Economic Growth: A HORIZON Special

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Growing jobs with the sun and science. We’ll take a look at Arizona’s new tax incentive bill for solar companies that becomes law Sept. 30th, efforts to recruit solar companies to Arizona, and the challenges facing a Tempe based biotech company as it tries to move from start-up to commercial success.

Ted Simons: Good evening, and welcome to "Horizon" I'm Ted Simons. On September 30th, Arizona becomes a more attractive place for solar companies to do business. That's the day a solar tax incentive bill becomes law. The bill, signed by Governor Jan Brewer in July, gives tax breaks to solar companies that locate their headquarters or manufacturing facilities in Arizona. As David Majure reports, supporters say it will help diversify Arizona's economy.

Michael Bidwill: Over the last decade, Arizona has ranked as one of the top job-producing economies in the United States. Up untilto about 2006.

David Majure: At the June meeting at the Arizona meeting of commerce and economic development, representatives of the greater phoenix economic council talked about the state of Arizona's economy.

Michael Bidwill: We dropped to 17th and then 49th and now we're last in job creation among the 50 states.

David Majure: Arizona's economy is largely built on growth. The more people move here, the more homes must be built, but the current economic recession is proof to some that Arizona can't continue to rely so heavily on construction.

Michael Bidwill: So the question for us internally in our organization was how do we diversify this economy? The first question is what industries are going to be big enough and strong enough to really shift the market from simple economic outcomes like housing and construction into export industries.

David Majure: One of GPEC's answers is solar and renewable energy. In recent years, been trying to get solar manufacturing companies to locate in Arizona.

Michael Bidwill: Quite honestly, we've lost for almost two years, almost every opportunity we've pursued.

David Majure: GPEC says Arizona is not competitive when it comes to the cost of capital.

Michael Bidwill: Right now, we've got about 13 companies out there looking to build projects valued at about $3.5 billion, probably 35,000 jobs, high-paying jobs with benefits that could come to Arizona right now are waiting on the passage of Senate Bill 14-03, and if it happens, we're in the ballgame at that point.

David Majure: Senate Bill 14-03 provides income and property tax incentives to renewable energy companies that expand or locate their headquarters or manufacturing facilities in Arizona.

Michael Bidwill: It will give us an opportunity to compete.

David Majure: And the bill is intended so produce high-paying jobs. To qualify for the incentives, the company must pay more than half the annual salary of at least 125% of the median income. And it must cover at least 80% of their health insurance premiums. A company can earn an income tax credit up to 10% of its capital investment depending on the number of jobs it creates.

Michael Bidwill: Well, the program has an annual cap of $70 million for five years. The way the tax credit is positioned is the company comes in, and there's a formula, so we know whether or not we're making money on the credit.

David Majure: In addition, Senate Bill 14-03 provides a property tax break to companies that invest $25 million or more in new facilities, equipment and infrastructure.

Ted Simons: Earlier, I spoke with the sponsor of Senate Bill 14-03, Senator Barbara Leff. Good to see you. Thanks for joining us.

Barbara Leff: Good to see you too.

Ted Simons: This legislation is designed to do what?

Barbara Leff: The legislation is designed to bring jobs to Arizona. We desperately need to diversify our economy and need jobs. It's a combination of bringing jobs to Arizona and incenting the renewable energy companies to come to Arizona for manufacturing, research and development and regional and national headquarters. We really want to bring those.. already have plenty of exciting generation happening, especially on solar, but don't have the manufacturing jobs and the research development and those are the high-paying jobs we want to bring to Arizona.

Ted Simons: Why don't we have those jobs here? I mean, again, it's a cliché, but you walk outside and there's sun all the time.

Barbara Leff: Well, you don't need sunshine to do manufacturing and we really would like to see the companies do everything here. The generation is going to happen anyway. We're going to generate electricity through solar and other renewablesm, and especially through solar in Arizona. What we don't have is the manufacturers coming and there's a lot of competition among states to incent them to come to their states. So Oregon and New Mexico have been competing with us and offering very lucrative incentives for those companies to come. Because they understand when those companies come, they bring lots of other businesses with them. We may bee incentivizing the manufacturing companies but they'll bring all of the supply companies and research and high-paying jobs.

Ted Simons: What incentives are we talking with here?

Barbara Leff: We're talking about income tax and property tax incentives. Our property tax for business is too high and it's hard for capital-intensive companies to come to Arizona without some incentive to offset that cost.

Ted Simons: Critics say giving incentives to one particular industry isn't fair. Your response.

Barbara Leff: Well, I think most states with good, strong economies do pick out what industries they want to incent. Not particular companies. We have aerospace, bioscience, semiconductors, optics. And it's a smart move because you have a lot of growth and other companies that come and the entire economy gets improved. Look at what happened in Chandler with Intel. So we're trying incentivize a sector to come and to create all of those jobs that come along with it. If you sit around and say, whoever comes, comes, that's fine. You don't end up with the synergy you need to really create the economic engine that Arizona so needs.

Ted Simons: Is there a concern that we're talking subsidies with no guarantee of success? It's still kind of a new growing indu-- we're not quite sure what's going to happen. Should we be subsidizing something we don't know what is going to be the return?

Barbara Leff: Well actually we aren't really subsidizing in that way. There's large amounts of company investment- before a company gets any tax credit, they have to build their company and pay all of the construction taxes and hire all of the employees, they have to show that they're providing 80% of the comprehensive health insurance for all of their employees and they have to pay above -- more than half the jobs have to be above the median wage in Arizona. The companies will be here and the will have hired people and working before they can get one penny in a tax incentive back to them.

Ted Simons: How does that compare to Oregon or New Mexico or Colorado or Texas? Similar or a little bit different?

Barbara Leff: A little bit different. I believe New Mexico has a deal closing fund. They give cash. Oregon has very, very high incentives for companies to manufacture in Oregon. Basically, everybody wants to be around California. That's the key. California is going to have a very large renewable footprint and so companies are looking to be around California, not in, because their tax structure is really difficult for business. This just makes us competitive. Not number one, but competitive. We keep losing job after job, company after company to other states because we haven't had incentives in place and right now there are 13 companies waiting to see what we do, really to see if Arizona is saying come to our state. We need you, want you, help you get started.

Ted Simons: How much will that cost the state initially?

Barbara Leff: I would say it depends on the definition of cost. We're capping incentives at $70 million a year total of all the companies to come. In order for $70 million in tax credits to be given, a company would have had to spend 700 million in new capital invenstment. Over a five-year period, there's a $350 million tax credit potential.

Ted Simons: Very good. Thank you for joining us. We appreciate it.

Barbara Leff: Thank you.

Ted Simons: This summer, solar energy companies from around the world gathered at the Intersolar Trade Show in San Francisco. Economic development officials were also there showcasing Arizona as a great place to do business. I recently spoke with members of the Arizona group that was at the solar trade show -- Barry Broome of the Greater Phoenix Economic Council. And Christine Mackay, economic development director for the City of Chandler. Thank you both for joining us on "Horizon."

Barry and Christine: Thank you.

Ted Simons: Christine, let's start with you. The intersolar North America conference, describe what it was.

Christine Mackay: It was a gathering of solar companies from all over the world in a trade show format, showing their wares, what they had, showing their products and allowed us the opportunity to get with a significant number of companies that we would have had to travel worldwide to get in front of.

Barry Broome: It's international nature and that's one of the important things. Probably the one thing I saw at the market that was most pronounced was the big move getting ready by the Chinese solar players to go after the U.S. market. Since we've been involved with this it's been primarily California-based innovation and European-based with primarily driven out of Germany and Spain. But the Chinese movement is out in full force.

Ted Simons: Is the Chinese movement, is it technology or manufacturing or both?

Barry Broome: Well, it's both. What's really interesting, they've created a hybrid manufacturing model -- 70% of the manufacturing in China and 30% in the U.S. If you're following right now, there's going to be real trade issues being raised on China's typical trade pattern. They're emulating, in solar, very similar to Japan and the automotive industry where the U.S. market is wide open for their technology but theirs isn't as wide open for ours. So I think it's going to be like Toyota and Honda. Using job penetration as a way of softening the issue of trade between China and the United States.

Ted Simons: It seems much of the solar industry is international. The U.S. doesn't seem up to speed. That's my impression. Did you get that impression as well?

Christine Mackay: It's very pronounced. The other countries have it all over the United States when it comes to manufacturing and research and development in solar products. And it happened in the United States first but the other countries have figured out how make it profitable and utilize it more than we have from hydro or other traditional power components we have in the United States.

Ted Simons: Are these things we can learn?

Christine Mackay: I think it's things we better learn. I think we probably have this year and next year to try and come up to speed to get ourselves in the competitive position or we'll be farther behind than we are now.

Ted Simons: How come we're so far behind?

Barry Broome: First off, energy has been too cheap in the United States and we've not thought of it as an expense item inside the industry models we have. The price of power for semiconductor aerospace fuel for our cars. Most of the European markets and many of the Asian markets have been considering energy as a mechanism to build their economy and I think that's been what's really hurt us and I think we've been too complacent and as Chris was saying, not bold enough on the technology play, and now is our time.

Ted Simons: As far as Arizona's time to recruit. You went to the trade show looking to recruit folks. Talk about that effort. Talk about pitching woo to these companies.

Barry Broome: The big thing that we have to measure is 2007 and 2008, this bill sat for two years with the policymakers and a lot of the capital investment in the industry was made in those years. Solar manufacturing in 2010 is going to be triple in size than at any point in time in the United States. And so the difficulty for us now is to really measure, you know, where the clustering capabilities are for Arizona with this technology and where is that coming from. There's a lot of opportunity for simple manufacturing. Our goal was to be a major player in thin film technology. And right now we're trying to measure, really, where we sit as far as the state in building a cluster.

Ted Simons: How many bites did the Arizona contingent get from the trade show? Especially Chandler.

Christine Mackay: The Price Corridor starts at Ray Road and continues south to the Intel campus. That's on Chandler Heights. A five-mile stretch of roadway.

Ted Simons: And has things which seem like a natural for a solar industry coming in to manufacture.

Christine Mackay: Air products and invested a significant amount back in the early 1990 to install ultra pure nitrogen lines into that road. The city put a lot of money into water and fiber and telecommunications to attract those companies and as it would happen, the solar industry we're interested in attracting relates well to the semiconductor workforce that's there.

Ted Simons: There were reports that a couple of German companies were looking to build plants in Chandler.

Christine Mackay: GPEC has done a good job of making sure that companies get a look. It's a natural fit. They like the workforce that works along with the semiconductor companies and other companies there. We get a lot of looking at those and there were a number of German and Spanish companies interested in being in Chandler.

Ted Simons: What are the companies looking for? Something like a Price Corridor or the general environment that supports what they do? What attracts them?

Barry Broome: First off, looking for an environment. And the environment has everything to do with talent and cost to what the physical dimensions are. It's compelling because it's all there and ready to go and the thin film manufacturing techniques are almost identical to semiconductor so you're going to see -- Intel has made a big move in the solar industry. So you're going to see a lot of similar properties and that's going to make Price Road interesting. But they're also interested in large land opportunities and they liked the west valley quite a bit too. What I like about solar is you're going to see a lot of announcements in places like Chandler but you're going to see them in the west valley and also rural Arizona and I think that's one of the strengths of the platform for Arizona. There's something for everybody in this technology.

Ted Simons: What time frame?

Barry Broome: Right now, our new director, Don Carden, is looking on the rules to implement the policy and our goal is to get support to Don to implement that immediately. I think if we implement that immediately, I would say year end, we'll have three to five announcements in the greater Phoenix region.

Ted Simons: Are you hoping for the same thing, year-end?

Christine Mackay: When we were working with GPEC, a number of companies shared with us their decision making process was in single digit weeks as opposed to months. So I would say by year end, and we would like all of the announcements to be in Chandler.

Ted Simons: In real terms, what jobs are we looking at here and how big are these firms looking at us?

Christine Mackay: They range from 100 to 200 jobs up to one of the biggest that shortlisted Chandler, 1700 jobs. From $34,000-$46,000 a year up to $84,000 a year. From 100 to $2 billion or $3 billion. Across the board in that aspect.

Ted Simons: The capital -- there'll be a break for the companies provided they meet certain criteria?

Barry Broome: Right, one of the things, in 2007 and 2008, we were getting shortlisted for huge advance manufacturing projects that Chris was talking about. One loved Chandler and Price Road and could not get the commitment because we didn't have anything to assist the company in its capital investment cost. Now with this bill, for major projects, large projects, this bill is competitive and we have two pictures now to paint for Arizona. We have the talent and overall business environment and now have an economic development tool and we have a demand that other states don't have. And if we execute all of those components, we'll be successful as early as 2010 and the real success will be when the markets recover. This is the technology of the future. 2011, 2012, I think solar and renewable technology will be going like gangbusters in Arizona.

Ted Simons: Very good. Thank you for joining us.

Barry Broome and Christine Mackay: Thank you.

Ted Simons: In 2007, Arizona's bioscience sector had a $12 billion economic impact on the state when research by hospitals and universities is included. That, according to a study commissioned by the Flinn Foundation. In the last decade, Arizona has made a strong push to become a world leader in the biosciences. There have been a number of victories, but the current economic crisis has led to some setbacks as well. Producer David Majure and photographer Richard Torruellas show us a local medical device company that's facing some challenges as it tries to move from startup to commercial success.

David Majure: More than six years after surviving a stroke, Lorrie is still working hard to improve the use of her once paralyzed arm and hand. Swan rehab in Phoenix helps Lorrie and others like her recover from brain injuries using therapies, including the latest technology.

>> The machine automatically saw that Lorrie was having difficulty and so it adjusted to make it easier.

David Majure: The hand mentor pro is a robotic device linked to video games that challenge the patient to repeat hand movements.

Ed Koeneman: The hardest thing for a person who has had a stroke is to open up their hand.

David Majure: It's manufactured by Tempe-based kinetic muscles. Ed Koeneman is the company's founder.

Ed Koeneman: We make robotic devices to help stroke patients after they've incurred a brain injury. You end up paralyzed. The new science is saying we can rewire our brains after an injury and we make devices to help people recover function.

David Majure: It's their first product approved by the FDA as a class one medical device available by prescription only. It takes time and money to bring a medical device to market. They've come far as a company but still has a long way to go.

Ed Koeneman: We need to increase sales. That's the big thing. Now we have a product. We are finishing up a very large clinical trial to prove our devices can be used at home with the same efficacy as clinical use.

David Majure: It considers itself a startup.

Ed Koeneman: We're not cash positive yet and that's the delineation to when you're not a startup anymore. You've proven yourself, selling the product and you are cash positive.

David Majure: In 2008, Grant Farrell was hired as CEO to take the company to the next level.

Grant Farrell: It's really to be able to take the company from a startup mode into a fully commercialized business. There's a lot of growth has to happen do that. It has to go through quite a few phases of evolution of the business. Focus on sales and marketing as opposed to product development. It's that transition we're going through.

Ed Koeneman: We're in the valley of death. Our product is on the market. We're selling it. We're not quite cash positive yet but hopefully within the next year and a half we plan to be cash positive.

David Majure: So far, the company's been funded primarily with grants from the National Institutes of Health and a group of angel investors.

Ed Koeneman: NIH has kicked in toward our -- that pays for research and development but doesn't pay for sales and manufacturing and marketing and we've got to find investors to do that.

David Majure: But access to capital will be a challenge, especially in a state where Farrell says something is missing.

Grant Farrell: A strong investor community, more than anything and there are signs that that's really about to change in the near future. There's been some large V.C. firms looking over the valley in the past 12 months. With the economic cycle, that's slowed down, but it's clear that once the market starts to come back and the investor community comes back, they'll be people who come back and look at the valley, the Phoenix area as new hot spots for investment in this type of business.

David Majure: Meanwhile, this nine-person company is tightening its belt doing everything it can to stretch its funding as far as it can go.

Ed Koeneman: There's got to be something to take you through that valley of death, which is a term within the startup community.

Therapist: There you go. That's beautiful.

Ed Koeneman: It's the period from when you've proven your technology to when you're cash positive. The overall climate in Arizona is bright. The lack of capital is the biggest piece of the puzzle. Investors invest in what they know. Because this community is so new, in medical device terms and drug development terms, it's a new community, you've got to be able to point to some success stories before people believe your story.

Ted Simons: There's general agreement that Arizona's bioscience industry needs greater access to investment capital. Industry leaders recently told "Horizon" they'd put some other things on their wish list.

Marty Shultz, Bioscience Roadmap Steering Cmte.: I do wish our leaders would demonstrate that economic development generally in bioscience kinds of development strategies would be top on their list. Because this would be huge for the knowledge-based economy. Huge for the education system. And huge for the universities, and that would be important to this personalized medicine so it impacts my family and your family and makes a difference.

Ted Simons: How about a wish list? What would you like to see?

Michael Mobley, Ph.D., Bd. Chair, Arizona Bioindustry Assn.: When I served as chair of the bioindustry association, the members had a wish list and one, as a long-term wish list in Arizona, and that is that Arizona would elevate its level of education in the biosciences and biotechnology. Stem cell education. A critical thing for a lot of companies is access to the workforce and/or trying to recruit people to Arizona and education is an important thing. Long term, my wish is strengthen education. Short term is access to pre-revenue capital in this state that we talked about. That valley of death. Sometimes the small companies, that's their biggest concern.

Ted Simons: Wish list?

Jeffrey Trent, Ph.D., TGEN President & Research Director: One is a sustained investment over time. The recognition there's a 20-year investment in San Diego before that seed time turned into harvest. So I think sustained investment. The second is the recognition we really have to operate -- used to talk about the three M products. Multi-investigator, multi-institution and multimillion. We need -- these are areas where most of its effort and that's true in the biodesign too. That takes collaboration and people continuing to work together and lowering of barriers between institutions. That's the critical wish list. To be able to sustain that over time.

Ted Simons: That's all for this special economic development edition of "Horizon." I'm Ted Simons. You have a great evening.

Barbara Leff:State Senator;Barry Broome:Greater Phoenix Economic Council;Christine Mackay:Economic Development Director for the City of Chandler;

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