Tag Archives: economy

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Arizona’s Unemployment Rate Climbs In August

Despite some gains in the governmental sector, the state’s unemployment rate for August rose one-tenth of a percent to 9.7 percent as private sector hiring was flat, according to the Arizona Department of Commerce. Usually, Arizona’s economy generates jobs in August, but last month only 28,000 jobs were created. That was still better than August of 2009.

Most of the seasonal job gains were the result of local schools bringing on 26,000 positions for the start of the academic year. State education added 7,000 jobs, with losses in other government agencies offsetting some of the gains.

The private sector posted gains in five sectors and losses in five sectors for a net decline of 800 jobs. Of the state’s 11 industry sectors, government posted the largest job gains at 29,000. Educational and health services followed government, adding 3,000 jobs. Construction continued to add jobs in August, generating 1,900 and giving the industry a net gain through the first eight months of the year.

The Commerce Department reports that, “Construction employment trends in 2010 indicate stabilization in the industry after 28 months of continuous losses.”

Other sectors creating jobs in August were: professional and business services (1,800); trade, transportation and utilities (1,100); and natural resources and mining (100). The sectors that lost jobs last month were: information (500); financial activities (800); manufacturing (1,400); and other services (2,000).

Leisure and hospitality lost 4,000 jobs last month, which the Commerce Department called “unusual.” With the winter tourism season generally starting after Labor Day, hotels and resorts in the state traditionally tend to ramp up hiring in August.

Year-over-year, the jobless situation in Arizona continues to show improvement. Total nonfarm employment last month was down 0.1 percent. In August 2009, it was down 8.3 percent. Compared to August of last year, four sectors registered year-over-year job gains last month. The professional and business services sector was up 8,200 jobs; trade, transportation and utilities was up 7,700 jobs; educational and health services had a gain of 7,100 jobs: and natural resources and mining posted gains of 1,000.

Around the state, only the Phoenix and Tucson metro areas held steady with their unemployment rates. Other major metro areas in the state posted increases in joblessness. Here’s a look at unemployment around the state:

Phoenix Metro: 8.8%
Tucson Metro: 8.7%
Yuma Metro:    23.7%
Flagstaff Metro:   8.0%
Prescott Metro:   10.2%
LHC-Kingman Metro: 10.9%

Illustration of suburb with recycle logo

Sustainability Is Possible In The Suburbs. Really.

Is it possible to build a sustainable suburb? The answer depends largely upon your perspective.

Of course, sustainability is a word freely associated these days with eco-friendly building materials, alternative energy and “living off the grid,” and is usually used in conjunction with the concepts of urban living, light-rail and transportation-oriented development. However, some of the first sustainable buildings were lovingly referred to as “land ships,” and built far from cities.

The deserts of Taos, N.M., for example, still host these forward-thinking renegade buildings dating back to the late 1960s and 1970s, and were colorfully branded by many as “crazy hippy stuff.”  And certainly these buildings are a far cry from the buildings and locations we think of as locations of sustainable development today.

Arizona has long been associated with sprawl, and frankly it’s the reason why the sustainable movement has been slow to catch. However, with a struggling economy and real estate development virtually at a standstill, it’s important to think beyond our limited frame of reference. But the suburb? Can it really be sustainable?  Our twin love affair with privacy and the automobile has made the suburb far from a likely place to orchestrate sustainability. Places where garages line streets instead of trees and retail buildings have walls around them virtually imposing a drive instead of a walk. But there is a sustainable sun on the horizon.

Arizona State University’s Stardust Resource Center has created a Growing Sustainable Communities Initiative, and its strategies for growing sustainable communities in the Valley of the Sun include:

  • Promoting mixed land uses
  • A range of housing types
  • Thriving economies
  • Environmentally responsive design
  • Having a variety of transportation choices
  • Compact development
  • Making places safe
  • Promoting healthy living
  • Community engagement

 

I could write four pages about each of those points, but essentially they mean: building sustainably occurs block-by-block, street-by-street, house-by-house. It is an organic process and there is no cookie cutter, one-size-fits-all approach. In fact, the standard of cookie cutter replication is what has created much of the challenges in every community built after 1950 in Arizona.

To be successful, it is imperative that we change our standard “square mile” approach to development, where commercial businesses exist only on the edges and residential homes on the interior and there is virtually no interplay between them. No parks, and no tree-lined streets. A better strategy is to develop on the quarter-mile, where neighborhoods have work and play uses and schools and shopping centers interact with residential neighborhoods through a network of paths and pedestrian/bike connections — just like the village concepts of the historic neighborhoods built prior to the 1950s. Ask any Midwesterner what they miss about home and I’ll bet they say their “neighborhoods.” There’s a reason why.

What the sustainable movement is advocating is greater creativity on the developer side and less regulation and restrictions on the government side. Scott Carlin, an associate professor of geography at the C.W. Post Campus of Long Island University, makes an excellent case for a deeper theory of sustainability. He suggests we re-invigorate ties to cities and villages, by building new homes only where there are existing water and sewer lines, sidewalks, schools, businesses and the other infrastructure within a reasonably close radius. In other words, so we can get out of our cars and walk.

What about existing neighborhoods? Well, they can be re-imagined as sustainable by relaxing zoning code to allow for commercial uses consistent with vibrant neighborhoods and by resisting the status quo. It will also happen when residents advocate for and pursue the creation of public amenities like parks and pathways and tree-lined streets. Even the Urban Land Institute recognizes the opportunities suburbs represent because it’s where the biggest gains could be made. Still, it cautions that connecting the dots between suburban projects through effective sub-regional planning is essential.

It is possible for us to focus on more than buildings when we think of sustainability.  With a bit of imagination, and the commitment to integrate the principles of sustainability even on the outskirts of town, we can succeed. Surprisingly, in fact, we won’t be creating anything new. Because, it’s when we look to the past and incorporate the best of what it means to live in an American neighborhood we win. Sustainability is certainly a look to the future, but its reality and its secrets are grounded in our American past.

E012850

Greater Phoenix Economic Forecast 2011: “Painfully Slow”

The economy may be better in 2011 than it was in 2010, but the road to full recovery will remain long and full of potholes. But hey, it could be worse. It could be 2009.

That’s according to economist Elliott D. Pollack, CEO of Elliot D. Pollack & Company. Pollack was speaking at the Greater Phoenix Chamber of Commerce’s Economic Outlook 2011 breakfast today at the Arizona Biltmore Resort & Spa.

Pollack said population growth in the Valley should settle at 1 percent this year and rise to 2 percent in 2011. Net job growth will contract by 1 percent in 2010 and climb by 2 percent in 2011. Retail sales will increase 1 percent this year and rise by 8 percent next year. Building permits will increase by 20 percent in 2010 before jumping 50 percent in 2011.

In summarizing his 2011 forecast for the Valley, Pollack read a laundry list of good news and bad news:

  • The housing market is at or past bottom, but there are many negatives still trumping a full recovery, most notably slower migration flows.
  • The commercial real estate market is at or past bottom, but recovery will be slow and “take a long time.”
  • Sales tax revenues are no longer falling, but they aren’t growing quickly enough to fix the state’s battered budget.
  • Retail sales have past bottom and there is pent-up demand among consumers, however, those same consumers are still so worried about personal debt that they will continue to curb spending, thus thwarting a big recovery.

While Pollack said the Valley’s economic recovery will be “painfully slow,” he points out that a recovery is indeed underway. For example, the state’s standing in employment growth compared to the rest of the nation is gradually improving — but only after a precipitous decline. In 2006, Arizona ranked second in the nation in job growth; that dropped to 22nd in 2007; 47th in 2008; and 49th in 2009. Up to July of this year, the state had moved up to 42nd in job growth.

Another indication that the Valley’s economy is showing improvement is in the number of economic sectors that have shown net job gains. Of the state’s 12 major economic sectors, five have shown net job gains so far this year (education and health services; trade; leisure and hospitality; professional and business services; other services). That compares to the same time last year, when no economic sectors reported net job gains.

But, Pollack pointed out again, the Valley and state can’t expect the robust and recoveries that have accompanied past recessions.

He says the Valley’s housing market continues to be weighed down by:

  • Weak job growth
  • Tough underwriting standards
  • Negative home equity
  • Loan modification failures
  • High foreclosures
  • Option ARMs (adjustable rate mortgages) peaking in 2011

In terms of equity, 51 percent of houses in the state have negative equity. The national average is 23 percent. Such negative equity severely curtails people’s ability to buy and sell homes. In addition, supply still outstrips demand in the single-family home market, with an excess inventory of houses somewhere between 40,000 to 50,000 units, Pollack said. A balance between supply and demand will not be fully achieved until about 2014, he added.

The picture is bleaker for the commercial real estate market, with delinquencies on loans still very high. In the office market, Pollack cited forecasts from CB Richard Ellis that said vacancy rates would peak at 25.6 percent in 2010 before dropping to 23.9 percent in 2011. As Pollack pointed out, there currently is no multi-tenant office space under construction in the Valley. In fact, he expects “no significant office building in Greater Phoenix for the next five years.”

Industrial space vacancy rates are faring only slightly better, with CB Richard Ellis predicting year-end vacancy rates of 16.4 percent for 2010 before falling to 15.2 percent in 2011. As for the retail market, the vacancy rate will rise to 12.3 percent in 2010 and hit 12.9 percent in 2011.

For office, industrial and retail commercial real estate, Pollack said he did not expect vacancy rates to reach normal levels until 2014-2015.

Still, Pollack maintained that the economic outlook for the Valley “remains favorable,” thanks to the recovering national economy, increased affordable housing in the Valley, a rise in single-family home building permits, unemployment bottoming out, consumer spending improving and continued problems in California.

Tartesso Elementary

Elementary School Leaves A Small Carbon Footprint

Buckeye’s Tartesso Elementary School is receiving high marks, but it has nothing to do with the kids in the classroom.

On Aug. 19, 2010, the United States Green Building Council awarded the 3-year-old school with a Leadership in Energy and Environmental Design (LEED) Silver Certification for sustainable building design.

Tartesso, a part of the Saddle Mountain Unified School District, is the first fully state-funded LEED Silver School in Arizona with this recognition.

“Having the certification is a big bonus to our district,” said Dr. Deborah Garza-Chavez, principal of Tartesso. “It’s nice to be noticed as a small district by trying to provide the best learning environment for our students and staff.”

The school had just a little more than 200 students upon opening in 2008 and only served kindergarten through 6th grade. Now fully functioning up to 8th grade, more than 600 students walk the halls of a completely sustainable and environmentally conscious building.

Architects and engineers from DLR Group were responsible for the building designs of the school and worked with budgets allocated by the Arizona State School of Facilities Board.

“Before we started designing the facility in early 2006, we brought our team into a brainstorming session where we could evaluate and strategize as to what sustainable products we wanted to use,” said Bill Taylor, a LEED-accredited professional with DLR Group.

The staff and students at Tartesso have a wide variety of energy saving technologies and products that create a healthy learning environment.

In an effort to reduce water shortages, the building design provides a plumbing system that conserves water. All of the boys’ restrooms contain waterless urinals and the kitchen sinks have low flow water fixtures, a reduction that saves half a million gallons of water per year.

The school provides a high performing mechanical system that goes above and beyond state standards.

A completely computer controlled airflow system continuously brings in new air circulation and automatically turns off air conditioning in an unoccupied room.  This reduces the annual energy cost by 20 percent, in comparison to a building that just meets the state code requirements.

In addition to significant energy savings, DLR Group improved the indoor environmental quality of Tartesso.  The building is positioned so that natural daylight offsets the artificial lighting in all occupied academic spaces, reducing energy and improving the educational environment.

Only low organic compound paint was used and primary biliary cirrhosis (PBC) free carpets were installed to promote a healthy interior for students and staff.

“[Students] have benefited from not having those harsh smells,” said Angel Tellez, Facilities Engineer for Saddle Mountain Unified School District. “Everything is kid friendly and environmentally friendly and that is improving the learning environment.”

Not only has the school been a leader in sustainable innovations, but it has served as an asset to the economy by purchasing materials from local companies. Ingredients in the concrete were all locally harvested and nothing was shipped long distance.

“This is a place that has students, staff and the community in mind,” said Premnath Sundharam, Senior Associate for DLR Group. “It’s an educational tool for what can be done on limited funds while still making an impact on the environment.”

unemployment rate was unchanged at 9.6 percent after the economy lost 54,000 jobs in August

Nation’s Unemployment Rate Holds Steady

The nation’s unemployment rate was unchanged at 9.6 percent after the economy lost 54,000 jobs in August.

The U.S. Bureau of Labor Statistics (BLS) reported today that government employment fell as a result of shedding 114,000 temporary workers hired for the Census. Private-sector payroll employment rose by 67,000.

“The August jobs report, albeit tepid, does show the economy is holding steady, despite speculation to the contrary,” says Frank Armendariz, Arizona regional director at Manpower. “This is consistent with what I’m seeing in the market, as well as what the quarterly Manpower Employment Outlook Survey (MEOS) has been reporting for the past three quarters. Our quarterly MEOS survey measures employers’ intentions to increase or decrease the number of employees in their work force during the next quarter, and we’ve seen consistent results in our Phoenix-area survey this year.”

According to the BLS, the number of jobless Americans stands at 14.9 million. The number of long-term unemployed (those who have been out of work 27 weeks or more) declined last month by 323,000 to 6.2 million. In August, 42 percent of the nation’s unemployed had not worked for 27 weeks or more.

Government employment fell by 121,000, largely due to the loss of Census 2010 workers. Total private employment continued a rising trend. The BLS reports that since its most recent low in December 2009, private-sector employment has risen by 763,000.

“The fact that we’ve seen eight straight months of private-sector job growth is very encouraging and is consistent with what I’m seeing — employers are continuing to hire each quarter, but in limited quantities, with a majority of firms holding steady with their current labor force,” Armendariz says. “This is an improvement from last year when we were seeing mass layoffs and very little hiring.”

Employment gains were seen in health care, mining and construction. The manufacturing sector lost jobs, while employment in retail trade was essentially unchanged.

“The recession brought about huge changes in the labor market in a very short period of time,” Armendariz says. “Now we’re seeing new jobs come back very slowly. At the current pace, it will take years for us to get back to pre-recession employment levels. As a result, the limited labor market growth we’re experiencing feels almost imperceptible in comparison to the free fall we took in the wrong direction last year.”

Flagstaff lost the highest percentage of construction jobs

Flagstaff Tops The Nation In Percentage of Construction Jobs Lost

Flagstaff lost the highest percentage of construction jobs between July 2009 and July of this year, as 276 of 337 metro areas nationally saw declines, according to the Associated General Contractors of America.

Flagstaff lost 700 construction jobs, a 32 percent dip from last year. The Chicago-Joliet-Naperville area lost the most construction jobs — 32,900, or 23 percent.

Statewide, Arizona lost 13,900 construction jobs (down 114,000 from 128,000), an 11 percent decrease. It was a decrease of 54 percent from the state’s peak in 2006, according to the AGCA.

The Phoenix-Mesa-Glendale area lost 8,600 construction jobs (down 86,600 from 95,200), a 9 percent loss; and Tucson lost 2,300 construction jobs (down 14,200 from 16,500), for a 14 percent dip. Yuma fared the best, experiencing just a 7 percent loss.

The employment figures, based on an analysis of federal employment data, demonstrate the widespread decline in demand for construction services that continues to outpace stimulus-funded work, association officials say.

“There is no doubt that we have seen an increase in stimulus activity this summer,” says Ken Simonson, the association’s chief economist. “Unfortunately, that increase in stimulus activity is largely being overshadowed by continuing declines in overall demand for construction that are likely to persist well into next year.”

Other areas experiencing large declines in construction employment are: Las Vegas (14,800 jobs, 24 percent); Houston (14,700 jobs, 8 percent); Los Angeles-Long Beach-Glendale (10,700 jobs, 9 percent); and Seattle-Bellevue-Everett (10,400 jobs, 14 percent).

Simonson says that 31 metro areas actually added construction jobs over the past 12 months, while another 30 areas experienced no change in construction employment.

The construction economist said the impacts of the stimulus can be seen in the fact that many of the construction employment declines metro areas are experiencing are less severe than just a month ago. The year-over-year construction employment declines in cities such as Las Vegas, Houston and Seattle are less severe than the figures recorded in June, Simonson adds. However, he says that too few cities were adding construction jobs to have any widespread impact on construction employment.

“As much as we would hate to see how much worse the construction employment figures would be without the stimulus, the fact is our industry is continuing to suffer even as some areas of the economy have begun to expand,” says Stephen Sandherr, the association’s chief executive officer. “And with regular, long-term infrastructure bills stalled in Congress, it looks like construction workers will have little opportunity to continue rebuilding our economy.”

Four women hanging upside down in yoga harnesses

Yoga Studio Is “Blissful” About Expanding And Being Eco-Friendly

Expanding in a recession and going green – impossible?

Not for Blissful Yoga in Glendale.

The yoga studio is establishing three new studios in the next year while utilizing renewable materials and sustainable designs throughout the company.

“In this economy, who knew, right?” says Carrie Clark, the operations manager and a yoga instructor at Blissful Yoga.

Blissful Yoga’s owner, Rosa Rendon, says she had lots of people trying to dissuade her from expanding in the middle of a recession, but she stood her ground.

“I’m really passionate about yoga and bringing it to everyone,” Rendon says.  “I truly thought, even in this economy, I truly thought if we had something really good to offer people would embrace it.  I just went with my heart really.”

The grand opening for Blissful Yoga’s new studio at The Shops at Norterra is Sept. 1, but Rendon isn’t waiting until then to start yoga classes.  The studio is officially open and ready to work out the body and relax the spirit the first week of August, says Rendon, who owns Blissful Yoga with her husband Moises (both pictured below).

With a new studio opening next week, Clark says Blissful Yoga owes its success to the sense of community and philanthropy and a commitment to enjoying life that the yoga studio champions.

“I’m truly excited (about) the welcoming we’ve had from our communities,”  Rendon says.  “We make a point of knowing everybody’s name and welcoming everyone at the door… Even though we’re growing, still our focus is knowing everybody’s name.”

Not only does Blissful Yoga give back to the community with a monthly donation-based class for various charities, but it also tries to give back to the environment by using green products and carrying out green practices.

“(Being eco-friendly) was my first priority when I started talking about building a yoga studio,” says Rendon, whose commitment to being green stems from her desire to provide a better world for the next generation.

The original Blissful Yoga studio, located at 19420 N. 59th Ave., is floor-to-ceiling green.  The floors are made of renewable bamboo and the paint on the walls is low-emission paint, Clark says.

“Every decision (the owners) made, they took that into consideration all the way down to the towels that are in the bathroom are recycled, (and) the paper they print their schedules on is all recycled paper,” Clark says.

The three new locations, The Shops at Norterra, Scottsdale Quarter and St. Joseph’s Hospital and Medical Center, will also be “green,” Clark says.

The St. Joseph’s location came about when the hospital contracted them to teach yoga in a new studio built for Blissful Yoga in the hospital as an added benefit to employees, she says.

Blissful Yoga offers around 20 types of yoga for beginners to experts including prenatal yoga, Vinyasa, Yen and classes on a Yoga Wall.  Most of the yoga instructors are YogaWorks trained and Yoga Alliance certified.

Rendon is excited and proud that Phoenicians are embracing what Blissful Yoga has to offe

r.

Photos courtesy of Blissful Yoga. | www.blissfulyoga.net

It appears the Chicago Cubs’ spring training facility will remain in Mesa - AZ Business Magazine Jul/Aug 2010

A Threat By The Cubs To Leave Arizona Has Cactus League Sites Scrambling

Update:
It appears the Chicago Cubs’ spring training facility will remain in Mesa. Team officials recently notified a group from Naples, Fla., attempting to lure the Cubs to the Grapefruit League that they plan to continue to negotiate exclusively with the city of Mesa. Mesa, meanwhile, reportedly is looking at four sites for the new facility: Recker Road and the Loop 202; the Riverview area; a downtown site; and near the Gaylord resort, planned for the GM Proving Grounds site. According to published reports, the Riverview area appears to be the leading contender for the facility.Spring training baseball in Arizona, a cash cow for Valley communities, is in need of another source of revenue to build new stadiums and refurbish existing facilities. The estimated 1.47 million fans who attended games played by the 15 teams that trained in Arizona this year contributed more than $300 million to the state’s economy, according to Cactus League Association estimates.

That’s the good news. The not-so-good news is that owners of the Chicago Cubs, the biggest draw in the Cactus League, have threatened to move their spring home from Mesa to Naples, Fla., if they don’t get a new stadium and training facility.

Adding to the financial dilemma is that funding from the Arizona Sports and Tourism Authority, which among other things supports spring training baseball, has virtually dried up, due in some measure to the economic downturn. The agency receives most of its money from tourism-related taxes on hotels and car rentals.

A legislative proposal to add a surcharge to all Cactus League tickets to help pay for a new Cubs stadium was as welcome as a blazing fastball from Randy Johnson in his prime. Efforts to push House Bill 2736, sponsored by House Majority Leader John McComish, basically struck out.

“We need to find ways to not only keep the Cubs in Maricopa County, but use those creative funding mechanisms to preserve and expand other spring training facilities in the entire West Valley,” says Jack Lunsford, president and CEO of WESTMARC. “Keeping the Cubs is important, as well as making sure a funding mechanism for the Cubs can be applied, as necessary, in the West Valley.”

Stepping to the plate, Peoria officials proposed a possible solution — the creation of special bonding districts. John Schell, intergovernmental affairs director for Peoria, explains his city’s interest.

“Without much discussion with the other teams or other affected entities, they (key legislators) added a surcharge to tickets and rental cars,” he says. “The ticket surcharge got us more involved because of the adverse impact it would have to our revenue-sharing agreement with the two teams that train in Peoria, the Seattle Mariners and the San Diego Padres. It was not feasible for us.”

The Peoria agreement, not unlike those of other Valley cities that host spring training teams, including Goodyear and Surprise, provides that if the state or some other entity puts a surcharge on tickets, Peoria would have to make up the difference.

“That would have cost us close to $300,000 a year to build a stadium in Mesa — with no ownership,” Schell says. “Imagine how the taxpayers in Peoria would have felt about that. So we were drawn into the discussion to try to identify some sort of funding solution.”

Schell notes correctly that the Arizona Legislature doesn’t have much of an appetite for new taxation, especially in the current economy. He and Peoria City Attorney Steve Kemp met with other host cities throughout the Valley and representatives of Major League Baseball to discuss options.

“It’s not a complete solution and it doesn’t involve any public funds,” Schell says. “We worked closely with the bond counsel for Major League Baseball and came up with a concept we called the revenue allocation authority.”

It was too late to be introduced at the Legislature this year, but Schell says there likely will be discussions on the topic even before lawmakers reconvene next January. It calls for the establishment of a district to issue bonds to pay for improvements or new construction of spring training facilities. Each district would have to be approved by voters living in the district and would not have taxing authority, Schell says.

“It’s a very strong tool,” Schell says. “It would use increment financing. It would capture the growth in the district. It would not become a general obligation of the city, and it won’t affect property taxes. People won’t feel the impact. It’s a unique way of financing.”

Schell says Major League Baseball, which helped prepare the proposal, is supportive.

Baseball insiders say they don’t think the Cubs will follow through with their threat and move to Florida. Although relocating to an Indian reservation, which is what the Arizona Diamondbacks and Colorado Rockies will do next spring, is an option, the Cubs have not expressed an outward interest in going that route. Others say if a deal with Mesa falls through, other Valley cities will make their pitch for the popular Chicago team.

Peoria Mayor Bob Barrett bluntly says the ticket surcharge proposal was a disaster and that he is adamantly opposed to such a scheme. On the possibility of the Cubs leaving Arizona, Barrett says he hopes they remain.

“They ought to talk to the tribes,” he says. “But, if they do leave, the world will continue to turn and the Cactus League will not disappear. The 14 other teams will survive.”

www.cactusleague.com | www.peoriaaz.com

Arizona Business Magazine Jul/Aug 2010

Three Things Building Owners Need To Know To Reduce Their Taxes - AZ Business Magazine June 2010

Three Things Building Owners Need To Know To Reduce Their Taxes

In today’s economy everybody is looking for ways to improve their cash flow, especially as it relates to real estate. Implementing tax-saving strategies is certainly a way to help cash flow in the current year, and in some cases these strategies will provide benefits for years to come. While there are numerous strategies for lowering taxes, three of the more popular current items for building owners are outlined below.

Repair and maintenance deductions
The difference between deductible expenses and capital expenditures can mean significant tax savings for property owners who perform regular maintenance and repairs. The key is when certain costs can be considered expenses that are deductible from current income.
Generally, taxpayers must capitalize expenditures that:

  • Substantially prolong the life of the property.
  • Materially increase the value of the property.
  • Adapt property to a new use.
  • “Put” the property into a useful condition.
  • By contrast, taxpayers may be able to deduct expenditures for:
  • Routine maintenance.
  • Incidental repairs.
  • Equipment and materials that “keep” the property in an ordinary, efficient operating condition.

In most cases, taxpayers will reduce taxes by classifying an expenditure as a repair and taking the current deduction, rather than recovering the cost through depreciation. The IRS has recently adopted more liberal standards for expensing large-ticket items previously considered capital investments.
The difference between repair and maintenance, and capital improvement can be subtle. For example, the wooden shingles on a building are damaged. Replacing the roof with new wooden or asphalt shingles would be considered maintenance and repairs, and it would not have to be capitalized. However, upgrading to a maintenance-free roof system with an expected lifespan of 50 years would have to be capitalized as a long-term improvement to the building.

Many building owners have improperly classified maintenance and repair costs as capital expenditures, creating opportunities to go back and reclassify certain expenditures and recover previously paid taxes.

To claim the deduction, the building owner must submit Form 3115 to request an automatic change in accounting method. The accounting change allows the taxpayer to claim a current-year deduction for expenditures that should have been a deduction in a prior year.

Cost Segregation
Under IRS guidelines, most buildings constructed, purchased or renovated since 1986 are eligible for a cost segregation study. The goal of the study is to make sure business owners are using the appropriate depreciable life for their assets. A cost-segregation study allows a building owner to change the useful life of certain assets and take advantage of any tax savings that may result.

The standard depreciation period for most commercial buildings is 39 years. When buildings are constructed (or renovated) many companies incorrectly use the 39-year depreciation life, even though parts of a building should be depreciated over a much shorter period. Special use items, such as floor coverings, fixtures, and specialty electrical and HVAC equipment, often can be depreciated over a shorter term. It is best to complete a cost-segregation study in the year a building is acquired, although the IRS does allow adjustments to prior depreciation deductions. If the proper amount was not claimed in prior years, depreciation not previously claimed is now allowed as a deduction in the current year by filing Form 3115.

Section 179D Energy Efficiency Deduction
This popular deduction allows the owner of a commercial building to qualify for deductions of up to $1.80 per square foot for buildings that are constructed or renovated to reduce total annual energy use.

The primary beneficiaries are owners or lessees of commercial property and certain residential buildings. Government buildings, such as schools and universities, courthouses, jails, and office buildings, also may qualify. However, since government entities do not pay tax, the deduction can be transferred by written delegation to a tax-paying entity, such as an architect or engineer.

Qualified property owners are able to claim the $1.80-per-foot deduction for buildings constructed or renovated to save 50 percent or more of total annual energy costs as determined by national engineering standards.

Energy savings must be achieved by constructing or retrofitting any of the envelope, interior lighting, or heating, cooling and hot water systems. A building not meeting the 50 percent savings requirement may still qualify for a portion of the deduction. Before the 179D deduction can be claimed, the property owner must obtain independent certification of energy savings from a professional engineer or third-party contractor using software qualified by the Department of Energy.

Arizona Business Magazine June 2010

GPEC Profile: Mike Tully, President And CEO Of AAA Arizona

Mike Tully
President and CEO, AAA Arizona

As president and CEO of AAA Arizona, Mike Tully has a keen interest in getting the state back on the road to prosperity. That probably explains why for the past seven years Tully, who joined AAA Arizona in 1998 as chief financial officer, has been a member of the Greater Phoenix Economic Council’s Finance Committee.

“GPEC’s role in our community is critical,” Tully says. “Attracting high-quality jobs to our state improves our health and economic performance, and makes the state a more attractive place for residents, as well as people moving to our beautiful state. As a membership organization representing nearly 800,000 people, AAA has a vested interest in the livelihood of Arizona.”

In addition to Tully’s position on the Finance Committee, AAA Arizona has a representative on the GPEC board of directors. That’s just part of the relationship.

“From a business perspective, we have used GPEC as a resource when we evaluated expansion opportunities, moving a large portion of our California operations to Arizona,” Tully says. “GPEC was invaluable in our ultimate decision, which resulted in nearly 800 new jobs being brought to our state.”
GPEC’s mission to create a competitive, vibrant, diverse and self-sustaining regional economy is critical to all of Arizona’s industries, Tully says.

“Ensuring that Arizona continues to improve the diversity of high-paying quality jobs is more obvious than ever, as seen by our recent recession,” he says. “Our precipitous decline as the No. 1 job growth state to No. 50 is symptomatic of our lack of industry diversity.”

Tully has been instrumental in driving the tremendous growth of AAA over the past decade, including expansion of its membership, financial services, insurance and travel operations. Prior to joining AAA, Tully owned an export finance company that arranged structured trade finance transactions for exporters throughout the United States.

The AAA executive has deep Arizona roots, having earned his Bachelor of Science degree in finance in 1987, and a master’s in business administration in 1991, both from Arizona State University. In 2007, he graduated from the advanced management program at Harvard Business School. Tully also holds a CPA certification.

As for travel trends in Arizona, Tully says the future remains murky.

“Our short-term forecast is flat, although shorter trips and drive trips continue to be popular,” he says. “While business travel is picking up in many areas of the country, it has yet to rebound in the Southwest.”

Likewise, international travel to Arizona continues to be weak, which hurts even more because international travelers generally spend four to five times the amount of money as domestic visitors.

www.aaaaz.com

Arizona Business Magazine

February 2010

GPEC Profile: Craig Robb, Executive Vice President And Director Of Finance And Administration, National Bank Of Arizona

Craig Robb
Executive vice president and director of finance and administration, National Bank of Arizona

With a 17-year career in land development prior to joining National Bank of Arizona seven years ago, Craig Robb was a natural to become an active member of the Greater Phoenix Economic Council.

Robb, executive vice president and director of finance and administration for the bank, is in his first year on the GPEC board of directors. He also serves on the GPEC Next Committee, which reviews possible projects and initiatives before forwarding them to the board.

But it was his two-plus years on GPEC’s Community Development Committee that enabled him to draw extensively from his combined experience in real estate and banking. Comprised primarily of real estate brokers and developers, with some bankers, the panel focused on shovel-ready projects as the construction industry’s fortunes plunged.

One of the areas his committee worked on involves sustainability and LEED certification.

“GPEC maintains a strong effort to identify programs and buildings that are more attractive to potential companies coming into the Phoenix area,” Robb says. “It’s an effort to match companies to a building that is LEED certified and sustainable, whether it’s office or industrial. That’s very attractive to a company that might be interested in relocating here.”

The bank’s relationship with GPEC is a two-way street.

“We are glad to be a contributor to GPEC, which is absolutely the right organization for promoting Greater Phoenix,” Robb says, “especially how difficult it is now, with the competition we face in a national and global economy. On a reciprocal basis, we have benefited. GPEC has given us a greater interest in sustainability.”

The bank, which celebrated its 25th anniversary in 2009, decided to upgrade some of its nearly 80 branches that were facing energy challenges.

“We started our own effort to see what we could do to create a more sustainable platform for our own buildings,” Robb says.

About the same time in late 2008, Robb, through a GPEC event, met the CEO of Solar City.

“That blossomed forward, and we ended up with a $1.5 million installation at our Biltmore location, improving our energy efficiency,” he says. “In addition, the bank has committed $25 million to provide a lease program that allows individuals to lease solar equipment for their homes.

“We made our contribution to GPEC, and as a result here is a relationship that has blossomed into well over a $50 million investment related to solar.”

www.nbarizona.com


Arizona Business Magazine

February 2010

ATA Profile: Jim Prueter, Senior Vice President of AAA Arizona

Jim Prueter
Senior Vice President, AAA Arizona
www.aaaaz.com

As senior vice president of AAA Arizona, Jim Prueter is part of a company that provides automotive, insurance and travel services to nearly 800,000 Arizona members. He’s no stranger to AAA, having worked as vice president of AAA Mid Atlantic in Philadelphia, and as executive vice president of AAA Chicago Motor Club. But he didn’t get his first taste of the travel industry side of the company until 1998, when he arrived in Arizona.

In his current post, he is responsible for heading up the largest leisure travel agency in Arizona, AAA Travel Agency. In addition, he is the publisher of AAA’s member magazine, Highroads Magazine. With a subscription of nearly half a million, the magazine is the largest in the state. In his various professional affiliations and as current chair of Arizona Tourism Alliance’s board of directors, Prueter recognizes the importance of tourism advocacy efforts.

“It is vitally important that the Arizona travel industry has a voice that is heard by our elected officials, the business community at large and the public. Tourism has a huge economic impact on our state, that is largely unknown, that must be heard,” Prueter says.

The ATA, Prueter says, is a driving force in spreading the message about the enormous impact the travel industry has on the state’s economy.

“The ATA serves as a catalyst and voice for the Arizona tourism industry dedicated to providing advocacy and generating awareness of the industry by providing education and leadership to the industry,” says Prueter. “Over 37 million domestic and international overnight travelers visited our state in 2008, spending some $18.5 billion. That equates to more than $51 million pumped directly into our economy every day. It is the only industry that brings prosperity to all 15 Arizona counties.”

He adds that taxes paid by visitors have a direct and measurable benefit on Arizonans, generating $2.6 billion in local, state and federal tax revenues in 2008.

“The point is, out-of-state visitors spend money that benefits businesses far beyond traditional travel entities. The purchases travelers to Arizona make generate taxes that create tax revenue that fund jobs and public programs, such as police, firefighters, teachers, road projects and convention centers,” Prueter says.

The dismal economy certainly put a strain on the industry, as did the faltering state budget and bad press regarding corporate meetings (Meetings account for more than 70 percent of resort revenues in the state).

To counter this, Prueter encourages individuals to join organizations such as the ATA, the Arizona Hotel and Lodging Association, the Arizona Restaurant Association, local convention and visitors bureaus and other industry organizations. His goal is to continue to work with the ATA on advocating tourism to all industries. With events such as the Unity Dinner and the Governor’s Conference on Tourism, the ATA will continue its efforts on behalf of travel and tourism in Arizona.

Getting the industry back on track will take some time, but Prueter offers this advice: “Don’t sit on the sidelines wringing your hands … Let them know what the economic impact of the Arizona tourism industry means to their business and the positive impacts travel has to the benefit of all Arizonans.”


Arizona Business Magazine

February 2010

Q&A With Debbie Johnson, Executive Director Of The Arizona Tourism Alliance

Debbie Johnson
Executive Director, Arizona Tourism Alliance

Debbie Johnson, executive director of the Arizona Tourism Alliance, is a major force in the Valley and state’s tourism and hospitality industry. She also serves as president and CEO of the Arizona Hotel & Lodging Association and the Valley Hotel and Resort Association. Johnson also represents the tourism industry by serving with the following organizations: American Hotel & Lodging Association; Arizona Film and Television Commission; the Governor’s Tourism Advisory Council; International Society of Hotel Association Executives; Arizona Sports & Tourism Authority; Civic Plaza Task Force; and the Phoenix Tourism and Hospitality Advisory Board. In 2003, she was named the Arizona Tourism Champion of the Year at the Arizona Governor’s Conference on Tourism, and in 2006, she was given the Phoenix Visitor Industry Champion Award by the Greater Phoenix Convention & Visitors Bureau.

How badly did the recession affect the state’s tourism and hospitality industry, and could it have been worse?
The tourism industry was particularly hard hit in 2009 by several factors, including the recession, the negative perception of travel and meetings, the fear of the H1N1 virus, and some misplaced political rhetoric. While our industry suffered unprecedented occupancy and revenue losses, I’m sure it could have been worse, although I shudder to think of what that would have meant to so many of our residents who rely on tourism for their livelihoods.
What we learned this year was the importance of the meetings industry to our state. Group and business travel accounts for more than 70 percent of revenue for most of our larger properties, and when we saw mass cancellations in that market due to fear of negative media coverage and public perceptions, it resulted in tens of millions of dollars missing from our state, city and county budgets. We’re still feeling those effects today as the Legislature grapples with how to deal with the deficit because of less than expected tax revenues.

What do you foresee for 2010?
We’re hearing mixed messaging as far as what the tourism industry can expect in 2010. While we anticipate having another challenging year, we are optimistic that the worst is behind us, and feel that we’ll make some inroads toward recovery.

What initiatives is the Arizona Tourism Alliance taking to help strengthen the state’s tourism and hospitality industry?

The Arizona Tourism Alliance’s most important roles are to advocate, educate and unite our industry. Bringing the industry together through annual events and monthly updates is key to keeping our members engaged and informed, and educating elected officials on the value of tourism revenues is an ongoing process that requires constant attention. With the current crisis that our state budget is in, tourism’s return on investment ($8 returned to the state budget for every $1 spent on tourism marketing) provides a positive and short-term solution toward lowering our deficit; so it’s critical for us to provide that positive message.

You are involved with several other tourism and hospitality organizations here in the Valley. How have all of those groups been working together to ride out the recession and prepare for recovery?

The Arizona Tourism Alliance, Arizona Hotel & Lodging Association, Valley Hotel & Resort Association and Southern Arizona Lodging and Resort Association have always been strong partners, but 2009 was the year that truly brought our industry and all of our advocacy organizations together. With all challenges come opportunities, and the bright spot of 2009 was that it united our members in the resolve that we’re all in this together. We have emerged from this crisis as a stronger and more resilient industry. And the theory that a vibrant Arizona tourism industry equals a healthy Arizona economy is undeniable.

www.aztourismalliance.org | www.vhra.net | www.azhla.com


Arizona Business Magazine

February 2010

The State’s Tourism Industry Puts A Face To Those Hurt By The Corporate Meetings Backlash

The image the word tourism often brings to mind is of fun, sun, and beautiful destinations and resorts. But with the industry under siege last year, those who work in the sector here in Arizona decided it was time to give tourism a new face — that of a relative, a friend, a neighbor, someone you know, even you.

In 2009, the tourism industry across the nation was hit by the recession and the fevered backlash against corporations that had received billions of dollars in taxpayer bailout money. To those in tourism, this became know as the “AIG effect,” so-called because the foundering insurance giant went ahead with lavish retreats after getting an initial $85 billion bailout in September 2008 under the federal government’s Troubled Asset Relief Program (TARP). The Valley became connected to the controversy when ABC News reported in November 2008 that AIG had spent more than $340,000 on an event at an area resort. AIG countered that the event was not a corporate retreat, but rather a conference for independent financial advisers. But the damage was done.

“For us, to be in a destination that just happens to be lovely, that just happens to have nice weather, that happens to have those beautiful structures that are really good at providing a great amount of business opportunities inside them in the form of meetings — we got really hit,” says Rachel Sacco, president and CEO of the Scottsdale Convention and Visitors Bureau.

The result was plunging occupancy rates, declining tax revenues, curtailed employee hours and even layoffs at Valley resorts and hotels.

In an effort to diffuse the hostility, the U.S. Tourism Association began a Face of Tourism media campaign to spotlight the people who were directly hurt by corporations canceling all manner of events — the millions who work in the tourism and hospitality industry. Over the past summer, the various players in the state’s tourism industry, including the Arizona Tourism Alliance, joined forces to launch the Face of Arizona Tourism campaign.

“The Face of Arizona Tourism campaign was really about trying to make sure that there is an understanding of how personal this industry is,” Sacco says. “ … it’s people at all different levels that are doing work that is meaningful and important, and frankly is their livelihood. I think the campaign was really successful to see that there is a face, that I might even know that face, and I might even be that face.”

The person selected to embody the Face of Arizona Tourism campaign is Mia Yates, a banquet server at the Westin Kierland Resort & Spa in Scottsdale.

“My story is this is my full-time job, working in the banquet department at the Westin, and I’m a single mom with three children.” Yates says. “When businesses stopped coming to Arizona, and more specifically the Westin, my hours were affected. They don’t need me to work, so I don’t work, I’m unable to hold onto my health benefits that allow my children to go to the doctors. I guess the Westin felt that I had a story. I was pretty close to the average working bear.”

Yates acknowledges that the Westin weathered the worst of the downturn better than other resorts, and she credits the efforts of management to look after its employees.

“They opened up positions around the resort and allowed us to cross train to help us keep our hours,” she says. “We only had to do that during the summer months, and pretty much we’ve been back up to nice hours in the banquet department.”

Bruce Lange, managing director of the Westin Kierland, says getting out Yates’ story — and all the others she symbolizes — was critical in short-circuiting the AIG effect.

“I’m absolutely certain we reacquainted our elected officials with where the rhetoric was hurting our economy, specifically if you know that one out of every eight people in the nation is engaged in the industry called tourism,” Lange says. “We are able to put the faces of the Mia Yates of the world and say, ‘Here’s your victim. Your intended victim may be the CEOs of those organizations, but here is where it’s really coming home to roost.’ I’m absolutely certain it’s had a positive impact.”

As a result of the recession and the AIG effect, Lange says the Westin Kierland’s business was off 25 percent in 2009 as compared to 2008. But the numbers only tell part of the story.

“If I tell you that our business is off 25 percent and we send, from a tax revenue standpoint, to state and local government $12,000 a day, is that impactful?” Lange asks. “Or is it more impactful for me to say that our average employment is about 1,000 people and if we’re down 25 percent we have 25 percent fewer folks? I think where the rubber meets the road is the human aspect much more so than the statistical aspect.”

Sacco adds that it’s important to educate the public as a whole about how hard times in the tourism industry have a far-reaching effect.

“The impact tourism had of losing hundreds of millions of dollars in our community gets back to the Face of Tourism, because when you start losing money and business, it hurts that face of tourism, it hurts the small business that isn’t getting all of the trickle-down impact, it hurts all the galleries that have closed,” she says. “It didn’t just hurt people in the tourism industry.”

www.scottsdalecvb.com | www.kierlandresort.com


Arizona Business Magazine

February 2010

IT Leaders Are Taking On A New Role As Companies Gear Up For Recovery

Who should CEOs increasingly turn to when they need to formulate modern business strategies that can generate new service revenues, cut across organizational boundaries, reduce costs, enhance productivity — and reach out to customers anywhere in order to deliver anything?

There’s a strategy Dream Team that likely exists right under CEOs’ noses. It’s a team primed to deal with what is being frequently called the emerging “freedom economy.”

Leaders in the areas of services marketing, IT and supply chain management comprise this new Dream Team, although they’re all often so busy they don’t have much time to have a meeting of the minds. But it is high time for CEOs to empower this team and engage their talents as new strategies are being formulated.

It’s pretty obvious to most product-oriented companies that services are an increasingly important revenue stream, so their services marketing leaders have to be front and center with their customer-centric focus. And it’s commonsense that agile and cost-effective supply chain leadership is a key to profitability, so new deployment and delivery issues related to goods and services should be placed in their trustworthy hands. But putting an IT leader on the dream team? Why now?

IT has been going through some major changes lately. IT leaders’ pain points already have generated calloused understandings of what it takes to deliver service (both internally and externally), leverage interorganizational relationships (some of them off-shore), reduce costs, improve the organization’s productivity and get information to where it needs to be to support company agents and customers before, during and after a product sale or a service encounter.

What most people don’t know is that the very systems and applications IT leaders are managing are undergoing significant change. Computing cycles are becoming virtualized, which means raw computation horsepower is now being outsourced. Even data is being managed and massaged in outsourced clouds. And the software itself is becoming service-oriented, meaning that applications are becoming compositions of interleaved executions — some internal to the organization and some running externally that are being out-tasked at the blink of an eye.

The new cell phone mantra — “I’ve got an app for that” — has become a rallying cry for what internal and external customers of IT capabilities expect today, and IT leaders are rapidly learning to respond. IT leaders are accustomed to managing relationships where the choice to switch, engage, disengage and negotiate are time dependent and customer-driven; i.e., they understand the emerging freedom economy.

The environment for IT leaders has changed so much that many now describe their role as serving as a “conductor.” This conjures images of a person standing on a podium waving a baton to orchestrate an ensemble of various instruments to deliver a classical masterpiece. It’s similar, but for the IT leader, the instrumentation has different levels of granularity. For example, an entire division’s IT operations might be outsourced or just one code component might be out-tasked. The conductor’s baton must be able to address broad and sweeping changes and relationships — and still be able to focus on even the smallest atom of syncopated execution. With this complexity, the IT leader role has emerged as one where partnerships are in a constant state of flux, governance processes must be correspondingly agile, and high levels of service must be maintained.

Calling on a Dream Team of leaders from services marketing, supply chain management and IT may not be all that new to many organizations that have been figuring out ways to cut costs to deal with today’s economy. But calling on the same team to help a company emerge successfully in the new market climate characterized by the freedom economy will be a long term make-or-break fact of organizational life.

Consider that latest app you just downloaded to your iPhone or Droid; you’re defining its context for value based on when you want it and where you are using it. You expect an excellent service encounter that will put a smile on your face when your app does its thing, and you expect the freedom to deal with a provider that in reality may be a complex chain of organizational collaborations. And another thing; You expect the execution of that app to be conducted in such a manner that the response is instantaneous, while the intricacies are hidden so you can delight in what the service does for you right now.

Underneath the marketing and chain management that is required to bring you that delight, there’s an IT conductor who has orchestrated the capability to jam out the behind-the-scenes core. That leader is sort of like the unsung hero of the Dream Team, but it’s an essential role that must be revered in order to engage in the harsh realities of the freedom economy.


Arizona Business Magazine

February 2010

TREO Is Working To Position The Tucson Region For Post-Recession Growth

The past year was unprecedented in the U.S. economy. As experienced nationwide, the recent credit and housing crises resulted in rapid job losses and extreme economic uncertainty. While the situation at the national and state level is critical, leaders in the Tucson region are working to take our destiny into our own hands, providing leadership in developing local tools and programs to create jobs for our citizens.

Gains experienced in 2009 were a result of our ability to react quickly and develop programs and initiatives to mitigate the effects of the worst recession in 30-plus years. Significant progress was made in addressing the work force skills gap, improving and expanding our best practices, communications to internal and external customers, and thought leadership.

In response to the economic conditions, Tucson Regional Economic Opportunities (TREO) developed a plan called Tucson: Job One. In conjunction with all our community partners, we created a proposed immediate action plan with clearly defined priorities to address strengthening the local economy, creating and maintaining jobs, and spending. This is our chance to synergize the region’s recent strategic planning efforts and priorities, demonstrating how all local economic drivers can work together to emerge stronger and with a much more diversified economy.

To address local economic conditions, in early 2008 TREO embarked on a comprehensive survey of 170 of the top local companies in an effort to gather data on those planning to hire new employees within the next year. Companies that responded to the survey reported a total of more than 2,200 open positions anticipated to be filled within the next 12 months. TREO then created a job portal on its Web site as part of the Tucson: Job One program. Available at www.treoaz.org/Tucson-Job-Portal.aspx, the job portal provides links to the career pages of a sampling of companies that reported plans to hire despite the state of the economy.

The region realizes it needs to be poised and ready when the economy improves, so TREO has instituted some programs to help facilitate readiness.

Shovel ready and fast track permitting
TREO’s Shovel Ready and Fast Track Permitting program involves the certification of shovel-ready sites for fast-track permitting and development processes. The program makes the Tucson region more competitive in attracting and expanding new, high-skilled/high-wage jobs.

Certified shovel-ready sites are parcels that are on the market for sale or lease, appropriately zoned, pre-qualified to meet local planning requirements, served by utilities, and with identified access to transportation linkages. The certification requirements are designed to ensure the ability of a firm to proceed immediately to the building permit phase and be able to receive approval of plans within 90 days.

California job development program
Arizona Sun Corridor: Open for Business is an unprecedented partnership between the Greater Phoenix Economic Council (GPEC), TREO, the Greater Yuma Economic Development Corp., and the city of Flagstaff that is designed to bring high-wage jobs and investment to the Sun Corridor, a megapolitan projected as one of the 10 U.S. markets expected to see most of the nation’s growth in the next 35 years.

The program pools resources to place a contractor in California who will be responsible for researching companies and qualifying those poised to expand operations. The contractor actively generates business development leads in targeted industries such as aerospace/defense, health care/bioscience, transportation/logistics, renewable energy, and information communications technology.

Transportation and logistics focus
TREO’s efforts in the transportation and logistics industry focus on developing and presenting a regional implementation plan that positions the Tucson region as a recognized global logistics and distribution hub. The goal is to facilitate economic growth, prosperity and opportunity for the Tucson region through the promotion of freight, transportation and logistics.

The Tucson region possesses a strong transportation infrastructure, including interstate highway, railroad and air freight connections. The convergence of Interstate 10 and Interstate 19 provides the region with connections to major east-west and north-south trade corridors. The same advantage holds for the region’s rail connections — the Union Pacific Sunset Route runs east-west through Tucson, along with the north-south connection to Mexico via Nogales. The existing Port of Tucson intermodal operation is a huge asset for the expansion of rail opportunities in Southern Arizona. Additionally, current air freight operations include integrated carriers such as Federal Express and cargo operations provided via passenger carriers. Expansion possibilities exist for air freight with the ongoing expansion of the air cargo warehouse facilities at Tucson International Airport. Recent surveys indicate more than 150 logistics-based businesses are currently serving the needs of freight movement in the region, and more than 72,000 jobs are associated with the existing manufacturing, warehouse, and transportation sectors.

Aerospace and defense industry recognized
According to economy.com, Tucson’s highly concentrated aerospace product and parts manufacturing sector has an 8.35 location quotient, a ratio calculated to compare a region’s industrial activity level to the rest of the United States. The location quotient means Tucson is 8.35 times more concentrated in the aerospace product and parts manufacturing industry than the average of all metropolitan statistical areas across the country.
In August 2009, Business Facilities magazine named Tucson No. 6 on its list of the top 10 metro areas for aerospace/defense manufacturing in its fifth annual ranking report. The ranking is primarily based on a comparison of industry sector employment and wages. Also evaluated were major projects and facility expansion/relocation activity for a region in the past 12 months, and the number of major aerospace and defense contractors headquartered in the region.

Solar heats up
Tucson is home to a growing number of companies involved in the development and production of solar technology, including several recent investments from Germany, Europe’s solar hub. In 2009, TREO conducted an economic analysis revealing that there are close to 50 companies in the region involved in solar-related activities, directly or indirectly supporting more than 2,000 jobs with a total annual economic impact of more than $400 million.

New expansions and relocations
Switzerland-based Roche bought Ventana Medical Systems in early 2008, and purchased 17.1 acres for $8.9 million to expand its campus. Ventana is now the headquarters of one of Roche’s global business units that focuses on diagnostics. Roche CEO Severin Schwan says the company plans to expand research and development laboratories at Ventana’s campus and increase staffing levels from about 750 to more than 1,000.

Tucson-based Salutaris Medical Devices, a startup medical devices firm, received $1.5 million in Series A financing by Arizona venture capital firm Translational Accelerator (TRAC). TRAC, a private, Arizona-based, $20 million bioscience venture capital group, is Arizona’s first venture fund established to target early-stage bioscience companies. TRAC investments only support firms located in Arizona or those planning to move to the state.

The Rockefeller Group Development Corporation broke ground on the first of three distribution buildings on a 21.5-acre, pad-ready approved industrial site in the Tucson Airport Commerce Center. The first building, a 113,000 square foot state-of-the-art speculative distribution building was completed and ready for occupancy in June 2009.

Schletter, a manufacturer and distributor of solar mounting systems based in Germany, chose Tucson for its first U.S.-based operations center. Schletter has operated more than 40 years in the design and manufacturing of steel and aluminum products, and rose to be the largest provider of solar mounting systems in Europe, supplying utility-sized PV-projects. Following the German lead, the Tucson facility offers everything from design and development to manufacturing of Schletter products.

Since TREO was formed in 2005, more than 40 companies have announced their relocation or expansion in the region, adding thousands of new jobs and contributing more than $1 billion in fiscal and economic impact.

Laura Shaw, senior vice president of marketing and communications for TREO contributed to this report.


Arizona Business Magazine

January 2010

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

Who To Watch: John Chadwick

John Chadwick
President, Southwest Area
Pulte Homes

John Chadwick knows there have been better days in Arizona’s home-construction industry. Last year was a challenging time for homebuilders and he believes this year will test their mettle, as well. But he’s convinced that builders with sufficient resources will find opportunities as the state’s residential real estate sector begins to crawl out of a deep hole.

Chadwick is Southwest area president for Pulte Homes, the largest homebuilder in the nation and one of the largest in Phoenix and Tucson. Looking back on 2009, he references well-documented woes – deteriorating consumer confidence and job losses that sapped demand for housing and sparked an increase in foreclosures. Noting the impact of the real estate slowdown on the industry’s families, Chadwick says, “the contraction has led to painful and necessary reductions in our work force the past year.”

Looking for a toehold in a rocky economy, homebuilders are constantly assessing consumer needs and making adjustments in designs and floor plans and price, Chadwick says.

“Despite difficulties in market conditions, Pulte still performs at or near the top of the industry,” Chadwick says. “That’s because our strategy remained the same – providing high-quality products, providing buyers with affordable housing options and maintaining a strong commitment to customer satisfaction. Those are the things that make the greatest difference in the long term – a willingness to stick to strategies.”

Another key factor in Pulte’s survival and its increasing market share is its diversified lines of business.  Pulte acquired Phoenix-based Del Webb in 2001, and last summer paid more than $1 billion for Centex Homes.

“Centex targets the first-time home buyer,” Chadwick says. “Pulte is targeted to the first-time move-up and move-up buyer. Del Webb delivers lifestyle communities principally to the active-adult buyer.”

There is hope for homebuilders with strong financial backing, Chadwick says. Thus the Centex acquisition and Pulte’s purchase last year of the 480-lot Rancho del Lago in Vail, southeast of Tucson. It now is a Del Webb active-adult community.

“There will be more to come.” Chadwick notes, adding that he is optimistic about the outlook for Arizona’s residential market.

“On a competitive basis, the Southwest – and that includes Phoenix and Tucson – has returned to affordability,” Chadwick says. “Price declines in housing have positioned Phoenix and Tucson for long-term growth relative to other Western states. They have a great quality of life and strong employment prospects and that makes those markets attractive on a long-term basis. Clearly, we are still in a challenging market environment, but I am encouraged by some signs that a recovery is in sight.”

Those signs include stabilizing prices, an increase in existing-home sales, demand for appropriately priced homes in good locations, a slowdown in foreclosures and a welcome reduction in inventory, he says.

“There is far less new-home inventory in the market and that is a great indicator of an improving supply-and-demand environment,” Chadwick says. “For builders with the resources, yes, 2010 will bring new opportunities to them.”

www.pulte.com

Arizona Business Magazine

January 2010

Lending Thaw

Small Businesses Are Still Waiting For Bank Lending To Thaw

We are still feeling the effects of the recession that started in fall 2007. When small business owners read financial literature, listen to pundits on television or radio, or visit with their local bankers, they still encounter conflicting information regarding the near- and long-term prospects of both the Arizona and United States economies.

Small business lending
The most common form of bank loan for small businesses is a so-called working capital loan, collateralized by accounts receivables. One issue that’s uppermost in the minds of small business owners is whether banks are still making these working capital loans. The answer is yes, but specifically to new customers. Remember, banks do not make money unless they lend money. However, in times of economic uncertainty, banks want to be prudent and avoid any potential future losses, specifically after 2007 and 2008. Banks cannot afford to lose the principal of a loan.

For example, if a banker is asked to write a $200,000 loan at a 7 percent interest rate with a three-year term, then the banker will receive approximately $22,000 in interest payments (profit) and the return of principal. If the loan goes bad, the banker not only loses the $22,000 of potential profit, but more significantly, also the $200,000 in principal. Bankers will tell you they have to be right 999 times out of 1,000 in their underwriting efforts to stay in business.

Insurance companies, mortgage companies and banks all have underwriters to evaluate risk. In most cases, the banks also employ economists to evaluate the local and national economies and set standards for the acceptance of loan proposals. In other words, it may not be your branch manager telling the borrower “no.” The loan officer’s hands may be tied by the corporate economist who does not think the recession is over, believes things will remain difficult and sees that the probability for future bankruptcies still exists — therefore, no lending activity.

The major fly in the ointment is, pure and simple, jobs. Jobs, employment and unemployment numbers tell the story. In October 2008, one year into the recession, unemployment in Arizona was at 6.2 percent. By October 2009, unemployment in Arizona was up to 9.1 percent. Two years ago, October 2007, unemployment in Arizona was just 3.9 percent.

So, if the underwriter here at your local bank, acting on guidance or instructions from the bank headquarters, says “no” to a loan application, that decision may be based on the feeling that the local economy is not improving, that there may be future layoffs, etc. Therefore, the probability that your loan may not be repaid is high, so no loan.

Local and regional banks
So, do small businesses have a better chance of obtaining a loan or a line of credit from local or regional banks than they do from the national behemoths? Small, local banks do have more freedom in underwriting and risk analysis than the larger national banks. This is true. Smaller banks also will syndicate loans with larger banks, with the local bank being the lead lender. However, while the federal government guarantees Small Business Administration loans, the loan itself still must go through the risk analysis process in order to be approved. The risk analysis still is based on changing national and local economic indicators. These indicators have been improving for six months, but very slowly and at small increments.

That said, what are the arguments for the borrowers? The federal funds rate set by the Federal Reserve was recently at .25 percent, practically an all-time low. The source of capital to banks, the Federal Reserve and corresponding Federal Reserve banks, is essentially free to the banks. Currently, the banks are sitting on $823 billion of reserve capital available for lending. This is compared to $2.4 billion a year ago. As a point of reference, the March federal stimulus bill was $790 billion. The banks have more capital than the total dollar amount of the stimulus bill.

Banks are sitting on that $823 billion because they say charge-offs — bad loans and debts — are at a point not seen since the Great Depression. The banks cite $116 billion in charge-offs year-to-date, or a 2.9 percent charge-off rate that increased to 3.4 percent in the third quarter of 2009. Banks cannot endure charge-offs. Charge-offs have put more than 100 banks out of business this year. Therefore, banks are sitting on their reserve capital in anticipation of more costly charge-offs. However, bottom line, the banks do have the capital to lend.

Banks do not make any money sitting on $800 billion. To make money, they must lend money. Eventually, and sooner rather than later, the banks have to start lending again. But the $64 or $64 billion questions are: Is this turnaround self-sustaining? Will it continue in 2010? Will the turnaround in the economy create a sufficient number of jobs to sustain the economic growth in 2010?

Alternatives
Until banks loosen their grip, small businesses do have options in obtaining money to keep their businesses not just going, but also growing.

Small business can look to leasing alternatives and trade credit from suppliers to replace the financing they would normally receive from banks. Flooring (inventory) financing, commercial credit from companies such CIT, factoring of invoices, trade, or vendor credit from suppliers all can be sources of alternative financing for small businesses.

Businesses also have reduced the levels of required financing by laying off employees, reducing salaries, cutting fixed costs, reducing profit margins — anything and everything possible to stay in business until the economic cycle turns positive.

Let’s hope the federal government’s stimulus bill and the excess in bank capital will prove sufficient to generate economic growth going forward, and open up the traditional institutional financing necessary for small business development and growth. It is time that small business owners catch a break.

George Olander, Ph.D., is a finance lecturer at the W. P. Carey School of Business at Arizona State University
wpcarey.asu.edu

man standing in front of a shelf with a basketball on it

CEO Series: Brian Mueller

Brian Mueller
Chief Executive Officer and Director, Grand Canyon University

Assess the current state of private universities.
I think if you look at the top tier, the Ivy League schools, and those just below them, those people have such strong brands and such huge endowments that they are OK, and they can make it through an economic downturn without a whole lot of difficulty. … If you look at the next tier below that, I think they’re fine because their brands are good, their levels of awareness are good and the endowments allow them to keep the business of private education going. Where there is really a problem is the smaller, private universities that have great histories, that have great academic programs, that provide a great service to students, but they do not have large endowments. The economy is really hurting those kinds of institutions, which is why we’re in a good place now. We have sources of revenue other than those traditional students that come to our campus. Those sources of revenue make it possible for us to keep tuition very affordable for traditional students.

What are some of the most recent challenges that GCU has faced in the past few years, including last year’s initial public offering?
Five years ago, Grand Canyon was near bankruptcy. It was within days of going bankrupt. It was one of those private universities with a full liberal arts program that had been in existence, at that point, for 55 years, and had done a wonderful job of producing teachers and nurses, especially, but it didn’t have a large endowment. Coming in, trying to build an online program using the Grand Canyon brand for working adults was a really smart move made by the initial owners, Brent and Chris Richardson. It was a smart move, but it’s not easy to do. It’s a lot more difficult to do than people think.

They did absolutely struggle for the first three years or so, but they got the enrollment up to 15,000, it became profitable, which allowed us the opportunity to go public. That’s when they called me. They said, ‘Since you have some public company experience, would you come over and be the CEO?’

When I came over and took a look at what existed here, I thought it was a rare and unique opportunity because what you have here is Arizona’s only traditional, private university in a destination city, in a destination state, with a wonderful campus, a good brand, a long history. To build an online program on top of that is just something that doesn’t exist out there today. There is no well-branded private university that also has an extension of that mission to working adults all over the country and all over the world in an online format. There isn’t one of those, so I thought this was a wonderful opportunity, and as it turns out, I’ve been here for a year and the opportunity is even better than what I first thought.

What do you believe GCU’s role is in this current economy?
I think we have a number of very, very important roles. One, we offer working adults in the state of Arizona and all over the country a chance to do an academic program, completing a bachelor’s degree, completing a master’s degree or a doctoral degree, in an online format while they work. As we look at ourselves from that vantage point, positioned against the other players in the space, we are probably the low-cost provider … A second role that we play is that we are able to make, because of the profitability of the online students who are at the very low end from a tuition standpoint, we’re able to make the traditional college experience for traditional students in a private university very, very affordable. We just announced that we are freezing our tuition levels through the next two years, and our tuition is already way under what most private universities are. We’re lowering our room-and-board by 20 percent and we are eliminating almost all fees. We are making it possible for middle-class American families or even lower-class middle-American families to come to a private university and experience that private university setting for four years to complete their degrees and for a rate that is very close to what they would spend at a state university.

It’s a significant contribution that private universities make, because the students that they educate aren’t at all a burden to the taxpayer. There is no taxpayer subsidy that goes into supporting our students. That helps when there is a declining tax base, a declining revenue base, which is very, very important and necessary to support students who attend a state university or community college. So that’s a significant contribution to the economy. Another contribution is the fact that we are one of the fastest-growing employers in Arizona today. We’re in the West Valley, we’ve got 1,300 employees and almost 2,000 faculty members, many of them adjunct or part-time faculty members, but we are growing the employment base in Arizona. We’re one of the few companies that are in that fortunate position of being able to add hundreds of jobs on an annual basis.

We’re also going on a major building campaign here. We’re building a new dormitory that will be ready in September 2010 that will have 600 beds. We’re building a 55-thousand-square-foot events center, which will be ready next September; we’re building a new classroom facility that should be ready in September or October of next year; and we’re building an events center that will seat 5,000 people for our men’s and women’s basketball programs and for concerts. That building campaign is going to put a lot of people to work, as well.

What are skills a C-level executive needs in the private university business?
I think all of the C-level skill requirements that would be in any other industry are really important. You have to be able to think strategically about the business and set the vision for the company and make sure that it is communicated and understood and everyone knows how they are plugged into that.

Secondly, you’ve got to break down silos and you have to make sure people work together, are all on the same page and are all pulling in the same direction. There’s so much power in that and it’s not an easy thing to do. … A publicly traded company is a tricky thing, so you’ve got to run the company, but you also have to make sure you’re keeping an eye out on the target, which is to make sure that your investors get a reasonable return. So you also have to balance running the company with making sure that you are spending time with the investors, making sure that they understand your strategy, that they are comfortable with the moves you’re making, how you’re investing capital so that they feel confident that the return they are expecting they are going to get.

… With all that said, I think the people who run these kinds of companies the best are those that have a strong amount of experience in higher education. They have to be educators and people who understand education and how education works and what they think the future of education is going to be. At the end of the day, the value we are creating is around the value that is created for the students who come, learn and graduate.

    Vital Stats



  • Named CEO of Grand Canyon University in 2008
  • From 1987 to 2008 was employed by Apollo Group
  • From 1983 to 1987 was a professor at Concordia University
  • Received his Master of Arts in education degree and Bachelor of Arts degree in education from Concordia University
  • www.gcu.edu
Students/employees succeed post-recession

New Program At Thunderbird Aims To Help Students And Employees Succeed Post-Recession

Lately, the national and international media have been reporting that the economy is recovering. The chatter is that many of the key indicators (other than unemployment) are starting to predict that we may be just a quarter or two from the “light” at the end of the tunnel.

That light, however, could be snuffed by yet another crisis — a crisis in sustainable leadership. The loss in human potential caused by the high demands and increased stress related to reductions in human resources and development of remaining talent could be catastrophic for businesses.

Sure, many of the cost reductions in companies and organizations have had a positive impact on margins and liquidity, but will this be sustainable? Many executives have shared their doubts about whether the changes and strategies they put in place during this recession will make their organization more capable of reaching their future targets. Even worse, they question their own energy and capacity to continue to try to keep up, let alone get ahead.

This is the crisis at the end of the tunnel. There will be many opportunities that emerge from the post-recession economy. Unfortunately, too many leaders and organizations still will be in survival mode because they are numb, tired, foggy and lack the passion to really capitalize. In short, they won’t have the gas in their tank to use the knowledge they have to bring their business back to the level it should be.

The last year has been a time of less. Less people, less investment in the people remaining, less optimism, less outward focus (on the customers and the opportunities) and less training. Unfortunately, it also has led to a lack of high-performance behaviors. In order to see the light at the end of the tunnel businesses and organizations must change the paradigm to one of MORE. More energy, more passion, more productivity, more preparation, more focus and more design.

The Thunderbird School of Global Management recognizes this missing link in the executive world. This is why it is collaborating with Tignum to incorporate sustainable high performance training into the school’s own work force and educational experiences. The aim is to ensure its employees, graduates and executive education clients not only garner the business and cultural skills needed to run sustainable organizations, but also the personal capacity to maintain their own long-term performance and competitive edge.

Sustainable high performance training was first introduced to Thunderbird’s faculty and staff during a kickoff event on Aug. 18. Later that month, similar presentations were made to new full-time students. Thunderbird now is integrating the program into campus life through follow-up workshops and an on-campus communication campaign. School officials say the goal is to help participants overcome habits that lead to burnout by building a solid foundation that can sustain high performance throughout their careers.

Thunderbird and Tignum also are working to develop a sustainable high performance program for corporate clients who come to the school for executive education.

“Incorporating sustainable personal leadership training with Thunderbird’s No. 1-ranked global business education furthers the school’s mission to produce global leaders who make a lasting impact in the world by creating sustainable value for their companies and communities,” Thunderbird President Ángel Cabrera said in a statement. “In order for individuals to create lasting value, it is imperative they be equipped with strong global business skills combined with a socially responsible and global mindset and the capacity for their own sustainable high performance.”

The fact is, the knowledge, skills and strategies that have gotten businesses to this point will no longer be sufficient to achieve long-term goals in the future if companies do not invest in the sustainability of their people.

Recently there was a special issue of the Harvard Business Review called Leadership in the New World. The name of this issue alone explicitly implies that what we knew in the “old” world won’t work in the future. The habits that you’ve used to be successful in the past won’t be enough to ensure your success in the future.

The New World will require energized, responsive, agile, creative and attentive leaders. It will require that they energize and inspire others so they can meet their customers’ desires and stay two steps ahead of the growing and gainingcompetition. This will require new personal habits to increase their energy, resilience, brain performance and capacity. In the past, too many executives saw these things as a “nice to have,” but now these things are a “strategic must.” Your own personal energy and resilience are your foundation upon which all of your performance is built.

Sustainable high performance is a condition where you are highly motivated, your self-esteem is strong, your excitement to handle challenges is evident and your physical energy is abundant. People perceive you as present,grounded, responsive and focused. You implement sound judgment and innovative solutions, maximizing your impact on your team, company, brand and the world. Sustainable high performance is showing up consistently with your best game on.


DATOS 2009 annual expert analysis of the role and impact of Latino businesses and consumers on the state’s economy

Comprehensive Information On Hispanics In Arizona

On Nov. 18, the Arizona Hispanic Chamber of Commerce, in conjunction with the W.P. Carey School of Business at Arizona State University, will release DATOS 2009, an annual expert analysis of the role and impact of Latino businesses and consumers on the state’s economy.

For nearly 15 years, DATOS has provided insight into issues ranging from the purchasing power of the Hispanic market to its prevalence in various segments of private industry. This year’s edition again provides detailed information on the Hispanic population’s growing impact on the economy. The report takes months to complete, with research overseen by Louis Olivas, professor emeritus at W.P. Carey.

The following is a summary of the key findings presented in DATOS 2009. The project is funded by SRP.

Hispanic Business
There are more than 2 million Hispanic-owned businesses in the United States with a combined revenue approaching $465 billion. Arizona is home to more than 35,000 Hispanic-owned businesses.

Nearly two out of every five Hispanic-owned businesses in Arizona is a sole proprietorship and 67 percent are family-owned. More than one-third of Arizona’s Hispanic-owned businesses have annual revenues above $500,000, and the median household income among Arizona’s Hispanic business owners is $76,400.

Purchasing Power
The purchasing power of the Hispanic market commands attention. In 2008, Hispanics accounted for 8.9 percent of all U.S. buying power, up dramatically from 5 percent in 1990. In total, U.S. Hispanics control $951 billion in spending power, and by 2013 this figure is projected to reach $1.386 trillion. In Arizona, Hispanics account for 16 percent of the total state’s buying power, leading Arizona to rank fourth among all states for its concentrated Latino consumer market.

Hispanic Consumers
When it comes to marketing, Hispanic consumers have diverse attitudes. Often, an individual’s language preference is a key determinant in their perceptions of advertisements and products. Understanding more about Hispanics’ household composition, financial resources, homeownership rates, methods of telecommunication and product preferences are all essential to developing loyal consumers. For example, did you know that Latinos nationwide were responsible for buying 297 million movie tickets in the past year, compared to 150 million tickets for African Americans and 155 million for all other ethnicities combined?

Technology

The Hispanic population is embracing new media and other technology at a promising rate. Fifty-two percent of the Hispanic population is now online, representing 23 million users nationwide. Internet use is far greater among English-dominant and bilingual Latinos than Spanish-dominant Latinos, suggesting tremendous room for growth. Eight percent of second-generation Latinos and 89 percent of college-educated Latinos go online. In addition to downloading music, uploading photos, and researching products, online news is also popular among Latino Internet users. While online, at least 80 percent said they read the news at least once per month.

Cellular use is also notably high among Latinos. Hispanics are more likely than white non-Hispanics to buy the latest phones, upgrade them faster and use special features. Hispanic adults ages 18-34 use an average of 1,200 cell phone minutes per month, compared to 950 minutes for the general population. They are also more likely to use features such as text messaging and music downloading.

In addition to cell phone use, online social networking is another sign of high social connectedness among Latinos. Forty percent of Hispanics maintain profiles on sites such as MySpace, Facebook or MiGente, a trend that is likely to explode as more Latinos hit their teens and young adulthood.

Media

Arizona contains some major Hispanic media markets. According to Nielsen Media Research, Phoenix ranks eighth for Hispanic TV household markets. Print media is also alive and well in the Hispanic community. The vast majority of Hispanic adults (82 percent) read Hispanic newspapers, and the same proportion pass them on to at least one other person. Among Hispanics aged 25-34, 25 percent have called or visited a store in response to an advertisement.

U.S. Latino Population
As a proportion of total U.S. population growth, Hispanics accounted for 51.6 percent of that growth. This is predominantly the result of births to the existing population rather than immigration; six out of 10 Hispanics were born in the United States. Larger average household size (3.6 for Arizona Hispanics versus 2.7 for all Arizona residents) is another contributing factor.

Over the next four decades, the number of minority workers in the U.S. labor force will grow from 32 percent to 55 percent, with the greatest increase coming from Hispanics. The country as a whole will benefit from the productivity, purchasing power, taxes, and Social Security contributions of Hispanic workers.

AZ Population
Arizona ranks fourth among all states for the largest percentage of Hispanic residents. In 2007, 1.9 million Latinos accounted for 30 percent of Arizona’s total population.

Maricopa County in particular has experienced tremendous growth in the Hispanic population. Between 2000 and 2007, it ranked second (after Los Angeles County) for the largest increase in Hispanic population. Mirroring the nation, the majority of these Arizona Hispanics are U.S.-born (63 percent).

The median age of Hispanics in Arizona is 25, compared to 42 for the white non-Hispanic population, and the median household income is $40,476, compared to $55,554 for the white non-Hispanic population. Given the youthfulness of the Hispanic population, Arizona Latinos are certain to increase in number and purchasing power over the next few decades.

Birth and Fertility

In 2007, Hispanic births accounted for 25 percent of all births in the United States. Teen pregnancy is still a major issue facing the Latino community, but between 1991 and 2004, the birth rate for Hispanic teens fell 21 percent. Clearly, the relative youth of Hispanics will continue to impact future fertility patterns in the United States and Arizona. The Hispanic fertility rate in Arizona exceeds the U.S. Hispanic fertility rate. From 1987 to 2007, the number of Hispanic births in Arizona has increased 211 percent.

Growth trend

The Hispanic population in the United States has increased by 11 million since 2000, and Arizona ranks fourth among states for the largest percentage of Hispanics (30 percent). In the 2008 presidential election, Hispanics voted in record numbers, demonstrating growing civic engagement and a vested interest the country’s future. Specifically, 50 percent of Hispanics turned out to vote, an increase of 2.7 percent from the 2004 presidential election. And Hispanics are voting with their pocketbooks and mouse-clicks as well. Sixty percent of 18- to 34-year-old Latinos and 76 percent of U.S.-born Latinos access the Internet. During a recent 12-month period, the average amount spent online by a Latino in Phoenix was $831.

Hispanics Trend Young

One of the defining characteristics of the Hispanic population is its youthfulness. The median age of Hispanics in the United States was only 27.7 in 2008, compared to 36.8 for the total population. Nearly two-thirds of Hispanics are under the age of 35.

Furthermore, 25 percent of the nation’s children under age 5 are Hispanic. For all children under 18, 44 percent are non-white.

The median age of Hispanics in Arizona is 25, compared to 42 for the white non-Hispanic population. U.S.-born Hispanics’ median age is only 16, which means that half of these native-born Hispanics are not old enough to drive, vote or consume alcohol. However, they will be soon. And they are at a formative stage in their lives when core values and social and consumer habits are being influenced and developed.

Lifetime fertility for Hispanic women has been 45-47 percent higher than for white non-Hispanic women. From 1987 to 2007, the number of Hispanic births in Arizona has increased 211 percent.

Latino Student Population

In the fall of 2008, 416,705 Latino students were enrolled in Arizona’s K-12 system. Hispanics accounted for 86 percent of total growth in school enrollment from 1998 to 2008. According to the Western Interstate Commission for Higher Education, by 2017-2018, Hispanic high school graduates in Arizona will exceed the number of white non-Hispanic high school graduates. This phenomenon has already occurred in New Mexico and California, and Arizona is clearly moving toward this milestone.

    By the Numbers
    Trends that matter


  • U.S. Hispanics control $951 billion in spending power and by 2013 this figure is projected to reach $1.386 trillion.
  • Young Hispanics will grow to be Arizona’s future workers, business owners, consumers, voters and civic leaders.
  • Along the way, they will have significant impacts on Arizona’s public education system, arts and culture scene, and economy.
  • Hispanics are wired and tech savvy. They already utilize the Internet for shopping, social networking, and news. Their use of new technologies will continue to increase.
  • Source: DATOS 2009
AZ Companies to Watch

Celebrating Second-Stage Entrepreneurial Companies

Presented by the Arizona Small Business Association in conjunction with the Edward Lowe Foundation

Gov. Jan Brewer

The businesses of the 2009 class of Comerica Bank Arizona Companies to Watch represent the determined, innovative spirit necessary to advance our great state. I am especially pleased to extend my congratulations and gratitude to this year’s recipients.

This prestigious recognition celebrates second-stage companies that employ from 10 to 100 people and generate between $750,000 and $100 million in gross annual revenue. These businesses are beyond the startup phase, possessing the capacity for significant growth, generating jobs and innovating new products and services. They make extraordinary contributions to our economy and to our communities.

The focus I have both as governor and as an Arizonan is where our state will be in the coming decade with regard to economic opportunities for our children and families — this is very real to me. Cultivating and sustaining stable jobs must be our highest priority. We must continue to take care of Arizona companies so they stay and grow jobs in our state.

Arizona, the nation and the world have been impacted by slowing economic conditions. It presents significant challenges — but also opportunity. Many of the companies we recognize today are seeing positive results. These companies are vital contributors to Arizona’s economic health and are critical to the well-being of the Arizona business community.

Arizona is a unique landscape ripe with opportunities for businesses. Please join me in honoring the 2009 Comerica Bank Arizona Companies to Watch recipients. We celebrate your current achievements and look forward to your future successes.

With appreciation,
Janice K. Brewer
Governor, State of Arizona

Edward Lowe Foundation

When Ed and I founded the Edward Lowe Foundation in 1985, we wanted to encourage entrepreneurship and a vibrant U.S. economy. In recent years, the foundation has concentrated its efforts on two key audiences: 1) Second-stage companies powered by entrepreneurs that have moved beyond the startup phase and are focused on growth issues rather than survival; and 2) entrepreneur support organizations (ESOs) that assist second-stage businesses and are the catalysts for growing their economies from the inside out by helping existing companies in the community.
To serve these audiences, we have developed a variety of tools and initiatives. In many ways, Companies to Watch creates a pipeline for these programs by identifying outstanding second-stage companies.

Celebration and recognition — Companies to Watch generates greater visibility in the marketplace, drawing attention to second-stage companies as a whole and to individual businesses. Honorees tell us that the program has boosted confidence levels for them with existing customers and suppliers. It has led to new opportunities for many firms. And for second-stage CEOs who spend so much time cheering on the troops, the award is a rare pat on their backs.

Life beyond the awards ceremony — Honorees have taken advantage of other Edward Lowe Foundation programs, such as our PeerSpectives roundtables and leader retreats at Big Rock Valley in Michigan. In fact, we’ve created a retreat format especially for Companies to Watch that gives newly named and past honorees a chance to meet and learn from each other.

Finding peers — This kind of networking is important because second-stage companies typically fly under the radar screen. By their very nature, second-stage entrepreneurs are fixated on their businesses, pressed for time and skeptical of joining groups. This makes it hard for them to find peers to share best practices.

It also make it difficult for ESOs to reach out to second-stagers. And even though many ESOs originally focused on startups, more organizations — such as the Arizona Small Business Association — are starting to target second-stage companies because of their immediate, sustainable impact on the economy. Through its application and nomination process, Companies to Watch helps ESOs discover new clients to serve, better assess their needs and tailor resources especially for these growing businesses.

What’s more, Companies to Watch creates a ready-made pool for researchers and policymakers to study second-stage entrepreneurs and track their impact. This is especially true in Arizona, which now counts four classes of honorees.

By helping second-stage entrepreneurs on their growth journey, and by helping ESOs expand their reach and capacity, the foundation hopes to be a catalyst for innovation and change. For even though Ed supported entrepreneurship broadly, he always believed that it was the second stage that was the greatest source of job creation. He would be delighted with the foundation’s focus on this important group, because the success of second-stage companies benefits not only the local communities i, n which they do business, but our entire nation.

Darlene Lowe
Chairman,
Edward Lowe Foundation

ASBA

The Arizona Small Business Association (asba) is honored to present the 2009 Comerica Bank Arizona Companies to Watch awards program. The program celebrates second-stage entrepreneurs and is done in association with the Edward Lowe Foundation. A special thank you to all our sponsors, including the event title sponsor, Comerica Bank.

Congratulations to this year’s remarkable honorees. This award is given to high-performing, second-stage businesses that boost economic growth and generate jobs in Arizona. It highlights the significant impact of second-stage companies on the state’s economy.

Over a four-year period ending in 2008, this year’s recipients have generated nearly $630 million in revenue and added 460 employees, a 148-percent increase in revenue and an 83-percent increase in jobs. That translates into 36 percent annual revenue growth and 23 percent annual growth in employees since 2005. If 2009 projections hold, these companies will have generated $849 million in revenue and added 559 employees in five years.

This has been a tough year for many businesses. There are many attributes that contribute to a company’s success. Perhaps the most important reason for small businesses’ survival is flexibility. When course correction needs to be made, small companies can pivot quickly. This ability to rapidly adapt and deploy new strategies often affords them a competitive edge over their larger corporate counterparts.

On behalf of all the members, staff and board of directors at asba, we extend our enthusiastic congratulations. We admire your courage, creativity and resiliency in these challenging times. Thank you for making Arizona a more vibrant place to work and live.

All the best,
Donna Davis
Chief Executive Officer
Arizona Small Business Association

An End in Sight

Hit Harder Than The Rest Of The Nation, The Valley’s Economy Is Starting To Show Faint Signs Of Recovery

Don’t dust off that party hat just yet, but there are early signs that the worst recession in the Valley’s history is easing its stranglehold on the economy. To be sure, as fall approaches and the recession’s two-year mark looms in December, Phoenix residents and businesses still struggle with plenty of economic problems. But economists and business leaders see hopeful signs.

Conventional wisdom says the housing market will pull the Valley out of the recession, after having led it down that path in the first place. Lee McPheters, economics professor at the W.P. Carey School of Business at Arizona State University, sees that milestone unfolding right now. The Greater Phoenix Blue Chip Real Estate Consensus Panel estimates 8,260 single-family housing permits will be issued this year, McPheters says. That’s down dramatically from the 57,360 issued in 2004, but McPheters says the forecast also calls for 12,600 permits in 2010, establishing 2009 as the bottom for that economic indicator.

New-home sales may have hit their low point the first half of this year and sales of existing homes, or re-sales, are bouncing back, according to McPheters.

“We are on track here to have easily over 75,000 re-sales for 2009, and it could be closer to 100,000 because there’s lots of inventory out there,” McPheters says. “At least half of that is bank-owned foreclosures but, nonetheless, re-sales are quite robust.”

There were 110,000 re-sales in 2005 during the Valley’s housing boom.

“New permits and sales of new homes seem to have bottomed out and re-sales have been going up,” McPheters says. “Those seem to be pretty strong trends, but still at a low level.”

What McPheters is saying is that good news in the housing sector alone does not constitute an overall recovery.
“There is nothing in the makeup of the Phoenix economy at all that would provide the stimulus for any independent recovery,” McPheters says.

Metropolitan Phoenix is still plagued by continuing job losses, declining personal income, decimated retail sales, declining home prices, home foreclosures, weak commercial real estate construction and more. The shrinking labor force likely won’t bottom out until the second half of next year after recording a historic three-year stretch of job losses — 2008, 2009 and 2010.

“By the time all the job losses have been recorded, Phoenix will have several hundred thousand fewer workers, and it probably will be 2011 before there is any kind of vigorous recovery in retail sales,” McPheters says.

In the meantime, 96 percent of the economists in the national Blue Chip Economic Indicators newsletter expect the national recession will end in the fourth quarter of this year. McPheters sees the national downturn drawing to a close with a modest turnaround and he thinks Phoenix will follow suit.

“Nationally, at the end of 2009, we will stop talking contraction and start talking about indicators that are more positive,” McPheters says. “Then there will be a period of slow growth. Phoenix probably will follow that, but remember that we have been harder hit than the rest of the country.”

Still, there is more to the Valley’s economy than statistics. Local business leaders are encouraged by what they see.

“From my perspective, we have seen a dramatic increase in headquarters activity,” says Barry Broome, president and CEO of the Greater Phoenix Economic Council.

Businesses primarily from the Northwest and California and, to some extent, Boston and New York, are either researching the Valley or making definitive plans to move their headquarters here, he says. Broome expects 10 to 15 headquarters to relocate to Arizona over the next 18 months and Phoenix will land some of them.

Broome also sees “new, sophisticated capital” moving into the Phoenix market. Investors are deploying the money now and plans are being written up for commercial real estate and science and technology projects, he says. Existing companies poised for growth are attracting capital infusions, Broome adds.

“This is not the cheap Las Vegas capital coming into the Valley where they buy it, zone it and flip it,” Broome says. “Now we’re seeing private equity firms that have 50 to 100 years of reputation in the U.S. and the world that didn’t get burned in this downturn. They are coming out of the Northeast markets, which we have not seen before.”

Bruce Coomer, executive director of the Arizona Association for Economic Development, is amazed at how busy city and county economic development departments are in the Valley and around the state.

“I don’t think there are any in Metro Phoenix cities that are not extremely busy,” Coomer says. “They are telling me that they are having trouble keeping up with the work.”

Although cities are likely conducting outreach programs, Coomer believes staffers are scrambling mainly because companies are approaching them.

Economic developers, Coomer says, “have got some big deals in the wings. That tells me companies, site selectors and developers know that sooner or later the recovery is going to come and they all want to position themselves. They want all their ducks in a row and all their due diligence done so they can pull the trigger and be on the front lines in a short period of time.”

Richard Hubbard, president and CEO of Valley Partnership, sees two encouraging signs within the business community.

“Commercial development companies have come face to face with the difficult decisions they have to make, be that layoffs, stopping projects or filing for bankruptcy,” Hubbard says. “A lot of those decisions are being made.”

Hubbard also is pleased with decisions made by sources of capital.

“Lending companies — whether that’s banks, private institutions or individuals — who have taken back property through foreclosure are starting to bring that property to market at reasonable prices,” Hubbard says. “They’re cutting their losses and deciding they can’t hold onto the property anymore. That will allow these companies to move forward.”

Hubbard says he also is encouraged that the housing market is well into the process of working its way out of the recession.

“The home-building industry has been suffering for a long time and they made their tough decisions a year ago,” Hubbard says. “Now it’s time for the commercial industry to follow suit.”

The Arizona economy and Tucson, Southern Arizona’s economic engine, continue to suffer from the same maladies as Greater Phoenix, says Marshall Vest, an economist at the University of Arizona’s Eller College of Management. Vest sees no hopeful signs of a statewide recovery for the time being. The only positive for Tucson is that its housing boom was not as strong as Phoenix, and its economy was not dragged down as far as the Valley’s, he says.

Vest sees the national recession receding in the third quarter.

“Arizona and Tucson will lag behind the nation by at least a quarter or two,” Vest says. “So Arizona should bottom out by the end of the year or the first quarter of next year and start its recovery at that time.”

The first sign of a statewide recovery will be a peak in the number of initial unemployment insurance claims, followed by stabilization of the labor market and then an uptick in retail sales, Vest says.

Flagstaff dominates the Northern Arizona economy. Marc Chopin, dean of the W.A.

Franke College of Business at Northern Arizona University, says the city has been logging double-digit declines for sales tax revenues and bed, board and beverage tax receipts. Building permits for single-family homes and additions and alterations to existing homes also have been declining, he says.

“I don’t expect things will turn around for some time,” Chopin says. “Construction, I expect, won’t recover for some time. About a quarter of the homes in Flagstaff are second homes. Until there’s a recovery under way in Phoenix, from which many of our second-home owners come, the second-home market in Flagstaff is unlikely to recover.”

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