A performance audit of the Arizona Office of Economic Planning and Development

              STATE OF ARIZONA
OFFICE OF THE
AUDITOR GENERAL
A PERFORMANCE AUDIT
OF THE
ARIZONA OFFICE OF ECONOMIC
PLANNING AND DEVELOPMENT
SEPTEMBER 1980
A REPORT TO THE
ARIZONA STATE LEGISLATURE
REPORT 80- 4.1
DOUGLAS R. NORTON. CPA
AUDITOR GENERAL
STATE OF ARIZONA
OFFICE OF THE
AUDITOR GENERAL
October 9, 1980
Members of the Arizona L e g i s l a t u r e
The Honorable Bruce B a b b i t t , Governor
Mr. Lawrence D. Landry, Executive D i r e c t o r ,
O f f i c e o f Economic Planning and Development
Transmitted herewith is t h e f i r s t of two r e p o r t s o f t h e Auditor General
concerning A Performance Audit of t h e Office of Economic Planning and
Development. This r e p o r t is i n response t o t h e June 19, 1979, r e s o l u t i o n
of the J o i n t L e g i s l a t i v e Budget Committee.
The blue pages present a summary of t h e r e p o r t ; a response from the
Executive Director is found on the yellow pages preceding t h e appendices.
My s t a f f and I w i l l be pleased t o d i s c u s s o r c l a r i f y items i n t h e r e p o r t .
Respectfully submitted,
bouglas R . Norton
Auditor General
S t a f f : Gerald A. S i l v a
Coni Good
Steve H. Thacker
Randolph D. Gross
Karen C. Holloway
Brent L. Nelson
Dawn R. S i n c l a i r
Enclosure
LEGISLATIVE SERVICES WING SUITE 200 STATE CAPITOL PHOENIX, ARIZONA 85007 255- 4385
O F F I C E OF THZ AUDITOR GENERAL
A PERFORMANCE AUDIT OF THE
ARIZONA O F F I C E OF ECaNOMIC
PLANNING AN3 DEVELOPMENT
A REPORT TO THE
ARIZONA STATE LZGISLATURE
REPORT 80- 4.1
TABLZ OF CONTENTS
Page
1
INTRODUCTION AND BACKGROUND
FINDINGS
FINDING I
Improvements a r e needed i n t h e O f f i c e o f Economic
Planning and Development's ( OEPADfs) i n d u s t r i a l
development e f f o r t .
CONCLUSION
RECOMMENDATIONS
FINDING I1
The q u a l i t y of personnel p r a c t i c e s w i t h i n OEPA3 nas
d e c l i n e d s i n c e OEPAD became exempt from t h e S t a t e
Personnel System i n 1975. This s i t u a t i o n has r s s u l c e d
i n l e s s documentation of employee q u a l i f i c a t i o n s ,
i n c r e a s e d proI'essional s t a f f t u r n o v e r , r i s i n g i n c i d e n c e
of s p e c i a l m e r i t i n c r e a s e s , g r a n t i n g o f s a l a r y i n c r e a s e s
witnout documented e v a l u a t i o n c r i t e r i a , absence of job
d e s c r i p t i o n s and absence of a proper job c l a s s i f i c a t i o n
and compensation system.
CONCLUSION
RECOMMENDATIONS
FINDING I11
General promotion of i n t e r n a t i o n a l t r a d e has been t n e
main t h r u s t of t h e OEPAD I n t e r n a t i o n a l Trade Prozram.
A s a r e s u l t , Arizona e x p o r t e r s surveyed were n o t aware
of and have not f u l l y used OEPAD s e r v i c e s .
CONCLUSION
OTHER PERTINENT INFORMATION
S t a f f Time Devoted t o OEPAD Functions and O o j e c t i v e s -
January 13 80
Motion P i c t u r e Development
WFtITTiCN RESPONS3 TO THE AUDITOR GENZRAL'S REPORT
APPENDICES
APPENDIX
APPENDIX
APPENDIX
APPENDIX
APPENDIX
APPENDIX
APPENDIX
APPENDIX
APPENDIX
APPENDIX
APPENDIX
APPENDIX
APPENDIX
APPENDIX
APPENDIX
I V
v
v I
V I I
V I I I
X I V
X v
- Arizona Revised S t a t u t e s Related t o OEPAD
- Summary of OEPAD A c t i v i t i e s Regarding I n d u s t r i a l
Development F i s c a l Year 1968- 69 -- Calendar Year
1979
- A Statement on Economic Development by the
Arizona Economic Planning and Development
Advisory Board t o the Governor of Arizona
- Survey of C i t i e s and Towns
- Survey of Chambers of Commerce
- Arizona Community P r o f i l e - Mesa, Arizona
- Survey of I n d u s t r i a l Developers
- L e t t e r s from Arizona Economic Development
Council Members S o l i c i t e d by OEPAD Executive
Director
- Procedural Guide for Development and Handling of
I n d u s t r i a l C l i e n t F i l e s
- Survey Concerning I n d u s t r i a l Relocation/
Expansion i n Arizona
- Correspondence Concerning OEPAD Executive
Director ' s Exceptions t o I n d u s t r i a l Developers1
Survey Methodology
- Summary of OEPAD S t a f f Time ( i n Days) by
Objective f o r Ten Functional Areas - January 7
through February 1, 1980
- Attorney General Opinion Exempting OEPAD
Employees from S t a t e Service
- Applicable S t a t e Personnel Board Rules
- Synopsis o f 20 S p e c i a l Meritorious Salary
Increases Granted by the Current Executive
D i r e c t o r o f OEPAD Between May 27 and
December 3.1, 1979
APPENDIX X V I
APPENDIX X V I I
APPENDIX X V I I I
APPENDIX X I X
APPENDIX XX
APPENDIX XX I
APPENDIX X X I I
APPENDIX X X I I I
APPENDIX X X I V
APPENDIX XXV
APPENDIX X X V I
APPiZNDIX X X V I I
APPENDIX X X V I I I
APPENDIX X X I X
APPENDIX XXX
- L e t t e r from OEPAD Executive Director Concerning
Merit Increases and Promotional P r a c t i c e s -
April 29, 1980
- Examples of OEPAD Performance, Planning and
Evaluation Reports
- S t a t e Personnal P o s i t i o n C l a s s i f i c a t i o n
S p e c i f i c a t i o n s f o r Selected OEPAD Job T i t l e s
- L e t t e r from OEPAD Executive Concerning OEPAD
Position C l a s s i f i c a t i o n s - April 28, 1980
- L e t t e r from A s s i s t a n t D i r e c t o r , S t a t e Personnel
Division, Department o f Administration
Concerning the Conduct of an OEPAD P o s i t i o n
Review - June 2, 1980
- L e t t e r s S o l i c i t e d by OEPAD Executive D i r e c t o r
Concerning I n t e r n a t i o n a l Trade
- L e t t e r S o l i c i t e d by OEPAD Executive D i r e c t o r
from D i r e c t o r , Department of Commerce, Phoenix
Regional Office - April 11, 1980
- Associate Office Designation - Department of
Commerce
- Survey of Arizona Consuls
- Survey of Exporters
- Survey of A g r i c u l t u r a l Trade Associations
- Survey of A g r i c u l t u r a l Brokers
- Reverse Investment Survey
- Survey of Western and Southeastern S t a t e s '
I n t e r n a t i o n a l Trade Programs
- Survey of Out- of- State and Local Film Producers
LIST OF TABLdS
Page
TASLE 1 - Actual F u l l - t i m e Equivalent Employees, Source of
Funds and E x p e n d i t u r e s from F i s c a l Year 1975- 76
through F i s c a l Year 1978- 79, and Estimated Full- time
Equivalent Employees, Source o f Funds and Expenditures
f o r F i s c a l Years 1979- 80 and 1980- 81 10
TABLE 2 - P r o p o r t i o n of P o p u l a t i o n i n A r i z o n a ' s Two Urban
Counties as Compared t o t h e Balance of t h e S t a t e -
Actual from 1969 t o 1980 - P r o j e c t e d from 1985 t o 2000 19
TABLE;: 3 - Cilarges i n P r i v a t e S e c t o r Employment f o r t h e Urban
Counties of Maricopa and Pima as Compared t o t n e
Balance of t h e S t a t e , Calendar Years 1972 Through 1979 2 0
TABLE 4 - Summary of Survey of Arizona I n c o r p o r a t e d C i t i e s ,
Towns and Chambers of Commerce
TABLE 5 - F a c t o r s i n d i c a t e d by AAID Members A s Among t h e Top
Three F a c t o r s Generating Economic Growth i n Arizona
H i s t o r i c a l l y and i n t h e 1980s 2 3
TAi3LE 6 - Summary o f t h e Three F a c t o r s t h a t Have Most I n h i b i t e d ,
And W i l l Most I n h i b i t , Economic Growth i n Arizona as
I d e n t i f i e d by AAID Members 24
TABLE 7 - Top Three F a c t o r s I n d u s t r i a l Developers I n d i c a t e d A
S t a t e Agency Could Perform t o Encourage I n d u s t r i a l
Development
TABLE 8 - Summary of OEPAD- Claimed I n d u s t r i a l Development
Accomplishments per Annual Reports from F i s c a l Year
1968- 63 through Calendar Year 1978
TABLE 9 - Comparison of Companies L i s t e d i n OEPAD Annual Reports
t o rhos3 P r i n t e d i n I s s u e s o f D i r e c t i o n s , Calendar Years
19' 77 and 1978 31
TABLE 10 - Cornpsrison 01' Number of New Jobs Created and Cost per
New Job Created A s Claimed by OEPAD and t h e R e s u l t s of
t h e Auditor General Survey 3 5
TAdLE 11 - Summary o f OEPAD S t a f f T i m e Reports f o r t h e Period
January 7, 1980 t o February 1, 1980 4 0
TAi3LZ 12 - Sumnary of A u d i t o r G e n e r a l Survey Regardins New Jobs
Created by I n d u s t r i a l Company R e l o c a t i o n s from Out- of-
S t a t e and I n - S t a t e Expansions d u r i n g 1977 and 19' 78 4 2
' TABLE 13 - Cornparison of Documentation i n Planners' F i l e s
Regarding Q u a l i f i c a t i o n s
TABLE 14 - Number o f Planners Hired a t Upper Steps of Pay
Grades f o r Xhom F i l e s Were Availaple
Page
4 3
50
TABLE 15 - Comparison of the 1978 and 1979 OEPAD P r o f e s s i o n a l
S t a f f Turnover t o the OEPAD P r o f e s s i o n a l S t a f f
Turnover i n 1974 and t o S i m i l a r l y T i t l e d P o s i t i o n s
i n S t a t e Service 51
TABLE 16 - Summary of Incidences of OEPAD Employee F i l e s Containing
Evidence of OEPAD Personnel Actions t h a t Exceed
Typical S t a t e Service P r a c t i c e s 5 6
TABLZ 17 - Comparison of the Incidence o f Special Meritorious
S a l a r y I n c r e a s e s w i t h i n OEPAD t o the E n t i r e S t a t e Personnel
System 5 8
TAE3LE 18 - Summary of OEPAD Usage of Written Employee Evaluations
f o r Planners P r i o r t o and Since Calendar Year 1975 6 2
TABLE 19 - Summary of PP& Es Developed by OEPAD a s of May 1980 6 3
TABLE 20 - Summary of OEPAD P r o f e s s i o n a l S t a f f Mno Appear t o Be
Overpaid idhen Their Duties and Supervisory
R e s p o n s i b i l i t i e s Are Compared t o S t a t e Personnel Job
C l a s s i f i c a t i o n s 6 8
TABLE 21 - Federal, S t a t e and P r i v a t e Funds o r In- kind Services
Available f o r the I n t e r n a t i o n a l Trade Program from
May 1976 through August 1980
TABLE 22 - Responses of 17 Arizona Consuls Regarding Awareness
of and dork with Various Trade Promotion Groups 9 7
TABLE 23 - Number of Arizona Firms OEPAD I n t e r n a t i o n a l Trade
Program Claims t o Assist D i r e c t l y o r Projected W i l l
Assist f o r F i s c a l Years 1977- 78, 1978- 79 and 1979- 80,
a s of December 1979
TABLE 24 - Results of Survey of Exporters 10 0
TABLS 25 - R e s u l t s o f Auditor General Survey of Exporters of 48
Firms OEPAD Claimed t o Assist D i r e c t l y 101
TABLE 26 - Comparison of Survey Mailing L i s t and Responses t o
OEPAD Trade R e f e r r a l Card F i l e and I n t e r n a t i o n a l Trade
Directory 103
TABLE 27 - Survey Results of 25 Arizona Firms S u b s t a n t i a l l y
Foreign- Owned
TABLE 28 - Summary of 23 Western and Southeastern S t a t e s ~ I o s t
Frequently Provided Services f o r I n t e r n a t i o n a l
rrad e
TABLZ 23 - Summary of 24 Western and Southeastern S t a t e s Nost
Frequently Provided Services by Departments of
Agriculture t o Promote A g r i c u l t u r a l Exports
TABLE 30 - Summary of Arizona Exports of ~ vlanufactured Goods
1960- 1978
TABLE 31 - Summary of Arizona A g r i c u l t u r a l Exports i964- 1979
TABLE 32 - Sumrnarjr of OEPAD S t a f f Time by Major Functions -
January 7 through February 1, 1980
TABLE 33 - Factors Influencing Out- of- State Film Producers t o
Film i n Arizona
Page
108
The Department o f Economic Planning and Development ( DEPAD) was c r e a t e d
t h r o u z h S t a t e law i n 1968. The f o r e r u n n e r o f DEPAD was t h e Arizona
Development Board which was e s t a b l i s h e d i n 1954. The 1963 l e g i s l a t i o n :
1) c r e a t e d DEPAD, 2nd 2) r e p l a c e d t h e Arizona Development Board w i t h t n e
a d v i s o r y Economic Planning and Development Board. A s a r e s u l t o f 1972
amendments, DEPAD was d e s i g n a t e d as t h e O f f i c e o f Economic Planning and
Development ( OEPAD) w i t h i n t h e Office o f t h e Governor.
S t a t e law d e f i n e s two d i v i s i o n s , Planning and Development, w i t h i n OEPAI).
The f u n c t i o n s o f t h e s e d i v i s i o n s a r e broadly d e f i n e d i n s t a t u t e t o i n c l u d e
economic p l a n n i n g , economic r e s e a r c h , s c i e n t i f ic and t e c h n o l o g i c a l
p l a n n i n g , i n d u s t r i a l development, a d v e r t i s i n g , p u b l i c a t i o n s and low- income
housing development. A d d i t i o n a l r e s p o n s i b i l i t i e s f o r energy programs and
manpower planning c o o r d i n a t i o n were e s t a b l i s h e d t h r o u g h g u b e r n a t o r i a l
a c t i o n .
OEPAD a c t i v i t i e s a r e funded througn S t a t e General Fund a p p r o p r i a t i o n s and
v a r i o u s F e d e r a l funds.
The r e s u l t s o f our review a r e p r e s e n t e d i n two r e p o r t s . T h i s first r e p o r t
c o n c e r n s t h e a c t i v i t i e s o f :
- I n d u s t r i a l development,
- P e r s o n n e l a d m i n i s t r a t i o n ,
- I n t e r n a t i o n a l t r a d e , and
- Motion p i c t u r e development.
The second r e p o r t w i l l be i s s u e d later i n 1980 and w i l l i n c l u d e :
- Economic p l a n n i n g ,
- Data and r e s e a r c h ,
- The S t a t e C l e a r i n g h o u s e ,
- S c i e n c e and t e c h n o l o g y p l a n n i n g ,
- Planning c o u n c i l s ,
- J o i n t F u n d i n g P r o j e c t ,
- Community planning a s s i s t a n c e ,
- Accounting f u n c t i o n s , and
- C o n t r a c t i n g procedures.
Our review o f t h e O f f i c e o f Economic Planning and Development r e v e a l e d
, t h a t : 1) e n c o u r a g i n g i n d u s t r i a l development a p p e a r s t o be a p r o p e r r o l e
f o r a n agency i n Arizona S t a t e government, 2) OEPAD's accomplishments i n
f u l f i l l i n g t h a t r o l e have been g r o s s l y o v e r s t a t e d i n OEPAD- published
pronouncements, and 3) OEPAD needs t o r e d i r e c t its i n d u s t r i a l development
e f f o r t s . ( page 13)
Our review a l s o d i s c l o s e d t h a t t h e q u a l i t y of p e r s o n n e l p r a c t i c e s w i t h i n
OEPAD h a s d e c l i n e d s i n c e OEPAD became exempt from t h e S t a t e P e r s o n n e l
Merit System i n 1975. This s i t u a t i o n h a s r e s u l t e d i n less documentation
of employee q u a l i f i c a t i o n s , i n c r e a s e d p r o f e s s i o n a l staff t u r n o v e r , r i s i n g
i n c i d e n c e o f s p e c i a l merit s a l a r y i n c r e a s e s , g r a n t i n g o f s a l a r y i n c r e a s e s
w i t h o u t documented e v a l u a t i o n c r i t e r i a , absence o f job d e s c r i p t i o n s and
absence of a p r o p e r j o b c l a s s i f i c a t i o n and compensation system. ( page 47)
I n a d d i t i o n , o u r review r e v e a l e d g e n e r a l promotion o f i n t e r n a t i o n a l t r a d e
h a s been t h e main t h r u s t of t h e OEPAD I n t e r n a t i o n a l Trade program. A s a
r e s u l t , Arizona e x p o r t e r s surveyed were n o t aware o f and have n o t f u l l y
used OEPAD s e r v i c e s . ( p a g e 8 5 )
F i n a l l y , our review r e v e a l e d t h a t a s i g n i f i c a n t p r o p o r t i o n o f o u t - o f - S t a t e
f i l m p r o d u c e r s , r e s p o n d i n g t o a s u r v e y , u t i l i z e d OEPAD motion p i c t u r e
development s e r v i c e s and t h e s e s e r v i c e s i n f l u e n c e d t h e i r d e c i s i o n t o f i l m
i n t h e S t a t e . ( page 122)
It is recomnended t n a t c o n s i d e r a t i o n be given t o t h e following
a l t e r n a t i v e s :
I. OEPAD e f f o r t s t o develop i n d u s t r y i n Arizona should be
c o n c e n t r a t e d on expansion of e x i s t i n g f i r m s and t h e formation of
new l 3 c a l i n d u s t r y . OEPAD s t a f f should s t u d y and develop
a p p r o p r i a t e s e r v i c e s t r a t e g i e s t o a s s i s t l o c a l i n t e r e s t s i n
expandin; e x i s t i n g o r i n ~ e g i n n i n g new i n d u s t r y . E f f o r t s t o
a t t r a c t o u t - o f - S t a t e i n d u s t r y should be r e s t r i c t e d t o :
1) n a t i o n a l a d v e r t i s i n g , 2) providing s t a t i s t i c a l d a t a upon
r e q u e s t , and 3) r e f e r r i n g p r o s p e c t i v e i n v e s t o r s t o t h e p r i v a t e
s e c t o r .
11. R e s t r i c t OEPAD i n d u s t r i a l development e f f o r t s t o a minimal
l e v e l . OEPAD a c t i v i t i e s should i n c l u d e only t h o s e r e l a t e d t o :
1 ) supplying s t a t i s t i c a l d a t a , upon r e q u e s t , and 2 ) r e f e r r i n g
i n q u i r i e s t o t h e p r i v a t e s e c t o r .
It is a l s o recommended t h a t :
- OEPAD s t a f f c o n s i s t e n t l y record i n d u s t r i a l development c o n t a c t s
a s o u t l i n e d i n t h e November 29, 1979, p o l i c y s t a ~ e m e n t . Such
r e c o r d s should record e x p l i c i t l y i n d u s t r i a l c o n t a c t s made,
i n q u i r i e s answered and a s s i s t a n c e provided by OEPAD t o i n d u s t r i a l
companies.
- Future OEPAD- publicized i n d u s t r i a l development accomplishments
should i n c l u d e only a c t u a l i n d u s t r i a l developments f o r which
OEPAD nad s i g n i f i c a n t involvement. Sucn involvement should be
a d e q u a t e l y documented i n OEPAD f i l e s .
- OEPAD should i n f o r m e a c h c i t y and town and chamber o f commerce of
t h e f u l l a r r a y o f OEPAD s e r v i c e s .
F u r t h e r , it is recommended t h a t c o n s i d e r a t i o n be g i v e n t o t n e following
a l t e r n a t i v e s :
A l t e r n a t i v e I
1 ) The Department of A d m i n i s t r a t i o n P e r s o n n e l D i v i s i o n should
n e g o t i a t e a c o n s u l t i n g c o n t r a c t : a ) t o provide f o r a review of
OEPAD p o s i t i o n s , b) t o e s t a b l i s h a proper job c l a s s i f i c a t i o n
system i n OEPAD, and c ) t o t r a i n an OEPAD employee t o maintain
such a system. OEPAD should d e s i g n a ~ e an employee t o be so
t r a i n e d a s a p e r s o n n e l o f f i c e r .
2) OEPAD should maintain adequate documentation o f employees'
education and e x p e r i e n c e r e l a t e d t o t h e i r p o s i t i o n s .
3) OEPAD should use documented performance s t a n d a r d s : a ) t o a s s e s s
employees1 work, and b) t o a d j u s t s a l a r y l e v e l s f o r employees
w i t h i n t h e job c l a s s i f i c a t i o n system e s t a b l i s h e d through t h e
c o n s u l t i n g c o n t r a c t .
A l t e r n a t i v e I1
L e g i s l a t i o n should be enacted t o p l a c e OEPAD employees below t h e
D i r e c t o r and A s s i s t a n t l e v e l s under t h e S t a t e personnel system.
L a s t l y , it is recommended t h a t t h e following be c o n s i d e r e d :
1. No s r e a t e r e f f o r t be devoted by t h e I n t e r n a t i o n a l Trade Program
t o g e n e r a l promotion t h a n d u r i n g t h e 1976- 77 f i s c a l year.
2. I f expansion of o t h e r e f f o r t s appears j u s t i f i a b l e , t h a t OEPAD
s t a f f concentrate on tne following:
a . Reverse investment,
b. Increased coordination with t n e U. S. Department of Co: nmerce
( DOC) t o i n c l u d e r e g u l a r w r i t t e n exchanges of c o n t a c t s
lists, amendment of the a s s o c i a t e o f f i c e agreement t o
include a d d i t i o n a l promotion of OEPAD e f f o r t s and an
e v a l u a t i v e examination of t h e t i a e l i n e s s of DOC t r s d e l e a d s ,
c. S e l e c t i o n o f a few markets witn t h e most p o t e n t i a l f o r
Arizona t o d i r e c t l y i n c r e a s e e x p o r t s , implementation of
marketing s t r a t e g i e s and conduct of vigorous evaluation of
e f f o r t s ( included should be an evaluation of t r a d e lead
r e f e r r a l s ) , and
d. Maintenance o f r e c o r d s and/ or logs of persons or companies
OEPAD has a s s i s t e d t o f a c i l i t a t e subsequent i n q u i r i e s and
e v a l u a t i o n o f a s s i s t a n c e .
INTRODUCTION AND BACKGROUND
The O f f i c e o f t h e Auditor General has conducted a performance a u d i t of t h e
O f f i c e o f Economic Planning and Development ( OEPAD), i n accordance with
Arizona Revised S t a t u t e s ( A. R. S.) 541- 1279, and i n response t o a June 19,
1979, r e s o l u t i o n of the J o i n t L e g i s l a t i v e Budget Committee,
OEPAD1s forerunner, t h e Arizona Development Board, was created i n 1954.
The primary purpose of t h e Board was t o a t t r a c t t o u r i s t s , new r e s i d e n t s
and new i n d u s t r i e s t o Arizona and t o explore and p u b l i c i z e Arizona's
f a c i l i t i e s and resources i n order t o a t t r a c t new c a p i t a l and i n d u s t r y t o
the S t a t e . The Board had limited funding t o perform these f u n c t i o n s .
In April 1967 the Governor appointed the Arizona J o i n t Economic
Development Committee ( AJEDC). The Governor declared by Executive Order
67- 3 t h a t the Committee was t o "... produce a preliminary a n a l y s i s of
Arizona' s s p e c i f i c r o l e i n t h e economic development process. . . " and t o
make recommendations I t . . . f o r the means through which t h e S t a t e should
conduct its a c t i v i t y i n t h e f i e l d of economic development." The Commi~ tee
submitted its a n a l y s i s and recommendations t o the Governor on December 4 ,
1967. AJEDC acknowledged t h a t t h e Development Board was underbudgeted and
understaffed and recommended the Board be reorganized a s a S t a t e agency
and its functions expanded. A b i l l based on tne Committee's
recommendations was passed by t h e Arizona L e g i s l a t u r e i n 1968, which:
1) replaced the Arizona Development Board with the Econolnic Planning and
Development Board, and 2) created the Department of Economic Planning and
Development ( DEPAD) a s of July 1, 1968.
I n i t i a l l y , the Economic Planning and Development ( EPAD) Board e s t a b l i s h e d
policy f o r DEPAD and s e l e c t e d an Executive D i r e c t o r with the approval of
tne Governor. The Board relinquished its policy- making and appointive
powers and became a n a d v i s o r y board t o the Governor on June 30, 1971."
* The Office of the Auditor General issued a performance a u d i t of the
Zconomic Planning and Development Board on Septem~ er 12, 1979, i n
accordance with the Sunset law, A. R. S. § § 41- 2351 through 41- 2374.
In 1972, a s a r e s u l t of l e g i s l a t i o n , DEPAD was designated a s t h e Office of
Economic Planning and Development ( OEPAD) within the Office of the
Governor.
S t a t e law* d e f i n e s two d i v i s i o n s , Planning and Development, within OEPAD.
Generally a n a d m i n i s t r a t i v e u n i t o r d i v i s i o n has a l s o e x i s t e d . The
f u n c t i o n s o f the planning and development d i v i s i o n s a r e broadly defined i n
A. R. S. S41- 501. B:
" The planning d i v i s i o n s h a l l , i n a d d i t i o n t o o t h e r
functions assigned by the executive d i r e c t o r , be
r e s p o n s i b l e f o r economic planning, economic research
and s c i e n t i f i c and technological planning. The
development d i v i s i o n s h a l l , i n a d d i t i o n t o o t h e r
functions assigned by the executive d i r e c t o r , be
r e s p o n s i b l e f o r i n d u s t r i a l development , a d v e r t i s i n g and
publications".** ( Emphasis added)
Since its i n c e p t i o n , OEPAD has had numerous r e o r g a n i z a t i o n s and major
changes i n r e s p o n s i b i l i t i e s . Four examples a r e the areas of: energy,
tourism, manpower coordination and low- income housing development
a s s i s t a n c e .
In January 1974 tne Governor issued an Executive Order c r e a t i n g the
Arizona S t a t e Fuel and Energy Office. The Governor attached t h e Fuel and
Energy Office t o OEPAD f o r a d m i n i s t r a t i v e and t e c h n i c a l support. I n July
1979 the Fuel and Energy Office was i n t e g r a t e d i n t o the development
d i v i s i o n , but again was separated a s a d i v i s i o n ( Energy) within OEPAD i n
September 1979.
During 1975, the Governor issued Executive Order 75- 3 e s t a b l i s h i n g the
Arizona S t a t e O f f i c e o f Tourism. A l l OEPAD tourism programs were
t r a n s f e r r e d t o t h e new o f f i c e . However, OEPAD performed a d m i n i s t r a t i v e
d u t i e s f o r t h e O f f i c e o f Tourism u n t i l 1978, when l e g i s l a t i o n e s t a b l i s h e d
and s t a t u t o r i l y recognized a s e p a r a t e O f f i c e o f Tourism.
* Appendix I c o n t a i n s the t e x t of a p p l i c a b l e S t a t e laws.
** The 1968 version of t h i s s t a t u t e included r e s p o n s i b i l i t y f o r tourism
d evelopment.
I n t h e f a l l of 1976, t h e Governor t r a n s f e r r e d Comprehensive Employment and
Training Act ( CE'TA) manpower- planning c o o r d i n a t i o n from t h e Department of
Economic S e c u r i t y t o OEPAD.
I n t h e 1980 L e g i s l a t i v e s e s s i o n , OEPAD was d e s i g n a t e d as r e s p o n s i b l e f o r
providing a d v i c e , c o n s u l t a t i o n , planning, t r a i n i n g and e d u c a t i o n a l
a s s i s t a n c e f o r development of low and moderate income housing.
OEPAD has changed d r a m a t i c a l l y from its i n i t i a l 1968- 1969 budget of
$ 550,000 t o a 1980- 81 f i s c a l y e a r budget of n e a r l y $ 7 m i l l i o n , i n c l u d i n g
both S t a t e and F e d e r a l funding.
Table 1 summarizes t h e a c t u a l and e s t i m a t e d e x p e n d i t u r e s f o r OEPAD from
f i s c a l y e a r s 1975- 76 through 1980- 81.
TABLE 1
F u l l - t i m e e q u i v a l e n t
p o s i t i o n s ( FTE)
Source of Funds:
General Fund
F e d e r a l funds
Expenditures:
Personal s e r v i c e s
p Employee- related
P r o f e s s i o n a l and o u t s i d e
s e r v i c e s
T r a v e l :
I n - S t a t e
Out- of- State
Other o p e r a t i n g
Equipment
Media a d v e r t i s i n g
S t a t e matching funds
Energy matching funds
Governor's Voluntary Action
Pass- through funds
ACTUAL FULL- TIME EQUIVALENT EMPLOYEES, SOURCE OF
FUNDS AND EXPENDITURES FROM FISCAL YEAR 1975- 76
THROUGH FISCAL YEA3 1978- 79, AND ESTIMATED
FULL- TII~ E EQUIVALENT EMPLOYEES, SOURCE OF FUNDS AND
EXPENDITURES FOR FISCAL YEARS 1979- 80 AND 1980- 81
ACTUAL
1975- 1976* 1976- 1977* 1977- 1978% 1978- 1979**
ESTIMATED
1979- 1980** " 80- 1981""
* Source: Executive Budget volumes f o r 1977- 78, 1978- 79 and 1979- 80.
** Source: 1980- 81 A p p r o p r i a t i o n s Report ( JLBC) and 1980- 81 Federal Programs ( ~ x e c u t i v eB udget o f f i c e ) .
It snould be noted t h a t t o t a l F e d e r a l f u n d s and s t a f f a r e t r a d i t i o n a l l y
u n d e r s t a t e d i n OEPAD1s budget prepared f o r t h e Executive Budget O f f i c e .
For example, OEPAD e s t i m a t e d i n its 1978- 79 budget r e q u e s t t h a t 1.3
m i l l i o n Federal d o l l a r s would be r e c e i v e d i n 1978- 79, whereas a c t u a l
Federal r e c e i p t s f o r t h a t y e a r were $ 2.3 m i l l i o n ( a 74 p e r c e n t i n c r e a s e ) .
OEPAD e s t i m a t e d 77 f u l l - t i m e e q u i v a l e n t employees i n its 1979- 80 budset
r e q u e s t , whereas t h e r e v i s e d e s t i m a t e shown i n Table 1, as of December
1979, was 103 FTEs. These a d d i t i o n a l FTEs were supported by s u ~ s t a n t i a l
i n c r e a s e s ( 386 p e r c e n t ) i n Federal monies n o t included i n t h e o r i g i n a l
1979- 80 e s t i m a t e .
A l l major OEPAD a c t i v i t i e s were examined i n t h i s a u d i t with t h e e x c e p t i o n
of two a r e a s - CETA manpower planning and energy programs. CETA
a c t i v i t i e s a r e funded e n t i r e l y by F e d e r a l CETA g r a n t s . Energy programs
a r e a l s o l a r g e l y F e d e r a l l y funded. During p r e l i m i n a r y review, no
s u b s t a n t i a l problems with t h e CETA a r e a were r e v e a l e d . A l l energy
programs and s t a f f w i t h i n OEPAD, o t h e r t h a n f u e l a l l o c a t i o n a c t i v i t i e s ,
a r e r e l a t i v e l y r e c e n t a d d i t i o n s , t h u s making t r e n d and comparative
a n a l y s i s d i f f i c u l t .
This is t h e f i r s t of two A u d i t o r G e n e r a l r e p o r t s on OEPAD and d e a l s with
t h e following OEPAD a c t i v i t i e s :
- I n d u s t r i a l development,
- Personnel a d m i n i s t r a t i o n ,
- I n t e r n a t i o n a l t r a d e , and
- Motion p i c t u r e development.
The szcond OEPAD r e p o r t w i l l be issued l a t e r i n 1980 and w i l l include:
- Economic planning,
- Data and r e s e a r c h ,
- The S t a t e Clearinghouse,
- Science and technology planning,
- Planning c o u n c i l s ,
- J o i n t Funding P r o j e c t ,
- Community planning a s s i s t a n c e ,
- Accounting f u n c t i o n s , and
- Contracting procedures.
The Office of t h e Auditor General expresses g r a t i t u d e t o present and
former employees of OEPAD, o f f i c i a l s o f p a r t i c i p a t i n g S t a t e agencies,
regional Councils of Governments, Arizona c i t i e s and counties and numerous
survey respondents i n t h e p r i v a t e s e c t o r f o r t h e i r cooperation, a s s i s t a n c e
and c o n s i d e r a t i o n during t h e course of o u r a u d i t .
FINDING I
IMPROVEPIENTS ARE NEEDSD I N OEPAD'S INDUSTRIAL DEVELOPMENT EFFORT.
The O f f i c e of Ezonomic Planning and Development ( OEPAD) is t h e S t a t e
agency p r i m a r i l y r e s p o n s i b l e f o r encouraging and f a c i l i t a t i n g i n d u s t r i a l
development i n Arizona. Our review of OEPADts e f f o r t s i n t h i s a r e a
revealed t h a t : 1) encouraging and f a c i l i t a t i n g i n d u s t r i a l development
appears t o be a proper r o l e f o r an agency i n Arizona S t a t e government,
2) OZPADts accomplishments i n f u l f i l l i n g t h a t r o l e have been g r o s s l y
o v e r s t a t e d i n OEPAD publisned pronouncements, and 3) OEPAD needs t o
r e d i r e c t its i n d u s t r i a l development e f f o r t s .
Encouraging and F a c i l i t a t i n g
I n d u s t r i a l Developaent Appears
t o be a Proper Role f o r an Agency
i n Arizona S t a t e Government
OZPADts r o l e i n encouraging and f a c i l i t a t i n g i n d u s t r i a l development is a
l o n g - e s t a b l i s h e d Arizona S t a t e governmental f u n c t i o n and t y p i c a l of
development programs i n o t n e r s t a t e s . Howzver, it a p p e a r s t h a t . OEPADts
g o a l of emphasizing i n d u s t r i a l growth i n r u r a l a r e a s has n o t been achieved
and t n a t t h e r e is a d i v e r s i t y o f o p i n i o n among Arizona c i ~ i e s , towns,
chambers o f commerce and i n d u s t r i a l d e v e l o p e r s as t o what OEPAD should and
can accomplisn i n t h e a r e a of i n d u s t r i a l development.
Lonq- established Function
The p r o a o t i o n and encouragement of economic development, p a r t i c u l a r l y
p r i v a t e - s e c t o r i n d u s t r i a l development, is a S t a t e goverrlinental a c t i v i t y
t n a t p r e d a t e s t n e e s t a b l i s h m e n t of t h e O f f i c e ( t h e n Department) of
Economic Planning and Development i n 1968. The Arizona Development Board,
OEPADts f o r e r u n n e r , iwas s i n i l a r l y r e s p o n s i b l e f o r such a c t i v i t i e s
according t o Arizona Revised S t a t u t e s i n e f f e c t a t t h a t time.
" The purposes and o b j e c t i v e s o f t h e board s h a l l be t o :
1. A t t r a c t t o u r i s t s , new r e s i d e n t s and new commercial
i n d u s t r i e s t o t h i s s t a t e , and g e n e r a l l y promote
t o u r i s t , p o p u l a t i d n and i n d u s t r y developnent of t h e
s t a t e .
2. Advertise and f u r t h e r t h e development and use of
t h e r e s o r t and r e c r e a t i o n a l advantages and f a c i l i t i e s
of a l l a r e a s o f t h i s s t a t e on a year round b a s i s .
3. Explore and p u b l i c i z e f a c i l i t i e s , r e s o u r c e s and
p o s s i b i l i t i e s of t h e s t a t e i n o r d e r t o a t t r a c t new
c a p i t a l and new i n d u s t r i e s t o t h e s t a t e . "
I n a d d i t i o n , AJEDC* i n its 1967 Report of t h e Arizona J o i n t Economic
Development Committee endorsed t h e o r g a n i z a t i o n of a S t a t e development
agency i n Arizona. The r e p o r t o u t l i n e d f o u r a r e a s f o r a c t i v e
encouragement of i n d u s t r i a l development:
1) A s s i s t i n g l o c a l development groups i n A r i z o n a ' s communities,
2 ) Encoura; ing expansion of e x i s t i n g i n d u s t r y ,
3) Encouraging new " home- grown" i n d u s t r y , and
4) Extending i n d u s t r i a l promotion e f f o r t s n a t i o n a l l y t o a t t r a c t new
i n d u s t r y from o u t of Arizona.
F u r t h e r , A. R. S. 941- 501 B.**, s t a t e s OEPAD is r e s p o n s i b l e f o r s i n i l a r
i n d u s t r i a l development a c t i v i t i e s :
" The development d i v i s i o n s h a l l , i n a d d i t i o n t o o t h e r
f u n c t i o n s assigned by t h e e x e c u t i v e d i r e c t o r ,
r e s p o n s i b l e f o r i n d u s t r i a l development, a d v e r t i s i n q and
p u b l i c a t i o n s . " ( Emphasis added)
* The Arizona J o i n t Economic Development Committee ( AJEDC) was c r e a t e d
by E x e c u t i v e O r d e r i n A p r i l 1967 t o lf... produce a p r e l i m i n a r y a n a l y s i s
of A r i z o n a ' s s p e c i f i c r o l e i n t h e economic development p r o c e s s . . . I ' and
t o make recomrnendations " . . . f o r t n e means tnrough which tile S t a t e
s h o u l d c o n d u c t its a c t i v i t y i n t h e f i e l d of economic development."
The Committee submitted its recomnendations t o t h e Governor on
December 4 , 1967. A b i l l based on t h e Committee's recommendations was
i n t r o d u c e d i n t h e Arizona L e g i s l a t u r e i n 1968 and was p a s s e d , c r e a t i n g
t h e Department of Economic Plannins and Developinent ( DEPAD) as of J u l y
1, 1968.
** Appendix I c o n t a i n s a copy o f c u r r e n t OEPAD s t a t u t e s .
L a s t l y , a review of annual OEPAD r e p o r t s published fro! n 1963 through 197d
revealed t h a t OEPAD nas c o n s i s t e n t l y claimed t o be involved i n i n d u s t r i a l
development- related a c t i v i t i e s throughout its e x i s t e n c e .
OEPAD I n d u s t r i a l Development
A c t i v i t y Is r y p i c a l of Programs
i n Other S t a t e s
According t o t h e N a t i o n a l A s s o c i a t i o n of S t a t e Development Agencies
( NASDA)" i n an a r t i c l e e n t i t l e d " Character and Function of a S t a t e
Development Agency," t h e s t a t e agency charged with t h e r e s p o n s i ~ i l i t y of
encouraging i n d u s t r i a l development must be a b l e t o o b t a i n s e r v i c e s i n t h e
following s i x a r e a s i n o r d e r t o i n f l u e n c e i n d u s t r i a l development:
1) Consulting s e r v i c e s ,
2 ) Economic r e s e a r c h ,
3) Economic planning,
4 Devslopment o p e r a t i o n s ,
5) P u b l i c r e l a t i o n s , and
6) A d v e r t i s i n g .
It should be noted t h e NASDA a r t i c l e s t a t e d t h a t a l l t h e above a c t i v i t i e s
vere n o t performed n e c e s s a r i l y by one d e s i s n a t e d S t a t e development agency.
F u r t h e r , NASDA noted t h a t when manufacturing i n d u s t r i e s a r e concerned,
S t a t e a g e n c i e s a r e t y p i c a l l y organized so a s t o be d i r e c t l y involved i n :
" 1. t h e a t t r a c t i o n of new e n t e r p r i s e s ...;
2. t h e expansion of e x i s t i n g e n t e r p r i s e s ;
3. the r e t e n t i o n of e x i s t i n g e n t e r p r i s e s . . . ;
4. t h e s t a r t u p of new e n t e r p r i s e s evolving from
t e c h n o l o g i c i n n o v a t i o n o r o t h e r p o t e n t i a l s ;
5. t h e r e h a b i l i t a t i o n o f e x i s t i n 3 f a c i l i t i e s and t h e
procurement of e n t e r p r i s e s t o u t i l i z e them."
t NASDA is a v o l u n t a r y group of mostly state o f f i c i a l s r e s p o n s i b l e
f o r programs a s s s i s t i n ~ o r encouraging s t a t e economic development.
Its pdrpose is t o : 1) provide a l i a i s o n between t h e s t a t e s and t h e
Federal government, and 2 ) f o s t e r corninunication among t h e s t a t e s
r e z a r d i n g t h e i r econornic development a c t i v i t i e s . A s o f August
1980, 40 s t a t e developnent a g e n c i e s a r e NASDA members.
Examples c i t e d by NASDA as i l l u s t r a t i v e of s t a t e agency i n d u s t r i a l
development a c t i v i t i e s i n c l u d e d :
- P r e p a r a t i o n of b a s i c and s p e c i a l s t a t i s t i c a l and o t h e r m a t e r i a l s
by county, c i t y , town and o t h e r s p e c i a l d i s t r i c t development
o r g a n i z a t i o n s ,
- I d e n t i f i c a t i o n o f c a t e g o r i e s of p o t e n t i a l c a p i t a l i n v e s t o r s ;
i d e n t i f i c a t i o n and e v a l u a t i o n of i n d i v i d u a l p r o s p e c t i v e
i n v e s t o r s ; c o n t a c t i n g , s e r v i c i n g and, if p o s s i b l e , l o c a t i n g t h e i r
invescments i n t h e S t a t e ,
- Norking w i t h m i n o r i t y groups t o develop new o r t o expand e x i s t i n g
e n t e r p r i s e s , i n c l u d i n g t r a i n i n g ,
- Advising on use of such development t o o l s as " f i n a n c i a l
packages," s i t e i d e n t i f i c a t i o n and its development,
- S e r v i c i n g t h e programs and o p e r a t i o n s of a r e a developmenc o f f i c e s
i n chambers o f commerce, b u s i n e s s development c o r p o r a t i o n s ,
banks, u t i l i t i e s , r a i l r o a d s and i n s t i t u t i o n s ,
- Assembling, p r e p a r i n g , p r i n t i n g and d i s s e m i n a t i n g w r i t t e n
m a t e r i a l , a s w e l l as promotional movies and t e l e v i s i o n t a p e s ,
- Conducting s e m i n a r s , workshops and / o r p a r t i c i p a t i n g i n t h e i r
p r e s e n t a t i o n and p r e p a r a t i o n ,
- Providing e d u c a t i o n a l o p p o r t u n i t i e s f o r s t a f f personnel and
promoting same f o r o t h e r s i n development a r e a , and
- Encouragement of t e c h n o l o g i c i n n o v a t i o n t o g e n e r a t e new products
and t o answer demands such as t h o s e imposed by a n t i p o l l u t i o n laws
and r e g u l a t i o n s .
F i n a l l y , t h e NASDA a r t i c l e noted t h e need f o r : 1 ) p e r s o n a l c o n t a c t s by
S t a t e p e r s o n n e l , 2) w r i t t e n m a t e r i a l s , such a s pamphlets and brochures,
f o r p u b l i c r e l a t i o n s a c t i v i t i e s , and 3 s t a t e promotional a d v e r t i s i n g .
Our review of OEPAD r e v e a l e d t h a t it h a s engaged i n t h e t y p e of
development a c t i v i t i e s i d e n t i f i e d i n t h e NASDA a r t i c l e . "
* Appendix I1 c o n t a i n s a comparison o f OEPAD s t a t e m e n t s r e g a r d i n g
i n d u s t r i a l development a c t i v i t i e s as they appeared i n annual r e p o r t s
t o t h e NASDA list of a c t i v i t i e s .
Goal of A t t r a c t i n g
I n d u s t r y t o Rural Areas
Has Not Been Achieved
Our review of OEPAD g o a l s and o b j e c t i v e s r e v e a l e d a s t a t e d emphasis on:
1) t h e a t t r a c t i o n and expansion of i n d u s t r y i n r u r a l a r e a s of t h e S t a t e ,
and 2 ) planned development t h a t would not r e s u l t i n new jobs c r e a t e d at
t h e expense of t n e S t a t e ' s environment o r l i v i n g s t y l e . A review of
Arizona1 s d ernog- aphic t r e n d s i n d i c a t e s t h a t OEPAD o b j e c t i v e s f o r
a t t r a c t i n g i n d u s t r y t o r u r a l a r e a s h a s n o t been achieved.
According t o a 1972 s t a t e m e n t by t h e Economic Planning and Development
aoard :*
"... WBE2ZAS, The Board r e c o g n i z e s a g r e a t imbalance
e x i s t s i n A r i z o n a ' s economy between t h e m e t r o p o l i t a n
a r e a s and t h e s t a t e ' s r u r a l communities and t h a t
development o p p o r t u n i t i e s must be made a v a i l a b l e t o a l l
a r e a s t o b r i n g a b o u t t h e d i v e r s i f i c a t i o n o f i n d u s t r y
necessary t o a h e a l t h y economy f o r a l l Arizonans; and
" YHEREAS, t h e Board r e c o g n i z e s t h a t any new i n d u s t r y o r
expansion o f e x i s t i n g i n d u s t r y must meet t h e
environmental s t a n d a r d s s e t by e x i s t i n g l a w , as w e l l as
t h e r e q u i r e m e n t s and environments o f t h e communities
i n v o l v e d , and
" BE I T FURTHER RESOLVED t h a t it is t h e sense o f t h e
Board t n a t no new b u s i n e s s o r i n d u s t r y be s o l i c i t e d
u n l e s s t h a t i n d u s t r y is w i l l i n g t o u t i l i z e t h e most
t e c h n i c a l l y e f f i c i e n t and economically f e a s i b l e
p o l l u t i o n c o n t r o l methods, and meets t h e needs and
r e q u i r e m e n t s of t h e community;
I1dE IT FUATHER RESOLVED t n a t t h e d e s i r a b i l i t y of a new
i n d u s t r y be determined by weighing t h e economic
b e n e f i t s it w i l l b r i n g a g a i n s t its r i s k s t o t h e
environment ;
* Appendix I11 is t h e f u l l t e x t of t h i s s t a t e m e n t .
" BE I T FURTHER RESOLVCD t n a t t n e s t a t e ' s development
e f f o r t s be c o n c e n t r a t e d on t n e a r e a s of t h e s t a t e where
economic needs a r e more s e v e r e ; and t h e D e n e f i t s t o
t n e s e communities w i l l be weighed more h e a v i l y , a s w i l l
r i s k s which involve more than temporary e c o l o g i c a l
damage ;
" BE IT FURTHER RESOLVED thar; s p e c i a l e f f o r t be made t o
encourage t h e l o c a t i o n o f b u s i n e s s and i n d u s t r y i n t h e
l e s s congested communities of t h e s t a t e t o implement
d e s i r a o l e growth o f t h e s e a r e a s wnich could r e s u l t i n
n a l t i n g environmental d e t e r i o r a t i o n of' congested a r e a s
throuzh d i s p e r s i o n of t h e growtn p a t t e r n . " ( Emphasis
added )
According t o OZPAD Goals and O b j e c t i v e s developed i n F a l l 1979:
" GOAL
" To encourage t h e wise development of t h e s t a t e ' s
n a t u r a l r e s o u r c e s i n a manner which w i l l both
c o n t r i b u t e t o economic growth and development and
a s s u r e a c l e a n and h e a l t h y n a t u r a l environment.
" OBJECTIVES
" Improve t h e s t a t e ' s economic development and n a t u r a l
r e s o u r c e management p o l i c i e s .
" I n c r e a s e t h e s t a t e ' s i n f l u e n c e over f e d e r a l r e s o u r c e
management d e c i s i o n s .
" GOAL
" To enhance t h e well- being of t h e s t a t e ' s c i t i z e n s by
encouraging economic development.
" OBJECTIVES
" S t i m u l a t e economic growth i n non- metropolitan
Arizona. I n c r e a s e t h e a v a i l a b i l i t y of jobs t o
Arizonans. I n c r e a s e t h e income of Arizona c i t i z e n s . "
( Emphasis added)
T h e r e f o r e , OLPA3' s i n d u s t r i a l development program a p p e a r s t o emphasize
r u r a l i n J u s t r i 2 l development t n a t does not i n f l i c t s u b s t a n t i a l
environmental dsna% e. However, it should be noted t n a t a review of
dernozrapnic t r e n d s r e v e a l e d t h a t OEPAD had not had any demonstrable e f f e c t
i n aehievln;: its o b j e c t i v e o f i n c r e a s i n g r u r a l i n d u s t r i a l development.
Table 2 c o n t a i n s n i s t o r i c a l and p r o j e c t e d p o p u l a t i o n d a t a f o r A r i z o n a ' s
urban and r u r a l a r e a s , which i n d i c a t e s a p r o p o r t i o n a l g a i n f o r t n e major
urban c e n t e r s i n Arizona.
TABLE 2
PROPORTION OF POPULATION* I N ARIZONA'S TWO URBAN
COUNTIES AS COMPARED TO THE BALANCE OF THE STATE -
ACTUAL FRON 1969 TO 1980 - PROJECTED FROM 1985 TO 2000
S t a t e P o p u l a t i o n
1,737,000
Year
1969
19 70
1972
1975
1976
1977
2,547,000 1978
2,631,000 19 7 9
2,701,000 1980
3,011,000 1985
3,335,000 1990
4,280,000 2000
P e r c e n t a g e o f
P o p u l a t i o n i n
Maricopa and
Pima Counties
74.3%
74.5
74.4
74.4
74.5
74.6
75.3
75.1
75.2
75.14
75.14
76.21
P e r c e n t a g e of
P o p u l a t i o n i n
Balance
o f S t a t e
F u r t h e r , an examination o f S t a t e p r i v a t e s e c t o r employment t r e n d s r e v e a l s
a s i m i l a r continued i n c r e a s e i n urban growth. Table 3 c o n t a i n s a p r o f i l e
of p r i v a t e s e c t o r employment s i n c e 1972.**
* Source: Arizona Department of Economic S e c u r i t y P o p u l a t i o n S t a t i s t i c s
U n i t , May 5, 1980, f o r a c t u a l s t a t i s t i c s and May 31, 1980, f o r
p r o j e c t i o n s .
** I n f o r m a t i o n p r i o r t o 1972 was based on a d i f f e r e n t s e t of s t a t i s t i c a l
c a l c u l a t i o n s and comparable d a t a could not be o b t a i n e d without massive
r e s e a r c h e f f o r t s .
TABLE 3
CHANGES I N PRIVATE SECTOR EMPLOYMENT FOR THE URBAN
COUNTIES OF MARICOPA AND PIMA AS COMPARED TO THE BALANCE
OF THE STATE, CALENDAR YEARS 1972 THROUGH 1979"
State Maricopa and Pima Counties Balance of S t a t e
Percentage of Percentage of - Percentage i
Private Increase Private Increase Private Increase
Sector ( Decrease) Sector ( Decrease) Sec tor ( Decrease)
Employment from Employment Percentage of from Employment Percentage of from
Year ( 000s) Previous Year ( 000s) State Total Previous Year ( 000s) State Total Previous Ye,
* Source: Department of Economic Security, Labor Market Information.
A s demonstrated i n Table 3, p r i v a t e - s e c t o r employment has become
i n c r e a s i n g l y urbanized s i n c e 1972.
Sased on t h e above demographic d a t a it appears t h a t OEPAD1s i n d u s t r i a l
deveiopment o b j e c t i v e o f a t t r a c t i n g i n d u s t r i e s t o r u r a l a r e a s nas n o t been
achieved.
D i v e r s i t y of Opinion Regarding
OEPAD's Proper Role i n t h e Area
of I n d u s t r i a l Development
A s p a r t o f o u r review o f OEPAD, a l l Arizona i n c o r p o r a t e d c i t i e s and towns,
and shambers of commerce i n t h e s e communities, were surveyed* r e g a r d i n g :
1) t h e i r e x p e r i e n c e s i n d e a l i n g with OEPAD, 2) t h e i r views on i n d u s t r i a l
development, and 3) OEPAD's proper r o l e i n t h e a r e a of i n d u s t r i a l
development.** Table 4 summarizes t h e r e s u l t s of t h o s e surveys.
TABLE 4
SUMMARY OF SURVEY OF ARIZONA INCORPORATED
CITIES AND TOWNS AND THEIR CHAMBERS OF CONMERCE
Statement
OEPAD had been a c t i v e i n a t t r a c t i n g
i n d u s t r y t o t h e i r a r e a .
A d d i t i o n a l i n d u s t r i a l promotion
a c t i v i t y is needed i n t h e i r a r e a .
OEPAD should be r e s p o n s i b l e f o r
performing t h i s developmental work.
OEPAD has n o t d e n i e d r e q u e s t s
f o r a s s i s t a n c e .
OEPAD has been r3quested t o provide
a s s i s t s n c e w i t h i n t h e l a s t f i v e y e a r s
Corninunity is aware o f t h e range of
i n d u s t r i a l development s e r v i c e s
o f f e r e d by OQPAil
I n c o r p o r a t e d Chambers of
C i t i e s and Towns Commerce
* A survey das a l s o s e n t t o a l l Arizona I n d i a n t r i o e s and c o u n t i e s .
However, i n s u f f i c i e n t r e p l i e s from t h e t r i b e s were r e c e i v e d t o u t i l i z e
r e s u l t s and l e s s than h a l f of t h e c o u n t i e s responded o r had been
s u f f i c i e n t l y involved with OEPAD t o complete t h e q u e s t i o n n a i r e .
** Appendices I V and V c o n t a i n t h e survey q u e s t i o n n a i r e s w i t h t a b u l a t e d
r e s p o n s e s .
2 1
Based on t h e i n f o r m a t i o n i n Table 4 , it a p p e a r s t h a t OEPAD h a s been
r e s p o n s i v e t o community r e q u e s t s f o r a s s i s t a n c e b u t t h a t community
awareness of OLPAD is somewhat l a c k i n g , and t h a t less t h a n h a l f o f t h e
r e s p o n d e n t s f e l t t h a t OEPAD should be r e s p o n s i b l e f o r a d d i t i o n a l l o c a l
i n d u s t r i a l development. It should be noted t h a t more t h a n 80 p e r c e n t o f
t h e above r e s p o n d e n t s were aware o f t n e s t a t i s t i c a l Community P r o f i l e s *
prepared by OEPAD, and t h a t a v a s t m a j o r i t y r a t e d t h e P r o f i l e s a s
s a t i s f a c t o r y o r e x c e l l e n t .
S t i l l a n o t h e r p o p u l a t i o n surveyed by t h e Auditor G e n e r a l f s Office
r e g a r d i n g i n d u s t r i a l development i n Arizona and OEPAD was t h e Arizona
A s s o c i a t i o n o f I n d u s t r i a l Developers ( AAID).**
According t o t h e s u r v e y of AAID members, t h e most i m p o r t a n t f a c t o r s t h a t
have and w i l l i n r l u e n c e i n d u s t r i a l growth and development i n Arizona may
be beyond t h e c o n t r o l o f OEPAD o r - any S t a t e development agency. Table 5
lists t h e s e f a c t o r s i n o r d e r o f importance.
* Community P r o f i l e s is a s t a t i s t i c a l and n a r r a t i v e summary o f an
Arizona community, i n c l u d i n g i n f o r m a t i o n on t h e economy, p o p u l a t i o n ,
employment, t a x e s and o t h e r c h a r a c t e r i s t i c s . Appendix V I c o n t a i n s a
sample P r o f i l e .
** AAID is a p r i v a t e o r g a n i z a t i o n o f i n d i v i d u a l s involved i n improving
t h e b u s i n e s s climate and s o l i c i t i n g new b u s i n e s s e s t o t h e S t a t e . A l l
members o f A A I D were s e n t a q u e s t i o n n a i r e e x c e p t OEPAD s t a f f ; and i n
t h o s e c a s e s i n which m u l t i p l e members were from t h e same o r g a n i z a t i o n ,
only t h e s e n i o r member, o r first name on list i f s e n i o r i t y could not
be d e t e r m i n e d , t o avoid o v e r r e p r e s e n t a t i o n o f a s i n g l e firm. It
should be noted t h a t t h e primary p r o j e c t o f AAID i n v o l v e s m i s s i o n s t o
v a r i o u s states i n an a t t e m p t t o attract o u t - o f - s t a t e b u s i n e s s e s t o
Arizona. Appendix V I I c o n t a i n s a t a b u l a t i o n of r e s u l t s on t h e s u r v e y
form used.
TABLE 5
FACTORS* INDICATED BY AAID PIEMBERS AS AXONG THE
TOP THREE GENERATING ECONOMIC GROdTH I N
ARIZONA HISTORICALLf AND I N THE 1980s
Number of Respondents Nho Ranked
t h e I d e n t i f i e d F a c t o r as
Among t h e Three Most Important
F a c t o r s H i s t o r i c a l l y
1. C l i m a t e / d e s i r a b i l i t y of l i f e s t y l e 6 0
2. Right- to- work S t a t e 48
3. Within growing r e g i o n o f U. S. 3 4
4. A v a i l a b i l i t y o f t r a i n e d l a b o r 2 4
5. P o l i t i c a l c l i m a t e 16
6. PROI- IOTION OF THE STATE BY GOVSRNMENTAL
AGZNCIES AND/ OR PRIVATE DEVELOPERS 10
7. Tax s t r u c t u r e o f S t a t e 10
8. Proximity t o markets 8
9. O t h e r s 5
No answer 4
I n t h e 1980sE*
4 9
40
30
2 1
21
* T o t a l is more t h a n t h e 73 survey i n d u s t r i a l d e v e l o p e r s who responded
t o t h e survey because t h e r e s p o n d e n t s were asked t o i d e n t i f y t h e t o p
t h r e e f a c t o r s .
** One respondent ranked f o u r f a c t o r s .
Survey r e s p o n d e n t s a l s o were r e q u e s t e d t o i n d i c a t e t h e t h r e e f a c t o r s t h a t
have most i n h i b i t e d , and w i l l most i n h i b i t , A r i z o n a ' s i n d u s t r i a l growth
and development. ' Table 6 summarizes t h o s e r e s u l t s .
SUMMARY OF THE THREE FACTORS THAT HAVE HOST INHIBITED, AND
dIiL MOST INHIBIT, ECONOMIC GROWTH I N AAIZONA
AS IDENTIFIED BY AAID MEMBERS
F a c t o r s
1. Limited t r a n s p o r t a t i o n modes
2. Distance t o markets
3. INSUFFICIENT PROMOTION OF STATE
4. Lack of t r a i n e d l a b o r
5. Lack o f a v a i l a b l e f i n a n c i n g
6. Distance from raw m a t e r i a l s
7. Tax s t r u c t u r e of S t a t e
8. Limited water supply
9. Sparse p o p u l a t i o n
10. Growing u r b a n i z a t i o n of m e t r o p o l i t a n a r e a s
11. Limited e n e r g y s u p p l y
12. P o l i t i c a l c l i m a t e
13. Various
No answer
1. Limited w a t e r s u p p l y
2. Growing u r b a n i z a t i o n
3. Tax s t r u c t u r e of S t a t e
4. Limited t r a n s p o r t a t i o n modes
5. Lack of a v a i l a b l e f i n a n c i n g
6. Limited energy supply
7. INSUFFICIENT PROMOTION OF STATE
8. Lack of t r a i n e d l a b o r
9. Distance t o markets
10. P o l i t i c a l c l i m a t e
11. Discance from raw m a t e r i a l s
12. S p a r s e p o p u l a t i o n
13. Various
No answer
Number of Respondents who
Ranked t h e I d e n t i f i e d
F a c t o r as Among t h e
Three F a c t o r s t h a t
Most I n h i b i t Growth
H i s t o r i c a l l y *
I n t h e 1980s
* One respondent ranked f o u r f a c t o r s .
F i n a l l y , t h e i n d u s t r i a l d e v e l o p e r s were asked t o i d e n t i f y t h e t h r e e most
i m p o r t a n t a c t i v i t i e s a S t a t e development agency should perform t o
e n c o u r a g e A r i z o n a i n d u s t r i a l growth and development. Table 7 lists t h e
a c t i v i t i e s i d e n t i f i e d i n o r d e r of importance.
TABLE 7
TOP THREE FACTORS INDUSTRIAL DEVELOPERS
INDICATED A STATE AGENCY COULD PERFORM TO
ENCOURAGE INDUSTRIAL DEVELOPMENT
Number o f Respondents dho
Ranked t h e I d e n t i f i e d
A c t i v i t y among t h e Three
Most I m p o r t a n t A c t i v i t i e s
P u b l i c i z e t h e S t a t e and its communities i n
n a t i o n a l magazines o r o t h e r media.
Provide i n f o r m a t i o n i n answer t o i n q u i r i e s o r
f o r use by banks, i n d u s t r i a l d e v e l o p e r s o r
o t h e r s r e g a r d i n g p r o s p e c t i v e m a r k e t s , sites
and l a b o r a v a i l a b l e f o r development.
C o o r d i n a t e c o n t a c t s by p r o s p e c t i v e i n v e s t o r s
and forward r e q u e s t s and p r o s p e c t s t o p r i v a t e
s e c t o r .
Provide l o a n f u n d s , i n d u s t r i a l - a i d bonding o r
l o a n g u a r a n t e e s f o r f i n a n c i n g development by
i n d u s t r i a l i s t s who cannot o b t a i n o r q u a l i f y
f o r o t h e r s o u r c e s o f f i n a n c i n g . 3 0
Conduct seminars and t r a i n i n g workshops f o r l o c a l
community o f f i c i a l s on a t t r a c t i n g i n d u s t r i a l
development, f i n a n c i n g development and promoting
t h e i r community. 2 8
C o n t a c t a n d / o r assist p r o s p e c t i v e i n v e s t o r s new
t o Arizona by p e r s o n n a l l y showing them i n d u s t r i a l
o p p o r t u n i t i e s and s i t e s w i t h i n t h e S t a t e . 2 6
Work w i t h l o c a l firms t o assist i n expansion o f
t h e i r o p e r a t i o n s . 17
Various 9
No answer 5
A m a j o r i t y o f t h e surveyed AAID members who responded t o t h e above
q u e s t i o n s a i d t h a t t h e f a i l u r e t o engage i n t h e i d e n t i f i e d a c t i v i t y would
have e i t h e r a s i g n i f i c a n t o r a s u b s t a n t i a l d e t r i m e n t a l e f f e c t on A r i z o n a ' s
i n d u s t r i a l development.
It should be noted t h a t members of OEPADfs s t a f f have worked c l o s e l y with
t h e Arizona Zconomic Development Council ( AEDC) f o r 12 y e a r s . AEDC is a
p r l v a t e - s e c t o r group of 14 members* r e p r e s e n t i n g OEPAD, bankts, u t i l i t i e s
and r a i l r o a d s . The Council meets r e g u l a r l y t o d i s c u s s p r o s p e c t i v e
development c l i e n t s , exchange i n f o r m a t i o n and c o o r d i n a t e development
e f f o r t s r e g a r d i n g i n d u s t r i a l p r o s p e c t s , on a c o n f i d e n t i a l b a s i s . AEDC
supported t h e l e g i s l a t i o n r e s u l t i n g i n t h e c r e a t i o n of OEPAD.
Interviews*" w i t h AEDC members r e v e a l e d t h e e x i s t e n c e of a c l o s e working
r e l a t i o n s h i p between OEPAD and t h e AEDC.*** The r e l a t i o n s h i p a p p a r e n t l y
h a s e x i s t e d s i n c e OEPAD was e s t a b l i s h e d i n 1968.
Gross Overstatement of OEPAD
Accomplishments i n t h e Area o f
I n d u s t r i a l Development
From f i s c a l y e a r 1968- 69 through c a l e n d a r y e a r 1978, OEPAD has claimed
c r e d i t i n its annual r e p o r t s , e i t h e r e x p l i c i t y o r i m p l i c i t l y , f o r 493
i n d u s t r i a l company r e l o c a t i o n s o r expansions i n Arizona. Our review of
t h e s e OEPAD- claimed i n d u s t r i a l development achievements r e v e a l e d t h a t : 1 )
OEPAD f i l e s and documents d o n o t s u b s t a n t i a t e t h o s e claimed achievements,
and 2) OEPAD c l a i m s o f i n d u s t r i a l development have been g r o s s l y
o v e r s t a t e d .
According t o OEPAD annual r e p o r t s from f i s c a l year 1968- 69 through
c a l e n d a r year 1978, 493 companies e i t h e r r e l o c a t e d o p e r a t i o n s t o Arizona
o r expanded e x i s t i n g Arizona o p e r a t i o n s . OEPAD e x p l i c i t l y claimed c r e d i t
f o r naving i n f l u e n c e d 208 o f t h e companies t h a t r e l o c a t e d o r expanded, and
i m p l i c i t l y claimed at l e a s t some degree of c r e d i t f o r having i n f l u e n c e d
t h e remaining 285. Table 8 summarizes OEPAD s claimed i n d u s t r i a l
development accomplishments from f i s c a l year 1968- b9 through c a l e n d a r y e a r
1978.
* A s of March 17, 1980.
** During t h e c o u r s e o f our a u d i t t h e Executive D i r e c t o r o f OEPAD
provided t h e a u d i t s t a f f with s e l e c t e d s t a t e m e n t s from AEDC members
r e g a r d i n g t h e r o l e and value of OZPAD. These s t a t e m e n t s are
included i n Appendix VIII.
*** It should be noted t h a t t h e v a s t m a j o r i t y o f development c l i e n t s
d i s c u s s e d by t h e AEDC are o u t - o f - S t a t e b u s i n e s s e s .
TABLE 8
SUMMARY OF OEPAD- CLAIMED INDUSTRIAL DEVELOPMENT
ACCOYPLISHMENTS PER ANNUAL REPORTS FROM FISCAL YEAR
1968- 69 THROUGH CALENDAR YEAR 1978"
I m p l i c i t C r e d i t
Claimed For
Cospany R e l o c a t i o n s
Period o r Expansions
F i s c a l Year
1968- 69 56%"
1969- 70 49
19 7 0 - 7 1 46%"
1971- 72 46s"
1972- 73 5 2
1973- 74 31
Calendar Year
1975
1976
1977 5" nwrw
E x p l i c i t C r e d i t C r e d i t
Claimed For Claimed For
Company R e l o c a t i o n s New Jobs
o r Expansions Created
Claimed
OEPAD Cost
Per New
JOD Created
* Annual r e p o r t s were on a f i s c a l - y e a r b a s i s u n t i l 1975 when t h e
r e p o r t i n g period was changed t o a c a l e n d a r year. Presumably t h i s
r e s u l t e d i n a six- month gap of r e p o r t e d accomplishments from J u l y
throush December 1974. The 1978 Annual Report was t h e l a t e s t annual
r e p o r t a v a i l a b l e d u r i n g a u d i t f i e l d work concluded i n March 1980.
** I n t n i s year t h e OEPAD annual r e p o r t acknowledged t h e l i s t e d
r e l o c a t i o n s and expansions included e f f o r t s w i t h a n d / o r of o t h e r
devel3pment groups.
*** I n t h e 1976 annual r e p o r t OEPAD e x p l i c i t l y s t a t e d its s t a f f a s s i s t e d 33
f i r m s ; however, a p h y s i c a l count of t h e t a b l e l i s t i n g company names
t o t a l e d 40.
**** Employment! f i g u r e s were not r e p o r t e d by OEPAD f o r a l l companies l i s t e d
35 l o c a t i n g / e x p a n d i n g .
***** I n t h e 1977 annual r e p o r t OEPAD e x p l i c i t l y s t a t e d its s t a f f a s s i s t e d 66
firas. However, a t a b l e l i s t i n g r e l o c a t i o n s and expansions contained
71 coinpany names.
P r i o r t o its 1975 annual r e p o r t , OEPAD d i d not e x p l i c i t l y claim c r e d i t f o r
any of t n e i n d u s t r i a l company r e l o c a t i o n s o r expansions shown i n Table 8.
I n s t e a d , t h e s e companies x e r e merely l i s t e d i n t h e OEPAD annual r e p o r t s
with t h e i m p l i c a t i o n t h a t OEPAD w a s somehow r e s p o n s i b l e f o r at l e a s t some
degree o f c r e d i t f o r a company's d e c i s i o n t o r e l o c a t e o r expand. However,
beginning with its 1975 annual r e p o r t , OEPAD e x p l i c i t l y claimed c r e d i t f o r
208 of t h e 213 l i s t e d company r e l o c a t i o n s o r expansions.
For example, i n its 1977 and 1978 annual r e p o r t s OEPAD claimed primary
r e s p o n s i b i l i t y f o r 149% company r e l o c a t i o n s o r expansions c r e a t i n g 5,817
and 8,964 new jobs,** r e s p e c t i v e l y .
It should be noted t h a t OEPAD documents claiming i n d u s t r i a l developments
were not r e s t r i c t e d t o its a n n u a l r e p o r t . For example, OEPAD's budget
r e q u e s t s f o r f i s c a l y e a r s 1978- 79 through 1980- 81 made t h e following
i n d u s t r i a l development c l a i m s which were purported by OEPAD t o be based on
a c t u a l performance d a t a :
- 1976- 77 OEPAD was i n s t r u m e n t a l i n c r e a t i n g 3,700 new jobs.
- 1977- 78 OEPAD c r e a t e d 3,700 new jobs.
- 1978- 79 OEPAD c o n t a c t e d o r a s s i s t e d 200 o u t - o f - S t a t e f i r m s
r e g a r d i n g r e l o c a t i o n .
T h e r e f o r e , OEPAD has s p e c i f i c a l l y claimed c r e d i t f o r c r e a t i n g as many a s
8,964 new jobs a n n u a l l y a s a r e s u l t of i n d u s t r i a l development e f f o r t s
d u r i n g 1977 and 1978.
* This number i n c l u d e s 1 2 companies l i s t e d i n t h e 1977 and 1978 annual
r e p o r t s t h a t a r e l i s t e d more t h a n once.
** New- jobs- created d a t a was included i n t h e OEPAD annual r e p o r t s f o r 41
of t h e 71 companies l i s t e d i n 1977 and 56 of t h e 83 companies l i s t e d
i n 1978 ( s e e Table 8).
Unsubstantiated and Unsupported
I n d u s t r i a l Development C l a i m s
A s p a r t of our review of OEPAD1s i n d u s t r i a l development a c t i v i t i e s we
attempted t o v e r i f y OEPAD c l a i m s of i n d u s t r i a l development a c h i e v e n e n t s by
examining a v a i l a ~ l e OEPAD c o n t a c t f i l e s , i n t e r v i e w i n g p a s t and p r e s e n t
OEPAD employees involved i n i n d u s t r i a l development, and examinin; OEPAD
management r e p o r t s . These procedures r e v e a l e d t h a t : 1 ) t h e r e is a t o t a l
absence of documentation w i t h i n OEPAD t o s u b s t a n t i a t e OEPADfs involvement,
i f any, with 453 of t h e 493 i n d u s t r i a l companies l i s t e d i n OEPAD annual
r e p o r t s a s having r e l o c a t e d o r expanded i n Arizona from f i s c a l year
1968- 69 t o c a l e n d a r y e a r 1978, and 2) s i n c e 1977 OEPAD e s s e n t i a l l y has
claimed c r e d i t f o r every known i n d u s t r i a l company r e l o c a t i o n o r expansion,
r e g a r d l e s s of OYPADts l e v e l of involvement with each i d e n t i f i e d company.
A s a means t o s u b s t a n t i a t e OEPAD's claimed achievements, t h e a u d i t staff
made a n e x t e n s i v e s e a r c h of a l l a v a i l a b l e OEPAD i n d u s t r i a l company c o n t a c t
f i l e s . Those c o n t a c t f i l e s a r e s i g n i f i c a n t i n t h a t t h e y , i n some
i n s t a n c e s , contained i n f o r m a t i o n concerning one o r more of t n e f o l l o w i n g :
1 ) i n d u s t r i a l companies c o n t a c t e d by OEPAD, 2) a s s i s t a n c e provided, and
3) correspondence with t h e company. However, OEPAD f i l e s were maintained
i n c o n s i s t e n t l y , with c o n t e n t s ranging from j u s t newspaper c l i p p i n g s t o
correspondence and n o t a t i o n of c o n t a c t s . The r e s u l t of o u r s e a r c h of
OEPAD f i l e s was t h a t we were a b l e t o l o c a t e only 40 c o n t a c t f i l e s f o r a l l
the 493 i n d u s t r i a l companies l i s t e d i n OEPAD annual r e p o r t s as having
r e l o c a t e d t o Arizona o r having expanded t h e i r Arizona o p e r a t i o n s from
f i s c a l y e a r 1968- 69 t o c a l e n d a r y e a r 1978. The absence of c o n t a c t f i l e s
f o r such a s u b s t a n t i a l number of t h e 493 l i s t e d i n d u s t r i a l company
r e l o c a t i o n s o r expansions is s i g n i f i c a n t i n t h a t , at b e s t , it m a n i f e s t s a
s e r i o u s weakness i n OEPAD' s i n d u s t r i a l development record- keeping
proceaures* and, at w o r s t , it evidences an i n t e n t i o n a l a t t e m p t on OEPAD1s
p a r t t o o v e r s t a t e its i n d u s t r i a l development accomplishments.
* It snould be noted t h a t d u r i n g o u r a u d i t ( on November 29, 1973) OEPAD
i n i t i a t e d a new p o l i c y designed t o provide I f . . . a system o f r e c o r d s and
f i l e s t n a t w i l l c o n t a i n a n o r d e r l y l i s t i n g of i n f o r m a t i o n denoting t h e
s t a t u s of each and every ' c l i e n t f i l e t a t any g i v e n time...".
Appendix I X is a complete s t a t e m e n t of t h a t p o l i c y . However, a
s u b s e q u e n t r e v i e w by a u d i t s t a f f i n Marcn 1980 r e v e a l e d t n a t t h e new
p o l i c y was not followed c o n s i s t e n t l y .
F u r t h e r , a c a r e f u l examination of t h o s e 40 i n d u s t r i a l c o n t a c t f i l e s
revealed t n a t : 1) only 31 of them i n d i c a t e d t h a t t h e company c o n t a c t e d by
OEPAD s t a f f a c t u a l l y decided t o r e l o c a t e t o Arizona o r expand t h e i r
e x i s t i n g Arizona o p e r a t i o n s , and 2) t h e m a j o r i t y o f t h o s e 31 f i l e s
i n d i c a t e d t h a t OEPAD1s involvement with t h e company was minimal.
I n a d d i t i o n , t n e a u d i t s t a f f : 1 ) conducted e x t e n s i v e i n t e r v i e w s w i t h p a s t
and p r e s e n t OZPAD i n d u s t r i a l development s t a f f concerning i n d u s t r i a l
companies they c o n t a c t e d d u r i n g 1978, and 2 ) examined i n d u s t r i a l
development a c t i v i t y summary r e p o r t s produced by OEPAD d u r i n g 1979. These
procedures produced t h e following r e s u l t s :
- P r e s e n t and p a s t OEPAD i n d u s t r i a l development s t a f f could r e c a l l
c o n t a c t i n g only 39 of t h e 83 i n d u s t r i a l companies l i s t e d i n
OEPAD1s annual r e p o r t as having r e l o c a t e d t o Arizona o r expanded
its Arizona o p e r a t i o n s d u r i n g 1978.
- OEPAD d id n o t produce i n d u s t r i a l development a c t i v i t y summary
r e p o r t s c o n s i s t e n t l y .
- Those i n d u s t r i a l development a c t i v i t y summary r e p o r t s t h a t were
produced were d e f i c i e n t i n t h a t i n d u s t r i a l companies c o n t a c t e d by
OEPAD s t a f f were n o t c o n s i s t e n t l y i d e n t i f i e d .
While i n t e r v i e w i n 5 OEPAD employees, t h e a u d i t s t a f f learned t h a t a b a s i c
source f o r t n e lists of i n d u s t r i a l company r e l o c a t i o n s and expansions
shown i n OEPAD annual r e p o r t s and budget documents was a f o r m a l l y i s s u e d
OEPAD n e w s l e t t e r c a l l e d D i r e c t i o n s . T h i s n e w s l e t t e r w a s produced
p e r i o d i c a l l y t o p u b l i c i z e v a r i o u s OEPAD a c t i v i t i e s and was mailed t o
i n t e r e s t e d persons and groups. One s e c t i o n of D i r e c t i o n s was e n t i t l e d
" Economic Development i n Arizona," and it included a l i s t i n g of i n d u s t r i a l
company r e l o c a t i o n s t o Arizona o r expansions o f e x i s t i n g Arizona
o p e r a t i o n s . The companies shown i n D i r e c t i o n s d u r i n g 1977 and 1978 and
OEPAD's 1977 and 1978 annual r e p o r t s were allnost i d e n t i c a l , a s shown i n
Taole 9.
TABLE 9
COMPAfiISON OF COMPANIES LISTED I N OEPAD ANNUAL
REPORTS TO THOSE PRINTED I N ISSUES OF DIRECTIONS
CALENDAR YEARS 1977 AND 1978
Number of Nurnber of Number o f I d e n t i c a l
Companies Companies Company Names i n Both
Calendar Listed i n Listed i n Directions and
Year Directions Annual Reports the Annual Reports
1978
Total
Based on d i s c u s s i o n s with OEPAD s t a f f and the above comparison it is
r a t h e r apparent t h a t t h e i n d u s t r i a l r e l o c a t i o n s and expansions shown i n
Directions were, i n f a c t , the primary source f o r t h e companies l i s t e d i n
OEPAD1s annual r e p o r t s during 1977 and 1978. Such a conclusion is
s i g n i f i c a n t because the lists of companies shown i n Directions were
c l e a r l y i d e n t i f i e d by OEPAD a s an attempt t o show all i n d u s t r i a l
development within Arizona r e g a r d l e s s of OEPAD1s involvement. I n f a c t ,
the following statement preceded each l i s t i n g of co; npanies i n Directions
and c l e a r l y i n d i c a t e s t h a t OEPAD may have had very l i t t l e , i f any, c o n t a c t
with the l i s t e d companies.
" The information i n t h i s column has been put t o g e t h e r
with t h e a s s i s t a n c e o f v a r i o u s p e r i o d i c a l s including
ARIZONA BUSINESS AND INDUSTRY MAGAZINE, PHOENIX
MAGAZINE, and WHAT'S NEW, and through the cooperation
of economic development groups located throughout t h e
S t a t e . While the information is intended t o be a s
complete a l i s t i n g of development a c t i v i t y a s p o s s i b l e ,
we r e a l i z e t h e r e a r e undoubtedly omissions. We ask
t h a t information regarding any economic developments
within the s t a t e t h a t did n o t involve t h i s o f f i c e be
sent t o OEPAD f o r p u b l i c a t i o n i n t h i s column."
( Emphasis added)
Thus, i f : 1) OiPAD had minimal o r no involvement with t h e l i s t e d
r e l o c a t e d o r expanded companies i n D i r e c t i o n s , and 2) t h e l i s t e d
companies i n D i r e c t i o n s were t h e primary s o u r c e f o r t h e l i s t e d companies
i n OZPAD's annual r e p o r t s , t h e n it appears t h a t OEPAD was n o t , i n f a c t ,
r e s p o n s i b l e f o r many of t h e i n d u s t r i a l company r e l o c a t i o n s and expansions
shown i n its annual r e p o r t s .
Survey of I n d u s t r i a l Companies
Listed i n OEPAD 1977 and 1978
Annual Reports
I n a f u r t h e r a t t e m p t t o v e r i f y OEPAD's claims of i n d u s t r i a l development
achievement, t h e a u d i t s t a f f surveyed 125 of t h e 142 companies l i s t e d as
r e l o c a t e d o r expanded i n OEPAD1s 1977 and 1978 annual r e p o r t s * t o
a s c e r t a i n : 1) i f t h e companies l i s t e d had a c t u a l l y r e l o c a t e d o r
expanded, 2) i f , i n f a c t , OEPAD had any c o n t a c t with o r provided any
a s s i s t a n c e t o t h e companies, 3) i f s o , with what r e s u l t s , 4) whether any
o t h e r g r o u p ( s ) had provided a s s i s t a n c e , 5) what a s s i s t a n c e was u s e f u l
6) i f new jobs c r e a t e d were i n urban o r r u r a l s e t t i n g s , and 7 ) if any new
jobs c r e a t e d r e s u l t e d from an o u t - o f - S t a t e r e l o c a t i o n o r an i n - S t a t e
expansion.
The r e s u l t s of t h i s survey p r o c e s s were:
- Twenty- two p e r c e n t of t h e 109 r e s p o n d e n t s had n o t , i n f a c t ,
r e l o c a t e d t o Arizona o r expanded t h e i r Arizona o p e r a t i o n s .
- Less t n a n s i x p e r c e n t o f t h e r e s p o n d e n t s t h a t had r e l o c a t e d o r .
expanded were a s s i s t e d by OEPAD, and l e s s t h a n f o u r percent of
t h o s e . r e l o c a t e d o r expanded respondents b e l i e v e OEPAD had a
s i g n i f i c a n t i n f l u e n c e on t h e i r d e c i s i o n t o r e l o c a t e o r expand.
- OEPAD c l a i m s of new jobs c r e a t e d i n its 1977 and 1978 annual
r e p o r t s were at l e a s t 34 times g r e a t e r t h a n t h e a c t u a l number of
new jobs c r e a t e d .
- Actual OEPAD c o s t s per new jobs c r e a t e d were a t least 27 times
g r e a t e r t h a n t h o s e claimed by OEPAD i n its 1977 annual r e p o r t .
* Twelve companies were l i s t e d more t h a n once f o r t h e s e two y e a r s .
3 2
Survey Methodology
Lacking w r i t t e n documentation t o support OEPAD c l a i m s o f i n d u s t r i a l
development, t h e a u d i t s t a f f surveyed 125 of t h e 142 i n d u s t r i a l companies
l i s t e d i n t h e OEPAD 1977 and 19' 78 annual r e p o r t s as having r e l o c a t e d t o
Arizona o r having expanded t n e i r Arizona o p e r a t i o n s . Tne a u d i t s t a f f was
a b l e t o o b t a i n only 125 a d d r e s s e s f o r t h e 142 l i s t e a companies. Addresses
could not be l o c a t e d f o r 17 companies i n s p i t e of t h e following t a s ~ s
performed by t n e a u d i t s t a f f i n an a t t e m p t t o o b t a i n company a d d r e s s e s .
- OEPA9 was requested t o provide a d d r e s s e s , b u t t h e s t a f f was not
a b l e t o provide tnem and c o u l d o n l y r e f e r t h e a u d i t o r s t o c o n t a c t
f i l e s .
- An e x t e n s i v e s e a r c h was made of OEPAD c o n t a c t f i l e s . This
procedure produced few a d d r e s s e s because of t h e p a u c i t y of f i l e s .
- Telephone d i r e c t o r i e s , d i r e c t o r y a s s i s t a n c e o p e r a t o r s and
c h a m b e r s o f commerce f o r t h e c i t i e s i n which i n d u s t r i a l
r e l o c a t i o n s o r expansions supposedly occurred were c o n s u l t e d .
- D i r e c t o r i e s o f m a n u f a c t u r e r s were r e s e a r c h e d .
- Arizona Corporation Commission f i l e s were searched.
The a u d i t s t a f f developed a survey form* which was mailed t o t h e 125
companies** f o r which a d d r e s s e s were a v a i l a b l e . The A u d i t o r G e n e r a l ' s
O f f i c e r e c e i v e d r e s p o n s e s from 109 of t h e 125 companies surveyed, with t h e
following r e s u l t s .
Percentage
Companies a c t u a l l y r e l o c a t e d t o
Arizona o r expanded Arizona o p e r a t i o n s
Companies r e l o c a t e d o r expanded t h a t
were a s s i s t e d by OEPAD t o r e l o c a t e o r expand
Companies r e l o c a t e d o r expanded t h a t
were s i g n i f i c a n t l y i n f l u e n c e d by OEPAD
t o r e l o c a t e o r expand
* Appendix X is t h e survey form developed by t h e a u d i t s t a f f and
i n c l u d e s a t a b u l a t i o n of t h e s u r v e y r e s p o n s e s .
** Two forms were r e t u r n e d by t h e U. S. mail s e r v i c e as n o t d e l i v e r a b l e .
The p e r c e n t a g e s d e m o n s t r a t e t h a t OEPAD c l a i m s o f i n d u s t r i a l development
accomplishment appear t o be g r o s s l y o v e r s t a t e d . F u r t h e r , t h e e x t e n t of
o v e r s t a t e m e n t is compounded by a comparison of t h e number of new jobs
c r e a t e d and c o s t per new job c r e a t e d a s claimed by OEPAD and t n e r e s u l t s
of t h e A u d i t o r G e n e r a l survey as shown i n Table 10.
COMPARISON OF NUMBER OF NEW JOBS CREATED AND c o x
PER NEW JOB CREATED AS CLAIMED BY OEPAD AND THE
RESULTS OF THE AUDITOR GENERAL SURVEY
OEPAD- Claimed I n d u s t r i a l Development A c t i v i t y
1977 Annual 1978 Annual Firms Responding
Report Report Combined t o Survey
New jobs
c r e a t e d 5,817* 8,964** 14,781* 10,446***
Cost p e r
new job
c r e a t e d $ 43.46***** Not Included $ 43.46
I n f i v e i n s t a n c e s OEPAD l i s t e d a range of new j o b s c r e a t e d .
Audit s t a f f used t h e higher of t h e two f i g u r e s l i s t e d , which
amounted t o a d i f f e r e n c e of 478 jobs. F u r t h e r , t h e OEPAD annual
r e p o r t s d o n o t i n c l u d e employment f i g u r e s f o r a l l companies
reported a s l o c a t e d o r expanded. Of t h e companies l i s t e d i n
t h e annual r e p o r t s , 41 of t n e 71 companies i n 1977 and 56 of
t h e 83 companies i n 1978 have employment f i g u r e s r e p o r t e d , f o r
a t o t a l of 97 of 154 companies with employment f i g u r e s r e p o r t e d
( 63 p e r c e n t ) .
** N a r r a t i v e o f t h e annual r e p o r t claimed 9,000.
*** Audit s t a f f could n o t l o c a t e a d d r e s s e s o r telephone numbers
f o r 17 companies OEPAD claimed t o a s s i s t t h a t r e p r e s e n t e d 1 , 5 9 5
jobs c r e a t e d . F u r t h e r , 16 companies d i d not respond t o survey
m a i l l n g s and telephone c a l l s . These companies represented 2,740
of t h e jobs OEPAD claimed t o have a s s i s t e d i n c r e a t i n g .
A u d i t o r G e n e r a l Survey R e s u l t s
Percentd3e Actual
Percentage OEPAD- Costs Per Job
Firms S t a t i n g OEPAD Claimed New Exceed OEPAD-Assisted
i n Their Job Created Clal! ned Cost
Relocation/ Expansion Exceeded Actual per Job
**** Firms t h a t responded s t a t e d OEPAD's s i g n i f i c a n t a s s i s t a n c e
i n r e l o c a t i o n o r expansion r e p r e s e n t e d only 239 of t h e s e 307 jobs.
The d i f f e r e n c e o f 68 jobs r e p r e s e n t s f i r m s s t a t i n g OEPAD
was of some a s s i s t a n c e , b u t n o t t o a s i g n i f i c a n t l e v e l . ***** OEPAD employees could not provide a u d i t s t a f f with t h e rnethodoloqy
used t o c a l c u l a t e t h i s c o s t per new job c r e a t e d . However, a u d i t s t a f f
discovered an OEPAD meinorandum dated August 15, 1977, which s t a t e d t h a t
i n c a l e n d a r y e a r 1976, 33 f i r m s l o c a t e d f a c i l i t i e s i n Arizona. Based
on an OEPAD Economic Development budget of $ 157,755 and a t o t a l
of 3,630 new jobs c r e a t e d , t h e c o s t per new job c r e a t e d was $ q3.46.
F u r t h e r , OEPAD u t i l i z e d a c o s t per job c r e a t e d of $ 46 f o r its f i s c a l
y e a r s ' 1978- 79 and 1979- 80 budget r e q u e s t s .
It should be n o ~ e d t h a t t o e n s u r e t h a t a q u e s t i o n n a i r e was answered by an
a p p r o p r i a t e company o f f i c i a l who was a c t u a l l y involved i n t h e r e l o c a t i o n
o r expansion d e c i s i o n , t h e a u d i t s t a f f telephoned e a c h r e s p o n d e n t t o
determine h i s r o l e i n t h e decision- making process. I f t h e respondent did
not play a s i s n i f i c a n t r o l e i n t h e company's d e c i s i o n , t h e a u d i t s t a f f
s u b s e q u e n t l y i d e n t i f i e d and i n t e r v i e w e d an a p p r o p r i a t e company o f f i c i a l .
The survey inethodoloqy used by t h e a u d i t s t a f f b a s i c a l l y a l i g n s with t h a t
reconmended by t h e Urban I n s t i t u t e i n i t s p u b l i c a t i o n , Jobs and Earnings
f o r S t a t e C i t i z e n s ; Monitoring t h e Outcome of S t a t e Economic Development
and Employment and Training Programs. Some d e p a r t u r e s from recommended
methodology were n e c e s s i t a t e d ~ y t h e absence of adequate r e c o r d s a t OEPAD
and l a c k of a c c e s s t o c u r r e n t r e c o r d s . The Executive D i r e c t o r o f OEPAD
has t a k e n e x c e p t i o n t o t h e survey methodology o u t l i n e d above. Appendix X I
c o n t a i n s r e l e v a n t correspondence on t h e a u d i t survey methodology.
New D i r e c t i o n Needed For
OEPAD' s I n d u s t r i a l
Develo~ ment E f f o r t s
I n d u s t r i a l development w i t h i n OEPAD is p r i m a r i l y d i r e c t e d toward
a t t r a c t i n g o u t - o f - S t a t e companies t o r e l o c a t e i n Arizona as opposed t o
a s s i s t i n g and encouraging companies a l r e a d y e s t a b l i s h e d i n Arizona t o
expand t h e i r f a c i l i t i e s and o p e r a t i o n s . Such a p o l i c y is not i n
consonance with t h e o r i g i n a l l e g i s l a t i v e i n t e n t f o r OEPAD and is not
optimumly e f f e c t i v e , according t o an A u d i t o r G e n e r a l s u r v e y of i n d u s t r i a l
companies and a r e c e n t study by t h e J o i n t Center f o r Urban S t u d i e s at t h e
Massachussets I n s t i t u t e of Technology and Harvard U n i v e r s i t y .
The O r i g i n a l L e g i s l a t i v e
I n t e n t For OEPAD Was t o
Emphasize Local Arizona
Industry
The e a r l y l e g i s l a t i v e i n t e n t of OEPAD was t o emphasize l o c a l industry
expansion more than a t t r a c t i n g companies from out- of- State.
According to a menber of the Senate l e a d e r s h i p , a t the time of OEPAD's
z e n e s i s , the i n t e n t of e s t a b l i s h i n g a S t a t e development agency was, i n
p a r t , t o help guarantee the b e s t o p e r a t i o n a l climate f o r e x i s t i n g i n d u s t r y :
" The o r i z i n a l l e g i s l a t i v e i n t e n t f o r c r e a t i n g OEPAD was
t o e s t a b l i s h a S t a t e economic planning and development
coordinator and f a c i l i t a t o r . This agency was t o
perform an outreach r o l e by c o o r d i n a t i n g i n f o r m a t i o n
and only doing those t h i n g s l e f t undone by other public
or p r i v a t e s e c t o r economic development groups. OEPAD
was intended t o h e l p g u a r a n t e e t h e b e s t c l i m a t e f o r
e x i s t i n g i n d u s t r y i n t h e S t a t e which would then, i n
t u r n , a t t r a c t o u t - o f - s t a t e i n d u s t r y t o Arizona. This
was desired because p r i o r t o t h e c r e a t i o n o f OEPAD the
predominate s t a t e governmental a t t i t u d e was, ' We want
you t o l o c a t e here, but once you g e t here nothing e l s e
w i l l be provided. I n d u s t r i a l development e f f o r t s were
intended t o be aggressive i n seeking ways t o help
o t h e r s e x p a n d t h e economic base of the State.!'
( Emphasis added)
F u r t h e r , t h e Report of t h e Arizona J o i n t Economic Development Committee of
December 1967, which formed t h e b a s i s f o r t h e l e g i s l a t i o n t h a t created
OEPAD, repeatedly emphasized t h e preference of concentrating i n d u s t r i a l
development on i n - S t a t e f i r m s o v e r out- of- State companies:
" Successful i n d u s t r i a l promotion, l i k e c h a r i t y , begins
a t home. The s t a t e development agency has a primary
o b l i g a t i o n t o a s s i s t l o c a l communities i n t h e i r
development e f f o r t , a secondary o b l i g a t i o n t o encourage
the expansion of e x i s t i n g i n d u s t r y , and a t e r t i a r y
o b l i g a t i o n of a t t r a c t i n g new i n d u s t r y .
" A major f u n c t i o n o f any s t a t e economic development
agency should be t h a t of i n s p i r i n g t h e many l o c a l and
area- wide groups toward u n i f i c a t i o n of e f f o r t . . .
" The s t a t e agency should provide a binding a g e n t which
welds a l l o t h e r development groups i n t h e s t a t e i n t o a
conesive u n i t with a common purpose...
" Next i n importance t o a s s i s t a n c e t o l o c a l development
groups is t h e s t a t e agency's r e s p o n s i b i l i t y to
encourage t h e expansion of e x i s t i n g i n d u s t r y . . .
t'Various s t u d i e s have i n d i c a t e d t h a t from 80 t o 85
p e r c e n t of t h e economic growth of t h e average community
d e r i v e s from t n e c r e a t i o n and expansion o f l o c a l l y
oxned an3 operated e n t e r p r i s e s ...
" A l l t o o f r e q u e n t l y S t a t e and l o c a l development
a g e n c i e s t s k e e s t a b l i s n e d i n d u s t r y f o r g r a n t e d and
overlook t n i s p o t e n t i a l l y f r u i t f u l a r e a when seeking
new p a y r o l l s and t a x base...
" Akin t o assisting e s t a b l i s h e d firms is t h e development
agency ' s o b l i g a t i o n t o encourage new ' home grown'
i n d u s t r y . . .
" Only a f t e r f u l f i l l i n g its o b l i g a t i o n t o l o c a l
cornrnunities and e x i s t i n g i n d u s t r y is a s t a t e
development aqenc y j u s t i f ied i n extending its
i n d u s t r i a l promotional e f f o r t s n a t i o n a l l y ...
" I d e n t i f y i n g I n d u s t r i a l P r o s p e c t s a g a i n i n v o l v e s t n e
p r o c e s s of f i r s t s e a r c h i n g e x i s t i n g i n - s t a t e growth
p o t e n t i a l s . . . I t ( Emphasis added)
OEPAD S t a f f C o n c e n t r a t e s
on Out- of- State P r o s p e c t s
According t o OEPAD s t a f f , i n d u s t r i a l development e f f o r t s have been
c o n c e n t r a t e d on o u t - o f - S t a t e p r o s p e c t s . For example, OEPAD i n d u s t r i a l
development s t a f f e s t i m a t e d t h a t 80 percent of t h e i r working time was
devoted t o o u t - o f - S t a t e p r o s p e c t s i n r e c e n t y e a r s .
I n a d d i t i o n , a t t h e r e q u e s t of t h e a u d i t s t a f f , OEPAD1s i n d u s t r i a l
development s t a f f maintained d e t a i l e d time r e p o r t s from January 7 , 1980,
t o February 1, 1980". An examination of t h e s e time r e p o r t s r e v e a l e d t h a t
only 21 percent of OEPAD i n d u s t r i a l development s t a f f time is devoted
p r i m a r i l y t o a s s i s t i n g Arizona companies while 60 p e r c e n t is devoted
p r i m a r i l y t o o u t - o f - S t a t e companies. Table 11 summarizes t h e OEPAD s t a f f
i n d u s t r i a l development time r e p o r t s f o r t h e p e r i o d J a n u a r y 7 , 1980, t o
February 1, 1980.
* Appendix X I 1 c o n t a i n s d e t a i l e d i n f o r m a t i o n r e g a r d i n g t h e s e time r e p o r t s .
3 9
SUY; 4A: lY 95' OEPAD STAFF TINE 2EPORTS FOR THE PEdIOD
JXJUARY 7 , 1980 TJ FEBRUARY 1 , 1580'
O b j e c t i v e s h A ~ t i v i t i e s
P r i x a r y r e l a t e d t o a t t r a c t i n s o u t - o f - S t a t e i n d u s t r y
- Aid econo. nic cievelooinerlt uy:**
I d e n t i f y i n g p r o s p z c t s ,
P r o v i d l n ~ s p e c i f i c S t a t e and community i n f o r m a t i o n ,
Coordinating an3 conducting p r o s p e c t t o u r s , and
Sxchanzing p r o s p e c t i n f o r m a t i o n with o t h e r economic
developnent p r o f ? s s i o n a l s .
3 e l a t d t o a s s i s t i n g i n - S t a t e i n d u s t r y
- 3evelop e x i s t i n g firms and a c t i v i t i e s by:**
A s s i s t i n g l o c a l f i r m s i n expansion p l a n s , and
Developing i n t e r s t a t e and i n t r a s t a t e markets.
Percentage of Time
Spent on O b j e c t i v e s
and A c t i v i t i ; ~
Other
Assigned OEPAD
Staff*** - S t a f f - T o t a l
Zelatnd t o botn a t t r a c t i n g o u t - o f - S t a t e and a s s i s t i n g i n - S t a t e
i n d u s t r y
- Evaluate communities' 3 S i l i t i e s t o a t t r a c t and support
neN a c t i v i t i e s throuzh d e s c r i p t i v e a n a l y s i s of
productive r e s o u r c e s anti t o t a r g e t manufacturing
and comaercial a c t i v i t i e s . * * - Assist i n developing community i n f r a s t r u c t u r e through
a d m i n i s t r a t i o n of the ZDA 304 Prosram and Government
Information System Program ( SIS).**
- Create q r e a t e r p r o f e s s i o n a l e x p e r t i s e through forums,
worxshops and seminars Yor S t a t e and l o c a l s t a f f . " *
- Design, c3; npile and r2view economic development l o c a t i o n
brochures .** 12 2 3 18
P r o f e s s i o n a l e d u c a t i o n , s t a f f m e e ~ i n g s , g e n e r a l
- + i . n i n i s t r a t i o n and support - 7 - 65 - 4 1
T o t a l 100% - 100% No3
* Tna l n i ' o r n a t l a n l n t n l s t 3 b l e is oased on t i ~ n e summaries developed
by t n e 3EPA3 ; t. it'f' 2nd d i s t r i b u t e d t o enployees. Tnis procedure was
n e c e s s l t z t e d y tne absence of adsquate s t a f f time r e c o r d s w l t n i n
OZPAD.
** Statemnnts aJoptzd oy OEPAD i n F a l l 1979.
** * Ass1 ; ned staff i n z l u i e s t h o s e i n d i v i d u a l s whose p r i n c i p a l t a s i t s a r e
t o 3cn1sv2 t h e o b j e c t i v e s .
The Executive D i r e c t o r of OEPAD s t a t e d on February 4 , 1980, he i n t e n d s t o
a s s i g n approximately 50 p e r c e n t o f t h e i n d u s t r i a l development s t a f f t o
expansion o r development of i n - S t a t e i n d u s t r y :
t t H i s t o r i c a l l y , OEPAD gave no a s s i s t a n c e t o i n - s t a t e
companies wanting t o expand although t h e r e a r e
i n d i c a t i o n s t h a t more t h a n f i f t y p e r c e n t has been from
i n s t a t e expansions. No d e t a i l e d study e x i s t s f o r
Arizona, but t h e n a t i o n a l study i n d i c a t e s over f i f t y
percent comes from i n s t a t e expansion. Now, however,
OEPADts economic development s p e c i a l i s t s w i l l spend
about 50% of t h e i r time helping Arizona companies, with
p a r t i c u l a r emphasis on medium and small f i r m s . ( Two
OEPAD s t a f f ) w i l l c o n c e n t r a t e on i n - S t a t e expansion.
( Three OEPAD s t a f f ) w i l l c o n t i n u e t o spend most of
t h e i r time with o u t - o f - S t a t e p r o s p e c t s . The Arizona
development community wants even more t h a n t h r e e
s p e c i a l i s t s a t t e m p t i n g t o a t t r a c t o u t - o f - S t a t e
i n d u s t r y . ( Emphasis added)
It should be noted t h a t t h e d a t a i n Table 11 i n d i c a t e s t h a t , as of
February 1980, OEPAD i n d u s t r i a l development s t a f f were d e v o t i n g much less
than 50 percent of t h e i r time t o i n - S t a t e companies.
R e d i r e c t i o n Needed
An A u d i t o r G e n e r a l s u r v e y and a r e c e n t study by t h e J o i n t Center f o r Urban
S t u d i e s a t t h e Massachussets I n s t i t u t e of Technology and Harvard
U n i v e r s i t y c l e a r l y i n d i c a t e t h a t OEPAD' s i n d u s t r i a l development e f f o r t s
would be more e f f e c t i v e if t h e s t a f f c o n c e n t r a t e d o n i n - S t a t e r a t h e r than
o u t - o f - S t a t e companies. A survey of companies t h a t r e l o c a t e d i n Arizona
o r e x p a d e d t h e i r Arizona o p e r a t i o n s d u r i n g 1977 and 1978 r e v e a l e d t h a t a
minimum of t w o - t h i r d s of t h e r e s u l t a n t new jobs were a t t r i b u t a b l e t o
i n - S t a t e expansions while o n e - t h i r d were a t t r i b u t a b l e t o 0 u t - o f - S t a t e
r e l o c a t i o n s i n Arizona. Table 12 summarizes t h e r e s u l t s o f t h a t survey.
TABLE 12
SUNMAZY OF AUDITOR GENERAL SURVEY REGARDING NEW
JOBS CREATED BY INDUSTRIAL COMPANY RELOCATIONS
FROM OUT- OF- STATE AND IN- STATE EXPANSIONS
DURING 1977 AND 1978
I n d u s t r i a l company expanded
e x i s t i n g Arizona o p e r a t i o n s
Number of New
Jobs Created a s
a Result of
R e l o c a t i o n Percentage of
o r Expansion New Jobs Created
I n d u s t r i a l company l o c a t e d a
p l a n t o r o f f i c e f o r f i r s t time
i n Arizona* 3,213
T o t a l
* I n c l u d e s r e l o c a t i o n s from o t h e r s t a t e s and may i n c l u d e some new companies
t h a t began o p e r a t i o n s i n Arizona.
The r e l a t i v e l y hi5h p e r c e n t a g e of new jobs c r e a t e d t h a t a r e a t t r i b u t a b l e t o
i n - S t a t e expansion a s snown above is p a r t i c u l a r l y n o t a b l e i n view of t h e f a c t
( I
t h a t OZPAD has c o n c e n t r a t e d most of its i n d u s t r i a l development e f f o r t s on
o u t - o f - S t a t e companies.
A s a f u r t h e r d e n o n s t r a t i o n of OEPADts c o n c e n t r a t i o n on o u t - o f - s t a t e companies,
( I
98 p e r c e n t o f t h e 307 new jobs shown i n Table 10 as being a t t r i b u t a b l e t o
OEPAD i n d u s t r i a l development e f f o r t s were t h e r e s u l t of o u t - o f - S t a t e
r e l o c a t i o n s .
F i n a l l y , a National Conference o f S t a t e L e g i s l a t u r e s March 1979 p u b l i c a t i o n
e n t i t l e d S t a t e L e g i s l a t u r e s a l s o d i s c u s s e d t h e q u e s t i o n of whether i n - S t a t e
i n d u s t r i a l expansion produces more new employment f o r a s t a t e t h a n
o u t - o f - s t a t e i n d u s t r i a l r e l o c a t i o n does. 0
trPioneering r e s e a r c h by David L. Birch of t h e J o i n t
Center f o r Urban S t u d i e s at t h e Massachussets I n s t i t u t e
of Technology and Harvard U n i v e r s i t y , based on an
a n a l y s i s of Dun and B r a d s t r e e t d a t a t r a c i n g t h e
behavior of 3.5 m i l l i o n companies ( about 80 p e r c e n t o f
a l l f i r m s i n t h e United S t a t e s ) , f i r s t f o r 1969- 1972
and s u b s e q u e n t l y f o r 1974- 76, produced t h e following
r e s u l t s :
Smokestack c h a s i n g - - p i r a t i n g f i r m s f rom
o u t - o f - s t a t e o r region-- produces n e g l i g i b l e o v e r - a l l
employaent e f f e c t s . The average n e t s h i f t ( what a
s t a t e misht s a i n over x h a t it might l o s e i n a g i v e n
t h r e e - y e l r period due t o f i r m m i g r a t i o n s between
s t a t e s ) was only 0.1 p e r c e n t o f employment change i n
t h e s t a t e .
" e The p r i n c i p a l s o u r c e o f d i f f e r e n c e s i n growth r a t e s
among s t a t e s l i e s i n t h e r a t e of b i r t h s of new
e n t e r p r i s e s and t h e expansion of e x i s t i n g ones.
Zxpansions have t h e most impact, followed by b i r t h s and
t h e c o n t r a c t i o n s .
" a O f t h e new jobs c r e a t e d i n t h e economy, t h e
m a j o r i t y come from t h e b i r t h and expansion of
independent c o r p o r a t i o n s , n o t from branch p l a n t s ,
h e a d q u a r t e r s o r t h e r e l o c a t i o n of m u l t i p l a n t
o p e r a t i o n s . ( Emphasis added)
The NCSL a r t i c l e a l s o noted t h a t through t h e 1950s t h e s t e a d y movement of
i n d u s t r i a l f i r m s t o t h e South and West was an important f a c t o r . However,
t h i s f a c t o r no l o r g e r g e n e r a t e s as much employment as i n - s t a t e development
and, t h e r e f o r e , devoting s u b s t a n t i a l r e s o u r c e s t o a t t r a c t i n g o u t - o f - s t a t e
f i r m s is not j u s t i f i e d :
" There was a time i n U. S. h i s t o r y when c o r p o r a t e
m i g r a t i o n s had more impact. From t h e Depression
through t h e 1950' s when t h e Northeast and Great Lakes
s t a t e s dominated t h e i n d u s t r i a l l a n d s c a p e , t h e s t e a d y
movement of f i r m s t o t h e South and idest was an
important f a c t o r i n t h e economic growth of t h e s e
r e g i o n s . Today, s a y s Birch, ' development p o l i c i e s
aimed a t a t t r a c t i n g new f i r m s a d d r e s s a very small
a s p e c t of employment change, while p o l i c i e s aimed at
a s s i s t i n g f i r m s a l r e a d y i n t h e s t a t e , o r f i r m s wanting
t o s e t s t a r t e d t h e r e , h i t at t h e h e a r t o f t h e matter.'
" Development o f f i c i a l s i n some Sunbelt s t a t e s , t o o , are
recognizing t h a t they now have a l a r g e enough
i n d u s t r i a l base t o s h i f t t h e i r focus t o t h e developnent
of i n - s t a t e i n d u s t r i e s t o support t h o s e firms-- a p o l i c y
known a s import s u b s t i t u t i o n . " ( Emphasis added)
CONCLUSION
Since 1968, OEPAD has been t h e S t a t e agency p r i m a r i l y r e s p o n s i b l e f o r
i n d u s t r i a l development and performs i n d u s t r i a l development a c t i v i t i e s t h a t
, are t y p i c a l o f t n o s e performed by development a g e n c i e s i n o t h e r s t a t e s .
It appears t h a t OEPAD1s g o a l of a t t r a c t i n g i n d u s t r i a l development t o r u r a l
a r e a s has n o t been achieved. I n a d d i t i o n , among A r i z o n a ' s c i t i e s , towns,
chambers o f commerce and i n d u s t r i a l d e v e l o p e r s , t h e r e is a d i v e r s i t y of
opinion as t o what OEPAD1s i n d u s t r i a l development r o l e can and should be.
F u r t h e r , i) EPAD1s claimed i n d u s t r i a l development accomplishments have been
g r o s s l y o v e r s t a t e d i n OEPAD1s annual r e p o r t s and budget r e q u e s t s .
F i n a l l y , it a p p e a r s t h a t OEPAD1s p o l i c y of emphasizing t h e a t t r a c t i o n of
o u t - o f - S t a t e companies t o Arizona over encouraging Arizona companies t o
expand t h e i r e x i s t i n g o p e r a t i o n s is not i n consonance with t h e o r i g i n a l
l e g i s l a t i v e i n t e n t f o r OEPAD and not of optimum e f f e c t i v e n e s s .
RECOMMENDATIONS
It is recommended t h a t c o n s i d e r a t i o n be given t o implementing one of t h e
following a l t e r n a t i v e s :
I. OEPAD e f f o r t s t o develop i n d u s t r y i n Arizona should be
c o n c e n t r a t e d on expansion of e x i s t i n g f i r m s and t h e formation of
new l o c a l i n d u s t r y . OEPAD s t a f f should study and develop
a p p r o p r i a t e s e r v i c e s t r a t e g i e s t o assist l o c a l i n t e r e s t s i n
expanding e x i s t i n g o r i n beginning new i n d u s t r y . E f f o r t s t o
a t t r a c t o u t - o f - S t a t e i n d u s t r y should b e r e s t r i c t e d t o : 1 )
n a t i o n a l a d v e r t i s i n g , 2) providing s t a t i s t i c a l d a t a upon
r e q u e s t , and 3) r e f e r r i n g p r o s p e c t i v e i n v e s t o r s t o t h e p r i v a t e
s e c t o r .
11. R a s t r i c t OEPAD i n d u s t r i a l development e f f o r t s t o a minimal
l e v e l . OEPAD a c t i v i t i e s should i n c l u d e o n l y t h o s e r e l a t e d t o :
1) supplying s t a t i s t i c a l d a t a , upon r e q u e s t , and 2) r e f e r r i n g
i n q u i r i e s t o t h e p r i v a t e s e c t o r .
It is a l s o recommended t h a t c o n s i d e r a t i o n be given t o t h e following:
- A l l OEPAD s t a f f c o n s i s t e n t l y should record i n d u s t r i a l development
c o n t a c t s as o u t l i n e d i n t h e November 29, 1979, p o l i c y s t a t e m e n t .
Such r e c o r d s should e x p l i c i t l y i n c l u d e i n d u s t r i a l c o n t a c t s made,
i n q u i r i e s answered and a s s i s t a n c e provided by OEPAD t o i n d u s t r i a l
companies.
- Future OEPAD p u b l i c i z e d i n d u s t r i a l development accomplishments
should r e f l e c t only a c t u a l i n d u s t r i a l developments f o r which
OEPAD had s i g i n i f i c a n t involvement. Such involvement should be
a d e q u a t e l y documented i n OEPAD f i l e s .
- OEPAD should inform each c i t y , town and chamber of commerce of
t h e f u l l a r r a y o f OEPAD s e r v i c e s .
FINDING I1
THE QUALITY Or" PERSQNNEL PRACTICES WITHIN OEPAD HAS DECLINED SINCE OEPAD
BECAME EXEMPT FROM TBE STATE PERSONNEL MERIT SYSTEM I N 1975. THIS
SITUATION HAS ilESULTED I N LESS DOCUMENTATION OF EMPLOYEE QUALIFICATIONS,
INCREASED PROFESSI3NAL STAFF TURNOVER, RISING INCIDENCE OF SPECIAL MERIT
INCREASES, GRANTING OF SALARY INCREASES WITHOUT DOCUMEN'TED EVALUATION
C R I T Z R I A , ABSENCE OF JOB DESCRIPTIONS AND ABSENCE OF A PROPER JOB
CLASSIFICATION AXD COMPENSATION SYSTEM.
The Department of Economic Planning and Development was created by
l e g i s l a t i v e a c t i o n i n 1968 and, a s a department of t n e S t a t e , its employee
s e l e c t i o n , advancement and compensation process was administered through
the S t a t e personnel system from January 1, 1969, through May 1975. A s a
r e s u l t of a 1975 Attorney General Opinion, OEPAD employees became exempt
from the merit system. Since then, documentation of employee
q u a l i f i c a t i o n s h a s d e c r e a s e d ; p r o f e s s i o n a l s t a f f turnover h a s i n c r e a s e d ;
t h e incidence of s p e c i a l meritorious s a l a r y i n c r e a s e s , beyond those which
would normally be granted t o S t a t e employees, has r i s e n ; s a l a r y i n c r e a s e s
have been granted without e s t a b l i s h e d o r documented evaluation c r i t e r i a ;
d e s c r i p t i o n s of jobs and t h e i r d u t i e s have not been developed o r
maintained c o n s i s t e n t l y ; and a proper job c l a s s i f i c a t i o n system has not
been developed. This d e c l i n e i n t h e q u a l i t y of personnel a d m i n i s t r a t i o n
p r a c t i c e s has p e r s i s t e d d e s p i t e a s s e r t i o n s by c u r r e n t and former Executive
Directors t h a t the OEPAD personnel system o p e r a t e s within the i n t e n t of
the S t a t e personnel merit system.
OPEAD P5rsonnel Adininistered
Tnrou; n S t a t e Persannel
Svstem U n t i l 1~ 175
I n lghd, t h e Legislature c r e a t e d t n e Department of Economic Planning and
Develop! nent ( DEPA9) and a u t n o r i z e d i t t o employ a 3 m i n i s c r a t l v e ,
p r o r ' e s s i o n s l and c l e r i c a l s t a f f . Trie S t a t e Personnel Commission was a l s o
c r e a t e d i n 13od and charged witn t h e development and a d m i n i s t r a t i o n of che
S t a t e personnel sysce: n. Employees were s e l e c t e d , compensaced and airvancea
w i t h i n che r u l e s and r e g u l a t i o n s of t n i s system u n t i l ? lay 1975.
I n 1972, t n e L e g i s l a t u r e amended t h e s t a t u t e s c r e a t i n g DEPAD t o rename t h e
department t n e O f f i c e of Economic Planning and Development ( OEPAD) an3 t o
make i C , p a r t of t h e Governorts O f f i c e . However, OZPAD employee m a t t e r s
were s c i l l a d m i n i s t e r e d through t h e p r e c e p t s o f t h e S t a t e personnel system
u n t i l a : Ylay 19, 1975, Attorney G e n e r a l ' s Opinion, Number 175- 129," s t a t e d
thaL OEPAD employees were exempt from t h e S t a t e personnel system:
"... it is hereby concluded t h a t wnen DEPAD was
a o o l i s n e d and OEPALI c r e a t e d , OEPAD employees assumed
exempt p o s i t i o n s i n t h e Governort s O f f i c e , whicn a r e
n o t s u b j e c t t o t h e S t a t e m e r i t system."
' Tne p r e s e n t 2nd forrner Executive D i r e c t o r s of OEPAD have s t a t e d t n a t
personnel p r a c t i c e s g e n e r a l l y navz oeen conducted i n consonance witn the
S t a t e m e r i t syscem. According t o t n e c u r r e n t OEPAD Executive D i r e c t o r :
" OZPAD s a l a r i e s and personnel a d m i n i s t r a t i o n conform as
rnucn a s p o s s i b l e t o t h e s t a t e m e r i t system, c o n s i d e r i n g
t n e ' i n h e r i t e d t s a l a r y l e v e l s and t h e number of
' s p e c i a l i z e d p r o f e s s i o n a l s t i n OEPAD. I n my o p i n i o n ,
however, it would not be f a i r t o r e q u i r e t e x t b 0 0 ~
conr'or: nance. There a r e a l s o some problems of i n t e r n a l
e q u i t y due t o ' i n r l e r i t e d ' s a l a r y l e v e l s . OEPAD now
a c t i v e l y r e c r u i t s f o r n e a r l y every p o s i t i o n .
S e c r e t a r i a l c a n d i d a t e s a r e g i v e n typing t e s t s .
I n t z r v l e w p a n e l s a r e used wnen a p p r o p r i a t e . "
* See Appendix XIII.
However, a comparison of OEPAD personnel p r a c t i c e s t o : 1) S t a t e personnel
p o l i c i e s and procedures as of March 1980, and 2) personnel p r a c t i c e s i n
other S t a t e a g e n c i e s o p e r a t i n g through the merit system revealed
s i g n i f i c a n t d i f f e r e n c e s and a g e n e r a l d e t e r i o r a t i o n i n OEPAD personnel
a d m i n i s t r a t i o n p r a c t i c e s since 1975.
Documentation of OEPAD
Employee Q u a l i f i c a t i o n s
Decreases
An examination of e x i s t i n g employee f i l e s f o r 454 c u r r e n t and terminated
OEPAD employees was conducted. Based on a review of t h e 112 planning*
s t a f f f i l e s , documentation of s t a f f q u a l i f i c a t i o n s has decreased
s i g n i f i c a n t l y since OEPAD became exempt from t h e merit system.
For example, a review of a v a i l a b l e planner f i l e s revealed t h a t t h e
incidence of a p p l i c a t i o n s or resumgs i n t h e employee's f i l e has declined
s i g n i f i c a n t l y since 1974 a s shown i n Table 13.
TABLE 13
COMPARISON OF DOCUMENTATION AVAILABLE I N
PLANNERS' FILES REGARDING QUALIFICATIONS
1968 t o 1974 1975 t o 1979
Percentage Percentage
Number o f T o t a l Number of Total
Number of planning s t a f f
hired f o r whom f i l e s e x i s t 3 9 100% 7 3 100%
Number with a p p l i c a t i o n / r e s u m ~
i n f i l e - 3 3 - 8 5 - 42 - 58
Number without a p p l i c a t i o n /
resum6 i n f i l e -- 6 15% 2 42%
* Planning s t a f f h i s t o r i c a l l y r e p r e s e n t s approximately h a l f t h e t o t a l
OEPAD s t a f f and more than 75 percent o f the p r o f e s s i o n a l s t a f f .
it should be noted t n a t t n e p e r c e n t a g e of OEPAD plannlng s t a f f memPers who
were n l r e d st apper s t e p s of t h e i r s a l a r y range,* a p r a c t i c e g e n e r a l l y
reserved uridsr t n e m e r i t system f o r persons with o u t s t a n d i n g
~ u a l i f i c 3 t l o n s , : las more t n a n doubled s i n c e 1975, as shown I n Table 14.
NU; vIBER OF PLANNERS HIdED AT UPPER STEPS
32 PAY GRADZS FOR WHOY FILES dERZ AVAILABLE
Time Period
1968 t o 1974 1975 t o 1979
N u n ~ e r o f p l a n n e r s n i r e d a t upper
s t e p s 6
Number of p l a n n e r s h i r e d 39 7 3
Percentage o l p l a n n e r s h i r e d a t
upper s t e p s
Thus, only 58 p e r c e n t of t h e 73 OEPAD p l a n n e r s h i r e d s i n c e t h e Office
oecame exempt from t h e m e r i t system had a p p l i c a t i o n s o r resumgs i n t h e i r
files. I n a d d i t i o n , 2 1 p e r c e n t of t h o s e a p p l i c a n t s for whom s u f f i c i e n t
documentation e x i s t s r e g a r d i n g e d u c a t i o n o r work e x p e r i e n c e do n o t appear
t o have been q u a l i f i e d f o r t h e p o s i t i o n f o r which they were h i r e d .
F u r t h e r , none of t h e . f i l e s c o n t a i n s u f f i c i e n t i n f o r m a t i o n t o determine i f
employee q u a l i f i c a t i o n s j u s t i f i e d h i r i n g a t an upper s t e p . A s a r e s u l t ,
while. soine i n s t a n c e s of apparent i n a p p r o p r i a t e n i r i n g s were i d e n t i f i e d , an
o v e r a l l d e t e r n i n a t i o n cannot be made t h a t OEPAD p l a n n e r s h i r e d s i n c e t n e
O f f i c e oecane exempt from t h e m e r i t system a r e q u a l i f i e d f o r t h e i r
p o s i t i o n s .
* S s l a r y ran; e is t n e minimum, i n t e r v e n i n g and maximum compensation t h a t
can s e paiJ f o r a p a r t i c u l a r job grade. Grades a r e assigned f o r each
joo 2 i a s s l f i c a t i o n based on r e l a t i v e d u t i e s and r e s p o n s i b i l i t i e s .
Increased Prot'essional
S t a f f Turnover
A s Dart of our a u d i t of OEPAD, we reviewed p r o f e s s i o n a l s t a f f t u r n o v e r .
: 1e founil t h a t cne OEPAD p r o f e s s i o n a l s t a f f t u r n o v e r r a t e i n 1978 and 1979
was: 1) s i 3 n i f i c a n t l y h i g h e r t h a n i n 1974, t h e last f u l l year OEPAD was
under che meric system, and 2) s i s n i f i c a n t l y higner t h a n f o r similarly
t i t l e d p o s i t i o n s i n S t a t e s e r v i c e . These comparisons are suamarized i n
Table 15.
TABLE 15
COMPARISON OF THE 1978 AND 1979 OEPAD PROFESSIONAL STAFF
TURNOVER TO THE OEPAD PROFESSIONAL STAFF TURNOVER I N 1974
AND TO SIMILARLY TITLED POSITIONS I N STA'TE SERVICE
S t a f f Turnover bv T v ~ eo f P r o f e s s i o n a l P o s i t i o n
P l a n n e r s , Planning Program
Managers, A d m i n i s t r a t i v e
S e r v i c e O f f i c e r s and
Planner P o s i t i o n s A d m i n i s t r a t i v e A s s i s t a n t s
OEPAD OEPAD OEPAD S t a t e OEPAD OEPAD OEPAD S t a t e
- 1978% - 1979* - 1974% Services* 1978" 1979% 1974" Service*"
Number of
p o s i t i o n s 4 9 4 9 4 0 104 5 8 60 4 7 426
Number of
t u r n o v e r s 1 7 15 7 2 0 2 0 20 8 100
Percentage of
t u r n o v e r s 34.7% 30.6% 17.5% 19.2% 34.5% 33.3% 17.0% 23.5%
* Turnover was c a l c u l a t e d by counting f i l l e d p o s i t i o n s f o r f i v e p a y r o l l
p e r i o d s c a l c u l a t i n g t h e average number of f i l l e d p o s i t i o n s , counting
t h e number of t e r m i n a t i o n s between t h o s e f i r s t and f i f t h p a y r o l l
periods and d i v i d i n g by t h e average number of f i l l e d p o s i t i o n s .
** The y e a r from September 1978 through August 1979 was t h e only 12- mont!~
period f o r which S t a t e s e r v i c e t u r n o v e r r a t e s by p o s i t i o n w a s
a v a i l a b l e .
Thus, 3EPAD s u s t a i n e d i n 1978 and 19' 79 a p r o f e s s i o n a l s t a f f t u r n o v e r r a t e
t h a t a p p r o x i n a t e l y doubled t h e OEPAD r a t e i n 1974 and was s i g n i f i c a n t l y
n i g h e r t n a n comparably t i t l e d p o s i t i o n s i n o t h e r S t a t e s e r v i c e .
d i s i n ? IncrJenc- 2 of S p e c i a l
i - l e r i t o r l o u s I n c r e a s e s and 0 t h e r
3313t- y Tnere3ses t h a t Exceed
S t a t e Personnel Guidelines
' iqe S t a t e p ~ r s o n n e l m e r i t system has developed p r o c e d u r e s g o v e r n i n g t h e
i n i t i a l p r o b a t i o n a r y p e r i o d f o r S t a t e employment, t h e frequency and
c o n d i t i o n s under wnich s a l a r y i n c r e a s e s based on m e r i t c a n b e g r a n t e d and
t h e l e n ~ t h or' s e r v i c e between promotions. To determine t o what degree
OZPAD personnel p r a c t i c e s were i n accordance with t n e s e procedures,
a v a i l a b l e employee f i l e s were examined and i n c i d e n c e s beyond S t a t e
personnel g e n e r a l g u i d e l i n e s were documented.
Based on t h i s review, t h e following c o n d i t i o n s were i d e n t i f i e d :
- The i n c i d e n c e of s p e c i a l m e r i t o r i o u s s a l a r y i n c r e a s e s w i t h i n
OEPAD i n c r e a s e d s i g n i f i c a n t l y from 1975 t o 1979.
- I n 1979, t h e number of s p e c i a l m e r i t o r i o u s s a l a r y i n c r e a s e s
d i s t r i b u t e d among OEPADts 110 employees was equal t o
a p p r o x i m a t e l y o n e - t h i r d of t h e s p e c i a l m e r i t o r i o u s s a l a r y
i n c r e a s e s g r a n t e d t o t h e r e s t of t h e 16,500 S t a t e employees.
- The i n c i d e n c e of s a l a r y i n c r e a s e s t h a t exceed S t a t e personnel
g u i d e l i n e s i n c r e a s e d s i g n i f i c a n t l y from 1975 t o 1979.
S t a t e Personnel System
D e f i n i t i o n of P r o b a t i o n a r y
Periods and Merit I n c r e a s e s
S t a t e m e r i t system r u l e s d e f i n e a p r o b a t i o n a r y period a s a six- month
period a f t e r an employee's o r i g i n a l h i r e d a t e o r a f t e r a promotion.
According t o 32- 5- 21" S t a t e Personnel Board Rules and I n t e r p r e t a t i o n s :
" 2 . The p r o b a t i o n a r y period f o r p a r t - t i m e and
f u l l - t i n e employees i n t h e S t a t e s e r v i c e s h a l l be
.> lx months. The a p p o i n t i n g a u t h o r i t y may r e q u e s t
i n w r i t i n g from t h e A s s i s t a n t D l r e c t o r
a u t h o r i z a t i o n f o r a p r o b a t i o n a r y p e r i o d which is
e l t h e r s n o r t e r o r l o n g e r than s i x months... In no
2ase may t h e b a s i c p r o b a t i o n a r y period be s h o r t e r
than n i n e t y c a l e n d a r days o r l o n g e r than one
year ..." ( Empnasis added)
* Appendix X I V c o n t a i n s a p p l i c a b l e S t a t e Personnel Board r u l e s .
Rule d2- 5- 22, r e g a r d i n g promotions and t r a n s f e r s , s t a t e s , i n p a r t :
" Vacancies i n t n e S t a t e S e r v i c e s h a l l be f i l l e d by
promotion whenever p r a c t i c a b l e and i n t h e b e s t i n t e r e s t
of t h e S e r v i c e . Promotions s h a l l be based upon
m e r i t . . .& nployees must have permanent s t a t u s t o be
( prornoced) . . . An employee may be promoted provided he
meets t h e minimum e x ~ e r i e n c e r e a u i r e m e n t s f o r t h e c l a s s
t o xnicn ne is moved... An employee may be t r a n s f e r r e d
t o 3. p o s i t i o n i n t h e same o r a c l o s e l y r e l a t e d s e r i e s
provided ne meets t h e minimum e x p e r i e n c e requirements
f o r : he c l a s s t o whicn he is moved.. . . ( Emphasis
added )
When he is promoted, an employee's s a l a r y may i n c r e a s e w i t h i n l i m i t s ,
according t o 8 u l e H2- 5- 42:
A n employee who is promoted s h a l l have h i s s a l a r y
r a i s e d t o t h e lowest s t e p of t h e s a l a r y range f o r t h e
c l a s s of h i s new p o s i t i o n which w i l l provide an
i n c r e a s e over t h e s a l a r y r e c e i v e d p r i o r t o promotion.
If t h i s is not a t l e a s t e q u i v a l e n t t o a one- step
i n c r e a s e i n t h e new range, he s h a l l r e c e i v e an
a d d i t i o n a l s t e p i n c r e a s e . . . . ( Emphasis added)
According t o t n e same S t a t e m e r i t system r u l e , i n i t i a l appointment
g e n e r a l l y is at t h e lowest l e v e l of t h e pay range e s t a b l i s h e d f o r t h e job:
" . . . I n i t i a l appointment t o a p o s i t i o n i n S t a t e S e r v i c e
s h a l l be made at t h e minimum s a l a r y of t h e s a l a r y range
f o r t h e c l a s s u n l e s s otherwise approved by t n e
A s s i s t a n t D i r e c t o r . . . The A s s i s t a n t D i r e c t o r may
a u t h o r i z e t h e appointment of a q u a l i f i e d a p p l i c a n t a t a
h i g n e r s t e p of t h e range based on t h e o u t s t a n d i n g and
unusual c h a r a c t e r o f t h e a p p l i c a n t ' s e x p e r i e n c e ,
e d u c a t i o n , and a b i l i t y over and above t h e normal
minimum q u a l i f i c a t i o n s s p e c i f i e d . .. ( Emphasis added)
S a l a r y i n c r e a s e s a r e t o a c c r u e at s p e c i f i c i n t e r v a l s , i f m e r i t e d :
A 2ne- step i n c r e a s e snould be awarded t o an
eniploye~ on Step 3 o r lower when t h e employee meets o r
exceeds Lne s t a n d a r d s o f performarice o r e f f i c i e n c y
e s t a ~ l i s n e d f o r t h e p o s i t i o n . . . A maximum of f i f t y
percent ( TO$) of tine e l i g i b l e employees on s t e p 4 and
above ! nay 3e awarded a m e r i t i n c r e a s e i n any one f i s c a l
y e a r . , i rnerit i n c r e a s e o f e i t h e r one o r two s t e p s may
be awarded when an employee exceeds t h e s t a n d a r d s o f
perforniance o r e f f i c i e n c y e s t a b l i s h e d f o r t h e p o s i t i o n ;
Phowever, - n ot more t h a n 10% of t h e employees e l i g i b l e t o
r e c e i v e a n e r i t i n c r e a s e may r e c e i v e a two- step
i n c r e a s e . . . E a c h employee ... on o r i g i n a l o r promotional
p r o b a t i o n s h a l l be e l i g i b l e f o r c o n s i d e r a t i o n by t h e
agency f o r a one- step Pay o r merit
i n c r e a s e .... following t h e s u c c e s s f u l completion of t h e
p r o b a t i o n a r y period ... T h e r e a f t e r , an employee ... at s t e p
3 o r lower s h a l l be e l i g i b l e annually f o r c o n s i d e r a t i o n
by t n e agency f o r a one- step pay i n c r e a s e . . . An
employee.. . wno has obtained s t e p 4 s n a l l be e l i g i b l e
annually f o r a m e r i t i n c r e a s e of one o r two
s t e p s . .. Cxcept i n t h e c a s e of a s p e c i a l m e r i t o r i o u s
i n c r e a s e o r t h e c a s e of an o r i g i n a l o r promotional
p r o b a t i o n a r y employee, no employee s h a l l be g r a n t e d
more tnan one pay i n c r e a s e i n any 12- month p e r i o d . . . I f
( Eapnas is added )
The c o n d i t i o n s u d e r which s p e c i a l m e r i t o r i o u s i n c r e a s e s can De granted
a r e :
" A s p e c i a l i n c r e a s e may be g r a n t e d by an azency f o r
e x t r a o r ' d i n a r y m e r i t o r i o u s s e r v i c e a t l e s s e r i n t e r v a l s
tnan s t a t e d above.. . . ' I ( Emphasis added)
i a s t l y , an ernployee on o r i g i n a l p r o b a t i o n is not e l i g i b l e f o r promotion,
ss s t a t e d i n i n t e r p r e t a t i o n s of Rule R2- 5- 22A:
" An employee who is s e r v i n g an o r i g i n a l p r o b a t i o n a r y
~ e r i o d is not e l i g i b l e f o r placement i n a h i g n e r l e v e l
c l 3 s s l P i c a t i o n by e i t h e r c o r n p e t i t i v e o r n o n c o ~ n p e t i t i v e
promotional procedures.. . . ( Emphasis added)
Therefore, t y p i c a l personnel system p r o b a t i o n a r y and m e r i t i n c r e a s e
procedures under S t a t e m e r i t system r u l e s i n c l u d e :
l . * T r o b a t i a n a r y p e r i o d o f s i x months from o r i g i n a l h i r i n g o r promotion.
2 L a Promotions s n a l l be oased on m e r i t and employees must nave
s u c c e s s f u l l y coinpleted o r i g i n a l p r o b a ~ i o n .
3 Proniotion s n a l l i n c l u d e a s a l a r y i n c r e a s e o f n o t more than t h e
e q u i v a l e n t of one s t e p i n c r e a s e from s a l a r y l e v e l before promotion.
4. i n i t i a l appointment s h a l l be at t h e minimum s a l a r y of t h e p o s i t i o n .
5. V y p i e a l m e r i t i n c r e a s e is one- step advancement f o r employees on
s t e p 3 o r lower; one o r two s t e p s f o r 50 percent of employees on
s t e p 4 w i t h i n one y e a r , but no more than t e n percent of t h o s e
e l i s i b l e t o be g r a n t e d two s t e p i n c r e a s e s .
6." Employees a r e e l i g i b l e y e a r l y f o r m e r i t i n c r e a s e s of one s t e p a f t e r
o r i g i n a l o r promotional p r o b a t i o n . T h e r e a f t e r , employees on s t e p 3
or below a r e e l i g i b l e f o r one s t e p i n c r e a s e s a n n u a l l y and t h o s e on
s t e p 4 f o r one o r two s t e p i n c r e a s e s each year.
7." No employee s h a l l be granted more tnan one pay i n c r e a s e i n 12
months except f o r s p e c i a l m e r i t o r i o u s o r completion of s u c c e s s i v e
pro b a ~ i o n s .
8. A s p e c i a l m e r i t o r i o u s i n c r e a s e may be granted f o r e x t r a ~ n e r i t o r i o u s
work.
3. If s e r v i n g o r i g i n a l p r o b a t i o n , employees are not e l i g i b l e f o r
promotion.
* An A p r i l 2, 1980, memorandum from t h e A s s i s t a n t t o t h e Executive
D i r e c t o r s t a t e d t h e s e p r a c t i c e s were a l s o OEPAD procedures although
two- step i n c r e a s e s were not mentioned f o r s t e p 4 and above e~ nployses.
~ v s l l a b l e d2PJ. i) amployee f i l e s were examined t o d e t e r n i n e t h e e x t e n t t o
xnlcn 3SPAD p 2 r s o n n e l a c t i o n s exceeded t y p i c a l p e r s o n n e l system
p r 3 c t i c e s . Tne r e s u l t s of t n a t examination are summarized i n Table 16.
TABLE 16
SUXNARY OF INCIDENCES OF OEPAD EMPLOYEE FILES
COiJTAINIiIG EVIDENCE OF OEPAD PEfiSONNEL AC'TIONS
T3AT EXCEED TYPICAL STATE SERVICE PRACTICSS
OSPAD P e r s o n n e l A c t i o n s 1968
t h a t Zxceed T y p i c a l t o
S t a t e S e r v i c e P r a c t i c e s - 1974" - 1975 - 1976 - 1977 - 1978 - 1979
Granted merit i n c r e a s e b e f o r e end
of o r i g i n a l / p r o m o t i o n a l p r o b a t i o n 5 1 - - 3 7
3eceived more tnan one pay i n c r e a s e
p e r y e a r ( a f t e r p r o b a t i o n and
e x c l u d i n g promotion) 4 - - - 1 6
Promoted p r i o r t o end of
promotional p r o b a t i o n 1 - 2 1 2 1
Promoted t o iinproper s t e p of
new 5rade - 4 - 3 2 4
Promoted o e f o r e end of o r i g i n a l
pro b a t ion 2 - 5 8 3 5
Xeceived two o r more s t e p i n c r e a s e
a t l o ~ e rs t e p s ( s c e p 3 o r lower) -- -- - 1 - 1 - 3 5
T o t a l -- 1- 2 22 = 8 - u - 14 = 2 5
Number i n v o l v i n z p r o f e s s i o n a l staff 8 4 4 4 11 19 **
:- Ju: nber involving c l e r i c a l staff 4 1 4 9 3 4 **
* I n c l u d e s 743 of 1374 employee f i l e s .
** ? r o f e s s l o n a l and c l e r i c a l s t a f f does not t o t a l t o 28 because f i v e
enpiay? es r e c e i v e d more than one a t y p i c a l p e r s o n n e l a c t i o n .
A s snown i n Table 16, t h e i n c i d e n c e of OEPAD personnel a c t i o n s t h a t exceed
t y p i c a l S t a t e personnel system p r a c t i c e s h a s i n c r e a s e d each year s i n c e
1975.
F u r t h e r , i f promotions p r i o r t o t h e end of t y p i c a l p r o b a t i o n a r y p e r i o d s
s r e excluded, t h e r e n a i n i n g p r a c t i c e s shown i n Table 16 c o n s t i t u t e s p e c i a l
n e r i t o r i o u s i n c r e a s e s . Table 17 compares t h e i n c i d e n c e of s p e c i a l
m e r i t o r i o u s s a l a r y i n c r e a s e s w i t h i n OEPAD t o t h e e n t i r e S t a t e personnel
system f o r t h e y e a r s Statewide d a t a was a v a i l a b l e .
C 0 1 ~ i ~ h ~ 3 i A 3O. rJ' TrjL l i \ l l : I D i ~ J c E0 1 ; SPECIAL MCAIIOHIOUS SALAI~ Y1 1' JCd~ A3& 3
, JLThI; J d2PAI) TCI TdL E l l r L R r : STArE PEASONNEL SYSI'E1. I
OEPAD S t d t e Personnel Syst2: n
Percentage of 271pL0jet33
; Jurnoer- at' Average Perxcentage of OEPAI) Number of Avzrage i n tns S t a t e P e r s ~ n s < ? i
Sp3cial iiuaber Eniploye~ s Receiving Special ilumber Systern i l e z z i v i n ~
; 4er* itoriou;- typz o f Special k l e r i t o r i o u s ~ l e r i t o r i o u s of' Special ; * l e r i t o r i o ; ~ s
CalenJar Year( s ) Inzr' 2ases E: nployees Salary Increases Increases* Eiilployz<: s Salary I i ~ c r e a s e s
* In a d d i t i o n , OZPAD submitted four meritorious s a l a r y i n c r e a s e s t o
the S t a t e Personnel Division f o r review i n 1977, two i n 1978 and
none i n 1373. These i n c r e a s e s a r e excluAed from the number granted
through tne S t a t e Personnel system.
** This nurnber includes s p e c i a l meritorious i n c r e a s e s f o r the l a s t
four months of 1977 only, wnen tne Personnel Division f i r s t began
t o t a b u l a t e t h i s d a t a .
, is . iernonstr3ted Ln i'sble 17, t h e percentage of s p e c i s l m e r l t o r l o u s s a l a r y
I n d r e s s e s . ~ l t r l l n JLPAD over normal s a l a r y i n c r e a s e s has r l s e n eacri year
j l n c e 19' 70. 1.1 A J d l t l o n , it should be noted t h a t wnile f o u r t o 20 p e r c e n t
31' OZ? AO ?. nploys? s recelved s p e c l a 1 m e r i t o r i o u s s a l a r y i n c r e a s e s from 1977
Lnrougn 1373, o n l y 1 / 1 0 t o 1/ 2 of one percent of S t a t e personnel system
employees received such i n c r e a s e s . F u r t n e r , OEPAD s t a f f r e c e i v e d t h e
e q u i v a l e n t or' 27 percent of t h e t o t a l i n c r e a s e s g r a n t e d t o employees i n
t h e S t a t e personnel syscein i n 1979. According t o t h e c u r r e n t Executive
J l r e c t o r , ? lost of tne s p e c i a l m e r i t o r i o u s s a l a r y i n c r e a s e s * w i t h i n OdPAD
durln: i379 der? 3 t : r i o u t a b l e t o t h e previous E x e c u t i v e D i r e c t o r . * *
V ~ p p e r ~ J i Xxi/ is a synopsis of t h e s e 20 s p e c i a l m e r i t o r i o u s s a l a r y
in:; reases, t o g e t h e r with a p p r o p r i a t e comments.
** Zoxever, 3 c a r e f u l review of t h e 1979 s p e c i a l m e r i c o r i o u s s a l a r y
i n c r e a s e s x i t h i n OEPAD r e v e a l e d t h a t 91 p e r c e n t were a t t r i b u t a b l e t o
t: ie c l ~ r r e n t Executiv? D i r e c t o r . The a l l o c a t i o n s were made by:
Ij s ~ s i n l~ la y 2 7 , 1979, t h e d a t e t h e new Executive 3 i r e c t o r was
? 2? 3lnce. l, a s t h e c u t o f f d a t e , and 2 ) p h y s i c a l l y v e r i f y i n g s p e c i a l
: n e r i t o r l o i l s i n c r e a s e a c c i o n s t h a t occurred w i t h i n a fe'd weeks of t h a t
d a t e oy i n s p e c t i o n of t n e Executive D i r e c t o r s i g n a t u r e .
In an A p r i l 29, 1980, l e t t e r t o t h e O f f i c e of t h e Auditor General, t h e
c u r r e n t Executive D i r e c t o r of OEPAD defended t h e number of m e r i t o r i o u s
s a l a r y i n c r e a s e s he has g r a n t e d as f o l l o w s :
" In response t o your A p r i l 22, 1980, memo, I would l i k e
t o respond t o each c a s e where you noted some e x c e p t i o n s
t o '. Tor! nal Personnel P r a c t i c e s ' , and e x p l a i n t h e
r a t i o n a l e i n each case. B