Arizona Commerce Authority creates the art of the deal

Economic Development | 30 May, 2014 |

Apple is the most profitable corporation in the world. Why does the state give them this huge tax break? I own a business. “How come I can’t get the same deal?” The words are heard in a northeast Phoenix coffee shop. They reflect some of the sentiment bubbling under the surface when a new deal is announced and media report millions of dollars in taxpayer incentives going to some out-of-state company.

“Government shouldn’t be picking winners and losers,” Gilbert Public Schools Board Member Julie Smith was quoted as saying in opposing the tax break for the Apple/GT Advanced Technologies multi-billion dollar facility in Mesa’s Eastmark community. Her statement says a lot more than a parroting of political dogma.

“Arizona is not cutting a check and handing it to a company so they pick us,” explains Sandra Watson, CEO of the Arizona Commerce Authority. “This is an investment for taxpayers that has a measurable return on investment for the public dollars. It’s not a hand-out and it’s not corporate welfare.”

“When Intel made its decision to build its $300 million research and development facility in Chandler, Arizona was not competing with Austin (Texas) or Hillsboro (Oregon). Arizona was in competition with Asia,” reports Jason Bagley, Arizona government affairs manager for Intel. “Intel is a capital-intensive business. We spent $20 billion on capital equipment in Arizona. When we’re looking to build a new facility, we look at long-term costs. Tax incentives are a major component of that analysis.”

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Jason Bagley
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Lee Benson
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Sandra Watson

Analysis, research and financial projections are the big players in the art of a deal to bring a company to Arizona. Companies that contribute to the Arizona economy and improve the job base are the ones being sought by the Arizona Commerce. The quasi-public agency is responsible for investing millions of taxpayer dollars into measurable returns. The target companies are exporters—meaning the products and services go outside the state and bring money back home.
“Over the last 30 years, Arizona switched from an export economy to a consumption economy,” explains Kathleen Lee, vice president of research and strategy for the Greater Phoenix Economic Council. “In 1988, our median per capita income was higher than the U.S. average; today it’s 88 percent of the national median.”
Reversing that precipitous drop and the accompanying drop in the Arizona export economy are among primary objectives of the Arizona Commerce Authority. Those two issues are the reason the Authority carries a big toolbox when it talks with businesses interested in relocating to Arizona.
“All our programs are performance-based,” says Watson. “We welcome business to Arizona. We have a great tax climate, a great work force and it’s less expensive to build or open a facility here. Just because someone wants to take advantage of those assets does not mean they qualify for incentives from the state.”
“We’re trying to get the message out that our incentive programs are not just for Apple and new market entrants,” she explains. “We’re here with programs to grow and expand our existing businesses. There’s a lot of value in growing an existing company or helping a new local startup succeed.”

Back at the coffee shop or in the locker room, some may continue to grumble about “government handouts.” Some business people stopped grumbling and picked up the phone.
“Florida was offering to put up a building for me. I was going to close up shop, take my 200 employees and move two thousand miles. I like Arizona, so I picked up the phone and made some calls to cities.” Lee Benson is CEO of Able Aerospace Services, a growing company that just moved into a new building at Phoenix-Mesa Gateway Airport. He says, “Mesa told me, ‘we can do that for you,’ and they did.”
Last April, the ribbon was cut on the company’s new corporate headquarters, immediately adding 50 employees on its way to a future workforce of close to 500. “Mayor (Scott) Smith put the deal together to build our facility. We lease it from Mesa. He connected us with (the Greater Phoenix Economic Council) and Arizona Commerce Authority,” Benson reflects. “If they hadn’t stepped up, we’d have moved. We’re an export business, we have virtually no Arizona sales, but we work in more than 60 different countries as well as a multitude of (U.S.) states.”

Able Aerospace is the kind of company Arizona Commerce wants to grow in Arizona. “Export businesses pay employees more and they bring money into the state,” emphasizes Watson. “That’s why we have programs for existing businesses to help them grow as well as for similar businesses looking to build here.” (See story about AZ Commerce and manufacturing matchmaking on page 106 in this issue)
“We do really well with putting up houses and buildings and waiting for people and business to fill the space,” she says. “But we learned in this recession ‘sunshine and cheap real estate’ is not what’s going to build the economy. The fact that we can do that well and fast helped the last boom, but it also caused our economic plummet.”
“We’ve got the right ecosystem for business growth,” says Watson. She uses that base for putting packages together. “The governor and legislature gives us a $25 million closing fund to ‘make the deal.’ The closing fund may be the most important tool we have.”
Bagley at Intel says Arizona’s attractiveness to business is more than job incentives and the closing fund. “They are an important consideration,” he says. “Intel takes advantage. The most important incentive is the change in corporate taxes. They make Arizona very globally competitive. Companies like Intel and Apple are far more capital intensive than most businesses. Whether we’re here and want to grow or a company is looking to relocate, the new sales-emphasis tax rates combined with the [research and development] tax credit administered by AZ Commerce are huge.”

Bagley says that the tax system now focuses on sales rather than equipment. The change, started by Gov. Janet Napolitano and enhanced by current Gov. Jan Brewer are perfect for attracting and growing export-based businesses like Apple, Intel, Able Aerospace and others.
“Export businesses are not just companies selling overseas,” Watson points out. “When our businesses sell or move products into California, Texas, Colorado and elsewhere, they are exporting from the Arizona economy. We want to grow that side of business.”
To help Arizona businesses grow, the Authority has opened offices in California. One of those offices is in Silicon Valley Bank in the Bay Area. “Silicon Valley Bank is an Arizona fan, and when we asked for a good place to locate the Arizona office, they offered their own building.” She smiles, “It gives us a prestigious address with entrée and connections into the market.”
Sure, the AZ Commerce offices there are heavily involved with getting California businesses to look at headquarters and regional facility relocation into Arizona, but also getting them to look at buying Arizona-made products. Watson says, “We help Arizona businesses get in doors to sell to California companies.”
Arizona is one of the top locations in the United States for new business start-ups. Watson says that Commerce puts as much emphasis in growing a new business as it does in recruiting businesses from outside Arizona. “We want to build Arizona as a headquarters base,” she says. “There is no better way to do that than by helping our existing businesses grow into formidable corporations and our startups to get into the market.”
“Every policy we implement is a policy available to all businesses,” explains Watson. “All regulatory reforms, all new tools, and everything that helps create jobs and grow a business are available to any qualifying company. It is all based on meeting performance standards.”

Every project that comes before the Arizona Commerce Authority is different. They go through the same evaluation process, but that helps the agency select the tools fitting business needs. When a business knocks on the door, Watson and her team reach into the toolbox for right program to meet its needs.
“There is no wrong door,” says Watson. “(Commerce) can help just about any business whether it be resource connections, workforce training, encouraging angel investment with tax credits or tapping the closing fund. We provide resources and market access for any Arizona business.”
The Authority is not waiting for the phone to ring. Watson and her team are providing a showcase on the international stage promoting Arizona business and business climate in the U. S., Mexico, Canada and Asia. Along with GPEC, Tucson Regional Economic Opportunities and other economic development organizations, AZ Commerce has also been part of sales pitches in Europe.
One of the organization’s most successful local events is the Requirements Conference. This annual program matches local vendors and suppliers to business buyers in Arizona and other markets. “The conference helps our local companies sell to the new corporations opening facilities and service centers in Arizona,” says Watson.
She concludes, “We’re all about marketing, promotion and education.”
Building relationships and opening dialogues — this is what the Arizona Commerce Authority is all about. It implements policy from the governor, who co-chairs its board of directors, and creates a value proposition for Arizona business. That value proposition is to invest when the results are better paying jobs, an improved tax base, and put down rooting for the businesses Arizona grows best.

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