Growth sector overview

              GROWTH SECTOR OVERVIEW
PREPARED FOR ACA BOARD OF DIRECTORS
NOVEMBER 30, 2010
ARIZONA COMMERCE AUTHORITY
EXECUTIVE SUMMARY
For many years, Arizona enjoyed the “Sun Belt Boom.” New residents and business owners were drawn
in by relatively low costs and a high standard of living and newcomers flocked to the state from all over
the country. Arizona experienced growth not only in housing, but also in many high-tech fields. The latest
downturn has vividly demonstrated that unfocused growth is not the path to stable long-term prosperity.
Like the rest of the country, Arizona is confronting tough choices as it navigates recovery following a
serious recession.
In order to compete nationally and globally – especially with key Western rivals such as California,
Colorado, Utah, New Mexico, and Oregon – the state will need to supply the missing pieces of the
puzzle: a deeper pool of skilled, educated workers; sufficient capital to fund research and expansion
by entrepreneurs; attracting businesses from out of state, while nurturing promising homegrown
companies; and state-level leadership that is informed and committed to implementing, long-range
development strategies.
Arizona’s immediate neighbors include a number of states with vibrant high-tech sectors.
California has long been a leader in fields ranging from aerospace to computers to green technology.
However, its higher cost structure has positioned Arizona to attract base industries looking for a better
and more business friendly operating environment.
Arizona is fortunate to have three large research universities (Arizona State University, University of
Arizona, and Northern Arizona University) which attract global talent and research funding, educate
highly skilled workers, and spin out fast growth technology ventures, all critical drivers for economic
development. States with strong educational systems have a clear strategic advantage in recruiting and
launching companies. As global competition increases, the ability to develop homegrown workers and
the next generation of innovators will be essential.
Arizona has a number of foundational strengths, including expertise in aerospace, materials science,
semiconductors, and optics. To take its technology sector to the next level, Arizona needs to expand its
research base, focus intently on its future workforce, and create an effective strategy for growing, luring
and retaining high-tech firms. Otherwise, it runs the risk of losing out to states such as Oregon and Utah,
which are mobilizing all levels of government in their development efforts.
ARIZONA’S FUTURE IS AT RISK
Perhaps the single greatest threat to Arizona’s high-tech future is the fact that the state does
not develop and retain enough skilled technicians, scientists, and engineers. In terms of sheer
numbers, Arizona seems to produce sufficient graduates in science and engineering, but many
are foreign born and therefore more likely to return home, either due to preference or to a limited
number of available work visas.
In order to grow, attract and retain technology companies, it is essential for the state and its institutions
of higher education to focus on significantly increasing the number of locally educated and trained
engineers and scientists.
According to the Milken Institute, if the state can move into the top 15 for recent degrees in
science and engineering (a reasonable goal, since it currently ranks 21st), it will demonstrate an
infusion of fresh talent rather than a reliance on recruiting. It’s important to note that Arizona
WHAT DOES ARIZONA’S FUTURE HOLD?
1
now ranks last in the nation for concentration of life and physical scientists. To develop a stronger
presence in biotechnology and green technology, the state needs to place in the top 30 at a
minimum.
Establishing a system to match trained technicians with local employers would be a great boon
to Arizona students, while stable access to a pool of workers with directly relevant training is a
powerful lure for employers. The aerospace industry has already established ties with Chandler-Gilbert and
Mesa Community Colleges. Building direct community college connections with other industries (such as
green technology) would sharpen the state’s ability to compete with Oregon and Colorado.
Arizona has historically relied too heavily on its high quality of life and population growth to recruit and retain
companies. Competition from other states is increasingly fierce. Going forward, it is essential that growing
firms have better access to an integrated system of economic development programs and services they
can turn to for information and assistance.
Arizona actually ranks 12th for the percentage of business starts in the high-tech sector. However, too
many high-tech firms fold or leave the state, and Arizona only has five firms ranked in Deloitte & Touche’s
Fast 500 company list. Addressing human capital concerns and increasing access to venture capital would
jumpstart the right kind of long-term development.
Arizona lacks the critical mass of angel investing and local venture capital (VC) that businesses need to
grow and thrive. Currently, Arizona ranks 39th in the nation for total VC investment growth, despite being
located next door to California’s huge VC base. In fact, Arizona has seen its total VC investment actually
decline over the past few years. Arizona needs a top 10 placement in order to catch up with investment
levels in neighboring states. Arizona should create an organized consortium of VC funds that either have
operations in the state or have a dedicated amount of money to invest in Arizona. The new “Fund of Funds”
announced by the Arizona Economic Resource Organization is a solid start, but it needs to be supplemented
by increased levels of venture capital activity as well as effective incentives.
Clean technology represents a significant opportunity for Arizona, but the state currently lags behind peers
such as Colorado, New Mexico, and Oregon (not to mention leaders like Germany and California). To catch
up, Arizona needs to stimulate local research, manufacturing, and generation of renewable energy. Arizona
must move into the top 10 for VC investment in clean tech, as competition is fierce in the Southwest.
Over the past decade, Arizona has launched a number of strategies for technology-based development but
developing a plan is only the first step. States such as Oregon and Virginia have succeeded in recent years
by focusing on effective execution and sticking with their initiatives over multiple years. For a tech strategy to
take hold, stakeholders in the governor’s office, legislature, state, regional and local development agencies,
business community, and Arizona’s institutions of higher education must collaborate to implement near and
long term strategies.
ARIZONA’S PATH TO RECOVERY - ECONOMIC DEVELOPMENT
Arizona must be COMPETITIVE!
The hard facts show that Arizona has lost over 300,000 jobs through this recession. When it comes to job
creation, projections show Arizona will experience imbalanced job growth through 2018 with only
11,000 new manufacturing jobs, and an inordinately high number of low paying jobs requiring only
minimal education - positions most susceptible to economic downturns.
Arizona must change its economic trajectory!
2
To that end, Governor Jan Brewer unveiled a new model to advance Arizona’s economy through its
approach to economic development. This bold move started the transition of the Arizona Department
of Commerce into the new Arizona Commerce Authority (ACA) with the sole intent to make Arizona
more responsive to business needs, retain companies, expand opportunities and become globally
competitive.
The ACA is about defining and executing the vision for a stable, prosperous Arizona; a 21st Century
approach to advance Arizona’s economy; competing on the global stage.
Force Multipliers to Compete
Vision: The absolute resolve to compete and win in the global marketplace.
Leadership: For the first time in Arizona’s history, the state’s economic development efforts will be
governed by a private-sector board with involvement from the executive and legislative branches of state
government and academia.
Commitment: Align diverse assets and opportunities within the state to compete economically at the
highest level in both domestic and international markets to create high-quality jobs for Arizonans.
Investment: Improve the state’s business climate to retain, attract and grow high-technology and innovative
companies, with a focused effort on aerospace and defense, science and technology, solar and renewable
energy, small business and entrepreneurship.
Accountability & Execution: Aggressively address diversification and growth in promising base industries;
enhance the state’s overall global competitiveness, and commitment to a laser-focused approach to
advance the state.
Compete Globally: Sustainable Strategies
1. Focus on science, technology, engineering and math in K-12 education.
2. Focus on the innovation cycle to grow knowledge-based businesses.
3. Develop toolbox and retain policy enablers for capital intensive industries to encourage high-wage
employers to invest in Arizona.
4. Make positive changes to Arizona’s regulatory environment.
5. Foster collaboration that enables development of Arizona’s small-business community within the
industry sectors.
6. Enhance the ACA’s industry sectors by establishing the leadership required to connect all stakeholders,
companies, universities, private-public partnerships and other organizations.
Arizona’s Future – The New Arizona Commerce Authority
Arizona has been in need of the very vision, leadership and trust that Governor Brewer has demonstrated
in turning to private sector leaders. This new model governs and administers outside of tired old politics. It
acknowledges the efforts and advancements necessary to support Arizona entrepreneurs. It is critical for
Arizona to be more competitive in attracting corporations looking for a better operating environment where
they can collaborate and grow.
The move away from bureaucracy to competitive private sector leadership is a national
occurrence as state and local governments look to entrepreneurial minded people to overcome
many of the challenges institutional thinking simply falls short of accomplishing.
3
The ACA will coordinate and integrate the efforts of key partners like Science Foundation Arizona, our
universities, community colleges, local and regional economic development groups, state and regional
trade associations, workforce development groups and other community and business leaders – it will
take all partners working together to secure success for our state.
On June 29, 2010, Governor Jan Brewer issued an executive order establishing the ACA. In the months
ahead, the Arizona Department of Commerce will transition into this new quasi-public state agency with
board level public and private sector leadership, and emerge better equipped to transform the state’s
competitive position in the global economy.
To embark on this mission, the Governor established five committees at the first ACA board meeting
on September 23, 2010 - Aerospace & Defense, Business Retention, Renewable Energy, Science and
Technology, and Small Business and Entrepreneurship - and appointed industry leaders to chair each
committee, preside over public hearings and develop immediate recommendations prior to the convening of
the Fiftieth State Legislature in January, 2011.
Governor Legislative
Leadership
ACA
Private
Academia Sector
Science
d
Aerospace
d
Small
Business
and d Renewable Business
Technology
and
Defense
and
Entrepre-neurship
Energy Retention
4
Competitiveness Package
Establish
ACA
Economic
Development
Toolbox
Tax Policy
Regulatory
Reform
Education/
Training
R&D
Science
& Technology
Aerospace
& Defense
Renewable
Energy
Small
Business
Business
Retention
ACA STRATEGIC FOCUS AREAS BY COMMITTEE
Board of Directors
Governor Janice Brewer, Arizona Commerce Authority Board Chair
Jerry Colangelo, Partner – JDM Partners, LLC.
Donald E. Cardon, Director – President and CEO, Arizona Commerce Authority
Gary Abrams – President and Chief Executive Officer, Abrams Airborne Manufacturing
Kirk Adams – Speaker, Arizona House of Representatives
Richard Adkerson – Chief Executive Officer, Freeport – McMoRan Copper & Gold Inc.
Benito C. Almanza – State President, Bank of America
Dr. Craig R. Barrett – Retired CEO/Chairman of the Board, Intel Corporation
Michael Bidwill – President, Arizona Cardinals Football Club
Donald E. Brandt – Chairman of the Board and CEO, Arizona Public Service; Chairman of
the Board, CEO and President, Pinnacle West Capital Corporation
Drew M. Brown – Chairman of the Board, DMB Associates, Inc.
Les Brun – Chairman and Chief Executive Officer, Sarr Group, LLC.
Robert “Bob” Burns – President, Arizona Senate
Steve Cowman – Chief Executive Officer, Stirling Energy Systems, Inc.
Dr. Michael M. Crow – President, Arizona State University
Jerry Fuentes – President, AT&T Arizona / New Mexico
Dr. John Haeger – President, Northern Arizona University
Dr. William C. Harris – Chief Executive Officer and President, Science Foundation Arizona
Peter Herder – Chairman, Herder Companies
Linda Hunt – Service Area President, Catholic Healthcare West Arizona; President, St.
Joseph’s Hospital and Medical Center
K. Michael Ingram – Chief Executive Officer, El Dorado Holdings, Inc.
Sherman A. Jennings – Human Resources Site Leader, Rotorcraft Systems, The Boeing
Company; Chair, Governor’s Council on Workforce Policy
Michael S. Manson – Co-founder / Executive Chairman, Motor Excellence, LLC.
Anne L Mariucci – Chairman, Arizona Board of Regents
Dr. Vicki Panhuise – Vice President, U.S. Defense Customers, Honeywell Aerospace;
Chair, Arizona Aerospace and Defense Commission
Mary E. Peters – President, Mary E. Peters Consulting Group, LLC.
J. Doug Pruitt – Chairman and Chief Executive Officer, Sundt Construction, Inc.
Dr. Robert Shelton – President, University of Arizona
Dr. Patrick Soon-Shiong – Executive Chairman and Chief Executive Officer,
Abraxis BioScience
Victor Smith – Owner and Chief Executive Officer, JV Farms
Morris “Mo” A. Stein – Principal and Senior Vice President, HKS, Inc.
Pat Sullivan – Chief Executive Officer, Flypaper Studio, Inc.
Dr. Jeanne Swarthout – President, Northland Pioneer College
Roy Vallee – Chairman of the Board and Chief Executive Officer, Avnet, Inc.
Judy Wood – President, Contact One Call Center, Inc.; Chair, Governor’s
Council on Small Business
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SCIENCE & TECHNOLOGYInvestments in science and technology drive innovation, spawn new companies, employ the best and
brightest talent, and ultimately become engines that transform economies.
Arizona universities play a pivotal role and
are recognized leaders in the world of
science, innovation and technology. In 2008,
total academic research and development
expenditures at Arizona’s public universities
reached a new high of $435 million.
Throughout 2009, we saw notable
developments. New bioscience and technology
incubators, which help early-stage firms to
become self-sufficient, were launched in
Chandler, Phoenix and Surprise, while the
Biodesign Institute at Arizona State University
and BioAccel established business accelerators.
The University of Arizona broke ground on a
major bioscience park and Flagstaff’s new
incubator graduated its first major tenant.
A “Fund of Funds” was launched that will raise and manage up to $100 million for private
VC investments in early-stage bioscience and technology firms in Arizona. And a host of
achievements were made to expand science, technology, engineering and math (STEM)
education programs in Arizona’s schools.
SCIENCE & TECHNOLOGY
IS ARIZONA COMPETITIVE?
CHAIR
Dr. Craig Barrett
COMMITTEE MEMBERS
Richard Adkerson
Dr. Michael Crow
Jerry Fuentes
Bill Harris
Linda Hunt
Kevin Kinsall
Michael Manson
Mo Stein
Sandra Watson
iii
In examining Arizona’s national ranking of 23rd in the Technology and Science Work Force Composite, it is
useful to remember that the state ranked 10th as recently as 2004. Arizona has historically recruited specialized
workers from out of state, but companies need to be able to find skilled workers locally rather than incurring the
costs of long-distance recruitment.
The Technology Concentration and Dynamism Composite measures technology outcomes—and it shows
that Arizona has lost some momentum. The state ranks 29th in the average yearly growth of high-tech
employment, posting a rather anemic growth rate of 1.0 percent over the last five years on record. It also ranks
24th in the number of high-tech industries growing faster than the U.S. average.
The five composites discussed above are combined to produce the overall Science and Technology Index, in
which Arizona ranks 19th nationally. This performance marks a slight decline from 2008, and leaves the state
solidly behind competitors such as Colorado, Oregon, Utah, and New Mexico.
                               
                   
                
    
              
         
        

	          
        
                  
    	       
        

   
              
            
   
            
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Arizona has a number of foundational strengths, including expertise in aerospace, materials science,
semiconductors, and optics. To take its technology sector to the next level, Arizona needs to expand its research
base, focus intently on its future work force, and create an effective strategy for luring and retaining high-tech
firms. Otherwise it runs the risk of losing out to states such as Oregon and Utah, which are mobilizing all levels government in their development efforts.
Recommendations
Aspects of these proposals have already been pursued at a regional or institutional level, but in order to be fully
effective, they must be put into practice statewide, with active cooperation from government officials, agencies,
universities, and regional and local stakeholders. The strategies summarized below are drawn from the full
report’s more extensive set of recommendations, plus the analysis contained in its chapters on Best Practices Other States and Arizona��s Industry’s Strengths.
Further develop the technology clusters around state universities and improve the ease of technology
transfer. It is hard to overstate the momentum created by technology clusters. Once they reach critical mass,
they lure in additional companies eager to take advantage of access to capital, technology, and workers.
Workers, too, are drawn by higher-paying jobs and access to a wide range of employment opportunities in one
geographic location. As the Milken Institute has shown in multiple research studies over the years, clusters are
an essential component of high-tech success; they set in motion a dynamic that can drive an entire regional
7
SCIENCE AND TECH WORKFORCE
No.1 10th 20th 30th 30th 40th 50th
23rd in Technology/Science Workforce
11th in Technology Concentration and Dynamism
16th in Computer Experts in the States
20th in Percentage of State with Computer in the Homes
21st in Percentage of Recent Science and Engineering Degrees
24th in Pecentage of the Population with PH.D.s
15th in Percentage of Bachelor’s Degrees in Science and Engineering
Source: Charting a Course for Arizona’s Technology - Based Economic Development – Milken Institute, 12/09
Moreover, Arizona’s ranking has been stagnant since 2002 and leaves the state solidly behind most
of its western neighbors and in the second tier among all states. According to the Milken report,
Arizona has made strong gains in research and development expenditures and competition for
awards moving from 16th to 13th place from 2008 to 2009 despite the economic downturn. In
other areas such as venture capital (10th place to 16th place from 2008), technology workforce (10th
place to 23rd place from 2002 to 2008) and human capital (35th place), Arizona has lost ground.
FORCE MULTIPLIERS TO COMPETE
• Improve STEM education.
• Produce a highly trained workforce.
• Increase access to private risk capital.
• Adequately fund research and attract top faculty and students to the state’s educational institutions.
• Focus on the innovation cycle to grow a knowledge-based economy.
COMPETE GLOBALLY: SUSTAINABLE STRATEGIES
1. Continue focus on STEM education, the starting point for innovation.
• Implement initiatives related to training and education with targeted investment in K-12 STEM
education, such as Arizona’s Race to the Top Plan.
2. Focus on the innovation cycle to grow knowledge-based economy businesses.
• Restore commitment and funding to Science Foundation Arizona by identifying opportunities to
leverage current research and development resources.
• Develop a collaborative statewide commercialization system to coordinate entrepreneurial
programs that foster strong management talent and access to capital.
• Identify options to leverage proximity to industry, capital and talent in California.
3. Enhance the economic development toolbox and retain policy enablers for capital intensive industries to
encourage high-wage employers to invest in Arizona.
• Increase the sales factor of the apportionment formula to 100 percent.
• Establish a “deal-closing” fund to support job creation/retention opportunities.
• Lower personal property tax and lower corporate income tax on businesses.
• Extend the sunset date for the Angel Investment Tax Credit; expand eligibility to more
entrepreneurial companies by raising the allowable assets from $2 million to $10 million.
• Utilize targeted incentives to encourage job creation through enhanced tax credits and property tax
reclassification; modernize the Enterprise Zone Program.
• Enhance R&D tax credit by an additional 10 percent if R&D is conducted in collaboration with a
state university.
• Creation of the ACA with a mandated focus on science and technology.
4. Improve Arizona’s regulatory environment.
• Streamline Arizona’s regulatory processes.
• Eliminate unnecessary regulatory burdens.
8
AEROSPACE & DEFENSEArizona is home to one of the largest and most vibrant aerospace and defense industries in the country.
In 2009, the Arizona aerospace and defense industry accounted for a total of 93,800 jobs, labor income
of $6.9 billion, and gross state product of $8.8 billion, according to a survey conducted by the W.P. Carey
School of Business at Arizona State University. Specifically, aerospace and defense employers contribute
approximately $300 million each year to Arizona state and local tax revenues. The aerospace and defense
industry provides compensation per employee approximately 2.3 times the statewide average for all
employed individuals.
Arizona received more than $10 billion in federal contracts in 2007 and ranked sixth in the nation for its
defense electronic jobs.(Tech America Cyberstates 2009 Report)
In addition to innovative aerospace companies, several United States military airports and
installations provide important services in Arizona.
Across the state there are multiple federal and privately funded initiatives and organizations
related to aerospace, aviation and defense, including:
• Yuma Proving Grounds (Yuma)
• Fort Huachuca, home to the U.S. Army Intelligence Center and U.S. Army Network
Enterprise Technology Command (Sierra Vista)
• Barry M. Goldwater Range, a 1.9 million acre range for live-fire training (between Yuma
and Tucson)
• Luke Air Force Base (Glendale)
• Embry Riddle Aeronautics University (Prescott)
• Homeland Security Center of Excellence (Statewide)
Keeping Arizona’s aerospace and defense industry healthy requires competitive business
policies and a coordinated effort among state and federal leaders. Arizona must re-evaluate its policies to
keep pace with the ever-changing knowledge based economy.
The question moving forward is do we offer what the aerospace and defense industries need to keep them here?
FORCE MULTIPLIERS TO COMPETE
• Create a comprehensive statewide plan for growth and investment in the aerospace and defense
sector. Arizona is susceptible to business loss due to leveling and/or decreasing defense budgets if
we are not able to diversify and align with federal and industrial roadmaps and funding opportunities.
• Generate a strong marketing presence authenticating Arizona as a location for aerospace and defense.
• Develop a platform for technological collaboration that enables a broad coalition of universities and
companies to advance targeted aerospace and defense technologies in Arizona.
• Leverage the uniquely situated configuration of commercial, academic and government resources
available in the state of Arizona that are not duplicated elsewhere.
• Create a competitive business climate (personal property tax and corporate income tax).
• Support an efficient, effective and accessable education system to attract and retain a
qualified workforce.
AEROSPACE & DEFENSE
IS ARIZONA COMPETITIVE?
CHAIR
Vicki E. Panhuise, Ph.D.
COMMITTEE MEMBERS
Gary Abrams
Maria Baier
Drew Brown
Sherman Jennings
Mary Peters
Dr. Patrick Soon-Shiong
Victor Smith
Sandra Watson
10
COMPETE GLOBALLY: SUSTAINABLE STRATEGIES
1. Enhance our economic toolkit in such a way that it will retain, grow and attract aerospace and
defense companies.
• Reauthorize the Angel Investment Tax Credit program with an expanded cap on capital assets
and expand eligibility to more companies.
• Utilize targeted incentives to encourage job creation through enhanced tax credits and property tax
reclassification; modernize the Enterprise Zone Program.
• Endorse the efforts of a statewide collaborative effort to raise $100 million for the “Fund of Funds”
program.
• Consider other business environment improvements, such as regulatory reform, modification to the
sales factor of the apportionment formula; matching funds for Small Business Innovation Research
(SBIR) grants; evaluating property tax structures – use benchmarks from states with significant
aerospace and defense success.
2. Accelerate the educational improvements in Arizona to provide the required foundation for aerospace
and defense sector growth.
• Support initiatives related to training and education with targeted investment in K–12 STEM
education, such as those suggested by the Governor’s P20 Council.
• Support initiatives related to training and education with target investments within the state’s
current workforce talent, such as working with the Governor’s Workforce Policy Council and within
the 2009 Arizona’s Aerospace and Defense Commission’s strategic plan.
3. Foster collaboration that enables development of Arizona’s small-business community within the
aerospace and defense sector.
• Sponsor an Arizona aerospace and defense requirements conference for customers to discuss
future technology needs with Arizona’s business community.
• Embrace the new aerospace and defense marketing strategy developed in conjunction with the Arizona
Aerospace and Defense Commission to foster collaboration within this sector.
4. Enhance the ACA’s aerospace and defense growth sector by establishing the leadership required to
connect all stakeholders, aerospace companies, universities, private-public partnerships and other
organizations.
• Establish the ACA aerospace and defense (A&D) Sector as the voice of all aerospace and defense
strategies for Arizona; coordinate the various private-public partnerships.
• Implement a research focus for aerospace and defense in Arizona under the leadership of the ACA
A&D sector, in collaboration with Science Foundation Arizona.
5. Build Arizona’s research competitiveness
• Enhance R&D tax credit by an additional 10 percent if R&D is conducted in collaboration with a
state university.
• Support and promote academic centers of excellence in aviation, aerospace, homeland security and
border security.
• Better leverage and market the state’s federally funded research development centers.
11
RENEWABLE ENERGYArizona has many unique renewable energy attributes, with solar energy being our most abundant.
Arizona’s solar resource not only has the potential to help us become more energy independent, but it
also provides enormous opportunity for economic growth. As we enter a new era in energy, Arizona is
working toward developing a strong solar energy industry and infrastructure.
In 1990, Arizona created an energy policy that led to the establishment of a utility portfolio standard
at the Arizona Corporation Commission. More recently, Arizona enacted numerous solar tax incentive
programs for both business owners and residents that allow Arizona to compete globally, be more
aggressive in attracting foreign direct investment, and secure quality jobs for Arizonans.
Arizona has the potential to lead the nation as solar demand continues to grow globally
and intensify nationally.
However, aggressive competitor markets have stronger renewable energy standards and
have larger policy toolboxes. Arizona’s key utility-level incentives, such as performance-based
incentives and up-front cash rebates, are not keeping up with potential demand.
There is also volatility in the availability of incentives and this is creating uncertainty in
the market.
POLICIY COMPETITIVENESS
• Compared to competitor markets, Arizona has a lower RES percentage requirement.
• Arizona’s distributed generation requirement is the strongest in the western United
States and one of the strongest nationally.
RENEWABLE ENERGY
IS ARIZONA COMPETITIVE?
CHAIR
Michael Bidwill
COMMITTEE MEMBERS
Hon. Kirk Adams
Maria Baier
Barry Broome
Steve Cowman
Margie Emmermann
Herb Guenther
Ben Grumbles
Dr. John Haeger
Michael Ingram
Matt Miller
Doug Pruitt
Robert Shelton
Dr. Jeanne Swarthout
Sandra Watson
Judy Wood
13
State RES % Effective % DG
Arizona 15% by 2025 4.50%
California 33% by 2020 N/A
Colorado 33% by 2020 3.00%
Nevada 25% by 2025 1.5%
New Mexico 20% by 2020 0.60%
Oregon 25% by 2025 N/A
Texas 5% by 2015 N/A
Utah 20% by 2025 N/A
Washington 15% by 2020 N/A
FORCE MULTIPLIERS TO COMPETE
• Create a state strategic plan for developing the export capability of utility-scale generation.
• Upgrade aging infrastructure and reduce overreliance on fossil energy sources.
• Generate financing for large-scale renewable energy projects.
• Develop a state strategic plan for renewable energy.
• Support a state office coordinating renewable energy.
• Provide sufficient transmission capacity for out-of-state sales.
• Increase storage capacity for energy generated from renewable resources.
• Educate, certify and train a workforce to support advancements in renewable technology.
• Support growing companies that are already based in Arizona, especially small/medium-sized businesses.
• Generate financing for small to mid-sized solar projects (100kW to 1MW in size).
PATHWAY TO COMPETITIVENESS – SUSTAINABLE STRATEGIES
1. Expand the ACC Renewable Energy Committee to include other renewable energy stakeholders.
• Establish a coordinating forum or process for preparing, implementing and communicating
Arizona’s economic development opportunities as they relate to renewable energy.
• Ensure the economic and environmental benefits of the state’s renewable energy resources
are maximized through energy efficiency, water management, education and investment in
infrastructure.
2. Enhance Arizona’s global competitiveness by establishing an aggressive economic toolkit to attract and
retain manufacturing opportunities to support Arizona’s renewable energy efforts.
• Establish a “deal closing” fund to support job creation opportunities.
• Increase the sales factor of the apportionment formula from 80 percent to 100 percent.
• Evaluate other states’ financial incentives for manufacturing and project development to ensure
Arizona maintains its supply-side competitive position established by Arizona’s Renewable Energy
Tax Incentive Program.
• Continue to market Arizona’s Renewable Energy Tax Incentive Program, effectively supporting the
growth of Arizona’s solar industry by ensuring a consistently available pool of credits commensurate
with market demand.
3. Educate policy leaders on transmission capacity limitations and the need to expand transmission for
export of energy.
• Develop an economic analysis to determine the impact of expanding transmission capacity for
export purposes.
• Evaluate financing options to expand transmission infrastructure to export renewable energy to
other markets.
4. Study the following options to increase solar energy demand in Arizona:
• Renewable energy standard.
• Non Arizona Corporation Commission regulated activity.
• Distributed generation.
• Feed-in tariffs.
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SMALL BUSINESS &
ENTREPRENEURSHIPSmall business is BIG business in Arizona.
Arizona’s entrepreneurs are imaginative, inventive and ingenious. They are small business owners who
have dreams and the tenacity, diligence, perseverance and determination to turn those dreams into
reality. Small businesses account for nearly 98 percent of all the businesses in the state, and are one of
the engines that drive our economy.
New technology incubators, business accelerators, and shared workspaces where small technology
businesses and independent professionals share infrastructure and knowledge are opening across
the state. University programs continue to accelerate technology commercialization and new venture
creation.
However, Arizona’s small businesses have been historically tied to population growth, have
experienced higher than average failure rates and have not been concentrated in industries that
generate high-paying jobs with robust health benefits.
Despite Arizona’s concentration of technology and high level of entrepreneurial activity, we
lag significantly behind our neighbors in small-business and VC funding. Arizona has made
significant investments to accelerate technology development and venture formation.
However, these initiatives have not resulted in meaningful numbers of new “gazelle”
companies that rapidly grow and diversify our economy since little funding is available
beyond the seed stage.
Currently, no Arizona-based VC firm has capital to fund new early-stage investments.
Tightened lending from banks, combined with fewer community banks relative to
competitive markets, have left many small businesses without access to traditional
growth capital.
CHAIR
Pat Sullivan
COMMITTEE MEMBERS
Benito Almanza
Les Brun
Sherry Henry
Peter Herder
Michael Kennedy
Victor Smith
Sandra Watson
Judy Wood
SMALL BUSINESS &
ENTREPRENEURSHIP
IS ARIZONA COMPETITIVE?
16
ENTREPRENEURSHIP - U.S. Composite Index - 16th, down from 40th in 2008
39th in Venture Capital Investment and Growth (2006-2007)
19th in Number of Companies Receiving Venture Capital per 10,000 Firms (1996-2004)
21st Increase in Number of Companies Receiving VC Investment (2005-2006)
20th in Venture Capital Investments as Percent of GSP (2007)
44th in Business Incubators per 10,000 establishments (2008)
17th in Patents Issued per 100,000 people (2007)
3rd in Business Starts per 100,000 people (2006)
No. 1 10th 20th 30th 40th 50th
Source: Charting a Course for Arizona’s Technology - Based Economic Development – Milken Institute, 12/09
FORCE MULTIPLIERS TO COMPETE
• Improve access to capital. Pullback of banks and other lending institutions have left small
businesses without access to traditional growth capital.
• Increase funding for early stage commercialization (proof of concept, pre-seed and seed funding).
• Implement a comprehensive and coordinated innovation ecosystem of entrepreneurial
programs and services.
• Create a competitive business climate that fosters new venture creation.
• Educate, certify and train Arizona’s workforce. The current shortfall of appropriately trained workers
can easily impede the state’s future competitiveness in this sector.
PATHWAY TO COMPETITIVENESS – SUSTAINABLE STRATEGIES
1. Galvanize a collaborative statewide entrepreneurial support network.
• Establish the ACA as the nexus of this network comprised of Science Foundation Arizona, Arizona
Technology Council, the three state universities, small-business development centers, incubators
and accelerators, angel and VC networks, serial entrepreneurs and other established and emerging
entrepreneurial service providers.
• Finance entrepreneurial programs and services delivered across this network with annual funding over
time of $100 million. These funds would be managed and competitively awarded by the ACA. Some
funds may be awarded through a process similar to competitions conducted by the X-Prize Foundation.
• Coordinate a network of business mentors for vetting potential recipients of state services or incentives
and for providing expert guidance to accelerate the success of new entrepreneurial ventures.
• Leverage the Arizona job-training program by creating small-business consortiums and by training
management and highly skilled employees with the small-business set-aside funds.
2. Enhance the availability of both equity and debt financing available to all Arizona entrepreneurs.
• Endorse the efforts of a statewide collaborative effort to raise $100 million for the “Fund of
Funds” program.
• Reauthorize the Arizona Angel Tax Credit program with an expanded cap on capital assets.
• Create a lending program through the State Small Business Credit Initiative (SSBCI) for micro-finance
and other lending.
3. Reduce taxes for and enhance investment in small businesses.
• Reduce or eliminate the Arizona capital gains tax, contingent on reinvestment of capital gains.
• Create an incentive to convert business losses incurred by certified angel investment companies to
tradable assets, reducing state taxes for profitable ventures.
4. Make Arizona the most attractive place to start a small business in the nation.
• Establish Arizona embassies in California (and potentially other states) to attract entrepreneurs,
businesses and inward investment.
• Attract entrepreneurial talent to Arizona by creating a campaign and offering relocation packages
and business incubation.
• Enhance the Online Business One Stop program at the ACA to streamline the creation of new
ventures and access to entrepreneurial support.
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BUSINESS RETENTION & EXPANSIONHoneywell, Raytheon, Intel, Boeing, IBM, General Dynamics, Free Semiconductor, WL Gore, Lockheed
Martin, Microchip Technology Inc., Medtronic, Avnet, Shamrock Foods, Dial Corporation, Ping, Shaw
Industries, Otis Elevator and Bombardier.
The list goes on.
There are approximately 33 manufacturers in Arizona with 500, or more employees; many with deep
supply chains in Arizona.
Manufacturing currently contributes about eight percent to Arizona’s gross state product and accounts
for nearly 86 percent of Arizona export activity ($17 billion in 2007). Business retention and expansion
programs have increased in importance as communities recognize that real job growth over time
comes from local business expansion.
Through regular contact with industry leaders, the state can gain industry intelligence to seize
opportunities that catalyze business collaborations and foster development of emerging technologies.
The need for a state-led retention program in Arizona cannot be overstated.
ARIZONA’S STATE PROGRAMS INCLUDE:
- Angel Investment Tax Credit
- Commercial/Industrial Solar Program Tax Credit
- Enterprise Zone Tax Credit and Property Reclass
- Use Fuel Rebate
- Military Reuse Zone Tax Credit, Property Reclass, and TPT Exemption
- Motion Picture Tax Credit
- Renewable Energy Tax Credit and Property Reclass
- Refundable Research & Development Tax Credit
- Bonding Programs
- Foreign Trade Zones
- Tucson Empowerment Zone
- TPT Exemption for Manufacturers (DOR)
- Additional Depreciation (DOR)
- Pollution Control Tax Credit (DOR)
- Health Insurance Premium Tax Credit (DOR)
- Water Conservation Systems Tax Credit (DOR)
- Production of Electricity Using Renewable Energy Tax Credit (DOR)
- Solar Liquid Fuel Tax Credit for R&D, Production and Delivery System Costs (DOR)
CHAIR
Jerry Colangelo
COMMITTEE MEMBERS
Don Cardon
Eileen Klein
Marty Shultz
Sandra Watson
BUSINESS RETENTION & EXPANSION
IS ARIZONA COMPETITIVE?
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FORCE MULTIPLIERS TO COMPETE
• Create a competitive business climate that lowers personal property tax and corporate income tax.
• Establish a state-level strategic outreach plan to create relationships with Arizona’s top employers
because Arizona is susceptible to job loss as businesses look to consolidate national/global
operations and are unaware of the strategic advantages and programs available in Arizona.
• Support an efficient, effective and accessible education system to both attract and retain a qualified workforce.
• Deploy a strong marketing effort authenticating Arizona business incentives.
COMPETE GLOBALLY: SUSTAINABLE STRATEGIES
1. Tax and policy considerations:
• Increase the sales factor of the apportionment formula to 100 percent.
• Establish a “deal-closing” fund to support job creation/retention opportunities.
• Lower personal property tax and lower corporate income tax on businesses. Extend the sunset date
for the Angel Investment Tax Credit; expand eligibility to more entrepreneurial companies by raising
the allowable assets from $2 million to $10 million.
• Utilize targeted incentives to encourage job creation through enhanced tax credits and property tax
reclassification; modernize the Enterprise Zone Program.
• Enhance R&D tax credit by an additional 10 percent if R&D is conducted in collaboration with a
state university.
• Streamline Arizona’s regulatory process and eliminate unnecessary regulatory burdens.
• Creation of the ACA with a mandated focus on retention.
2. Strategic outreach to establish early warning systems that flag at-risk businesses; ensure that public
programs meet local business needs; gain industry intelligence to seize opportunities for business
recruitment; catalyze business collaborations that foster the development of emerging technologies and
increase opportunities to compete for federal contracts.
• CEO roundtable/monthly breakfast series with the governor (top 100 employers).
• Out–of-state retention visits (i.e., Raytheon, Honeywell, Boeing, Intel).
• Arizona ambassadors (ACA board members) for marketing outreach.
• Support/implement recommendations from key industry sector committees.
• Establish a business retention team at the state level to develop an early warning system, based on
research and data, to identify at-risk businesses.
3. Attract, educate, retain and retrain Arizona’s skilled workforce.
• Support initiatives related to training and education with targeted investment in K-12 STEM
education, such as Arizona’s Race to the Top Plan.
• Support initiatives related to training and education, such as working with the Governor’s Workforce
Policy Council on the Workforce Policy Sector Strategy.
4. Endorse existing retention tools for economic developers.
• Establish a quarterly meeting of community and regional economic development professionals to
coordinate on retention and attraction efforts, such as the B3 Program (APS sponsored).
• Continued promotion of the Arizona Manufacturing Extension Partnership.
• Reinstate the Arizona Federal and State Partnership Grant (AZFAST) program, which is the state’s
mechanism for accessing Small Business Innovation Research and small business technology
transfer research (SBIR/STTR) federal funding, as well as the Market and Technology
Assessment Grant programs to grow and develop entrepreneurial opportunities.
• Develop business opportunity projections (strategic matchmaking) that can be used to
match business capability with opportunities.
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ACTION. CHALLENGE. PASSION.
Securing a strong economic future requires transitioning Arizona’s economy to one that is more
diversified across core industries and growth sectors like science and technology, aerospace and
defense, and renewable energy. Arizona now faces a critical junction demanding increased focus on
comprehensive economic development strategies and global competitiveness.
In the next legislative session, the ACA will wIork with the Executive and Legislative Branches to identify
essential mandates for the Authority, and policies and investments that should be enacted to advance
Arizona’s economy. The focus will be on conforming legislation to solidify the new ACA in statute, and tools
to support a comprehensive economic and workforce development strategy. Key focus areas will include:
• Science & Technology
• Aerospace & Defense
• Renewable Energy
• Small Business & Entrepreneurship
• Business Retention & Expansion
On behalf of the citizens of Arizona, Governor Brewer has enjoined the state’s business community,
academic institutions, legislature and community leaders to direct their collective time, talent and
resources to diversify the state’s economy and enhance its global competitiveness.
ARIZONA COMMERCE AUTHORITY
NEXT STEPS
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