becomes a cost factor for employees.

Javier Rey, vice president-operations for State Farm Insurance’s Tempe operations center, says it’s critical that Arizona’s youth are better prepared for higher education, so they can contribute to the nation’s and state’s civic, economic and social advancement.

“The quality of schools is a factor that businesses look at when considering relocating or expanding,” Rey says.

Christopher Smith, manager of government and regulatory affairs for Cox Communications, calls education “critical to economic development.”

“It is an essential ingredient in the lifeblood of our economy, both nourishing the supply of talented workers and attracting and retaining the customers they serve,” Smith adds. “Education ranks high on the various lists of important factors in location/relocation decisions, not only due to the increasingly critical competition for knowledge workers, but also because executives making these decisions care deeply about the education of their own children.”

Smith gives Arizona’s education system reasonably satisfactory grades, but says the status quo is not good enough to meet today’s challenges.

“We need to break the mold a bit and unleash more of what made America so great — liberty, bold innovation, inspired risk-taking, creativity, robust competition and an unflagging entrepreneurial spirit,” he says.

Susan Carlson, executive director of the Arizona Business & Education Coalition (ABEC), a nonprofit K-12 education policy advocacy organization, says the business community needs to be more involved in the school-funding process.

“Business needs to be engaged in the conversation,” she says. “They need to watch what the Legislature is doing. We can’t keep saying ‘no’ around tax reform and ‘yes’ around increased skills for students. It may take more money, if money is allocated to the right things. It’s going to take being focused on research-based strategies. Educators are willing and committed to support research-based strategies, and redirecting some of the funding that exists.”

Wooing businesses to AZ in the recession

Despite Tough Times, Economic Development Groups Continue To Woo New Businesses To Arizona

Economic development experts in Arizona hope to parlay the state’s convenient geographic location, and even a stagnant housing market, into attracting new businesses.

Toss in relatively low taxes, a freeze on new regulations and a well-honed reputation as a business-friendly state, and recruiters have a tool box full of reasons why businesses should consider relocating to Arizona.

But that’s not all the economic development agencies tout. Local experts know that businesses looking to relocate are interested in those intangible quality-of-life issues: an available and educated work force, a higher-education community that excels in research and churns out highly qualified workers, and a relatively low cost for starting up and doing business.

Television commercials are generally cost-prohibitive, officials say, leading them to rely heavily on the Internet for their recruitment efforts. Feature articles in national trade publications also represent a low-cost way of spreading the Arizona story.

Two of Arizona’s largest economic development agencies — the Greater Phoenix Economic Council (GPEC) and Tucson Regional Economic Opportunities (TREO) — are collaborating on a campaign to lure California businesses to Arizona.

Scarlett Spring, GPEC’s senior vice president of business development, says her team makes targeted trips to California at least once a month, with specific emphasis on the Bay Area, Los Angeles and San Diego. Often, GPEC invites local mayors along to give recruitment efforts an official flavor. Bringing mayors, Spring says, gives recruiters leverage and “opens doors that might not otherwise be open.”

The GPEC message to California?

“Arizona has a business-friendly environment and a reputation of having lowered taxes in some shape or form for 10 consecutive years,” Spring says. “It’s a lower-cost environment for their employees, whether through workers’ comp, competitive wages or health care insurance. Those are the operational costs that a company looks at when considering a financial move or expansion.”

Noting that virtually every phase of running a business is more expensive in California, Spring adds, “What we’re doing is trying to position Arizona as being complementary to the California marketplace.”

DGPEC also invites businesses to Arizona for special events. For example, last November biotech and solar companies from the Bay Area were hosted for a weekend in the Valley. The visit included attending a game between the Arizona Cardinals and the San Francisco 49ers. Two of those companies are close to moving to Arizona, Spring says.

Laura Shaw, senior vice president of marketing for TREO, agrees with the strategy of taking advantage of Arizona’s location. California businesses struggling under mounting operating costs have the ability to move to Arizona and still access California markets.

TREO targets such industries as aerospace, defense, biosciences and alternative energy, and only meets with companies that have been pre-qualified as likely candidates for relocation.

“Research shows that labor drives all market decisions — whether a company can find the labor that fills their needs,” Shaw says. “We focus on matching our assets with a company’s needs.”

Despite the national perception that Tucson is a low-wage community, TREO presses for higher-paying jobs.

What the Tucson area offers is a high-growth Southwestern region situated at the doorstep of California and Mexico, with young talent graduating from the University of Arizona. Tucson is also in the heart of one of the most heavily traveled trucking networks, linking Mexican markets to the California coast.

Meanwhile, the Arizona Department of Commerce, though on a limited basis because of budget cuts, continues to participate in trade shows and foreign direct investment events in Canada, Mexico and Europe. Commerce officials and hired contractors work with foreign companies that are interested in expanding to Arizona. They also help match Arizona firms with foreign customers.

Kent Ennis, interim director of the Commerce Department, confirms that a tight budget makes recruiting more difficult, yet the agency reaches out to major industries, including bioscience and solar. In fact, the Commerce Department led an Arizona delegation to a national convention of bioscience technology companies in Atlanta on May 18.

In addition, the Commerce Department assisted in the relocation of Spain’s Albiasa Solar, which in April announced plans to build a $1 billion renewable solar energy plant near Kingman. The project will create 2,000 construction jobs and more than 100 permanent positions when it is completed in 2013, Ennis says.

The Arizona Association of Economic Development, which is more of a trade organization representing Arizona firms and does not embark on recruiting efforts, nevertheless gets its share of contacts from businesses considering a move to Arizona, says Bruce Coomer, executive director of AAED. But first, he makes sure to sing Arizona’s praises. He mentions the usual advantages, but adds an unlikely twist.

Because our housing market crashed,” he says, “that’s a plus. Now there is affordable housing if a company wants to move here, especially from California. Their employees can really get some bargains.”

Stimulus Effect

Infrastructure Companies Are Big Winners Under Plan To Jumpstart Economy

Construction companies, big and small, figure to be the primary beneficiaries of some $4.2 billion in federal stimulus money that will flow into Arizona in the months ahead. But economists and industry officials say businesses across the board will share in what could be a spending bonanza.

Clearly not everyone is in construction. Yet, as major projects move from drawing boards to construction sites, laborers and management teams are in a better position to perhaps buy a car or get an old one repaired, purchase a needed washer or dryer, go out to dinner, or shop for clothes for their kids. That’s what many see happening as the money flows downstream.

Industry experts say estimates of the multiplier effect range from 3.5 to 5.5, meaning that for every dollar spent on construction, the impact on the rest of the economy is $3.50 to $5.50. Others say that every $1 billion spent on construction results in 35,000 to 40,000 jobs.

Other businesses in line to benefit include those related to health care, energy efficiency and home improvement. And it will help if a business is savvy about coping with government bureaucracy.

There are debates about whether the Obama administration’s $787 billion stimulus package involves too much government or not enough government, but everyone seems to agree that government has to do something to pull the nation out of the worse economic downfall in decades.

Economics Professor Dennis Hoffman, director of the L. William Seidman Research Institute at Arizona State University’s W. P. Carey School of Business, is among those who expect stimulus money targeted for indigent health care to have a ripple effect, impacting hospitals and health professionals. But, says Hoffman, who has done projects for Del Webb Construction, the Arizona Department of Transportation, the Arizona Department of Environmental Quality and APS, there is more.

“Any private sector business that supports K-12 and to some degree higher education, will benefit,” Hoffman says.

He includes suppliers, and maintenance and construction firms that serve the education field. Above all, construction companies involved in infrastructure and road building will receive what Hoffman calls “a needed shot in the arm.”

“The general contractors have been begging for this,” Hoffman says. “They were absolutely on the front lines working for this injection, because their businesses were dead in the water.”

Of the $4.2 billion in stimulus money, $522 million is allocated for transportation.

David Martin, executive director of the Associated General Contractors, Arizona Chapter, echoes Hoffman’s assessment. “All highway and heavy construction firms will be beneficiaries,” Martin says.

Additionally, contractors who work on education facilities, particularly in lower-income areas, and those that build water-treatment facilities, emergency shelters, and public infrastructure projects, such as streets and sidewalks, should benefit. Martin calls it “neighborhood stabilization.”

David Jones, president and CEO of the Arizona Contractors Association, says companies with experience in public works projects will benefit, especially those that “historically understand red tape and the bureaucratic levels of federal contracting.”

Utility companies should be able to take on energy-related projects, and work should be available for companies that retrofit residential, schools and government buildings to solar energy, Jones says. Women, minority and disadvantaged business enterprises, plus businesses run by war veterans “will have a place at the table,” he adds.

Homebuilders could benefit from projects on military bases, such as single-family units or replacing aging barracks.

Doug Pruitt, president and CEO of Sundt Corp., says contractors such as Sundt are positioned to do well in the stimulus world because of the company’s broad market diversification.

“We do highway work, industrial, water and sewage treatment, university work, K-12 — a whole host of building work,” Pruitt says.

He doesn’t expect much school construction, however, because nationally only 8.3 percent of the $143 billion allocated for construction is set aside for schools. Most of the money will go for highways, bridges and water-related projects, with funds funneled through such federal agencies as the General Services Administration and the Army Corps of Engineers.

Pruitt says Sundt is focusing on its federal divisions and moving personnel from other units that have suffered because of the economy.

At Sunstate Equipment in Phoenix, which rents a full line of hand tools to heavy equipment, CEO Benno Jurgemeyer says it all comes down to “job creation and getting consumers back in a spending mode.” He says his company would benefit directly from highway or vertical construction, and indirectly if the stimulus package keeps office buildings and retail centers rented and full of employees and customers, thus accelerating the development process.

Jeff Whiteman, president and CEO of Empire Southwest, an authorized Caterpillar dealer for heavy equipment including off-highway tractors and trucks, says his firm should see some benefits, but adds: “I think it falls far short of being a true stimulus package and truly creating jobs. What we have is better than nothing. It will help us as construction picks up and hopefully some highways are built.”

Typically, businesses such as Empire Southwest are the first in and the first out of a recession. When housing construction stops, site preparation and development stops, and when housing is ready to resume, site preparation resumes. But in today’s economy, so many improved lots are ready for building that Whiteman says his industry’s recovery will be tied to heavy and highway construction.

money stack

Credit Unions Were Well Capitalized Leading Into The Recession

Arizona credit unions are weathering the rocky economy fairly well, but not without some bumps and bruises along the way. More than 20 of the 55 credit unions in the state have seen their bottom lines slip into the red. Even so, conservative and prudent lending policies that steered them away from the risky subprime market, and the fact they are well capitalized, have put credit unions on solid financial ground.

Insiders say the No. 1 measure of solvency is capital, and credit union capital ratios are considered quite healthy.

Credit unions, which are not-for-profit institutions and do not have stockholders to satisfy, nevertheless are feeling the pain of their members who have lost jobs or might even be in danger of mortgage foreclosure or bankruptcy.

Michael Hollar, vice president of business financial services for the 68,000-member Arizona Central Credit Union, describes the percentage of its loans that are in delinquency as “fairly high.” As of late last year, 1.67 percent of Arizona Central’s loans were in jeopardy, compared to 0.5 percent 12 to 18 months earlier.

If a payment is 11 days late, the credit union contacts the member to find out what the problem is. If the payment is 60 days late, steps are taken to ease the member’s financial pain by extending the amortization and lowering the interest rate.

“From a bottom line perspective, we were well into the red in 2008, roughly $6.5 million,” Hollar says.

“The reason is that we put a significant amount of money into reserve for loan losses. Every time we write something off, we put that much into reserve.”

Through 11 months of 2008, Arizona Central had put $10.6 million into its reserve fund, compared to $1.6 million for the corresponding period in 2007, reflecting the result of troubled loans.

“People walk in with the car keys and say they can’t make the payment anymore,” Hollar says. “It’s amazing. We’re lucky to get 50 cents on the dollar on that vehicle when it is sent to auction. Values are down. We’ve had a fair number of home equity loans that we wrote off. There’s no equity in the home anymore. The first mortgage is probably more than the house is worth.”

The goal was to pack as much bad news into 2008, so Arizona Central could hit the ground running in 2009, Hollar says.

Most credit unions have a very strong capital base. Any capital ratio to total assets in excess of 7 percent is considered by the National Credit Union Association to be well capitalized. In the past year, Arizona Central slipped to more than 10 percent from 11 percent, still well above the 7 percent plateau.

“We’re still north of 10 percent,” Hollar says. “As far as long-term stability, there are no issues. We’re not panicking by any means.”

The sinking economy, however, led to some changes in Arizona Central’s already conservative lending policies. Home equity loans that were offered for 100 percent of a home’s value, now are limited to 80 percent.

Steve Dunham, CEO of Canyon State Credit Union and board chairman of the Arizona Credit Union League and Affiliates, assesses the industry’s status: “I think we’re doing pretty well.”

He cites such factors as credit unions being not-for-profit organizations chasing quarterly profits, and avoiding higher-risk activities, including subprime and no-documentation lending.

“That helped protect us,” Dunham says. “Capital at credit unions was at an all-time high going into the recession. Credit unions started out with very good capital, and we still have very good capital at this point. By and large, I think credit unions will weather the recession very well.”

At Canyon State Credit Union, the 20th largest in the state with $140 million in assets, the number of members who are encountering financial difficulties is accelerating somewhat, Dunham says.

“As they have difficulty, so do we,” he adds. “As unemployment rises, more members are losing their jobs or having their hours cut. Real estate loans that everybody thought were well collateralized, with the drop in real estate values, now we’re discovering they are not so well collateralized. We’re very conservative as far as identifying what that real estate value is.”

Like other credit unions, Canyon State works with its members to help them through tough times on a case by case basis.

Even though some credit unions are operating in the red, Scott Earl, CEO of the Arizona Credit Union League and Affiliates, doesn’t expect consumer members to see much difference when it comes to borrowing. However, credit unions might require more documentation before awarding a loan than they did a year or two ago, he says.

At First Credit Union, where defaulted loans have increased mostly for autos, Carolyn Cameron, vice president of business development, says membership actually rose slightly in 2008 to nearly 60,000.
|
“We stepped up our relationship building, our marketing efforts, working hard to attract new members and retain our current members,” Cameron says.

On the financial side, Cameron says, “Our very strong capital position prepared us to weather fluctuations in economic conditions. We also added provisions for dealing with increased loan losses. We eliminated construction loans, and we came out with an assistance program for members having trouble.”

Assistance may involve deferring or reducing payments, and reducing interest rates to help borrowers get back on their feet, she says.

What is it going to take to turn the economy around? Dunham, chairman of the Credit Union League, says the answer is simple.
“In Arizona, we need to absorb the excess real estate that’s available and get home building started again.”

Small Businesses getting help in down economy

Despite Weak Economy, Credit Unions Are Providing Financial Assistance To Small Businesses

When talking about credit unions and business loans, the key word is small. The percentage of business loans to credit union assets nationally is about 2 percent; business loans in Arizona average about $240,000, compared to $180,000 nationally. And because the loans are relatively small, the focus is on small businesses. Federal law caps credit union business loans at 12.25 percent of total assets.

“With business loans hovering at around 2 percent, it tells you that a lot of credit unions are not doing business loans. But they have plenty of room to assist businesses,” says Scott Earl, CEO of the Arizona Credit Union League and Affiliates.

One of the reasons that a majority of credit unions, especially smaller ones, don’t dabble in business lending is because of the level of expertise required.

“You need to be fairly sophisticated,” Earl says. “Traditionally, larger credit unions have the ability and staff support to make business loans.”

Of course, not all business loans require a lot of sophistication. Perhaps a teacher has a summer job doing yard work and needs a trailer to haul things around. In fact, many of the loans go to sole proprietors, and some involve small-business owners who were turned down by a bank.

“We hear stories like that all the time,” Earl says, “and not because of economic conditions.”
Traditionally, a credit union gets involved in business loans because some loans are too small for the average bank — not worthy of their time and effort. That’s probably a bigger issue during an economic boom, Earl says.

“We’re making business loans. You hear about banks pulling out of business lending. But we have not done that,” says Mark Olague, assistant vice president of business lending for Desert Schools Credit Union.

He tells of a business prospect who had a construction loan with a bank and was having difficulty getting timely advances. Not only did the credit union make the construction loan, refinancing was approved for commercial loans on several of the client’s other Phoenix area properties, as well.

“We were able to step up and do the construction loan for that small business, making our member happy,” Olague says. “The key regarding the credit union world is that not only are we here to service business loans, we’re looking for relationships. We are relationship-oriented.”

In addition to providing an attractive interest rate on a business loan, credit unions offer such services as a checking account, credit card options for sales and purchases, and a 401(k).
“We’re like a one-stop shop,”

Olague says. “We can make loans for an overdraft line of credit for as small as $2,000 or for the purchase of a business vehicle for $30,000 to $40,000. Generally our footprint is from $25,000 to $2 million.”
Desert Schools’ business members generally seek loans for purchasing a fixed asset to start a new business.

“We’re not entertaining startups,” Olague says. “Normally, we’re looking at businesses that have been in existence for at least two years.”

All, however, is not rosy among credit union business members. A few have had bankruptcy issues and cash flow difficulties.

“We’re here for them in good times and bad times,” Olague says. “We may modify their loan to make payments easier for the interim.”

At First Credit Union, which has been making business loans for four years, Joe Guyton, senior vice president of credit, says he’s not seeing startups like he did a year earlier.

“The economy is clearly having a big impact on the capital needs of beginning a business,” Guyton says.

“There are not many people out there with the confidence to start a business. Our business members are coming in to maintain their borrowing relationship. They are concerned about losing that relationship. The amount of inquiries regarding new projects has almost dried up — anything with construction dollars on it.”

Although some business members have filed for bankruptcy, because First Credit Union is relatively new to business lending, the impact on it is considerably less than it would be on a major bank, Guyton says. Fewer than 1 percent of the credit union’s 60,000 members are businesses.

“We’re in a good position to continue to help them,” he says.
Michael Hollar, vice president of business financial services for Arizona Central Credit Union, says most of his business members are struggling. Last year, when gas prices skyrocketed, business members making deliveries took a huge hit. They were looking for alternate sources of fuel and were not seeking loans to buy new vehicles. They repaired what they had.

“A few of the savvy ones, when interest rates started dropping on the real estate side, came in to refi a loan with lower rates,” Hollar says. “We accommodated most of them. We charged a fee, but they were OK with that, rather than staying with the same payments.”

The volume of loan requests dropped considerably during the last three-to-four months of 2008. There were a few startups, mainly from people who had been laid off and were trying to go into business for themselves.

“In this environment, there is very little interest in businesses buying a new piece of equipment or looking for a building,” Hollar says. “They’re hunkering down to ride out the storm, hoping that 2009 brings a brighter day.”

executive education

During Hard Economic Times, Executive Education Helps Workers Keep Marketable Edge

It may be hard to believe, but in tumultuous economic times, executive education is somewhat recession proof — at least as far as employees are concerned. People who have lost their jobs have more time to go back to school, while those who are still employed may feel the need to enhance their skills.

University administrators and instructors see no less interest in educational opportunities as the economy spins downward. Even businesses that have downsized continue to pay a portion of tuition costs for those employees who remain. But at companies where training and development programs are among the first to be eliminated, experts suggest such moves are shortsighted.

Andy Atzert, assistant dean of the Arizona State University W. P. Carey School of Business and director of the school’s Business Center for Executive and Professional Development, does see a diminished demand from companies for customized executive education programs.

“The reason is that they are very visible expenses, a big line item that a company can slash when desperate,” Atzert says. “They’re shifting back to open enrollment. They’re not necessarily cutting back on education funding for individuals. The money is distributed through departments and it’s a less visible expenditure.”

Employers benefit from executive education programs in today’s economy because the skills of employees who remain expand. For example, an engineer who is promoted to fill a vacancy might need to acquire knowledge about marketing.

Strange as it may seem after layoffs, another benefit is employee retention.

“When a company lays off people, it worries about the effect on people who remain,” Atzert says.“You’ve pared down, and you don’t want to lose more employees. That’s one of the reasons for not cutting the education budget.”

Atzert describes education, and that includes executive education programs, as being “a counter-cyclical business.”

“What commonly happens in an economic downturn is that when there is not full employment and not a lot of jobs out there, people seek opportunities to retrain,” he says. “People who are employed polish up their resume a bit, just in case. Insecurity causes a person to make oneself more competitive.”

Mike Seiden, outgoing president of Western International University, agrees that historically, education is recession proof.

“We don’t see any abatement coming to us for degree programs,” Seiden says. “When people are losing their jobs, they recognize that a degree is important, and when times are good, companies support their employees by providing educational opportunities. I don’t see any change in that, but I say that with a little bit of caution. This economic climate is a lot different from anything we have experienced in the last 40 to 60 years.”

While Arizona’s three state universities are facing budget cuts, and some smaller niche colleges are encountering economy-related problems, Western International, a forprofi t private institution that is part of the Apollo Group Inc., is not feeling a negative impact, Seiden says. Employer subsidies seem to be holding steady.

“But if unemployment increases substantially,” Seiden says, “and companies become more hard-pressed, who knows what will happen?”

Both ASU and Western International University have executive education partnerships with the Salt River Project. At ASU, the Small Business Leadership Academy provides CEOs of small and diverse businesses with a 10-week program designed to help take their businesses to the next level.

The first class, which consisted of 11 SRP suppliers and five SRP business customers, completed the program last November. A second group will start taking classes next August. Offered one evening a week at the ASU School of Business Tempe campus, the classes focused on such topics as business strategy, negotiations regarding terms of contracts, employee retention and corporate procurement.

“They learn what we look for as a procurement organization, so when they get my requests for proposals they know what to be prepared for,” says Art Oros, SRP manager of procurement services. “They have already shown tangible savings. The improvements helped them to maintain the edge they need in these times.”

The companies that participated are small businesses, many of which are minority owned.

“We had good diversity — all ethnicities and cultures,” Oros says.

At Western International, SRP helps to subsidize its own employees’ education as they pursue degrees.

“A company’s ability to help provide an education for its employees is paramount in today’s world,” Seiden says. “It not only helps ensure that the company will retain its employees, but it will improve productivity.”

Paul Palley, who teaches economics and statistics at the University of Phoenix, says his classes naturally turn to discussions of current events.

“The subject of bailouts is something that is brought up a lot,” says Palley, a city of Phoenix economist. “Students don’t really understand what’s going on. Bailout is not the best word. In many cases, it represents an investment — government purchasing equity. Sometimes students feel not enough is being done, and sometimes they feel too much is being done. It changes from student to student and from day to day.”

Kevin Gazzara, who recently retired from Intel, where he was program manager of management and leadership, is senior partner of Magna Leadership Solutions and University Research Chair for Organizational Behavior at the University of Phoenix. He has developed a statistical tool that enables employers to link training and development programs with business results.

“One of the first things to go in difficult economic times is training and development,” Gazzara says. “From our perspective, it should be one of the last things to go. Many organizations utilize training, but don’t know if they are getting a return on their investment. In tough economic times, I tell organizations to restrain from the urge to cut training to save some relatively small dollars.

“As managers are being asked to do more with fewer resources,” Gazzara adds, “raising their levels of skills so organizations can compete becomes essential, and the only way to do that is having the right training.”

Bob McGee Southwestern Business Financing Corporation

Bob McGee – President And CEO, Southwestern Business Financing Corporation

Fourth generation banker Bob McGee, president and CEO of Southwestern Business Financing Corporation, sees a rough year ahead for small businesses in Arizona. When McGee says rough, he means rough compared to Arizona’s customary booming economy.

“We may only have 2 to 3 percent growth in the state, but as long as we have water and electricity to run air conditioners, people are going to keep moving here from Chicago and Minnesota,” he says. “Yes, businesses are going to have a tough time, but I still do not think it will be anywhere near as bad as the past couple of bad times we’ve been through.”

McGee, whose firm is a nonprofit Certified Development Company approved by the Small Business Administration to make low-risk 504 loans for fixed-asset projects, says the downturn has hit home. Southwestern loaned $90 million for projects in 2007, but SBA approvals are down 40 percent, while the actual loans he funded are off by 10 percent.

Surprisingly, McGee sees small businesses becoming more attractive in today’s economy.

“When times get tough, that’s when people start thinking about owning their own business,” McGee says.

Businesses with fewer than 20 employees comprise more than 90 percent of Arizona’s economic landscape, but they provide more than jobs.

“It’s the way people achieve a dream,” McGee says, “because many people are happy in their job, but their real dream is to own their own business and be their own boss.”

During his career with Southwestern, McGee has helped create more than 7,000 jobs through the funding of SBA 504 loans. Since its founding in 1981, the company has funded the purchase or construction of more than $1.4 billion of buildings for businesses. Most of his deals involve construction, which today is funded by a commercial bank.

“I don’t fund until the building is finished,” McGee says.

McGee cites three factors for current market conditions. One is a complete lack of secondary financing, as potential investors poured $4 trillionintomoney markets.

“That puts a crimp in my kind of lending, and more important, the banks I work with,” McGee says.

A second factor is that banks are reluctant to make any loans, and the third reason, he says, is that a large percentage of business owners considering the purchase of a building are “terrified” by what they see on the evening news and are waiting for the market to hit bottom.

“You can’t out-time the market,” McGee says. “The way I know when it bottoms is I look back a year later and say, ‘Oh, that’s where it was.’ ”

www.swbfc.com

Celebrity Fight Night

Nonprofits And Corporations Continue To Work Together As The Economy Falters

Ravaged by the effects of a devastating disease, boxing legend Muhammad Ali can still draw a crowd. Fans who remember the former heavyweight boxing champ in his prime as the handsome, graceful pugilist with the mile-a-minute mouth, still flock to catch a glimpse of this now frail man.

That’s helped turn the annual Celebrity Fight Night into one of the most successful charity events in the Valley. The creation of Jimmy Walker, president of Walker Financial, an estate planning and wealth management firm, Celebrity Fight Night has raised millions for the Muhammad Ali Parkinson Center at the Barrow Neurological Institute.

Celebrity Fight Night is a perfect example of where corporations and philanthropy intersect. However, that intersection is now threatened.

Corporate philanthropy pumps millions of dollars into Arizona nonprofits every year, but there is concern that a troubled economy will result in some restraints on giving.

Cutbacks could occur, even though businesses see philanthropy as a win-win: Organizations that benefit from corporate generosity are able to continue to do all the good things they do, and at the same time, corporations reap the benefits of good PR. They are seen as good citizens giving back to the community. Of course, tax write-offs generally enter into the philanthropic picture.

Even though corporate donations that support myriad causes are estimated at about 20 percent of the total, with individuals giving by far the lion’s share of philanthropic dollars, nonprofits agree that they couldn’t survive without corporate help. Which means it will be up to nonprofits to be more creative and innovative in telling their story.

Robin Dunn, CEO of the Make-a-Wish Foundation of Arizona and president-elect of the Association of Fundraising Professionals, Greater Arizona Chapter, cannot emphasize enough the importance of corporate philanthropy.

“We have a lot of corporate alliances,” Dunn says. “Our brand is one that companies like to use for cause-related marketing. As a result, quite a bit of income comes from corporate philanthropy.”

Make-A-Wish’s mission is to grant the desires of children with life-threatening medical conditions.

“It lets the community know that a company is helping a charity, which ultimately helps the company,” Dunn says. “We could not do what we do without corporate philanthropy.”

Despite that, Dunn says cutbacks in giving are a distinct possibility.

“I think it’s obvious to think people are being more frugal and maybe a little more tentative,” she says. “I think it’s too soon to say whether that’s going to impact overall giving, but I think there’ll be some impact.”

Patricia Lewis, senior professional in residence at the Lodestar Center for Philanthropy and Nonprofit Innovation at Arizona State University, expects a slowdown in corporate philanthropy.

“So much of our community is tied up with the financial markets, so it’s bound to have an impact. I think we are already beginning tosee a decline in support for nonprofit events and activities,” says Lewis, who is a former president and CEO of the Association of Fundraising Professionals. “That includes direct support, as well as support in buying a table at an event. The economy is having an impactful trickle-down effect.”

Perhaps the fundraiser with the most star power is Celebrity Fight Night. Since its inception in 1994, it has raised more than $52 million, primarily for the Muhammad Ali Parkinson Center at the Barrow Neurological Institute. Sean Currie, executive director of the Celebrity Fight Night Foundation, says the event last spring pulled in $6.5 million.

Ali clearly is the draw. Entertainers, including Celine Dione, Garth Brooks, Diana Ross and Rod Stewart, are among those who have performed at the fundraiser. Some 50 to 60 celebrities attend each year.

ROI on mba

Higher Degrees Are Still A Solid Investment In Corporate America

If ever there was a time for a Master in Business Administration to pay dividends, this is it. In a troubled economic climate, experts say businesses are more careful about who they hire. Having an MBA opens doors to jobs and salary levels otherwise out of reach, and it provides a layer of protection against downsizing.

When the economy is in a downturn, the employees businesses let go first are the least valuable. People who are investing in themselves, gaining new skills through an MBA, send a signal to the marketplace that they are the one a business wants to keep.

Gerry Keim, associate dean for the W. P. Carey MBA in the W. P. Carey School of Business at Arizona State University, says MBAs are better off in the job market under any circumstances.

“They’re more likely to get hired in today’s environment than people without an MBA, and when the economy is booming and everybody is getting hired, these are the people who tend to move up,” Keim says.

Craig Bartholomew, MBA, vice president/director of the Phoenix Campus of the University of Phoenix, says economic downturn, slow market and rising prices are terms being used to describe the current economic landscape.

“The word recession is looming over everyone’s heads, employers are hesitant to add staff, and one’s climb up the career ladder may look like it is coming to a sudden halt,” Bartholomew says.

Earning an advanced degree goes a long way toward enhancing one’s economic future.

“Initially, it might seem like a risky investment, but trends traditionally indicate that now is the time to gain a competitive career advantage through a higher-education degree,” Bartholomew says. “A slow economy is temporary, but higher education is a long-term investment that can make a professional more valuable today and in the future.”

But Keim doesn’t necessarily believe that having an MBA in and of itself makes a difference.

“The market is very discriminating,” he says. “Having a degree is not enough. Having an MBA from a school with a very strong program is a good investment. You have to have skill sets and mind-sets that enhance your ability to manage in today’s business world.”

Last year, 97 percent of ASU’s MBAs landed jobs within three months of graduation, and the program was on target to match that mark in 2008. In what Keim calls “a very down economy,” salaries and bonuses are in the upper $90,000 area, perhaps even six figures. MBAs are making almost double what they were before entering the program, he says.

One of the key elements of the MBA field involves competition. Schools compete for the best students and the students compete against one another for the best jobs. Competition among students gets especially tense. Earning an MBA from an elite, private university can cost upwards of $120,000, compared to $32,000 for a full-time student at ASU, Keim says.

Some students from elite schools, such as Harvard, wind up owing $100,000 when they graduate.

“Our students graduate with virtually no debt,” Keim says. “They get to take home their entire salary. I’d say that’s a pretty good investment.”

Richard Bowman, area chair for graduate business at the University of Phoenix, a faculty member for 16 years and a financial planner, sums up the value of an MBA, telling his students: “You will run into a point in your career that to move up to the next level, a master’s degree is required or desired. If you want to be promoted to operations manager, director, vice president or general manager, you will not be competitive without an MBA degree or a master’s in general.”

An advanced degree is also vital in the military if an officer hopes to rise above the rank of captain, Bowman says.

Pursuing an MBA online has the advantage of flexibility. Bowman says he has taught students online who were in such places as Iraq, Kosovo, Japan, Great Britain and China. It’s convenient for mid-level managers who travel a lot, he says, but there is little opportunity for interaction with other students and the instructor.

He tells of working mothers who are full-time employees.

“After they put the kids to bed, they can do their master’s degree,” Bowman says.

For the first time, Dial Corp.'s research and development will be housed with the company's headquarters.

Dial Corp. Gets Ready To Move Into Its New Headquarters

By year’s end, Dial Corp. expects to have moved into a new 350,000-square-foot national headquarters in Scottsdale, and for the first time it will house its research and development operations under the same roof.

What’s more, Dial Corp. will be the first tenants in One Scottsdale, a luxury retail and lifestyle community at the northeast corner of Scottsdale Road and Loop 101. In addition to Dial’s presence, One Scottsdale will consist of high-fashion retail shops, upscale restaurants, boutique hotel rooms, office space and a diversity of residential housing.

The move from existing facilities in North Scottsdale was set in motion in 2005.

“Faced with an expiring lease at the end of 2008 on its R&D facility, Dial began searching for a new location,” says Natalie Violi, director of corporate communications for Henkel of America Inc., Dial’s parent company. “The goal was to purchase a large enough parcel of land to house a world class R&D facility and at the same time be located in a desirable location for our employees.

“It was during this process that Dial decided to also move its headquarters to the same location as its R&D facility to inspire collaboration between our scientists and businesses.”

Dial’s current R&D facility is located at 15101 N. Scottsdale Road in Scottsdale, where it has been for 32 years. It is near its current headquarters for the past 11 years at 15501 N. Dial Blvd. in Scottsdale. The current research center across from Kierland Commons likely will be razed as the new Scottsdale Quarters project takes shape. The owners of the existing headquarters building are looking for new tenants.

Violi says housing the headquarters and R&D facility under one roof is a first for Dial, including its former location on North Central Avenue in Phoenix, and before that in Chicago.

The amenities Dial employees enjoyed as neighbors of the Kierland Commons mixed-use development were a factor in choosing the new site, says Brad Gazaway, vice president and corporate counsel, who is the Dial executive in charge of the new building project.

“Finding a location that would afford similar — and possibly more — amenities was an important consideration in our selection process,” Gazaway says. “We believed this not only for the convenience that nearby hotels, restaurants, homes and retailers offer our employees and business on a day-to-day basis, but also the fact that such amenities and creative architecture and surroundings found in mixed-use developments can foster inspiring innovation and development that will bring about increased business productivity and results. Such environments also serve as a valuable platform for employee recruitment and retention.”

By relocating to One Scottsdale, Gazaway says, the move enables Dial to be “a part of an exciting and innovative environment in which our employees will thrive and flourish.”

Total cost of the project, says Gazaway, is “north of $100 million.”

Dial is looking for LEED certification for its new home. Leadership in Energy and Environmental Design (LEED) certified buildings are healthier work and living environments, which contribute to higher productivity and improved employee health and comfort.

Going “green” may add somewhat to the cost, but should result in savings and other benefits in the long run. The building has many “green” aspects, such as workstations designed to be safe, healthy, comfortable and functional.

Gazaway mentions other “green” features. Natural lighting is emphasized, and a roof garden on the fourth floor with trees and benches is ideal for employee use at lunchtime, and for parties and receptions, he says. All of the wood used in construction is from recycled material. Excess materials were separated — wood in one pile and paper products in another — for recycling. Sundt Construction, the project’s general contractor, spearheaded the recycling effort, Gazaway says.

Furthermore, an enhanced heating and air-conditioning system meets LEED standards for performance. Additionally, Dial will provide special parking spaces for carpoolers, spaces for bicycles, changing rooms and a fitness room.

“In today’s environment, Dial wants to be in the forefront of consumer products as far as sustainability measures,” Gazaway says. “We want to show that we’re building a new facility and we are taking our environment seriously. We want to provide a building that our employees can enjoy for years to come. It’s important for us to take a leadership role in establishing new buildings. We’re falling in line with the city of Scottsdale’s mandates. Scottsdale wants all new buildings to fall under this LEED certification. It sets the right tone.”

Violi adds that being environmentally conscious is a core value of Dial’s parent company, Henkel of America.

Tanya Wheeler is president and CEO of the Arizona Bankers Association.

Arizona Bankers Association Continues To Advocate For The Banking Industry

One thing that hasn’t changed at the Arizona Bankers Association since it was founded 105 years ago is its dedication as an advocate for the banking industry. The cornerstone of the association has always been advocacy of bank-related issues with elected officials, state legislators, members of Congress and regulators at the state and federal levels.

“It’s the most significant service we offer,” says Tanya Wheeless, president and CEO of the ABA. “We serve as a clearinghouse when those decision-makers are considering new legislation or regulations. We can weigh in on behalf of the industry on anything that might have an impact on banking. And we do it with a single voice. That’s why we started and that’s what we still believe in.”

The association’s Grassroots Advocacy Resource Center focuses on communicating with state and federal lawmakers and arranging meetings between bankers and local legislators and in Washington with members of the Arizona congressional delegation.

“When we need to communicate on a bill,” Wheeless says, “we provide our members with contact information. Nearly 1,000 letters from Arizona bankers were sent to our congressional delegation opposing a farm credit bill earlier this year, and we were successful. It didn’t pass.”

But the association doesn’t overdo its use of the grassroots program.

“We only pull the trigger when we need to, when it’s really an important issue,” she says.

Wheeless characterizes banking as being different from other businesses.

“They compete viciously in the market, but they all offer basically the same products and services,” she says. “Where banks set themselves apart is in customer service and convenience. Even though they are great competitors, they recognize that when it comes to laws and regulations, we’re all in it together. A law that’s bad for one bank is bad for the bank next door.”

By the same token, a good law helps all banks. For example, the Arizona Legislature passed a bill this year that requires loan officers to be licensed and to undergo continuing education. Sponsored by Sen. Jay Tibshraeny, a Chandler Republican, the measure was supported by the Bankers Association and the Arizona Mortgage Brokers Association.

“It passed in the final hours,” Wheeless says. “Mortgage brokers were largely unregulated. They had to have a license, but little could be done to revoke a license and communicate problems to others — like don’t hire this person. This law provides that they have the same oversight and training that banks have to provide. There was a time when you had people doing mortgages in Starbucks. They had passed a test, and that was all they knew about the mortgage industry.”

The bill was a good way to provide some uniformity in education and licensing requirements, regardless of who the employer is, Wheeless says.

In collaboration with the governor’s office this year, the association produced 50,000 cards containing resource information for people feeling financial pressures, Wheeless says. Printed in English and Spanish, the cards were distributed through grocery stores, nonprofits and social service agencies.

Energy Costs - AZ Business Magazine September 2008

Higher Energy Costs Are Forcing Valley Companies To Look For Alternatives

From the neighborhood car wash to a corporate behemoth such as US Airways, rising energy costs are forcing Valley businesses to search for alternatives to relieve the pressure on their bottom lines.


On a warm weekend morning in the Phoenix area, a bored but concerned car wash attendant asks the only motorist who pulls up for a cleaning: “Where is everybody?” He then answers his own question: “People aren’t driving as much and their cars aren’t getting as dirty.”

From airlines to car washes to supermarket chains, record-high gas prices are taking their toll, causing businesses to implement strategies aimed at trimming expenses and saving energy.

Alternatives, ranging from solar to wind to biodiesel, are becoming more attractive and cost-effective as utility bills and prices at the pump continue to squeeze the bottom line.

While US Airways made major news when it announced a broad range of steps to cut costs and generate revenue, the airline is by no means alone in its actions. Bashas’ Family of Stores is an example of supermarkets that are feeling the pinch of higher diesel fuel prices, and the trucking industry reports some haulers are considering dropping customers who are in outlying areas.

Even car washes, which depend entirely on customers’ driving habits, are seeing a decline in business. Brian O’Connor, owner of Arizona Auto Wash, with operations throughout the Valley and in Sedona, says his customers are coming in less frequently.

“Instead of once a week, maybe we see them every other week,” O’Connor says. “People are so sick of putting money into their cars. They’re changing oil every 10,000 miles instead of 3,000 miles.”

O’Connor and other gas retailers are victims of what he calls a double whammy. Retailers get 8-to-10-cents per gallon, regardless of the price. Back when gas was $1 a gallon, that was a 10 percent profit. At $4 a gallon, that’s only 2.5 percent.

In addition to hiking the air-conditioning a degree or so, O’Connor has employees check equipment regularly for leaky hose bibs and broken sprinkler heads to conserve water.

Conservation, whether of water, fuel or energy, comes in many forms. For example, there’s solar power. Leah Bushman of Dependable Solar Products in Tempe, acknowledges that businesses, in particular home builders, don’t opt for solar units because of the cost.

“They want to know how is it going to affect their pocketbook, what is the return on investment,” she says.

She tells of a California builder who found that equipping homes with solar units added $18,000 to the cost, even after rebates and incentives. But, those solar homes sold much faster than others in the development.

In addition, a “green” architect in the Valley is seeing more interest in solar energy, Bushman says. “Why? Because more people are aware that we have an energy crisis on our hands,” she says. “We don’t have cheap oil anymore, but we do have the solar technology and the sunshine.”

At Southwest Windpower in Flagstaff, Miriam Robbins, marketing director, says any business could benefit from the company’s system, which is installed directly into the electric grid and does not need batteries or additional backup. The cost of most systems, including installation, ranges from $12,000 to $18,000. Rebates are available.

“The amount of power you get depends on wind speed,” she says. “Larger retailers may be interested to not only help offset electric costs, but also to make it more of a green statement. It can be installed on top of a light pole in a parking lot.”

Rick Katt, an owner of AZ BioDiesel in the Valley, says any business with a large fleet of trucks that runs on diesel should consider biofuel.

“No modification to your vehicle is needed,” he says. “It’s 80 percent vegetable oil, your motor runs cooler in hot weather and it’s cheaper than regular diesel by about 50 to 75 cents a gallon. And it’s better for the environment.”

Kristy Nied, director of communications for Bashas’, says the soaring price of diesel fuel has made it even more difficult for the company to operate in a cost-efficient manner.

“We rely on diesel fuel for our fleet of 97, over-the-road, 18-wheelers that deliver groceries to our stores throughout the state,” she says.

Recently, Bashas’ installed a device on its diesel trucks and eight other trucks that reduces fuel consumption and emissions.

“We’re saving enough fuel to run our entire fleet for a week,” Nied says. “We’ve also achieved a 32 percent reduction in particulate emissions.”

Bashas’ is testing a work-at-home program for certain employees, rewarding those who carpool with gifts ranging from duffel bags to vacations, and giving employees who ride public buses for two months a $25 gift card for store items.

“We’ve seen the number of bus riders go up because of gas prices,” Nied says.

A business decision closely related to the price of gas was the discontinuation of Bashas’ “Groceries on the Go” service.

“The cost of fuel made it extremely difficult for us to offer delivery service at a reasonable fee,” Nied says.

During the hot summer months, Bashas’ encouraged stores to set thermostats 2 degrees higher than normal. The grocery chain also placed nightshades on open freezer cases to reduce energy consumption, and installed energy-efficient lighting in more than one-third of the stores. The goal is to retrofit the remaining stores by the end of next year, Nied says.

To cope with rising fuel costs, US Airways has plans to cut as many as 2,000 jobs and started charging passengers more for items such as drinks, choice seats and checked bags. In the second quarter, the carrier lost $567 million, even though revenue rose 3 percent to $3.26 billion. But that revenue was eaten up by fuel costs. A year ago, the company reported a profit of $263 million.

In announcing US Airways’ second quarter earnings, company Chairman and CEO Doug Parker said he expects the new fees to add $500 million to the airline’s coffers. However, that’s less than half of the $1.1 billion the company paid for fuel in the second quarter.

Industry sources estimate fuel costs for airlines have increased 80 percent over a year ago. Valerie Wunder, associate manager of media relations for US Airways, says the airline is estimating its fuel costs to be $2 billion more than last year.

She explains other moves to save fuel. They include replacing all service carts with ones that are 12 pounds lighter and, in the cockpits, replacing paper manuals with electronic flight bags and maintenance logbooks to remove about 100 pounds of weight on each flight.

“Our fuel-hedging program and fuel-conservation measures such as single-engine taxi, which saves an estimated 5.2 million gallons of fuel annually, and fuel-conserving winglets, which reduces drag and saves approximately 1 million gallons of jet fuel, also help us conserve fuel,” Wunder says.

Karen Rasmussen, president and CEO of the Arizona Trucking Association, says fuel prices led to a record number of trucker bankruptcies nationally in the first quarter of the year. The association has 353 members, including UPS, Bashas’ and Safeway.

“Truckers are struggling,” she says. “They’re doing everything in their power to reduce fuel consumption, such as limiting idle time and keeping tires properly inflated. But, when it’s 113 degrees and they’re in their sleeper cab taking a required break, they have to keep the A/C going.”

In many cases, truckers are installing governors to limit speed or have instituted a companywide policy of keeping speeds between 58 and 62 mph.

“Reducing speed reduces fuel use,” Rasmussen says. “Many companies are looking at markets or customers they won’t serve as part of an overall business plan. They’re sticking with their best customers, the ones that pay their bills on time.”

Fuel formerly was the second highest cost of doing business next to labor.

“Now, it’s the highest in many cases,” Rasmussen says.

The outlook?

“There’s not much to indicate we will get an improvement in fuel prices,” Rasmussen says.

“There are too many things on the global horizon indicating we will continue to have shortages of distillate, which is what diesel fuel is made from. There is a huge increase in demand overseas.”

Part of the problem is the weak dollar. U.S. firms are exporting more diesel fuel than ever.

“They can sell it for more overseas,” Rasmussen says. “Wouldn’t you?”

For more information about how Valley companies are combating high energy costs, visit the following websites:

bashas.com
usairways.com

dependablesolarproducts.com

windenergy.com
azbiodiesel.com

arizonatrucking.com

Arizona Business Magazine September 2008