Tag Archives: recession

phoenix

Arizona economy rising, report shows

Phoenix and the broader Arizona economy are expanding again after an extremely difficult recession, although growth will be more modest than the boom times of a decade ago, according to a report released today by BMO Economics.

The labor market is a bright spot, with the city remaining consistent in its job growth performance.  “The city has been a consistent job growth outperformer so far during the recovery and, after a soft patch earlier in the year, growth has accelerated again,” said Robert Kavcic, Senior Economist, BMO Capital Markets.  “If the recent growth clip persists – and we believe that it should – the Phoenix economy should be able to add roughly 85,000 new jobs by the end of 2016.”

“It’s encouraging that the economic health of Arizona, and Phoenix in particular, continues to improve,” said Steve Zandpour, newly-appointed Arizona Regional President, BMO Harris Bank. “It’s nice to see construction activity again. Projects that had been on hold for quite a while have broken ground, adding another positive stimulus to the community.”

The Valley’s economic diversity will help it continue to recover at a solid pace.  “Phoenix boasts a diverse economy with exposure to a wide range of industries in high-tech manufacturing, construction, finance and professional services,” stated Kavcic. “Of the 250,000 jobs lost during the recession, nearly three-quarters of them have recovered.”

The finance and insurance sector employs more than 125,000 people – a record high, in the city.  The fast-growing biotechnology sector also has a strong presence in the region, with two new structures recently approved at the Phoenix Biomedical Campus, including a $136 million investment by the University of Arizona.

On the housing side, the foreclosure rate across Arizona has tumbled to below 1 percent – now among the lowest in America – while higher home prices have reduced the share of mortgages in a negative equity position.  “Fundamentals support a continued, albeit more modest, housing market recovery in the city,” said Mr. Kavcic.

To view a full copy of the report, visit www.bmocm.com/economics.

rsz_countryclubgreens

68-Unit Apartment Community in Mesa Sells for $4M

 

 

Cassidy Turley completed the sale of Country Club Greens, a 68-unit apartment community on 2.4 acres at 350 W. 13th Place in Mesa for $4M.

The buyer was Clear Sky Capital CCG L.P. of  Phoenix and the seller was California Bank & Trust. Executive Vice Presidents David Fogler and Steven Nicoluzakis with Cassidy Turley Arizona’s Multi-Family Group brokered the transaction.

Built in 1986, the property has nine one bed/one bath and 59 two bed/two bath fully remodeled rental units that include new energy efficient appliances and upgraded kitchen and bathroom cabinets.

The complex also has a swimming pool and spa and on-site leasing office. Country Club Greens is located one mile south of the Loop 202 on Country Club.

In other news, Cassidy Turley completed a 2,800 SF lease for Voxpop, the shopper marketing radio network, at 2141 E. Camelback Rd.. Justin Himelstein and Jason France with Cassidy Turley Arizona’s Office Tenant Representation group represented Voxpop.

The marketing company relocated from an office at University and 35th St. to the Camelback Corridor submarket. Judith Tucker with Camroad Properties represented the landlord, Two Corners Financial Group, LLC.

Voxpop began in 2003 in Mexico and is the largest in-store marketing radio network reaching more than 40M people in more than 1,800 stores. In 2009 the company expanded its operations in the U.S.

The company currently has partnerships with retailers in Arizona, Texas and California, including Arizona-based Bashas’, AJ’s Fine Foods and Food City locations. Voxpop is a strategic messaging company that started by providing background music for stores and grew into providing targeted advertising and marketing messages for grocery customers.

The client list includes national companies such as Nestle, Coca-Cola, Tyson, General Mills and Kraft.

rsz_kukuiula_clubhouse_night

Surviving Tough Times: How Linthicum Weathered the Recession

The impact of the recession on the luxury custom home and high-end commercial construction markets has been significant.

While there has been a recent recovery, it has done little to improve conditions and as a result, our markets remain soft. As a builder in this market niche, the past few years have presented unprecedented challenges.

To overcome these, Linthicum had to make several key strategic moves. While some of the actions we have taken are best practice type responses to any economic downturn, some are far less conventional. The reality of this economic cycle, however, requires more out-of-the-box thinking in order to survive it.

First, we streamlined our organization to remove any unnecessary expense while also capitalizing on and maximizing the talent of our people. Ultimately, this results in fewer doing more. It also creates unique opportunities for those who are willing to work for them.

Second, we expanded geographically into other luxury markets to create a bigger pie to draw from. As a result, our reach outside Arizona now includes Tahoe/Truckee, Kauai, Hawaii (above photo) and the Coachella Valley of California.

While this type of move can be risky, having the right plan in place to be executed by the right type of employee can significantly reduce the exposure. When there simply isn’t a sufficient volume of opportunities in your own backyard, we believe, you need to go find another. This has proven successful for us.

Next, we have made entry into other related product market segments that still allow us to execute at the high standards of quality we are employed for. The high-end tenant improvement market has provided an opportunity for us to keep our team members employed and our backlog active. This change also required a shift in pricing and staffing approach, which has created an even more streamlined solution to our clients needs.

And lastly, we remain light on our feet, always looking for ways to reduce cost and maximize every dollar of revenue. With some segments of the market showing signs of measurable improvement, we remain optimistic that we will once again see healthy levels of demand and be a stronger and more resourceful company when that occurs.

Eric Linthicum is CEO of Linthicum Corp. In 1984, while still in high school, he joined the family construction business, then Linthicum Constructions Inc. In 1997, his focus shifted to the company’s rapidly growing custom home division and, in 2001, he assumed its leadership. Linthicum is a builder of high-quality commercial, golf/resort amenity, and custom residential projects associated with high design, fine finish and complex detail.

 

 

recovery sign

ASU Experts: Economy Rebounds, But Is Still Years From Full Recovery

Despite positive growth, full economic recovery is still two years away for the nation and at least three years away for Arizona. That message was delivered today by top economists from the W. P. Carey School of Business at Arizona State University. The experts spoke at the annual Economic Outlook Luncheon sponsored by the Economic Club of Phoenix.

“Arizona lost 314,000 jobs during the recession, and we’ve only added back around 25 percent of those,” explained Research Professor Lee McPheters, director of the JPMorgan Chase Economic Outlook Center at the W. P. Carey School of Business. “We’ll probably pick up about 48,000 jobs this year in the state, but it will be three to four years until we can expect to see full recovery.”

McPheters says Phoenix is on its way to a significant rebound, having ranked No. 4 among the nation’s large cities for total job growth from March 2011 to March 2012. Arizona is already back to its position as a Top 10 job-growth state, ranking No. 8 for the same time period. Health care and hospitality are two of the fields doing relatively well in the recovery here.

“Arizona’s recovery will be slow, but it appears sustainable as long as the U.S. economy stays on track,” said McPheters. “Businesses should plan now for long-term improvement.”

Nationally, McPheters says the country has already gained back 40 percent of the 8.9 million jobs it lost during the recession.

However, Robert Mittelstaedt, dean and professor of management at the W. P. Carey School of Business, said, “Many experts are still looking at the national-debt situation as an issue. April was the first time since September 2008 that we’ve had a monthly surplus, and that is not likely to be repeated anytime soon.”

Mittelstaedt points out that the recent peak for the U.S. deficit was 10.1 percent, which happened in 2009. The last time the national debt was at that level or worse was all the way back in 1945.

Professor Dennis Hoffman, director of the L. William Seidman Research Institute at the W. P. Carey School, gave an analysis of the state’s budget situation. He says taxes on individuals are relatively low in Arizona, and the public pensions are generally solvent. Also, the recent upswing in the economy has helped provide some stabilization for incoming state revenue, even though tax collections as a share of income have continued to fall for years. However, the current clarity in the fiscal picture will start to get cloudy again.

“Next year, the temporary sales tax will expire, and within five years, the Arizona corporate income-tax rate will be about 30 percent lower than it is today,” explained Hoffman. “This presents some fiscal challenges that will have to be managed.”

As for the housing market, Mike Orr, director of the Center for Real Estate Theory and Practice at the W. P. Carey School, delivered some good news for hard-hit homeowners.

He said, “Home prices are on the rise in the Phoenix area, and we expect that trend to continue.”

The median single-family home price already went up more than 20 percent from March 2011 to March 2012. The bounce was from $112,000 last March to $134,900 this March.

“Most homes under $250,000 are attracting multiple offers within a couple of days, and there are far more buyers than sellers,” said Orr. “We’ve also seen a big shift in the types of transactions in the market from a focus on lender-owned home sales to a rise in normal resales, new-home sales, investor flips and short sales.”

The number of foreclosures completed this March was down a whopping 60 percent from last March. Also, the number of delinquencies on loans – those who are behind on payments, but not in foreclosure – is down 51 percent. All of this means the supply of lower-priced homes in the area is down to less than a month’s worth of inventory, and new-home construction is cranking up to try to help meet the demand.

Today’s Economic Outlook Luncheon was held at the Westin Kierland Resort & Spa in Scottsdale. The Economic Club of Phoenix hosts the Economic Outlook Luncheon every spring, as one of its opportunities for Valley business leaders and others to network and engage. The club was founded by a group of prominent business executives called the Dean’s Council of 100, in conjunction with the W. P. Carey School of Business. More information about the club can be found at wpcarey.asu.edu/ecp.

Economic Forecast

Economic Forecast: Arizona, U.S. to Show Improvement in 2012

Improvement in both the Arizona and U.S. economies can be expected next year, but full recovery is still a few years away. That’s according to experts who spoke Wednesday at the 48th Annual Economic Forecast Luncheon, co-sponsored by ASU’s W.P. Carey School of Business and JPMorgan Chase.

 More than 1,000 people packed into the Phoenix Convention Center to hear the outlook for 2012. The experts say that though U.S. economic growth was actually slower this year than last year, conditions for 2012 are looking up for the nation and state.

“Although the Arizona recovery is tepid at best, every key indicator is expected to improve in 2012 as compared to 2011, including jobs, incomes, sales and even housing,” said Research Professor Lee McPheters, director of the JPMorgan Chase Economic Outlook Center at the W. P. Carey School of Business. “Still, no indicator will be sharply better until the national economy moves onto a faster growth path.”

McPheters says Arizona hasn’t been rebounding with the same vigor seen in previous recovery periods. The state lost 324,000 jobs from 2007 to 2010. By the end of this year, only about 20 percent of those will be restored. However, Arizona did move from No. 49 among the states for job creation in 2010 all the way up to a Top 10 growth state this year.

“After three consecutive years of lost employment, about 23,800 jobs were added in 2011,” said McPheters, editor of the prestigious Arizona and Western Blue Chip Forecast publications. “Arizona employment is expected to increase by 45,000 jobs in 2012. However, we’re now at about 9 percent unemployment in the state and expect unemployment to continue to be a problem next year, dropping to around 8.5 percent. Healthcare and manufacturing are among the sectors doing relatively well.”

McPheters also expects Arizona’s population to grow by 1.5 percent in 2012, faster than the national average of about 1 percent, but slower than Texas and Colorado. Personal income is expected to go up 6 percent in Arizona. Retail sales are projected to rise by 8 percent. Cautious consumers have largely been putting off non-essential spending, but may relieve some pent-up demand next year.

In the hard-hit housing market, McPheters predicts 20-percent growth in single-family housing permits. However, Elliott D. Pollack, president of highly regarded economic and real estate consulting firm Elliott D. Pollack and Company, explained that even a large percentage growth in this area doesn’t mean much.

“Permits have bottomed out, but they are still down 89 percent from the peak,” Pollack said. “About 50,000 to 55,000 excess housing units remain in the Greater Phoenix area.”

Foreclosures and short sales have been dragging down existing-home prices. Pollack says, in the third quarter of this year, 25 percent of the existing-home transactions were foreclosures, and another 29 percent were short sales. Also, more than 40 percent of the homes being sold are going to investors and other owners who won’t actually live there.

“On the positive side, the number of units going into foreclosure is declining, and housing prices appear to have stabilized,” said Pollack. “Depending on population growth, job growth and other factors, we could see full housing recovery in three to four years.”

Pollack says the apartment market is already looking good, as many people switch to renting. Vacancy rates in industrial space have started to decline, and an increasing number of companies are looking at the Phoenix area as an alternative to California. Still, about one out of every four square feet of office space in the metro area is vacant.

At the national level, experts expect 2012 to bring an increase in gross domestic product (GDP) of somewhere between just under 2 percent to 3 percent. Professor John B. Taylor, the George P. Schultz Senior Fellow in Economics at Stanford University’s Hoover Institution, talked about what needs to be done in this area.

“The economy wasn’t nearly this weak in the 1980s, following an equally deep recession when unemployment rose to even higher levels,” said Taylor, who served as Undersecretary of the Treasury during President George W. Bush’s first term and on the President’s Council of Economic Advisers for President George H. W. Bush. “Recently, we have seen a return toward more government intervention for fiscal, monetary, regulatory and tax policy. These swings have had enormous consequences for the American economy.”

Taylor says the country needs a predictable government policy framework based on law with strong incentives derived from the market system and a clearly limited role for government.

Anthony Chan, chief economist for private wealth management at JPMorgan Chase & Co., specifically addressed the future of the financial markets. He said many stocks are a bargain now.

“We currently face oversized volatility and uncertainty; for this reason, we believe stocks are attractively priced from a historic perspective,” said Chan, who served as an economist at the Federal Reserve Bank of New York, appears monthly on CNBC, and is a member of the Reuters, Bloomberg and Dow Jones weekly economic indicator panels. “Prices should gravitate toward fairer values when the outsized degree of uncertainty lifts.”

Chan added corporations are sitting on “huge amounts of cash,” while paying out low dividends. When business sentiment improves and uncertainty is reduced, he expects faster employment and economic growth. He also believes high-yield and municipal bonds will remain a good investment as long as the country doesn’t fall into recession. Still, he is concerned the United States may be losing some control over its long-term destiny, noting that China and Japan hold a combined 46 percent of U.S. Treasuries.

“It is hard to believe the U.S. influence will remain as dominant as it once was, if this trend persists,” said Chan. “Meantime, emerging markets are becoming more attractive. Consider a diversified portfolio.”

For more details and analysis on the 2012 economic forecast, including the presentation slides, go to knowwpcarey.com.

 

Tucson Office Market, Industrial and Retail Sectors

Positive Signs Bolster Tucson Office Market, Retail And Industrial Sectors

Positive signs bolster Tucson office market, as well as the area’s retail and industrial sectors

CBRE has released its third quarter 2011 market analysis of the Tucson area office, industrial and retail sectors. Report highlights include:

Office

•    The Tucson office market reported a stronger third quarter, with 71,209 square feet of positive absorption. This compares to 30,786 square feet of positive absorption in the second quarter and 22,028 square feet of negative absorption in the first quarter.

•    The Tucson office market vacancy rate declined in the third quarter, dropping 80 basis points to 17.1 percent. The area’s lowest vacancy was reported in the North Central and West Central submarkets, which both have rates of 13.6 percent. The highest vacancy rate, 27.4 percent, was found in the Southwest submarket.

•    The average asking lease rate for existing multi-tenant office space decreased for the first time this year, falling to $19.26 per square foot from $19.65 per square foot at the end of the second quarter and $19.43 at the end of the first quarter.

•    There will be no new speculative office construction in the Tucson market until demand picks up and the abundant supply of available space goes down.

Industrial

•    Vacany among industrial product declined for the first time in 2011, falling to 11 percent from 11.3 percent at mid-year. While only a 30 basis point drop from the previous quarter, this represents a 60 basis point decline in the past 18 months.

•    The industrial market recorded 121,971 square feet of positive absorption in the third quarter. Although a strong showing, this could not completely ease the occupied space lost in the first and second quarters, leaving the market with 26,996 square feet of negative absorption for the year.

•    The average asking industrial lease rate dropped significantly – 17 cents – to end the third quater at $6.25 per square foot. This compares to $6.62 per square foot at the end of the second quarter and $6.64 per square foot at the end of the first quarter.

•    With much of Tucson’s industrial product aging and functionally inefficient, any improvement in the economy will quickly lead to new construction, driving up lease rates and sales prices.

Retail

•    Tucson’s shopping center market recorded its second consecutive quarter of positive absorption with 34,629 square feet. This combined with the absorption through mid-year brings the market’s year-to-date total to positive 6,989 square feet.

•    The vacancy rate among shopping centers decreased in the third quarter, albeit modestly, to 12.2 percent from 12.3 percent at the end of the second quarter. Yet, vacany remains unchanged from mid-year 2010 when the rate was also 12.2 percent.

•    The average asking lease rate for shopping center space increased for the third time this year, rising to $18.30 per square foot from $17.71 per square foot in the second quarter and $17.64 per square foot at the end of the first quarter. This hike in the market’s average rental rate has been driven, in part, by an uptick in activity and demand in prime retail hubs.

•    Big box tenants and national retailers continue to vie for premium sites in high-traffic trade areas, while sites on the periphery wane in activity.

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Visit CBRE’s website at www.cbre.com for more information about the 3Q analysis of the Tucson office market, as well as the area’s industrial and retail sectors.

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Informative Graphics Corporation, Scottsdale, Ariz., Software Company

Scottsdale-Based Software Company Is Growing With Fortune 500 Customers

While other business owners floundered during the recession, Scottsdale software company Informative Graphics Corporation (IGC) maintained firm footing. Now, as the economy is cautiously reinventing itself, IGC has hired seven new employees and has four positions waiting to be filled.  For a company with 80 employees, that’s nearly a 10 percent increase in size in a single quarter.

The story of IGC’s inception began in an average company parking lot in 1990. Co-founders Gary Heath and Martin Davis spent four hours bouncing ideas off one another; ideas focused on creating a type of software that would aid in viewing documents of different file formats.

The more they discussed the company, the more they realized they had the ability to create it.

The next day, the two met in the bedroom of Davis’ daughter and sketched out the company design on her chalkboard. With very little money and no outside loans, the company’s first product, Myriad, was born.

“Marty and I were two software nerds with a product vision, $5,000 in cash, and a whole lot of passion,” Heath says. “We knew very little about running a software product business when we started.

“If I was advising those two guys now, based on what I know today experience-wise, I’d say you just don’t have a chance,” he continues. “Naiveté really played to our advantage. We believed we could do it.”

Money from side consulting projects was invested and reinvested into the fledgling company. As the company grew, the profits were funneled back into the company. Along with this basic strategy and a desire to learn from others, IGC flourished and added more software technology in file sharing, annotation, redaction and content publishing to its list of products.

“What made (the company) work was getting the gracious advice from others with (expertise in) sales, management, marketing, public relations, etc.,” Heath says.  “We figured that if someone asked us about software, they would be fools not to take our advice (being nerds and all).

“The same logic held for the stuff we didn’t know much about; we thought we would be fools not to follow their advice, no matter how crazy it seemed at the time.”

As the company grew larger, Davis and Heath went their separate ways in the late ‘90s.

“Marty wanted more of a lifestyle company and I felt, as a technology company, we had to continue to grow,” Heath says. “So, as the company hired more employees, Marty left to start his own consulting business.”

Since then, the company has grown substantially. More than one-fifth of IGC’s customers are Fortune 500 companies. Heath stresses the importance of a quality staff to a company’s success.

“The secret sauce for every company is its people,” Heath says.  “IGC became a company because two guys had a vision. It became successful because a whole lot of people (our employees) executed that vision through responsiveness to customers and partners and innovation. They are the ones that really made, and continue to make (the company) successful.”

As part of the company’s latest integration with Microsoft SharePoint, two of IGC’s newest employees are former Microsoft employees, Deidra Jow and Doug Skinner.

“What makes really great companies is finding qualified people who have a great skill set, but will also marry well into the culture of the business,” Heath says. “We interviewed a bunch of people and took them through various scenarios relevant to the culture of our company.”

So what’s next for this growing computer software company?

“We’re looking into using our technology for the redaction of medical records,” Heath says. “We’re looking to establish partnerships and bring more software into the health care industry.”

Informative Graphics Corporation

      4835 E. Cactus Rd, Suite 445
      Scottsdale, Arizona 85254
      +1.602.971.6061

www.infograph.com

Investing wisely

Learn To Avoid Investment Mistakes

Avoiding big mistakes can have a significant impact on a long-term investment. This impact may be more significant than the performance of a specific fund, stock, bond, or alternative investment. More often, big mistakes occur when investors begin making decisions based on emotions such as fear and greed, rather than using logic and objectivity when making their decisions about investments. For these reasons, it is important for investors to have a coach on their side, such as a financial professional, to help guide them during challenging times such as we experienced during the 2008 recession. There are many mistakes that can occur, but if the big mistakes can be avoided, it can make a huge difference on an investor’s recovery. Here are three that are critical: failing to plan, waiting for the right moment to start investing, and buying high and selling low.

Many of us have spent countless hours planning for vacations, weddings, graduations, and having children. However, failing to plan for retirement will certainly present major issues for investors when retirement is near. Having a plan in place and a purpose of investing is critical. This is usually broken down in two parts. First, the building of wealth and second the disbursement of wealth. During the wealth-building process, investors will need to consider portfolio growth, time frame of investing, risk tolerance, and tax consequences. During an investor’s disbursement phase, our investment objectives will change and strategies will be tailored toward capital preservation rather than growth. It is not easy and takes a lot of patience, yet having a plan in place to build wealth, and managing it properly during the distribution phase, will improve the odds of having a secure retirement.

When it comes to investing for your retirement, the best time to start is now. Whether you’re a new investor or experienced investor, time is the most important factor you can have on your side. The earlier you start, the easier it is to save more, ride out the shifts of economic changes, and utilize compound interest to your advantage. By starting later in life, investors may fall short of their needs. The later you start the more you will need to save, reduce discretionary spending, and work longer than expected. For these reasons, the earlier you start saving the better the odds of saving enough for retirement.

Emotional investing usually ends on a bad note. Investors who buy and sell on emotions typically buy high and sell low. We have seen this time and time again. The interesting part about this is that most of the time our objective is to get out before we lose or to get in to gain something. In most cases, we end up doing the opposite. We get out before the market shifts because of fear and don’t get in until we are comfortable, when it’s too late. This is why having a plan in place that includes logic and objective decision making is crucial. Usually, a well balanced portfolio with rebalancing will allow investors to meet their goals and minimize major swings in their portfolios.  Avoiding these mistakes does take planning. In many cases, working with a financial professional can help you be more objective and reach your retirement goals.

Barry Broome, GPEC president and CEO - AZ Business Magazine Jan/Feb 2011

GPEC’s President And CEO, Barry Broome Talks About Getting The Valley’s Economy Back On Track

Give us a look ahead at Greater Phoenix’s major industries.

The emergence of solar and renewable energy has been, and will continue to be, a big opportunity for us. We need to learn, as a market, how to be involved in new technology initiatives. There are going to be wins, losses and volatility, but the renewable space is going to continue to grow.

From January to November 2010, 1,350 jobs and $153 million in capital investment have been created. Renewable energy projects now make up about 28 percent of the companies looking at our region.

In addition to the renewable energy industry, health care, life sciences and information communication technology will expand next year. All of this is plagued by inconsistency in the capital markets. There is not enough private equity and there is no real IPO (initial public offering) market. Whenever you are building a new technology, it is really important that capital markets are responsive.

What kinds of jobs does GPEC look to attract and grow in Greater Phoenix?

We’re probably having the best year for attracting engineers and professional jobs that GPEC has ever had as an organization. These quality jobs are fueled by the fact that renewable energy is the new technology space.

GPEC is performing at a high level, even though the country is still in a recession. We have already driven 4,400 jobs to Greater Phoenix from July to October 2010. Of those jobs, 66 percent provide high wages. We want to see even more high-quality jobs this year. Hopefully, we will continue to drive regional headquarters, and professional services and technology jobs in the region.

GPEC talks a lot about competitiveness. Why is this important, and what specifically is GPEC doing to make the region more competitive?

For a long time, GPEC has focused efforts on increasing the region’s competitiveness. It’s absolutely critical because every major investment is analyzed by people with very astute backgrounds for its financial implications, talent and long-term viability. The most common differentiating point for a market is its competitive position. We look at the cost of doing business, the speed of doing business, ability to attract talent and access to capital.

GPEC has several initiatives to push Greater Phoenix into more globally competitive circles. The region — historically — has relied on retail, construction and real estate sectors to our own detriment. We have a high-quality job formula. Arizona will increase its competitive position with GPEC’s proposal to drive large company expansions, increasing our local, talented work force, and improving our tax climate. Working on job creation legislation with Tucson Regional Economic Opportunities (TREO), rural partners, the Arizona Commerce Authority and chamber partners is going to be really important this year. GPEC also works closely with the Arizona Chamber of Commerce, Arizona Small Business Association, Greater Phoenix Chamber of Commerce, Greater Phoenix Leadership, and our communities and mayors.

It wasn’t that long ago, just four years ago, that Arizona was ranked No. 1 in the country for job growth. Now, we have fallen to almost last in the country — 48th place. We need to understand how to improve the environment for business and compete in new technologies and industries. That is going to make the difference for Greater Phoenix as it recovers from the housing slump and shifts the job base away from the real estate industry to export industries.

Arizona Business Magazine Jan/Feb 2011

Steve Chucri, president and CEO Arizona Restaurant Association - AZ Business Magazine Jan/Feb 2011

Q&A Steve Chucri, President and CEO Arizona Restaurant Association

-In 2002, Steve Chucri was lobbying at the state level when the Arizona Restaurant Association president and CEO position was presented to him. Chucri now uses his political and lobbyist backgrounds to help Arizona’s restaurant industry navigate today’s tough issues. An executive committee board member with the Arizona Tourism Alliance, Chucri discusses strategies to create workable solutions to many issues affecting his industry.

Could the recession have been worse for the restaurant industry?
I always think it can be worse, because you don’t know worse unless you’re in it. That being said, yes, the economic hit, the recessionary hit to our industry was substantial. It may not be as substantial as to other elements of the tourism industry, but when you have the closing of restaurants double from normal times during this recessionary time, that’s pretty substantial. … I’m not going to say we were the worst or we were the most impacted, but there has been a huge impact from the most experienced restaurateur to the novices of the industry. Both were equally hit.

How have the arizona restaurant Association and the arizona tourism alliance been working together to get through the recession?
Restaurants over the recent years have become more and more dependent on tourist dollars. The receipts show that. About 25 percent of our receipts from restaurants are coming from tourists. … I think what we’ve been able to work on with both organizations is how do we continue to work together and make Arizona a destination? We’re becoming more and more known for our culinary fare.

Second to that, we’ve also worked legislatively together to ensure we’re not being targeted for miscellaneous taxes and we’re not getting targeted as an industry when it comes to funding issues, especially the Arizona Office of Tourism.

What challenges do you see facing the restaurant industry in 2011?
I see an increase in costs. We’ve been fortunate to maintain costs at a low level because of the recession, but I’m getting concerned that if things do start to pick up we will see costs starting to rise. I feel as though the smallest of things, the profitability of a restaurant, is very, very low and it doesn’t take much. You can’t just go to your menu and start raising prices in an economy like this. … I think we’re going to make a real push to see how we can get rid of that CPI (consumer price index) component with the minimum wage, but I don’t want to dwell too much on that, as we’re still in the strategic phases.

On the good side too, I believe that people are going to realize, yes we’re in a recessionary time but restaurants essentially are on sale right now. … I see people also realizing, like I said on the positive side, that it isn’t all that expensive to go out to eat.

How has Arizona’s restaurant industry been recovering from the recession?
In many, many ways, across many segments of our industry, it’s been at a snail’s pace. … I will tell you that 2010, from the quick-serve industry all the way to fine dining, it has been better than 2009. Now, that’s not universal, but the increases we are seeing are at a snail’s pace.

I think the wish, if there was one, of the industry would be that growth would pick up a little more quickly. Not at the crazy pace we were going at back in 2006, 2005, but something that is more meaningful and can be measured. … I think that restaurants are doing all they can to make sure that happens by offering these terrific deals and really using a lot of ingenuity and happy hours.

Restaurants are really good at incentivizing and getting people to come in. I think we’ll always continue to see that happen. … If restaurants can grow and if our industry can grow back up to the 4 percent or 5 percent and it’s sustainable each month and it’s sustainable on a consistent basis, you’d see a lot of smiles on restaurateurs’ faces.

Arizona Business Magazine Jan/Feb 2011

Employee Discontent Experiences Sharp Rise

Employee Discontent Experiences Sharp Rise, Study Finds

Workers are poised for a mass exodus next year, according to a poll of more than 1,400 workers in North America by Right Management. Employees are feeling increasingly restless and intend to leave in droves if opportunities open up in the job market.

Eighty-four percent of the employees polled say they plan to look for new jobs in 2011, up from 60 percent reported in Right Management’s survey a year ago. Only 5 percent now say they intend to remain in their current position.

“This finding is more about employee dissatisfaction and discontent than projected turnover,” says Douglas J. Matthews, President and Chief Operating Officer for Right Management. “We view it as a barometer of their trust in management or commitment to the job. It’s a workplace equivalent to opinion polling on whether or not ‘this country is moving in the right direction.’ Just as people are questioning their elected leaders in government, so too are workers wondering if their management is up to the challenge of renewed growth or developing a sound strategy moving forward.”

Matthews observed that the prolonged recession, continued job market weakness, along with disruptive economic and workforce changes are the underlying factors contributing most to employees’ backlash. “Employees’ trust has been seriously shaken and there is a general lack of confidence in leaders.”

The discontent is widespread, but this doesn’t mean an organization’s management is helpless, but nor can they afford to ignore the problem. “Clearly, if the job market picks up a lot next year many employees are going to take advantage of it, and organizations stand to lose some of their top contributors. So this is a wake-up call to management.”

One step management should take, Matthews advises, is to identify star performers and have open and constructive career discussions with them. “High value employees always have opportunities available to them. Know who they are and be sure to take care of them in ways that are meaningful and aligned with the businesses goals.”

Matthews noted that restlessness can also be alleviated by managers being honest and positive with employees. “Provide them with feedback on what they are doing really well and ways to help them improve. A mentoring relationship between the manager and employee will build mutual trust and hopefully limit future defections.”

Right Management surveyed 1,413 employees in the United States via an online poll. The survey ran between Oct. 11 and Nov. 15, 2010.

i/o Data Centers

i/o Data Centers Keeps Companies Nationwide Up And Running

Despite an ongoing recessionary climate, Phoenix-based i/o Data Centers just keeps on growing and doesn’t plan on stopping.

In the last year i/o doubled its number of employees and is looking to expand its Phoenix location. In Oct., i/o announced it closed $200 million in financing for the company’s expansions.

In addition to its Phoenix and Scottsdale centers, i/o wants to establish locations throughout the U.S., as well as manufacture modular data centers, called i/o ANYWHERE, that would allow data center capacity anywhere a customer needs it. The modular data centers would be manufactured in Arizona, adding to i/o’s employment capabilities within the state.

The i/o Data Centers in Phoenix are co-location data centers, which means individual companies hire i/o to store and secure their data at an i/o facility. Approximately 400 companies store their data in i/o’s two Arizona locations.

The impression that i/o stores data is misleading, the company is merely the keeper of the outside package not the internal information, says Jason Ferrara, vice president of marketing at i/o Data Centers.

“You can say i/o stores data, and that’s where I think confusion comes into play,” Ferrara says. “We don’t touch anyone’s data. … We don’t have access to your data, which is a really important thing because the companies we deal with here are literally some of the biggest in the world.”

Its clients, companies such as AAA Insurance and Fender Musical Instruments, “have a competitive advantage by being here,” Ferrara says. Some companies refuse to be named as an i/o client because it gives them a large competitive edge.

“Really what i/o does is we just allow other companies to do their business,” Ferrara says. “We provide them with the infrastructure, the power, the cooling, the network and the access control so that they can conduct their IT operations without failure.”

By using back-up power sources, an evaporative cooling system, and maintaining tight-as-Fort-Knox security, i/o ensures its clients will never go offline.

“They can effectively conduct business 24 by seven by forever,” he says.

Round-the-clock power and flawless security are particularly important for companies such as banks that allow clients to make payments or transfers online, or a company that stores personal information, such as credit card numbers.

Ferrara says Arizona is a perfect place for a data center because of three reasons – Arizona is an exporter of power, which means i/o will never go without power; Arizona is business-friendly; and finally Arizona is free from environmental threats like earthquakes, tsunamis, volcanoes and tornadoes.

Although many people question the efficiency of running a data center – known to produce a large amount of heat – in one of the hottest cities in the nation, i/o uses a fairly green method of cooling, Ferrara says.

Evaporative cooling systems, which are more effective than air conditioning systems at keeping temperatures low, cool its data centers. Other green practices include LED lighting and variable frequency dry fans, which only operate at the frequency necessary to keep the room at a particular temperature.

In addition to keeping the temperature at a certain level, i/o also uses ultrasonic humidification devices to prevent static electricity from creating a spark and causing an outage, Ferarra says.

“That’s our goal – is uptime – keeping our customers’ computer systems online all the time. And they pay a lot of money for that.”

Downtown Phoenix Skyline

Is the City of Phoenix Being Mismanaged?

These are tough times! Given the rotten economy it isn’t hard to be a pessimist about everything, and government seems to top the list. The November elections saw Congress shift to the Republicans, and yet America as a whole still seems to lack confidence that they are going to make things much better. A recent Rasmussen poll shows that only 28 percent of Americans believe we are headed in the right direction and almost half think our nation’s best days are behind us.

This frustration extends to every level of government.

The city of Phoenix recently has been accused of mismanagement by City Councilman Sal DiCiccio. He continues to promote that Phoenix needs to be completely restructured.

I served with DiCiccio for a couple of years on the Phoenix City Council and consider him a friend, but I was caught off-guard by his attacks. Phoenix has a heritage of being recognized for its quality management.  Consider this:

  • In 1993, Phoenix won the prestigious Carl Bertelsmann Prize for being one of the two best-run city governments in the world.
  • In 1995, Financial World magazine ranked Phoenix the best-managed city out of the nation’s 30 largest.
  • In 2000, the Government Performance Project conducted by the Maxwell School of Citizenship and Public Affairs at Syracuse University, along with Governing magazine, named Phoenix as the Best Run City in the United States and gave it the only “A” grade of the 35 cities it studied.
  • In 2009, the National Civic League named Phoenix an All-American City for the fifth time. It had previously won in 1950, 1958, 1980 and 1989.
  • Each of these awards evaluated different areas, such as financial management, performance management, infrastructure management, human resources, capital management, managing for results, use of information technology, and collaborative projects addressing critical issues.

    Okay, that’s Phoenix’ heritage, but what about now?

    Phoenix has hit the same rocky times as just about everyone else. We could rationalize that in a bad economy in which people are spending less and property values have crashed, it makes sense that municipal revenues, which are based off of these factors, have also dropped. Last budget cycle, Phoenix was faced with a $270 million shortfall. How did they deal with it?  They extended a food tax that almost all other municipalities in the Metro Phoenix area already had, asked their employees to take pay cuts (3.2 percent for employees and 6.9 percent for management), and cut services for the remainder. Those service cuts came after a series of budget hearings held throughout Phoenix in which more than 5,000 citizens provided input. It was a balanced approach that didn’t rely on placing the entire burden in any one area.

    If the city of Phoenix is guilty of anything, maybe it should have planned better for a rainy day. But if you believe that is true, answer these two questions: First, was this economic recession really a “rainy day” or more like a torrential downpour? That leads to the second question: who did plan for this? We hear all about the nightmares from Wall Street to Main Street.  Companies have vanished, banks have failed, and multitudes of homeowners have lost everything. These stories are unfortunately all too common. Almost all governments are having these same problems. Here in Arizona, our state government has been struggling with massive revenue shortfalls. What our Legislature is faced with in the next session makes counties and cities financial problems seem pretty small by comparison.

    None of this points to a sudden reversal of Phoenix’s good management practices. In fact, Phoenix now has a General Fund budget that is $79.2 million lower than it was five years ago, even though it has had an increase of 6 percent in the population.  Phoenix has cut budgets six of the last seven years in order to live within its means. In the last two years, Phoenix has downsized its employee base from more than 16,000 in 2008 to 14,500 today. Phoenix is at a 40-year low in terms of employees per capita. All of this has happened while staying focused on public safety and maintaining many other vital city services. The crime rate in Phoenix is at a 20-year low. Even Phoenix’ bond ratings are amongst the best in the nation. Phoenix received a AAA from Standard & Poor’s and an Aa1 from Moody’s.

    So back to the pessimism that people are feeling. In a bad economy, isn’t it easy to believe that government should be able to rise above it? As we face personal and business crises in a recession, do we really expect that government won’t face the same problems? Many people think that all government is wasteful and inefficient, so isn’t the message that Phoenix is being mismanaged one that is easy to accept?

    The city of Phoenix isn’t perfect, and there is always room for improvement. The truth is it is trying to provide the same level of services to more citizens with fewer employees and less money. It reminds me of a saying I once heard: We’ve been doing so much with so little for so long, that we are now qualified to do everything, with nothing, forever.

Just 11 percent of employers award cost-of-living adjustments (COLAs) to employees

Age Of The Un-COLA: The Cost Of Living Myth

Just 11 percent of employers award cost-of-living adjustments (COLAs) to employees, preferring to award promotional and merit increases, according to a WorldatWork study on compensation practices.

COLA refers to an across-the-board wage and salary increase designed to bring pay in line with increases in the cost of living to maintain real purchasing power. Cost of living still dominates many workers’ perception of their raises, believing that these are given to cover a cost of living increase, rather than to reward them for job performance.

As a best practice, human resources managers don’t mix merit pay with cost of living factors that have no bearing on job worth or performance. An individual’s cost of living is driven by their personal financial choices and cannot be neatly tied back to the CPI.  Example: a choice to take out a five-year loan with 0 percent down for a luxury car versus a compact car has nothing to do with the local cost of labor. How employees have chosen to allocate their finances is a personal choice.  A vast majority of employers and HR managers view pay raises as a tool to motivate employees. How motivating can it be for a top performer to receive the same base pay increase as a low or average performer?

Given the prevalence of tying pay to performance, expect the number of employers awarding COLA to stay flat, if not altogether dwindle in the coming years. This trend actually began way before the  recession, and is not likely to come back even in an economic recovery. The reason is that more and more organizations are requiring increases in pay to be earned. Showing up at work is no longer enough.

No doubt this news will be met with approval by high performers and derided by low performers. Which kind are you?

Many Arizona Small Businesses And Banks Say A Federal Loan Program Isn’t Needed - AZ Business Magazine Nov/Dec 2010

Many Arizona Small Businesses And Banks Say A Federal Loan Program Isn’t Needed

President Barack Obama has signed a bill that aims to increase small business lending. But it’s not exactly popular among Arizona’s small companies and community banks. They question whether a multibillion-dollar loan fund created by the legislation will achieve its goal.

The Small Business Jobs and Credit Act of 2010 will establish a $30 billion Small Business Lending Fund within the U.S. Treasury. The Treasury will use that money to purchase preferred shares in small- to medium-size banks that voluntarily participate in the program, injecting new capital that the banks would be encouraged to lend to small businesses. The more loans the banks make, the lower the dividend rate they pay the Treasury.

“As a small business owner, I am allergic to government intervention,” says Charlie O’Dowd, president of Westcap Solar, a Tucson company that sells and installs solar photovoltaic and solar hot-water systems. “I don’t think that this legislation is going to be any more effective than the TARP (Troubled Asset Relief Program) legislation. In this economy, it’s not that there isn’t money to be borrowed. It’s qualifying for the loan that’s the problem.”

The new law also gives John P. Lewis a bad taste in his mouth. Lewis is president and CEO of Southern Arizona Community Bank in Tucson, and a member of the FDIC’s Advisory Committee On Community Banking.

“Last January, the committee had a robust discussion (on the legislation),” Lewis says. “The committee said, ‘We don’t want to be a part of this.’ Community banks don’t need the additional capital. I have more money than I know what to do with. I need qualified borrowers.”

O’Dowd and Lewis describe a situation that is frustrating for both and that neither believes government policy will resolve. O’Dowd says small businesses’ sales are slow, impacting their ability to qualify for loans. Lewis says his loan demand is flat because there are fewer qualified borrowers.

The Arizona Small Business Association points to a wary small business community that’s in no mood to take on more debt. Earlier in the recession, small businesses tried in vain to obtain bank loans, but now they are in survival mode, says Donna Davis, the association’s CEO.

“Bank loans are not at the top of their list now,” Davis says. “Some businesses have lending fatigue. They just gave up (trying to get loans). Now they are focused on lack of sales. If sales don’t pick up, if work doesn’t pick up, they won’t seek credit. If they can boost sales and profits, then they can justify hiring and expanding.”

One outside observer sees a triumvirate of doubt that the legislation will not mitigate. Dennis Hoffman, professor of economics at Arizona State University’s W. P. Carey School of Business, says this recession has caused consumers, businesses and banks to lose their confidence. Lacking the good credit risk they saw five years ago, banks have “pulled in their oars,” Hoffman says. Creditworthy businesses fret so much over the economy, they don’t even apply for loans. Recession-scarred consumers remain stingy.

“We need to climb this wall of worry to get out of this morass,” Hoffman says. “This is a market-based, private-sector issue that will have to work itself out.”

Gail Grace, president and CEO of Sunrise Bank of Arizona headquartered in Phoenix, doesn’t sense much support for the legislation among Arizona’s banks, and wonders how many community banks would be able to participate.

“Community banks in Arizona are stressed and many may not even qualify for this program,” Grace says. “You will still have to have a fairly healthy bank to qualify for this.”

Not everyone has a dim view of the law. Robert Blaney, Arizona’s Small Business Administration district director, notes that the law will increase the SBA’s loan guarantee from 75 percent to 90 percent, easing banks’ risk on those loans. The law also will lower fees and raise the SBA’s maximum loan amount from $2 million to $5 million. There are thousands of small business owners nationwide that were waiting for the lending bill to become law, Blaney says.

One of those is Benefits By Design, a Tempe company that sets up health benefit plans for small businesses. The company’s president, Kristine Kassel, says there is a need for loans and it would be helpful if just two community banks expanded their small business lending. She adds that any amount of new credit that can be extended to small businesses is a good thing.

Banks interested in acquiring low-cost capital might be attracted to the Treasury fund and they might be enticed by the built-in incentives to direct new-found capital into small business lending, says Dan Stewart, Arizona market president for Mutual of Omaha.

But then he echoes what others say: “The (law) doesn’t encourage banks to take on more credit risk, so qualified borrowers are the key.”

    By the Numbers
    The Small Business Jobs and Credit Act of 2010



  • Establishes a $30 billion Small Business Lending Fund within the U.S. Treasury
  • Treasury will use money to purchase preferred shares in small- to medium-size banks that voluntarily participate in the program
  • SBA’s loan guarantee would increase from 75 percent to 90 percent
  • The SBA’s maximum loan amount would increase from $2 million to $5 million

Arizona Business Magazine Nov/Dec 2010

Health Care Reform in Arizona - AZ Business Magazine Nov/Dec 2010

Business And Community Leaders Are Trying To Figure Out What Health Care Reform Will Mean In Arizona

For government and business, providers and patients, the U.S. health care reform legislation promises a new world of costs and care.

Most individuals without insurance will be able to get it. Those who have insurance already probably will have to pay more for it. Hospitals, doctors and others in the front lines of health care will begin to change long-established ways of doing business. State governments and many businesses, already battered by recession, will face new costs and possibly some benefits.

But beyond these generalizations, little is certain about what health care reform will mean in Arizona and across the country. The bill is vague in many areas and leaves important details of implementation to be determined by federal regulators and other officials in the weeks and months ahead.

“Quite frankly, we won’t know the financial impacts until we move through the process and see what the federal government and insurance companies do,” says Donna Davis, chief executive officer of the Arizona Small Business Association (ASBA).

Barry Broome, president and chief executive officer of the Greater Phoenix Economic Council (GPEC), says it is too early know what the bill will mean.

“It sounds very good to be able to cover the uninsured, but what the costs are and how they are going to be distributed are still not clear,” he says.

Marjorie Baldwin, director of the School of Health Management and Policy and assistant dean at Arizona State University’s W. P. Carey School of Business, says it is important to note that the law’s primary purpose is to cover the uninsured.

“This bill is about access,” Baldwin says. “It’s designed to cover the uninsured. There is much less in it about quality of care and little about cost controls.”

On what the price tag for health care reform will be, Baldwin says, “The one safe prediction is that it is going to cost much more than anticipated.”

Hospitals and doctors
Whether the health care overhaul is ultimately deemed a success will be determined to a large extent by what happens inside the nation’s hospitals, clinics and doctors’ offices.

Peter Pavarini, a health care lawyer for Squire, Sanders and Dempsey and an adviser to health care organizations, believes hospitals are actually well-positioned to adapt to the new law.

“Hospitals have been anticipating something happening for some time,” Pavarini says. “Hospitals have the resources to prepare better than some of the other players in the health care system.”

Several provisions in the law are expected to lead to a dramatic shift in the way hospitals are paid by insurance. Under the existing system, providers receive set rates for specific medical procedures. The new law moves toward a system in which hospitals receive a set amount for treating an overall condition or a so-called “bundled payment.” This shift is expected to require more detailed treatment plans, coordinated care and closer cooperation among hospitals and physicians.

“With the bundled payments, you have to have a more integrated approach and an approach that aligns physicians and hospitals,” says Suzanne Pfister, vice president of external affairs at St. Joseph’s Hospital and Medical Center in Phoenix.

The hospital already has been moving in this direction, according to Pfister. St. Joseph’s has forged a series of partnerships with area health care organizations, including outpatient and short-stay providers United Surgical Partners and SimonMed Imaging
.
“We are continuing to look at moving from acute care to a continuum of care,” Pfister says.

Pavarini believes the new payment systems for Medicaid and Medicare will bring big changes to care at hospitals. When the system is in place, hospitals will get a set payment for delivering all of the care a patient receives from 72 hours before admission to 30 days after discharge, he notes.

“That’s a whole different model from what we have now,” Pavarini says. “This means it’s not good enough just to get the patient in and out of the hospital. It means testing can’t be duplicative. And it means patients better be ready for discharge when they’re released.”

Pavarini says doctors and hospitals will need to cooperate more closely as the law is implemented. He sees hospitals forging formal alliances with physician groups and appointing more practicing physicians to their boards of directors.
A more basic concern for hospitals is how much they will be paid. Because expansion of Medicaid is a key feature of the law, hospitals are concerned about long-term revenue.

“Payments are going to shift more to the level of Medicaid, and Medicaid has not been a particularly good payer,” Pfister says.

Officials at Phoenix-based Banner Health, one of the largest nonprofit health care systems in the country, are still examining the legislation to assess its consequences.

“This reform is primarily about health insurance, not health care reform,” the organization said in a statement. “It will result in expanded AHCCCS (Medicaid) coverage in Arizona and access to insurance, but the need remains to address reducing the cost of health care.”

The bill includes a number of provisions that will increase the role of primary-care physicians. Medicaid fees will go up for primary-care doctors, who also will be eligible for bonuses from Medicare.

St. Joseph’s is concerned about being able to find enough physicians as health care reform is implemented in the coming years, according to Pfister.

“Arizona has fewer physicians per capita than the national average, so we face that already. Arizona does not have enough primary-care physicians and even some specialists,” she says.

The larger hospitals that have formal ties to physicians and other providers probably will fare best under health care reform, according to Pavarini. But he believes smaller, more isolated hospitals will struggle and some will close.

“Arizona has a number of smaller hospitals in less populated areas,” he says. “I think the outlying hospitals in rural communities could have difficulty.”

Businesses
While all businesses will be affected by the health care reform law, some will feel it more than others. Probably least affected will be firms that already provide health insurance now and have a pool of employees large enough to allow the companies to self-insure.

“For most large businesses, fundamentally there’s not a lot of change,” says Keith Maio, president and chief executive officer of National Bank of Arizona. “For us, we’ll have to be a little more paperwork conscious.”

ASU’s Baldwin says the principal effect on large employers will be slightly higher expenses, as they absorb some of the cost of the system’s expanded coverage.

“For larger employers, the law is not going to mean a big difference, but they are going to see their costs go up,” she says.

Smaller businesses though will face new uncertainties, and, for some, significant new costs.

“I would say that there is a cloud of concern generally for small businesses,” says Maio, whose bank has many small business customers. “People who have been through the recession and are still slugging it out have learned to survive. But they still have trouble seeing how they can get back to where they were . That’s why something like the health care bill can have such an impact.”

The law offers a complex mix of incentives and penalties designed to spur employers to offer health insurance. In 2014, employers with 50 or more workers who do not provide coverage will face penalties of $2,000 or $3,000 per employee. Some employers who provide insurance and have fewer than 50 workers will be eligible for tax credits.

“In a sense there is both a carrot and a stick,” says Bradford Kirkman-Liff, professor in the School of Health Management and Policy at W. P Carey. “The idea is to create a very strong incentive to provide insurance.”

The tax credits could offset as much as half of the insurance costs for some employers, Kirkman-Liff notes.

“Arizona has a high number of small employers. Many of them don’t provide health insurance, but some do. This would give them a reason not to drop it,” he says.

The law also instructs states to establish insurance exchanges, where small employers and individuals can purchase policies from insurance companies. The exchanges are designed to bring down the cost of insurance by combining groups of buyers into large pools.

But even with government subsidies and insurance exchanges, some businesses will find the burden too large, according Maio.

“The greatest impact will be on those that employ entry-level employees,” he says. “Arizona has a lot of lower-wage businesses who won’t be able to afford to provide insurance. I think some will opt to pay the fine. Then what have you accomplished?”

Another problem that Maio sees is the 50-employee threshold for the coverage requirement. Employers with fewer than 50 can escape penalties for not providing insurance.

“Have you given them a disincentive to adding people?” he asks.

Davis at ASBA says most business owners are focused on short-term challenges and do not have a clear picture of how the law will affect them.

“For some small businesses who fit the prescribed requirements, it will help offset some of their costs,” Davis says. “For others, it simply won’t.”

Time is money

For Employers, Time Is The New Currency

With all the cost cutting employers have had to do during the recent recession to stay afloat, it’s comforting to know that a key employee benefit near and dear to everyone’s heart has survived — paid vacations. According to a WorldatWork research report, Paid Time Off Programs and Practices*, a majority of U.S. employers still offer paid time off. In fact, three out of four survey respondents say it’s necessary to offer paid time off programs and do so in traditional and non-traditional ways.

Three types of paid-time-off programs:

Traditional system — Gives employees separate allotments for vacation, personal and sick days.

PTO banks — Workers receive a pooled number of days off that can be used as needed (generally excluding fixed holidays, jury duty and bereavement).

Unlimited leave – Employees can take as many days off as needed.

The United States is among the minority of countries in the United Nations with no guarantee of paid leave for workers. The WorldatWork study found that a majority of U.S. employers offer it as a key employee benefit even if they are not mandated to do so. With the focus of the Obama Administration and Congress on expanding access to paid leave programs, the research shows that employers recognize the competitive advantage of offering paid time off and believe in continuing these programs, in good times and in bad.

Other key findings:

A vast majority of employers provide paid sick leave.

The average number of paid sick days in a traditional system is nine.

PTO bank systems do not distinguish between vacation and sick time.

Employers offer an average of nine paid holidays each year.

Amidst pay cuts and wage freezes, time is emerging as the new currency, and it’s nice to know employers remain committed to rewarding and motivating employees with paid time off.

*Published in May 2010, data for the WorldatWork Paid Time Off Programs and Practices survey was gathered from Feb. 17-March 5, 2010. Of the 1,036 responses, 37 percent came from companies with 5,000 or more employees.

Arizona Business Magazine's Editor-in-Chief Janet Perez

The Buzz on AZNow.Biz – October 25, 2010

There’s a lot of information headed your way, starting with our Buzz story. There’s a new health-care model that combines a doctor’s regular practice with  special one-on-one care for wealthy patients. It’s called hybrid-concierge care. Our health columnist, Dr. Michael Covalciuc, says we have to create our own health screening strategies. Our work force columnist, Marcia Rhodes, looks at  how cost cutting-employers are keeping paid time off programs.


Local neighborhood

Can Sustainable Housing Really Be A Part of Arizona’s Future?

Perched on the threshold of economic recovery, cities whose housing markets crashed and burned during the Great Recession are struggling like modern-day Phoenix birds to rise from the ashes.

While rebirth comes naturally for some, others seem caught between a trap labeled “sprawl” and a wide-open window tagged “sustainability.”

The question is, can cities that once embraced policies favoring sprawl over density buy into a new vision calling for a more sustainable, livable and socially just way of life? The shift required may be dramatic, but it’s not impossible.

The sprawl trap is certainly familiar territory for Phoenix, a post-WWII boom town where production builders John F. Long and Del Webb are hailed as the Godfathers of Post-Modern Development. Using innovations like simple, mass-production construction techniques, Long and Webb delivered Phoenix’s first work force housing to an eager middle-class audience.

Now, a half-century later, sprawl and the suburbs are being blamed for everything from global warming to social segregation. High suburban-growth states like Arizona, California, Nevada and Florida felt the busted housing bubble like a sock to the gut two years ago. And, faced with aging infrastructure and higher maintenance costs, fringe communities are now home to the country’s largest and fastest growing poor population, according to a report by the Brookings Institution. Between 2000 and 2008, the country’s largest metro areas saw their poor population grow by 25 percent, almost five times faster than either primary cities or rural areas, the report states.

Many economists believe the country’s latest economic pause presents the opportunity for a massive do-over; a chance for cities to end their love affair with the automobile and hook up, instead, with development practices that create more dense, walkable neighborhoods.

The Obama administration evidently agrees.

“The days where we’re just building sprawl forever, those days are over,” President Obama declared shortly after taking office. He followed up those remarks earlier this year by telling the U.S. Conference of Mayors, “When it comes to development, it’s time to throw out old policies that encouraged sprawl and congestion, pollution, and ended up isolating our communities in the process.”

The President’s willingness to back up his convictions with $1.5 billion in TIGER (Transportation Investment Generating Economic Recovery) grants and $1 million set aside for regional integrated planning initiatives is further proof that the suburban landscape is indeed changing. So is the federal government’s new Partnership for Sustainable Communities, an all-hands-on-deck approach to smart growth by the Department of Transportation, the Department of Housing and Urban Development and the Environmental Protection Agency. It — along with the government’s “Smart Growth Guidelines for Sustainable Design & Development” — presents a radical new perspective on how future growth is handled, and offers a lifeline to municipalities looking to turn over a new and greener leaf.

But, for cities like Phoenix, where density has traditionally been considered a dirty word, the challenge is not so much where the money is coming from, as it is how to change public perception. Will Phoenix, with its Wild West sensibilities and traditionally renegade attitude, take kindly to federal intervention intended to help wean itself from a dependence on sprawling development?

In all honesty, it’s likely to be a tough sell. True, infill development takes advantage of current infrastructure and services and produces a measurably smaller environmental impact than does its conventional counterpart. True, higher-density building creates additional living options for homeowners in the way of row houses, walk-ups and brownstones. And true, Phoenicians, like many Americans, acknowledge they would rather walk than drive, or at the very least, have access to more transit-oriented housing, making it easier and more convenient for them to utilize public transportation.

The first step forward, however, will have to come from developers and municipal leaders willing to reach out a hand and grab the support line being offered in the way of these new smart-growth initiatives and incentives.

“Successfully addressing the challenges and opportunities of growing smarter and building greener will require that communities collaborate with each other, as well as with regional, state and federal agencies and organizations,” write the authors of Smart Growth Guidelines for Sustainable Design & Development. The end reward, they say, is decisions that benefit households in the form of greater choice, lower combined housing and transportation costs and healthier communities, thereby producing stronger local economies.

Isn’t that what communities like Phoenix, that are battling their way out of the recession, really need? Shelley Poticha, a transportation reformer and Partnership for Sustainable Communities senior adviser, thinks so.

“To me this is about helping to rebuild our economy, about growing jobs in terms of making housing more energy-efficient,” she said in a grist.org interview. “It’s also about helping places and regions really understand where their economic future is going and how they can use that to be more sustainable.”

Sluggish Demand for Office Space in Phoenix

Sluggish Demand for Office Space in Metro Phoenix Continues

The Phoenix office market continued to feel the effects of a sluggish and wavering economy, according to Cassidy Turley BRE Commercial’s 3Q 2010 office market trends report released today.

Economic indicators remain mixed causing uncertainty as to whether our economy is headed into a “double dip” recession or a period of slow growth. The best word to describe market conditions during the third quarter is flat. Net absorption was negative for the second time this year and the overall vacancy rate increased 30 basis points to finish at an all-time high of 27.9%.

Tempe/South Chandler and 44th Street Corridor posted the largest gains in net absorption; collectively they gained more than 257,590 SF in the third quarter. Downtown North and Airport Area were the two submarkets with the largest declines in occupancy; they collectively lost 221,927 SF during the third quarter. The majority of leasing activity has been in space that is an upgrade to the tenant’s prior location, otherwise known as “flight to quality.”

This has been a trend for several quarters, as nearly all positive absorption, both the quarter and year-to-date, have come from either Class A buildings or new construction. Class A average asking rates continue
to decline as landlords compete for tenants by offering heavy concessions and discounted rates. Class A rental rates dropped nearly 2 percent in the third quarter to finish at $25.07.

With the extreme over-supply of space, overall asking rental rates will continue to soften but at a slower pace and should reach bottom within the next 12 months. Office market leasing is likely to remain flat through 2010 and improve gradually into 2011 as businesses start to add jobs and tenants take advantage of reduced rates. Landlords that have weathered the recession, remained financially strong and adjusted to current market conditions should start to see some relief as tenant demand gradually improves.

With large blocks of premium office space available, lower rental rates, a high quality of life, affordable housing and great weather, Metro Phoenix is positioned to attract companies looking to relocate or add to their current operations. These factors should improve leasing and owner occupant demand bringing some relief to the office sector.

Coins

Can the Savings Rate Save America?

The financial norms of our society have changed considerably over the past five years. Assumptions surrounding retirement, investment returns and job security have all changed 180 degrees.

Perhaps this recession has been so monumental that it will permanently change the old norms and embrace a new realistic standard. Will this crisis create a new generation of Americans that look at money and entitlement similar to those who lived through the Great Depression?

Prior to this current recession, many people were living a lifestyle that was beyond their means. The Bureau of Economic Analysis stated that in 2005, America was only saving approximately 1 percent of its income. For many, the need for consumption of goods and services dominated their paychecks, so much so that they exhausted their savings accounts, ran up credit card balances and stripped the equity from their homes. You could say that America was living an era of overindulgence.

Today, it seems that people appreciate and respect their money more than they have over the past few decades. If they are currently employed, they are grateful to be able to provide for their families, as well as make sure that every dollar is stretched to its full potential.

Consumers now realize that when economic times become difficult, they cannot depend on banks to lend them money. This is why America is now saving more that 6 percent of its income — we are preparing for the unexpected and unknown.

In my opinion, the more people save, the stronger our economic landscape will become over time.

Of course many economists and Wall Street banks would love for consumers to return to their old spending habits, which would create a quick and bliss recovery.  Our economy is dependent on consumer spending and statistics have shown that the American consumer represents approximately two-thirds of the nation’s Gross Domestic Product. Unfortunately, the fundamental problem of overindulgence would not be addressed if this were to happen. We would only be setting the stage for another crisis in the future.

Fundamentally, it is beneficial to our financial system that Americans are saving more. It is unrealistic to assume that the United States economy will bounce back quickly; it will most likely take a number of years and still produce a high level of discomfort.

A slow recovery is acceptable as long as the consumer continues to make smarter decisions financially and attempts to avoid past mistakes. Perhaps if this positive trend continues, could our country’s best years still be ahead of us?

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The University of Arizona Brings Online Education To Entrepreneurs

As the state pulls itself out of the recessionary hole, small business owners and entrepreneurs have to re-think how they get things done. Getting advice from experts is critical, but who has the time?

The University of Arizona’s McGuire Center for Entrepreneurship at the Eller College of Management is making it easy for entrepreneurs and small business owners to expand their knowledge.

On Aug. 15, the McGuire Center launched three unique online certificate courses that offer entrepreneurs a “practical university education,” said Randy Accetta, mentor-in-residence and communications mentor at the center, a top-tier university-based center for entrepreneurship.

The three areas of study are commercializing an innovation, starting a small business and growing an existing venture. The courses go along with the UA’s land grant mission, and are funded in part by a United States Department of Labor Workforce Innovation in Regional Economic Development (WIRED) grant. The courses are offered through the non-credit arm of the UA’s Outreach College.

The UA is still marketing the courses, and online classes haven’t started yet, Accetta said.  Credit-bearing versions of the courses will most likely be offered during the spring 2011 semester at the UA.

What makes these online courses different is the amount of hands-on, one-on-one work students will do with Eller College of Management mentors and faculty members, Accetta said. Currently, the classes are structured as mentor-based and comprised of small cohorts.

Since the courses haven’t started yet, their structure can be modified and could range from small cohorts, as originally planned, to an independent study, according to what the market needs.

However the structure of the courses turns out, Accetta, the UA and the McGuire Center are committed to a high-quality educational experience that is focused on interaction between student and professor.

The UA and the McGuire Center wanted to provide entrepreneurs in the Southwest region with a university-type education in which students can end the course with a comprehensive understanding of the theories and concepts behind growing a business, Accetta said.

He added that the UA has been slow to offer distance learning and online courses, and these programs are part of the university’s effort to enter the world of online-based education. Distance learning is important, because the UA is pushing to “extend the intellectual quality of the university throughout the region,” Accetta said.

“Our long-range vision is to grow a more educated, more motivated entrepreneur community,” he said.

In these difficult times, courses like these can have an impact beyond the classroom, or computer screen in this case, Accetta said, adding that building a business community that can identify and act on opportunities to stimulate entrepreneurial growth will result in a stronger economy for Southern Arizona.

AzHHA’s 2010 Annual Membership Conference - AZ Business Magazine Sept/Oct 2010

AzHHA’s 2010 Annual Membership Conference Is Aimed At Helping Members Prepare For Change

With the health care field on the brink of a major upheaval, the Arizona Hospital and Healthcare Association’s (AzHHA) 2010 Annual Membership Conference offers members information on what to expect in the future.

The theme, Bringing the Future into Focus, incorporates a mix of topics and speakers intended to appeal to a diverse hospital audience. Attendees will hear from leading economists, patient safety experts, health care visionaries and others.

LeAnn Swanson, vice president of education services for AzHHA, says the conference is the ideal venue to bring the new health care reality into full focus.
“Some of the best minds in the industry will be providing hard-hitting education and thought-provoking commentary,” she says. “This conference is intended for the entire hospital family, including the C-suite leadership team, hospital trustees, legal counsel, operations, quality, patient safety, human resources, and marketing officers.”

This year’s conference, Oct. 14-15 at The Buttes Resort in Tempe, kicks off with a keynote session featuring Lowell Catlett, Ph.D., regent’s professor, dean and chief administrative officer at New Mexico State University’s College of Agricultural, Consumer and Environmental Sciences. He will speak on the present and future of the economy.

Catlett notes that economic downturns are common — with 14 recessions during the past 80 years — and provide a means for society to re-balance what it deems to be important.

“Every recession leads to a spurt in new business starts, reformulation of business practices and new technological adaptations,” he says. “This current pause is no exception as we focus on what we value most. Get ready for phenomenal growth in health care, energy and lifestyle markets. For those willing to embrace the opportunities, the next decade will be successful beyond any in history.”

Immediately after Catlett’s presentation on Oct. 14, the general session will feature Ron Galloway, director of the documentary “Why Wal-Mart Works and Why That Makes Some People Crazy,” and the newly released “Rebooting Healthcare.” His topic, Wal-Mart and the Future of Healthcare, covers in-store health care clinics that offer everything from eyeglasses to flu shots to urgent care.

Galloway says the discount retailer aims to leverage its 4,000 stores into the largest force in American health care.

At the Oct. 15 breakfast meeting, sponsored by the American College of Healthcare Executives (ACHE), Chris Van Gorder, president and CEO of Scripps Health in San Diego and ACHE 2010-2011 chairman, will offer a look at Scripps’ medical response team. Van Gorder will describe the team’s efforts in the Hurricane Katrina-ravaged Gulf of Mexico, San Diego after its massive wildfires and quake-stricken Haiti.

Concurrent breakout sessions will look at the key drivers of physician behavior and the natural tension that exists in doctor-hospital relationships; trends and technologies that are “re-forming” health care in unexpected and beneficial ways; and the notion of being in a health care bubble with a high potential for a correction over the next five years.

The closing session will feature John Nance, author of “Why Hospitals Should Fly,” which was named the 2009 book of the year by the ACHE. Based on his book, Nance offers some solutions to the patient safety and quality-care crises that resonate deeply with all health care audiences.

The conference also will feature AzHHA’s annual awards luncheon, and a president’s reception that will give attendees an opportunity to say goodbye to the organization’s longtime president and CEO, John Rivers, as he nears retirement. The reception also will serve to introduce AzHHA’s new leader, Laurie Liles.

Along with the conference, during the upcoming year AzHHA also will offer a series of webinars and other events of interest to members of the hospital and health care industry, as well as representatives of the business community, Swanson says. The emphasis will be on compliance-related topics, including rules and regulations of the Centers for Medicare and Medicaid Services, the Health Insurance Portability and Accountability Act (HIPAA), and the Federal Emergency Medical Treatment and Labor Act, also known as EMTALA.

To learn more about upcoming education opportunities from AzHHA and to register for conference events, visit www.azhha.org/educational_services and click on education events.

    Arizona Hospital and Healthcare Association’s
    2010 Annual Membership Conference

    Oct. 14-15
    The Buttes Resort
    2000 Westcourt Way, Tempe
    www.azhha.org

Arizona Business Magazine Sept/Oct 2010

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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.