September 17, 2010—Diversifying our economic engines: How to get Tucson in gear

By Frances Merryman

TUCSON SENTINEL

September 17, 2010

The recession of the last few years has wreaked havoc on Arizona’s growth-based economy. The credit and housing crises resulted in a free fall of dramatic proportions, job losses across all sectors and continuing economic uncertainty. It also demonstrated what an economist friend has referred to as Tucson’s morphine drip.

In other words, for decades we have relied upon selling houses and cars to the next person to move to the region, rather than focusing on creating, retaining, expanding & attracting primary jobs to our region.

By focusing on housing as our growth driver, we ignored building a diversified sustainable economy. But those days are gone. According to a recent talk by John Strobeck, we will be seeing 2000 per year housing starts for at least the next 7 – 10 years.

Arizona has emerged as a state with one of the worst budget deficits in the country, precipitating massive cuts in spending, the near elimination of state-level economic development tools and dramatic funding reductions for public education. These cuts have had equally dramatic effects on the Tucson region’s ability to compete for jobs, capital investment and new business development.

These unprecedented times must spur us to action.

In the Tucson region, the recession’s effects have resulted in massive revenue loss for both city and county government, forcing projected cuts in spending and services for the foreseeable future. Job losses are still widespread, affecting our colleagues, friends, and families.

While the situation is critical at the state level, we can and must take our destiny into our own hands, providing leadership in developing local tools and programs to create jobs for our citizens. Local strategies are critical to get us back on track.

Although many companies are struggling in the global recession, there are industries which are stable and in some cases, have strong prospects for expansion. Renewable Energy/Solar markets are poised for growth given the Obama administration’s priorities and the Transportation & Logistics industry is stable. Aerospace & Defense are still established industries with a strong employment base in the Tucson region. Biosciences are growing in the Tucson region, particularly in the Northwest region, with Roche, sanofi-aventis, and the new University of Arizona presence in the former sanofi building, creating a strong nucleus to build on.

How can we characterize our local economy?

Historically, Southern Arizona has long enjoyed consistent in-migration and periods of high population growth, spurred by its climate and quality of life. Industries like home building and construction have grown along with the population base, resulting in an over reliance on these types of jobs to fuel the economy.

As long as these non-primary jobs remain the main economic drivers, we will continue to suffer the consequences of a “population boom or bust” economy. Our current situation points out how important it is to diversify our economic engines. How do we do that and wean ourselves from the growth-related Kool-Aid we have been drinking for the last few decades?

A strong unified voice is critical

In 2007, community leaders launched the Economic Blueprint – a strategic plan that defines a performance-based strategy and economic vision to effectively position the Tucson region to capitalize on its best economic development opportunities in the coming decades. The Blueprint is designed to guide our community’s economic development efforts – leveraging existing assets, strengthening foundations and defining the key steps that the region’s leaders must take to transform a common vision to reality.

The Economic Blueprint is a sustainable action plan for generating wealth and higher-paying jobs in the region and making the Tucson region more globally competitive. It tells us what we need to do, what resources are required, and what the expected outcomes from these efforts will be. Tucson Regional Economic Opportunities, Inc. (TREO), the region’s economic development agency, and our key regional partners are now aligning action plans with the strategies and focus areas detailed in the plan.

A unique and highly important aspect of the Blueprint is that its development involved nearly 6,000 people and organizations through meetings, presentations, workgroups and on-line surveys. Its development was guided by a 46-member Steering Committee comprised of all corners of the Tucson region. We believe the Blueprint will have strong “staying power” through this community involvement.

What does this have to do with better jobs and a more diversified economy? Simply put, the Blueprint turned the community’s attention to the development of “primary jobs”, moving us away from the “boom or bust” cycle of a focus on growth, housing and retail.

Primary jobs are those which produce goods and services in excess of what can be consumed by the local market. Those goods are exported to other markets in exchange for money. For example, an Oro Valley company produces more aerospace parts than can be bought by its customers in the region. The parts are then “exported” to another market and money is returned to Southern Arizona. This is what creates the flow of new wealth into a community.

What are the indirect impacts of new jobs? The demand for goods and services generated by the primary employer is increased and “indirect” or “spin-off” jobs are created. Generally, they are jobs such as lawyers, doctors, non-profit employment, etc. — jobs and income that then get circulated in the community.

For example, in response to higher employment or new orders, Sanofi-aventis increases business to suppliers or services locally, such as printers, hotels and restaurants. Those businesses hire more employees to provide the services. When a project lands in one jurisdiction, all jurisdictions benefit financially from indirect jobs – thus the value of a regional economic development approach and one in which the primary jobs have a large ripple effect in the community for years to come.

The Economic Blueprint identified the top four higher-paying, primary job industry clusters on which to focus proactive business development efforts:

Aerospace and Defense – Southern Arizona is a top 5 region in the U.S.
Biosciences – our regional efforts are growing and the state’s strategy is already strong
Solar – an emerging industry and natural fit for Tucson
Transportation and Logistics – building on an already strategic location
Using targeted marketing efforts and collateral, TREO’s Business Development team proactively targets companies in these industries for potential relocation to, and expansion in, Southern Arizona. The targeted industries, as identified in the Blueprint, represent our region’s best opportunity to create higher wage opportunities.

Integrated, targeted industry approach working

The development of the Blueprint fortunately preceded our current recession and laid a serendipitous foundation focusing on the “Power of Five” that is beginning to bear fruit. Since TREO has followed this Blueprint, nearly 45 companies have announced their relocation or expansion in the region, adding thousands of new high-skilled, high-wage jobs and contributing more than $1 billion in fiscal and economic impact.

New companies or major expansions in the last few years include La Costeña U.S. Headquarters, Ventana Medical Systems, Inc., Sargent Aerospace and Defense, Target.com Fulfillment Center, sanofi-aventis, Stanley Inc., and Texas Instruments, as well as solar successes such as Global Solar, Solon SE and Prism Solar.

As noted above, growth-related industries such as construction and housing have dominated the Southern Arizona economic landscape for years. The Tucson region now has a population of over one million residents and we all must work together to improve the livability of our community by improving the quality of jobs for our quickly growing workforce and young professionals.

The TREO team needs arrows in their quiver to attract and to retain companies in this region. Just as we are working with companies to move or expand in Tucson, other regions are wooing our companies to relocate to their regions. The primary focus of those companies is a qualified workforce to meet their needs.

To achieve that, we must have educational excellence in our P-20 education system to retain & attract employers. We must have workforce training dollars to rapidly provide for the needs of expanding or relocating employers. Our legislature believes that cutting taxes is the way to retain & attract primary employers. But the employers tell us it is workforce first & foremost.

Without a quality education system at all levels, we can’t provide the workforce that employers want. When 44% of the incoming freshman at the University of Arizona and over 80% at Pima Community College are not prepared for college level math, our K-12 system is not doing its job.

Prior to the development of the Blueprint, progress towards a more diversified economic base was a challenge with no common vision and fractured interests among the public and private sectors as well as other key stakeholders.

Now, there is a coordinated effort to position Tucson as a national and global competitor when the economy improves. We must as a community recognize & support the tools that organizations like TREO and GPEC in Phoenix need to successfully do their jobs. The smaller and rural communities need a strong & effective Department of Commerce to assist them in attracting new jobs to their communities. The Spring 2010 Arizona Town Hall was focused on jobs and has a very good briefing paper on its website: www.aztownhall.org.

Frances Merryman is Vice President/Sr. Wealth Strategist at Northern Trust and the Secretary/Treasurer of Tucson Regional Economic Opportunities, Inc. (TREO).