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manufacturing sector expanded

Brewer OKs tax cut law for manufacturers

Arizona Gov. Jan Brewer on Friday signed into law a bill that eliminates sales taxes on electricity and natural gas purchased by manufacturers and mining smelters, a move she said was needed to make the state more attractive to large businesses.

Brewer signed Senate Bill 1413 at a Capitol ceremony attended by a couple of dozen business leaders, calling it “another smart tax reform that will bolster job creation in Arizona and our competitive edge.”

The tax cut is expected to cost the state general fund at least $17 million a year. Brewer also vetoed money in the state budget designed to help counties make up for the losses, saying their loss was small and would set a bad precedent.

“Since becoming governor, my cornerstone priority has been to make Arizona as attractive as possible for new and expanding businesses, particularly for our manufacturing industry, which generates quality jobs and high-wage salaries,” Brewer said. “I want Arizona to be No. 1 and be the pro-business state in the nation and we have worked relentlessly to accomplish that.”

Later in the day, Brewer also signed a law providing a $5 million tax credit many say is aimed directly at Apple Inc. Senate Bill 1484 grants the tax credit to a company that installs at least $300 million in renewable power capacity to supply its own plant.

The governor touted other tax cuts, regulatory reform and business-friendly policies that she has championed since she took office in 2009. Those tax cuts have affected the state’s revenue, but she said they are important to growing the economy.

“When we bring in these new businesses it drives our economy, they bring in construction jobs, they bring in employees, they bring in money into the state,” she said. “So in the end, everybody’s ship rises.”

Brewer called for the elimination of the tax in her State of the State address in January, saying it was needed to make Arizona more competitive and draw new manufacturing to the state.

The bill received bipartisan support in both legislative chambers, although one conservative Republican in the House of Representatives dissented when it came up for a vote earlier this week.

Rep. Brenda Barton, R-Payson, says the bill places a burden on rural counties that rely on that tax base. She and other rural lawmakers managed to get $1.3 million in the budget to make up for the cuts, but Brewer vetoed that money Friday afternoon.

“I am getting to the point that a lot of these special legislation bills that we are promoting are harming the state of Arizona, and they are harming our rural counties and our rural cities, and I don’t believe we are doing a very good job of doing what’s right for the right reasons,” Barton said during debate earlier in the week. She didn’t immediately return calls seeking comment.

Others defended the bill.

“I think anytime we can support small businesses and reduce their taxes and large businesses and reduce their taxes, and allow them to reinvest in their business and reinvest in the communities and reinvest in their employees, I think we need to be looking for opportunities to do this,” Rep. David Livingston, R-Peoria, said.

Steve Macias, chairman of the Arizona Manufacturer’s Council and the operator of a machine shop that will get a small direct benefit from the tax cut, said it could bring in more manufacturing.

“Seventy percent, 80 percent of the business we do is right here in Arizona,” Macias said of his operation. “And almost all of that is to larger manufacturers, the General Dynamics of the world, the guys who make equipment for the solar industry. So when they attract those guys, I get excited because to me those are all potential customers.”

Glenn Hamer, president of the Arizona Chamber of Commerce & Industry, said 38 other states do not tax electricity use by manufacturers and cutting the tax will help the state.

“These are jobs that pay more than the median wage. They’re jobs that every other state competes for, and we’ve done something significant to make Arizona more competitive today,” Hamer said.

The tax credit bill drew the ire of conservative House Republicans, who said say the bill is unfairly tailored to benefit Apple’s planned Mesa sapphire glass manufacturing plant and picked winners and losers among the state’s industries.

Apple said in November it will open the plant and eventually employ 700 workers to provide material for its iPhone 5 cameras and fingerprint reading sensors.

The tax credit could also be claimed by other companies that build similar facilities. Tesla Motors Inc. is currently looking for a battery plant site and often mentioned as a possible candidate.

“We as conservatives have got to step away from this crony capitalist style of development,” Rep. Adam Kwasman, R-Oro Valley, said during debate on the bill Tuesday. “We cannot afford to pick winners and losers in industry. We believe in low taxes for everybody. We believe in simple rules for everybody.”

But the bill sponsor defended it, saying it was a small amount of money to help establish a large manufacturing operation. The Arizona Commerce Authority helped seal the deal with other incentives.

“I believe that they did the right thing to bring Apple here,” Sen. Bob Worsley, R-Mesa, carried the Apple bill, saying he did it because the Arizona Commerce Authority had made a commitment to the company as part of the deal to draw them here. “And the dollars are very small in the whole scheme of things with Apple being in the Valley. They could have gone to Texas, they could have gone other places and we wanted them here. It’s a good decision.”

boeing-phantom-ray

It takes fuel to win tech race

Many of us can relate to thinking of Arizona’s economy as an automobile race. To win, you need a smooth race course, a fast car, a winning driver and high-powered fuel.
Carrying that analogy into Arizona’s technology sector, it’s clear that a lot of resources have been invested and progress has been made in building a world-class race course.  We’ve made tremendous strides in creating a business climate and technology environment for facilitating both private and public sector support to address the needs of Arizona’s technology businesses.

The Arizona Technology Council has worked collaboratively with many different technology champions to build this course. Technology issues are supported by the Governor’s office, the state’s legislature, the Arizona Commerce Authority, the Arizona Chamber of Commerce and Industry, and more.

Technology incubators and shared space facilities such as Gangplank in Chandler, Avondale and Tucson; Hackspace and Venture Catalyst at ASU’s SkySong in Scottsdale; BioInspire in Peoria; Innovation Incubator in Chandler; AzCI in Tucson; and AZ Disruptors in Scottsdale are making sure that today’s innovators are being given the right support, tools and environment to create the next big thing.

Collectively, our wins have included the passage of a tax credit for qualified research and development that is the best in the nation, the creation of the first statewide Arizona SciTech Festival and the birth of the Arizona Innovation Institute, to name a few.
Arizona’s technology industry also has great race cars. These are the technologies and intellectual property that create wealth and jobs driven by both Fortune 500 companies and entrepreneurs.  Companies such as Intel, Microchip Technologies, Freescale, ON Semiconductor and Avnet can all be found here.  Nearly all of the largest aerospace and defense prime contractors in the nation are located in Arizona, including Boeing, Honeywell, Lockheed Martin, Northrop Grumman and General Dynamics.

The state’s entrepreneurial spirit is reflected in companies such as WebPT, Infusionsoft, Axosoft, iLinc and Go Daddy that were founded in Arizona along with the many innovators that are coming to the table every day with new ideas rich in technology.

These companies large and small are driven by some of the greatest race car drivers the nation has produced.

But when it comes to fuel, Arizona’s economy has always been running close to empty. We lack the vital capital needed to win the race. Having access to angel investors, venture capital and private equity as well as debt instruments is critical to Arizona’s success.
The situation has not been improving on the equity side of the fuel equation. To offer some relief, the Arizona Technology Council is proposing legislation that would create a system of contingent tax credits to incentivize both in-state and out-of-state investors to capitalize Arizona companies.  This program, called the Arizona Fund of Funds, would allow the state to offer $100 million in tax incentives to minimize the risk for those seeking to invest in high-growth companies.  The state government’s role would be to serve as a guarantor through these contingent tax credits in case the investments don’t yield the projected results.  Expect more information on this important piece of legislation as it advances.

On the debt side of the fuel equation, there are encouraging signs that the worst of the credit crunch may be over. Early-stage companies need access to debt instruments, or loans. Capital is needed for equipment and expansion. A line of credit can help early-stage companies through ongoing cash-flow issues. But loan activity is still modest in Arizona for small companies. It remains heavily weighted toward the strongest corporate and consumer borrowers.

Capital goes hand in hand with innovation, high-paying jobs and cutting-edge technology, products and services. Before Arizona’s economy can win the race, we will need to become more self-sufficient at providing the fuel necessary to be a winner.

Steven G. Zylstra is president and CEO of the Arizona Technology Council.

manufacturing - Arizona Business Magazine May/June 2012

Computer & Aerospace Manufacturing – Arizona Builds Its Financial Future

Computer and aerospace manufacturing plays a significant role in Arizona’s financial future.

The economic storm that has wreaked havoc for most businesses was barely a breeze for Michael McPhie.

“We were really not affected negatively,” says the CEO of Curis Resources, a mineral exploration and development company in Florence. “The economic downturn really did not affect the demand for some commodities, so copper mining continues to be a significant economic engine for the state.”

With 10 percent of the world’s copper supply coming from Arizona, a combination of continued high demand from China and innovative and cost-effective methods of extraction allowed the copper industry — one of Arizona’s oldest professions — to weather the economic storm with little damage.

While Arizona’s Top 10 manufacturing companies added about 3,200 jobs in 2011, some of the state’s other manufacturing companies were not so lucky.

“It certainly wasn’t easy, especially for our smaller manufacturers, who make up 79 percent of Arizona’s manufacturing sector and employ four or fewer people,” says Mark Dobbins, senior vice president and secretary for SUMCO Phoenix Corporation, which manufactures silicon wafers for the semiconductor industry. “Although companies of all sizes were affected by the recession, they were probably hit the hardest.”

While the state’s manufacturing sector is holding steady, the uncertainty coming out of Washington and in the financial markets has not helped its economic recovery, according to Glenn Hamer, president and CEO of the Arizona Chamber of Commerce and Industry.

“The federal health care law, EPA regulations and a National Labor Relations Board that has taken positions hostile to manufacturing has likely done more to slow recovery than spur it on,” Hamer says. “The governor and the Legislature, however, have responded decisively, passing in 2011 a once-in-a-generation economic competitiveness package that makes Arizona more attractive than ever to manufacturers.”

The Arizona Competitiveness Package includes a mix of tax reforms and business incentives designed to encourage expansion among existing Arizona companies, while establishing Arizona as an attractive location for businesses worldwide.

“Arizona manufacturers have underperformed in the export arena as compared to other states in the last several years,” Hamer says. “Economic competitiveness legislation passed by the Legislature and signed by the governor last year goes far in attracting manufacturers, especially those who sell beyond Arizona borders.”

While the landmark 2011 legislation was a shot in the arm for manufacturing and business, the Arizona Manufacturers Council — which serves the state in conjunction with the Arizona Chamber of Commerce and Industry — has identified several legislative issues that are important to manufacturing in 2012, Hamer says. The Arizona Manufacturers Council is striving to:

  1. Streamline regulations and the issuance of permits.
  2. Eliminate barriers to economic development created by inadequate infrastructure for capital intensive manufacturing operations.
  3. Promote a friendlier legal environment through tort reform.
  4. Support policies that will strengthen the solvency of Arizona’s unemployment insurance system.

“We need a clearly defined economic goal and strong collaborative leadership for the next five, 10, 15 and 20 years for the state,” says Dobbins, who is also immediate past chairman of the Arizona Manufacturers Council. “We need a clear education pathway to support Arizonans’ having the job skills to meet the challenges of that goal. We have the infrastructure to become a major player in all of our primary industry sectors. Now we have to create the political will to set the state’s objective to become the international commercial and business hub of the Southwest.”

To get there, Dobbins says, “We need to rid ourselves of outdated policies that discourage businesses from relocating here and be aggressive at pursuing growth. We must invest in education and fund our schools and universities properly so they produce graduates who are vocationally skilled and/or STEM-skilled and job-ready.”

Even in the copper mining industry is transitioning into a knowledge-based workforce, McPhie says.

“We are working with local colleges so we can attract and educate the best and the brightest engineers, hydrologists and geologists,” McPhie says. “There are tremendous opportunities to make significant wages in the copper mining industry, particularly because there will be a significant numbers of retirees due to our industry’s aging workforce.”

It’s not just the mining industry that is looking for a new generation of workers. “We’ve also seen manufacturing (hiring) pick up substantially in the last month,” says Andy Ernst, regional vice president for Robert Half International, a staffing services firm.

While Dobbins says the computer and electronic product manufacturing is generally considered among the state’s strongest manufacturing areas, the production of transportation equipment — which includes the aerospace and defense industries — could be the most captivating, yet challenging, sector to watch in the next several years.

Boeing Phantom Eye

Photo courtesy Boeing

“The advent of Unmanned Aircraft Systems (UAS) in the defense sphere is extremely exciting for Arizona manufacturing,” Hamer says. “The AMC is working with the Arizona Aerospace and Defense Commission and other stakeholders to secure Arizona’s position as a leading location for research and development, manufacturing, and testing of UAS, and we are supporting Arizona’s proposal to be designated by the Federal Aviation Administration as a national UAS testing area.”

Arizona’s largest aerospace and defense companies are investing in the future of UAS, which the military uses to track enemy movements, bomb targets and move supplies without putting soldiers in harm’s way. Boeing moved its unmanned division to Mesa, where it can manufacture the A160T Hummingbird, the company’s flagship unmanned aircraft, once every 12 days. Raytheon in Tucson is working on several UAS innovations, including an operating system that would make it easier to install various brands of sensors and communicate among multiple unmanned aircraft.

But aerospace and defense isn’t the only area expected to create new jobs.

“In addition to the potential growth of Unmanned Aircraft Systems in Arizona, Intel’s $5 billion investment in a new factory in Chandler will require 1,000 workers and is creating 14,000 jobs in the construction sector in anticipation of the facility’s completion in 2013,” Hamer says. “The investment has a tremendous downstream effect on other companies.”
Renewable energy is another potential hotbed for growth.

“If it is able to overcome certain global market challenges, certainly the solar industry has big growth potential for the future of our state,” Dobbins says. “Also, as long as we, as a society, continue to be in love with personal electronics — computers, laptops, cell phones — and our cars, manufacturing in Arizona will continue to grow.”

To help that growth, the Arizona Chamber of Commerce and Industry is focused on two initiatives:

  1. Southwest<>Direct, which aims to make Arizona the international commercial and business hub of the Southwestern U.S.
  2. A collaboration between the education community and business to secure highly trained, vocational skills-certified and STEM-certified employees for today and tomorrow’s increasingly technical workplace.

“The Chamber and the AMC are (also) working together to promote a tax environment that attracts manufacturing, including reforms to the state’s treatment of income derived from capital gains, and lengthening the time businesses can carry losses forward against future profits as way of encouraging more startups and businesses that require large capital investments,” Hamer says.

Despite the increase in job creation and slight decrease in economic despair, the state’s manufacturing sector still faces some challenges.

“With looming federal budget cuts, Arizona’s defense and aerospace manufacturers stand to face some big changes,” Hamer says. “It is incumbent upon our leaders to continue to position our state as a leader in this field by aggressively pursuing Unmanned Aerial Systems flight testing, research and manufacturing in Arizona.”

Hamer says that it will be imperative for lawmakers and business leaders to have a unified vision for the future of manufacturing in Arizona.

“Arizona needs to be mindful of the growing creep of regulations and red tape that stifles business’ ability to focus on innovation and investment,” Hamer says. “Gov. Jan Brewer recognized this when her first act as governor was to institute a regulatory moratorium; the Legislature soon followed the governor’s action with a sweeping regulatory reform package of its own. Increased transparency in the regulatory sphere at all levels of government will help attract (new) manufacturing to Arizona.”

ARIZONA AEROSPACE

Here are four of the major players in Arizona’s defense and aerospace industry:

Boeing: The company’s 4,878-employee Defense, Space & Security facility in Mesa is best known for producing the AH-64 Apache attack helicopter for the U.S. Army. Additional work at the Mesa facility includes production of electrical subassemblies for the F/A-18, F-15, and C-17 aircraft.

General Dynamics: With more than 5,400 employees at its Scottsdale headquarters, General Dynamics C4 Systems specializes in command and control, communications networking, computing and information assurance for defense, government and select commercial customers in the U.S. and abroad.

Honeywell International: With more than 10,000 employees at 21 Arizona facilities, Honeywell International contracts with the Department of Defense through both their Aerospace and their Automation and Control Solutions business units. In particular, Honeywell Aerospace is headquartered in Phoenix, with major facilities in Tempe, Glendale, and Tucson.

Raytheon Missile Systems: Headquartered in Tucson with 12,000 Arizona employees, Raytheon Missile Systems designs, develops, and produces weapon systems for the U.S. military and the armed forces of more than 50 countries.

Arizona Business Magazine May/June 2012