Arizona, California Economy

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During his State of the State speech, Governor Doug Ducey extolled Arizona’s economy and business climate and contrasted that by denigrating the California economy. However, numbers point to an economy that’s doing better in some cases in California than in Arizona. Local economist Jim Rounds and Arizona State University economist Dennis Hoffman will discuss the differences between the two economies.

Ted Simons: Coming up next on "Arizona Horizon" -- is the governor's vision of businesses fleeing California for Arizona accurate? We'll hear from two economists. Also tonight our legislative update with the Arizona Capitol Times and we'll learn about the Tres Rios wetland project in west Phoenix. Those stories next on "Arizona Horizon."

Video: "Arizona Horizon" is made possible by contributions from the friends of Arizona PBS. Members of your PBS station. Thank you.

Ted Simons: Good evening. Welcome to "Arizona Horizon." I'm Ted Simons. The Phoenix city council is debating if a group of Satanists should be allowed to give the opening prayer at a council meeting later this month. Today's vote considers an emergency rule change that would block the group from giving the invocation. The council voted to authorize sale of a city-owned downtown Sheraton grand Phoenix hotel for $300 million to a national lodging investment firm. The downtown Sheraton has cost the city from 40 to $50 million since 2005. And Arizona State University could be setting up shop in downtown Mesa. Mayor John Giles is expected to reveal plans for a new campus tomorrow. ASU already operates the polytechnic campus in east Mesa. Details remain unclear. They are declining comment about the possible addition. Governor Ducey's state of the state address including a number of disparaging comments about California's economy and business climate. But is California in such bad shape and is Arizona doing any better? For the answers, we welcome local economist Jim Rounds, president of rounds consulting group and Dennis Hoffman, director of the Seidman research institute ASU's W.P. Carey School of business.

Jim Rounds: Great to be here, Ted.

Ted Simons: Where do we start with this? Let's start with the idea that you can compare Arizona's economy to California's. Is this apples so apples or something else?

Jim Rounds: It kind of depends what you're comparing. California is much bigger in terms of size; they have a much bigger base in all the sectors. They have a slightly different economic recovery but I think what the governor was trying to point out isn't necessarily what got California to be what it's been over the last couple of decades but more going forward other opportunities. They are large enough if we attract a small percentage of those industries it will have a significant impact on Arizona. The response from the California writers had more to do with the per capita personal income is higher in California than Arizona. The cost of living is higher. The regulatory, the tax burden, you can cherry pick what you want but I think he was trying to be optimistic saying going forward we can benefit from some of the bad things going on in California.

Ted Simons: That would be a nice way to put it but he didn't put it that way. He had negative things to say about California. Does he have a point?

Dennis Hoffman: Certainly they are competitive comments but the facts are pretty clear. California is very high tax. High regulation. They are one of handful of states that has net domestic out-migration both individuals and in businesses. If you scour the literature you find the dis-investments in California over the last seven to eight years have gone largely to three states and we're in the top three. So we have been a magnet for some of that California dis-investment. The irony in all of this, those are all facts that effectively back the governor's statements. The irony, though, in all of this is amid all of this, high tax, high regulation, difficult place to be, California has been among the top ten job creators in the last four years. So they are fighting through it.

Ted Simons: Fighting through it -- it's just -- again, I lived for a while in California. I understand the scenarios, the life-style, the whole nine yards. You battle through some things, enjoy others. But for Arizona to act -- I think the governor said it was California chaos is how he described it. They seem to have rebounded from the recession much better than we have. They seem to be zooming along much more than we are. What's going on?

Jim Rounds: Well, it depends. You have to dig into the numbers. This was pointed out in the response to the governor's statements. California's rate of job growth is a little higher than Arizona right now. We had a very unique downturn that disproportionately impacted us. I don't think this is going to be the case next time around. The population growth is still stronger in Arizona right now. But this is a national phenomenon in terms of people not being able to move from one place to another. There are lots of opportunities. The fix in California, especially issues like debt per person, fiscal issues where I think we can manage those better here, those will matter and they have a deep hole to dig out of but there are areas we can look to. I'm hesitant looking to California as an example but like Dennis said, they still do a good job creating high-tech businesses because of the affiliations with the universities and Silicon Valley clusters. This is one area in economic development Arizona has to focus on more. We do a lot of effort in terms of recruiting. We have to grow from within a little more and we need to look at some of those models.

Dennis Hoffman: I notice there's a focus on California but California is investing at higher rates in their universities as is Nevada, Utah, Colorado, Oregon, Washington. We got big negatives next to our investments in universities as everybody knows. All of those states are doing very, very well. I don't want to disparage Arizona. Arizona job growth is fine. It's not a reader like it's been historically. So us against us we're lagging. I think we got hit much harder by the great recession than some of the other states. The irony if you look at Arizona and California, Arizona tends to prosper while California is prospering. This is not really doesn't need to be a fight. It doesn't have to be a loser and a winner. There could be two winners here.

Ted Simons: That's another question I was going to ask. Instead of -- snarky comments about California, I would imagine maybe partnering a little bit, sharing a little bit would help considering their economy and you mentioned other states, we don't do all that well with our peer states. Our growth, granted it was unique with recession but that doesn't remove the fact that we got hit -- emblematic of our economy during and before the recession, so why don't we just hang on and go along for the ride?

Jim Rounds: We have to promote our product as being better than our competitors. It's really a difference of opinion in terms of this, the governor was being too harsh or not, but the fact is there are opportunities for businesses that are looking for more cost effective environment. I don't want to say cheapest. That might have been a decade ago. Now we're talking about cost-effectiveness, which is affordable, good business environment but also skilled work force and getting that discussion. That's the only area that I worry about because we have done tax reform and I know we'll see fine tuning this next year, we have done economic development reform. The things that I want to start seeing people talking about are meetings with the Arizona small business association, NFIB, the Tech council. I want to see these groups involved in more discussion of state reform. I feel like we can walk and chew gum at the same time. We talked about this before. We can recruit businesses but how to start them and keep them here once they start.

Ted Simons: A recent report showed as far as investment, angel investors, that sort of thing, we're not doing all that well.

Historically a lot of that money has gone to real estate, frankly, Ted. We have not attracted V.C. money in the same way --

Ted Simons: Venture capital.

Dennis Hoffman: Absolutely. We haven't attracted it the same way Silicon Valley has. But we can make some steps. We can make some progress here. If you look at the corridor, say, in Maricopa County, look at the corridor from north Scottsdale down the 101 down to Intel. Look at that mile west of the 101, that's becoming increasingly very much an innovative hub that's attracting businesses not only from California but around the rest of the states and around the world.

Ted Simons: You see that as well? Obviously there are bright spots. They should be celebrated. I think lots of folks do celebrate those spots, but over all, when your venture capital is so low, historically it's been low outside of real estate, but that is realty, isn't it?

Dennis Hoffman: V.C. money can search for great ideas. That's really what it is a magnet for. You create great ideas by investing in higher education. I know I'm the educator here but I'm not hearing a lot of push-back from my colleague. I think he pretty much concurs.

Jim Rounds: Remember, we're early on in some of this. We just were happy with being a growth leader, top five in employment, population, we have this terrible downturn, we go through some economic development reforms. This week in a meeting talking about venture capital, talking about all the groups getting together to improve our international trade position with Mexico, talking about trade with Canada. Talking about all these infrastructure reforms, about work force development, small business issues, we're progressing in the appropriate way. We are moving forward in areas where we have not spent a lot of time. We have gotten really good in some areas but I still feel like this growing from within -- I sound like a broken record but unless we can grow some of these businesses, keep them here and recruit, we're going to continue to have this kind of volatile business cycle.

Ted Simons: About a minute left. When the governor says in the state of the state address that businesses are fleeing California and other declining states and coming to Arizona -- true?

Dennis Hoffman: There is evidence that California businesses are dis-investing in California, moving to Texas, Nevada and Arizona. That is a correct statement. Now, what we don't have I great data on how much business is expanding in California. How many businesses are going to California. I know young, innovative workers are going to California and they are growing jobs.

Ted Simons: And real quickly, the millennial the, innovators, we have to get a better job of attracting those.

Jim Rounds: And we will and I think that this discussion right now is only the beginning. Five years, 10 years, 15 years from now I think this discussion will be even more extreme and we may be proud of the path that we have taken if we covered some of these topics.

Ted Simons: Alright, good to have you both here, thanks for joining us.

Dennis Hoffman: Thanks, Ted.

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Jim Rounds:Economist,Dennis Hoffman:Arizona State University Economist

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