Economic Competitiveness

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One of Governor Jan Brewer’s “Four Cornerstones of Reform” includes efforts to grow jobs by making Arizona more economically competitive. We’ll take a look at the proposed plan.

Ted Simons: Earlier this month, Governor Brewer released her four cornerstones of reform, which she says are key for growing jobs and infusing Arizona with economic energy. The four cornerstones are -- Economic competitiveness, education, state government, and renewed federalism. Tonight we focus on that first foundation -- economic competitiveness. Our guests -- Alan Maguire, president and chief economist for the Maguire company, an independent economic forecasting firm. Barry Broome, president and CEO of the Greater Phoenix Economic Council. And Dennis Hoffman, an ASU economist and director of the Seidman research institute at the W.P. Carey School of Business. Good to see you all here. Alan, let's start with you. The rubber meets the road. The thing that the governor first mentioned, getting rid of unnecessary barriers that impede growth.

Alan Maguire: She said she wants government to take a productive role this creating job. That's a great things. The first things she mentioned was regulations. We often think about environmental regulations as the key regulatory barrier to economic growth. But there are things like tax compliance and auditing and how we treat taxpayers but things like workman comp laws and labor market rules and barriers that are part of the regulatory structure and the governor is looking at getting those out of the way to help our economy to grow over time.
Ted Simons: Barry, how big a problem is this?
Barry Broome: From a regulatory standpoint, it's strength of Arizona. I think Arizona did a good job of keeping the regulatory environment at bay. Things like workman's comp and unemployment insurance, Arizona ranks one two or three in the country. Alan talks about consistency, you probably have 3, 4, 5 governors, and dozens of legislative leaders who's every year start the session with how do we reduce regulation? So it's a natural instinct in Arizona to manage government from a regulatory standpoint on the side of the economy.

Ted Simons: Dennis, is it a solution in search of a problem?

Dennis Hoffman: Perhaps a little bit. When I think about competitiveness, I think a about a few other things. My two colleagues have articulated the regulation issue very well. Barry hit it on the head. This has been largely a pro-business state. It's not a state where policymakers leap to try to impose some type of regulation to chase some social cause. That's not in our nature here in Arizona.

Ted Simons: And Barry, you mentioned providing stable and predictable business environments, this also is something that the governor is looking for as well. Again, is that a problem right now? Do we look unstable.
Barry Broome: We do have unpredictability on the policy side and one of the places is places like the Arizona Corporation Commission where we've had a lot of on again off again inconsistencies there and that can be a challenge. I think we've had a little bit of a difficult time from a predictability standpoint of setting a strategic course and direction as a state and staying with this. We have the enthusiasm of biotech and that's waned and we haven't backed the university of Arizona medical school and we talk about aerospace yet there's no consistent strategy. What the governor is doing is looking to form the Arizona commerce authority so the state can lay down a strategic direction and build it and arm's length of government so there is consistency in the strategic plan.
Dennis Hoffman: And it has a key private component. It's public and private as a partnership is the way I see it. The partnered is after enterprise Florida, an initiative that set long-run goals and this is why when you do research around enterprise Florida, they set long run goals around infrastructure and investment and things when you look at economic competitive. The first thing we think about is a regulation tax, that type of thing but most of the relocation community say it's broader than this. It's infrastructure, education, workforce. Businesses want to go where they can make money. And if they can leverage solid workforces.

Ted Simons: The idea that the environment may not be as stable as it should be, why isn't it?

Alan Maguire: We've had a lot of change over the years and Barry makes a good point. We've tended at times look for the industry of the day and put a lot of energy into that. And ignore those that are here and how do we preserve and strengthen them. What made Arizona grow in the '50s and '60s were core industries that attracted similar industries and you build an economic base that way. We had a great climate and good workforce and tax climate as well. And people came and told their friends and their friends came behind them. If we can get to that focus, you can think of those older industries in Arizona, how did they end up here? It was a good place to do business and they saw their competitors and friends here.

Barry broome: we had a strategy we did a movie in Gpec-- aerospace and semiconductor was a coordinated strategy between federal and state government. What Dennis is talking about is true. We converted from Arizona state college to Arizona State University so it can be a player in semiconductor, that was the goal to make it a engineering program and tie into the University of Arizona. We went after aerospace as a strategy between Barry gold he water and Paul fanin and they gave loan guarantees and worked on broad based tax policy and talent and the exciting thing about Arizona's history, everything you love came about because of a coordinating strategy around competitiveness.
Ted Simons: What happened to that coordination Dennis where is it?
Dennis Hoffman: If you look back in this era, the spend on -- the spend on student was above the national average and the educational attainment was above the national average. Spend doesn't always correlate with outcomes but there's evidence here in -- certainly in disadvantaged populations and challenges, you do have to devote resources. Jeb bush said one of the best metrics for enterprise Florida was expenditures per pupil and that's what they targeted as a key investment strategy to bolster education. When you get the quality of the workforce up, you can answer the bell with some of these needed.

Ted Simons: Go ahead.

Alan Maguire: To follow on that comment, I think one of the things that has changed in terms of leadership in this state, as our economy has become more diversified and as we've become more of a regional headquarters rather than a locally based industry headquarters, we've seen a change in the community leadership and their relationship with leaders and there was a constant conversation between governmental leaderships and business, what do we need for both of us to succeed as we go forward.

Barry Broome: That's a good point. I raise this question, my defense of the legislature and when I talk to CEOs how many times have you gone to the legislature and talked and, how can I help you? I'm not a lobbyist, but I have a good reception when I talk to the legislature because we've done it consistently over three years and they may not agree but the - they see us as trying to be a supporter and a helper with trying to move Arizona forward. The business leadership in the 40 50 60s was insidious, they were from here and they grew up together. Paul fanin and Barry Goldwater talked him to running for office and now the business leadership, a lot is people who move in for five years and move out. Some of the long-term challenges, how messy are you going to get your hands if you're here for a three to five-year stint before going back to Chicago or L.A.?

Ted Simons: Getting rid of the Department of Commerce and Setting up a commerce authority as the governor has done, Dennis, is that a way to get collaboration going?

Dennis Hoffman: I think it has potential. Barry explained this well. We have to work harder now to get private-public sector coordination than we did back in the day when people were going to have long-term careers here. I use the "P" word, this ugly word "plan," we need coordination, not central planning, not Bolshevik here, but coordinated strategies around where this economy needs to go and I think that the commerce authority can be a key piece. It's going to take work because the private sector has to buy in. With resources to help support it and they're only going to do that, I think, Barry, if they feel like they're going to be heard. Part of the problem with them going to the legislature is there's no belief in that they're going to be heard. Part of it, you've got to work at it.

Barry Broome: Part of it is that you have to work at it I they feel dismissed and getting them to go down again makes -- and a lot of comments out of the legislators haven't been favorable to CEOs and vice versa. That's part of the goal of the authority. Let's put that aside. Mike Bidwell is on that. Let's put that behind us and be one Arizona and get to a solution. One more thought on the CEOs in the '50s and '60s. They had a dream for Arizona and when you try to create a dream for Arizona, we're going to lead the world in solar energy, people are too quick to be naysayers, rather than embrace the dream. But in the early '40s, radar technology, and it was star wars and unbelievable that these men and women and engineers and scientists could come and create this technology that not only lifted our economy, but liberated us from tyranny in the world and the was the Arizona dream then and we need another one just like it.

Ted Simons: Back to the governor's ideas. I want to get to tax reform and policy. The idea of cutting corporate income tax to 5%. Business personal property taxes on equipment. Exemption of stuff made here and sold else where. And the dynamic of those cuts and those ideas with what the state is facing as far as revenue shortages.

Alan Maguire: Right, the constant challenge is how do you raise enough money to fund the essential services of government and still encourage economic growth? That's the challenge we face every day. Let me talk a little bit about those in reverse order. Frankly, the modification to the corporate sales tax, which says if you have sell it some place else, we're not going to tax you for building it. We want you to bill it here and sell it somewhere else. It's an export industry and that brings money into the state. What we want to do is foster companies that build stuff here, pay high wages, have good quality jobs and sell it some place else. If you go back to the '40s and '50s, we weren't consuming that radar; we were building it and sending it somewhere else. I look at it through that lens. One thing about the corporate income tax cut, it's fine. We have a hollowed income tax law in Arizona. We have deductions that lower your personal taxes and we have the appearance of an appearance of a relatively high tax rate but the net effect of corporate taxes are actually very low. Sometimes the out-of-state business recruiters just see the high rate and get scared away. Lowering the rate will help that more from a perception than an actual reality and the same, from the third proposal. The key is focus it on export industries and the industries that create the momentum for other industries to grow.

Ted Simons: Barry, there's a line of reasoning that says they're all great ideas. Let's do them, but there are other taxes in Arizona that seem a little bit out of whack. Some would say the personal income tax, maybe a little too low. Is that viable?

Barry Broome: I think it is. If you go back to the history lesson. They weren't making populist tax decisions, they were working on being a right-to-work state. They weren't running around being non-strategic and when we talk about tax policy in Arizona, we need a strategy. Places like Colorado and Utah, individuals pay those taxes because someone has to fund the university's science and technology in schools. People in Utah and Colorado pay a higher individual tax rate than Arizona, but the trade-off, not only do they have these better amenities, their personal income can be 25% higher than ours. And this gets down to a wealth discussion for Arizona.

Ted Simons: What do you think?
Dennis Hoffman: The economics, the arithmetic's, there's elements that are simple. The political stuff is not simple. Where I'm going with this, I completely agree. The first time, I don't know, Alan -- [Laughter] I completely agree -- maybe you're coming around. I don't know. Completely agree with everything Alan said. We've got to focus on our export-based businesses. He's done careful work. This in the corporate income tax may not cost us so much revenue at the end of the day, becuase we have this show case rate.

Ted Simons: Go ahead, please.

Dennis Hoffman: But, no, the -- the issues I think are really clear with respect to how you fix this. You look individuals in the eye. Not just rich individuals, not just corporations. You look at all individuals in the eye. They're the primary consumers of what we spend on. Healthcare, education, the entire gamut. And you ask individuals to pay a little bit more. I mean, Barry made the point, we're ninth lowest on the individual. We can go up to 15th lowest and pay all the bills. We can go to a flat low individual income tax rate. 3, 3.5%.
Ted Simons: 30 second seconds, respond to that.

Alan Maguire: I'm concerned about tax increases in this environment. I think a flat tax is interesting to look at. Very hard to do given how progressive our current income tax is and how many people pay none in Arizona.

Ted Simons: Thank you for being here. We appreciate it.

Alan Maguire:economist, The Maguire Company;Barry Broome:President and CEO, GPEC;Dennis Hoffman:economist, ASU;

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