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Downtown Hotel Hell 

Phoenix built one and they didn’t come

by Dave Devine

While Tucson leaders ponder the wisdom of building a Sheraton convention center hotel, Phoenix opened one in October 2008. But its occupancy rates have fallen significantly short of expectations.

In 2005 the consulting firm HVS International prepared a market study for the proposed Phoenix hotel. It predicted in the first nine months of operation there would be 60-percent occupancy, increasing to 63 percent the following year.

Reality was quite different. For 2009, according to a City of Phoenix financial report, the hotel had a 49.4-percent occupancy rate.

Phoenix’s finance director, Jeff Dewitt, says the underperforming hotel presents some financial challenges.

The city committed non-general fund taxes to cover any shortfall in operating proceeds to pay a portion of the hotel’s construction bonds. Despite that, earlier this year, Standard and Poors changed the rating on these bonds from stable to negative.

Dewitt says hotel revenues will cover 2010 construction debt service and believes they’ll be sufficient for 2011. After that, he admits, it’s questionable.

Stating he didn’t work on the Phoenix market study and can’t comment on it, Thomas Hazinski of HVS does say, “There’s one obvious fact—(the report) was completed before the financial crisis.”

Hazinski did help prepare a recent HVS analysis for the proposed $202 million Tucson convention center hotel. It anticipates an initial occupancy rate of 55 percent, rising to 67 percent within two years and then stabilizing at 69 percent.

These figures, Hazinski acknowledges, are based upon an economic recovery. “If that doesn’t happen,” he says, “in Tucson the projections won’t be met.”

Those projections are critical to local taxpayers because they might be on the line to pick up at least some of the construction costs of the hotel.

If the Tucson Sheraton doesn’t perform as anticipated, the shortfall in revenue to pay for construction bonds might have to be paid by severely budget-challenged City Hall. That is not a prospect Councilwoman Regina Romero endorses.

To avert that scenario, on July 13 she sent City Manager Mike Letcher a memorandum. It was also published as a guest editorial in the Arizona Daily Star.

In her memo, Romero writes that she favors the hotel project but calls for lowering the city’s risk by requiring greater financial participation from Sheraton and Garfield Traub, the firm managing construction. As of last week, Romero hadn’t received an official response to her suggestions.

Regardless, Romero believes Letcher has been clear in his public statements about the proposal.

“He won’t get the city into a situation,” Romero suggests, “where the city’s general fund is on the line.

“The hotel has to be able to support itself,” Romero continues. Additional financial assistance “needs to be pledged from others before it gets to the general fund. If that doesn’t happen, (the city manager) won’t recommend it and I can’t approve something that won’t be a success.”

Alan Willenbrock is skeptical of the Tucson hotel being as successful as the HVS study portrays. He recently stepped down from the Rio Nuevo Multipurpose Facilities District Board, the appointed body that, with the City Council, will decide the hotel’s fate.

Willenbrock calls the HVS study “very sloppy” and believes the information provided “is not consistent with the evidence.”

Pointing out that the HVS report shows an average length of stay for Tucson convention goers twice as long as that in Phoenix and several other cities, Willenbrock contends the explanations given for this discrepancy haven’t been satisfactory.

“I’m not for or against the hotel,” Willenbrock continues, “but I am against misleading taxpayers toward expectations not likely to be realized. I can create a strong case why the hotel is likely to be less successful than the consultants say.”

If that happens, Willenbrock thinks paying for the hotel’s construction bonds “will likely require significant (city) general fund subsidies.”

Heywood Sanders, a professor at the University of Texas-San Antonio and a frequent critic of the convention industry, spoke to the City Council in July. He believes the message Tucson leaders should take from the less-than-anticipated Phoenix hotel occupancy rate is simple.

“Projections,” Sanders says of convention center hotel studies, “often aren’t realized.”

Another assumption made in the Phoenix HVS analysis, Sanders stresses, is that the recent enormous expansion of that city’s convention facilities would bring many more customers to downtown hotels. That, he says, hasn’t happened.

Addressing a major contention of Tucson hotel proponents—that the facility is needed to spur downtown revitalization—Sanders observes, “It’s much the same argument made in every city in the country. … The problem is, the more places that do it, the more competition there is. The result is what happened in Phoenix. You don’t see much increase in business.”

David Pittman works for the Arizona Builders Alliance, an organization representing about 150 construction companies. He cites job creation and economic stimulus as two reasons he supports building the hotel.

Since the height of the building boom in 2006, Pittman points out, Pima County has lost almost 14,000 construction jobs, or about one-half its former total.

“There are a lot of good things about the hotel project,” Pittman emphasizes. “I think the city needs the downtown hotel. We have a lot of things going for us and we want to bring people downtown.”

Then Pittman returns to his original theme: “It will put a lot of people back to work who need jobs,” he says of the hotel proposal. “Let’s look on the bright side.”

The problem with Mayor Bob…is he up to the job?

By Joe Higgins and Chris DeSimone, Inside Tucson Business
Published on Friday, July 16th, 2010

Bob Walkup was elected mayor of Tucson in November 1999. As a Republican, it was reasonable to expect he would have been a pro-business leader and fiscally responsible with tax dollars. Sadly, looking back on more than a decade in the rear-view mirror, this hasn’t been the case.

Walkup has resigned himself to taking a passive role as Tucson’s head cheerleader-in-chief. The mayor’s boast at a ceremony last December that he voted nearly 95 percent of the time in lock-step with former Democratic City Councilman Steve Leal was a sad indicator of what he had become.

Tucson may be politically liberal, but liberal or not, someone needs to create an environment where entrepreneurs can create jobs and collect the sales taxes that will go to fund low-income housing programs and subsidize Sun Tran. We can’t all work for the local governments and make $100,000 per year.

There’s the big elephant in the small business living room: the city’s Development Services Department. This crew of bureaucrats has been frustrating the dreams of small business owners for decades. Petty decision-making processes combined with inconsistent applications of regulations and interference from council members has made this department legendary in this region as something to avoid. We heard the epitome of that from the unfortunate owner of the recently burned Takamatsu who told the news media his biggest fear about rebuilding his restaurant was being at the mercy of Development Services.

During Walkup’s tenure, it has become so difficult to build houses within the city limits that little Sahurita issued three more building permits than Tucson did last year.

We know the mayor is desperate to have a downtown convention center hotel and a magic streetcar for his legacy, but Tucson’s inability to help small business owners thrive has created his real legacy: a stagnant city economy.

On his watch, the city blew most of $220 million it spent trying to revitalize downtown. Meanwhile, even out-of-state developers from beloved Portland, Ore., with major downtown revitalization experience, left vowing never to return.

The results of the upcoming audit of the Rio Nuevo Multipurpose Facilities District should be fascinating.

The city did get an underpass at Fourth Avenue built. But the cost was $46 million when the budget was $31 million. When questioned by Bill Buckmaster on KUAT-TV 6’s “Arizona Illustrated” about the 48 percent cost overrun, Walkup replied, without batting an eye, “I’m pleased, we got a lot of bang for the buck.” Really? In the private sector a CEO would be out on his ear with these dismal results.

As for the downtown hotel Walkup wants to push down taxpayers’ throats, never mind the fact the cost from the bids now total $225 million, 17 percent more than the $192 million the city had expected. Or the one-sided due diligence process.

We had Heywood Sanders, a professor at the University of Texas at San Antonio, come to Tucson to give an independent report on the risk of a publicly funded hotel. But the usual affable mayor got a little grumpy, imploring Sanders to cut his allotted one-hour presentation to 20 minutes.

We were asked recently by reporter Bud Foster of KOLD News 13, “What do you want him to do? It’s a weak mayor form of government.”

Our answer was when something goes down at a meeting that is bad for small business or the taxpayer and Walkup knows it’s wrong, he should say something! He should walk over to Bud and his TV camera and say “What you saw tonight at the council meeting was a bad thing to for Tucson.”

Excuses aren’t cutting it. We can’t blame the weak mayor system. Mayor Lew Murphy and City Manager Joel Valdez got it done. We can’t blame the Republican minority. Walkup once had Republicans Fred Ronstadt and Kathleen Dunbar and Democrat-turned-independent moderate Carol West as council members but still didn’t get it done. We can’t blame the economy because the city created an environment that scares away entrepreneurs and risk takers. Tucson is in tough shape and needs a tough mayor to fix it.

Are you up to the job, Bob?

Does some of this sound familiar?

Is time right to add Hilton rooms?

Mayor Jim Suttle is banking on an economic turnaround and the Big O’s ability to draw more events in his $35 million pitch to expand the city-owned Hilton Omaha.

The mayor and other advocates say the expansion would pay off for the city as Omaha climbs out of a national recession.

1. Yet the proposal comes on the heels of a tough year when the hotel booked fewer rooms and brought in less money. It comes at a time when the private sector is not taking similar risks in the hotel industry. And skeptics worry that taxpayers could end up on the hook if the Hilton didn’t bring in enough money to make the debt payments.

One hotel developer says private investors wouldn’t dream of taking on a new project right now, given the decline in occupancy rates across the local hospitality market.
HILTON OMAHA
Size: 450 rooms
Opened: April 2004
Cost: City borrowed nearly $109 million to finance project

Proposed expansion: 150 rooms
7,000 square-foot ballroom
15 meeting rooms
100 more parking spaces in hotel garage
Renovation of existing rooms, public areas
Planned completion: Spring 2012
Cost: $35 million, financed through revenue bonds “It would be financial suicide,” said Kirt Trivedi, who built the north downtown Holiday Inn at 14th and Cuming Streets.

Trivedi said he recently walked away from a 100-room hotel project downtown because of concern about the economy. He said he was scouting several possible sites but declined to give details.

Heywood Sanders, a University of Texas at San Antonio professor and critic of publicly financed hotels and convention centers, said Omaha should take note of what’s happening in the private sector. He said group meeting and convention travel is down across the United States.

As a result, private hotel developers are holding off on new projects, he said.

“They know it’s way too uncertain, and they know they’re not likely to find financing for it,” Sanders said.

In pitching the 150-room expansion, Suttle is relying on an April feasibility study prepared for the city by consulting firm HVS Global Hospitality Services at a cost of about $15,000.

The report says that with the expansion, the hotel will produce an additional $2 million in net income the first year it’s open — and higher amounts in later years — that can go toward the debt.

According to city estimates, the expansion would generate an additional $1 million in property tax and room tax revenues, which could go into city coffers.

“We have gone through a great effort to pursue our due diligence and come to a high comfort level that this hotel expansion will be successful,” said City Attorney Paul Kratz, who acts as the hotel corporation’s lawyer.

The city would pay for the addition by issuing revenue bonds, which must be approved by the City Council. The council is considering an ordinance to approve the bonds this month.

If the hotel — and the proposed addition — did not generate sufficient revenue, city tax revenues would be tapped to pay off the bonds. But so far that hasn’t happened.

Kratz said the city has a $3.9 million cash reserve set aside to pay the hotel debt in the event that revenues fell short.

“There’s a long way to go” before taxpayers would have to foot the bill, Kratz said.

Trivedi, the hotel developer, sees that taxpayer backing as an “unfair advantage” the city has over private hotel owners.

“The (Hilton) hotel will still exist,” Trivedi said, “whereas if I don’t profit, I go under.”

The Hilton is coming off a tough 2009. Its occupancy rate dropped to 69.5 percent last year, down from 75.1 percent in 2008.

The Hilton’s average room rate also dropped — from $136 in 2008 to about $125 last year, according to the HVS report.  (this is a city with a real corporate base, unlike Tucson-clothcutter)

Those room rates are lower than the original projections.

The projected room rate for 2009 was about $161, according to a report prepared for the city in 2002.

Kratz said that analysis was done before anyone predicted the coming recession. With the exception of 2009, he pointed out, occupancy at the Hilton has been consistently higher than projections.

In addition, he said, the hotel’s outlook is improving. The occupancy rate is expected to climb to about 74 percent this year, Kratz said.

One hotel industry representative agrees that now is the time for the city to expand the Hilton.

Joe McInerney, president and CEO of the American Hotel and Lodging Association, acknowledged that private hotel developers aren’t taking on many projects. But, he said, that’s because financing is tough to get. He expects hotel occupancy and room rates to increase nationwide over the next three to five years, making new projects a good bet.

McInerney said the proposed Hilton expansion would “be opening up at a time of resurgence.”

If the City Council approves the expansion, construction could be complete by the spring of 2012. That would be in time for the U.S. Olympic Swim Trials, which are to be held at the adjacent Qwest Center Omaha.

Kratz said many of the Hilton’s existing rooms have already been booked by guests planning to attend the swim trials and other events.

The city has been pressured to expand the 450-room Hilton since the first guests were welcomed in 2004.

Both the Omaha Convention and Visitors Bureau and the Metropolitan Entertainment and Convention Authority have advocated the project, saying an expansion would bring more events to the city. ( I wonder if they did a unethical pushpoll like the MTCVB did-CC)

But the administration of former Mayor Mike Fahey opposed the idea.

In 2006, former Finance Director Carol Ebdon told The World-Herald: “At the present time, we do not think expansion is financially feasible.”

Paul Landow, Fahey’s former chief of staff, said recently that an expansion is an even worse idea today, given the economy.

“Nobody can really predict the end to this recession,” said Landow, now a political science professor at the University of Nebraska at Omaha. “Is it going to end next year or five years from now?”

At least one City Council member has raised concerns about the proposed expansion and its potential impact on taxpayers.

Councilwoman Jean Stothert said one of her major worries is that the city would take on an additional $35 million in debt to pay for the expansion.

The Qwest Center, the north downtown ballpark, the Hilton and other projects have caused the city’s debt per resident to quadruple since the mid-1990s. Omaha was expected to pass the billion-dollar debt mark this year.

Suttle believes the expansion would create about 50 new hotel jobs and another 200 jobs during construction.

“Going forward now allows the city to take advantage of a competitive construction environment and low interest rates,” the mayor said. “This will make Omaha even more attractive as a destination.”

The HVS analysis says the Hilton and other Omaha hotels traditionally fill up during the College World Series. With the expansion, the report says, the Hilton would be better able to meet that demand.

The Hilton would also allow the Qwest Center Omaha to attract groups that have historically selected other markets based on the size of their convention hotels, according to the report.

An expanded Hilton, with more meeting and banquet space, also would bring more meetings to the hotel, according to the report.

Dana Markel, executive director of the visitors bureau, said the proposed expansion would give the city an edge in attracting a niche market — meetings hosted by corporations or organizations that draw at least 600 people.

Omaha hasn’t been able to get into that market, she said, because the city didn’t have enough hotel rooms all in one place.

Other hotels in the metro area, including the Holiday Inn convention center, 3321 S. 72nd St., have enough meeting space to hold 600 people. But none has that many hotel rooms.

“It fills up a gap that we’ve had in our city — a hotel of this size with significant meeting room space,” Markel said. “Everything can be under one roof. There is no doubt in my mind that we are going to see an economic gain from this.”

Inacurate data, overly optimistic feasibility studies, rushing a decision through because of the Gem Show or Raytheon, canceling joint meetings due to the cost, superseding the contractual authority of the State instituted Rio Nuevo board, mortgaging the convention center to build a new entrance to no where, skipping the $40 million investment in our 1970’s convention center in exchange for building a $190 million hotel that requires the convention center to be successful, over 2300 more hotel rooms coming on line in a community that does a so so job of promoting tourism.  Does anyone else see the absolute insanity in all this?

Rob O’Dell Arizona Daily Star | Posted: Monday, July 12, 2010 12:00 am | Comments
The market study predicting success for a new downtown convention hotel is so filled with errors that the future of the $190 million hotel is in question, said members of the Tucson City Council and the Rio Nuevo Board.

The HVS Convention, Sports and Entertainment study - the critical document on which all projections for the hotel’s viability are based - has obvious mathematical and factual errors and inconsistencies, Heywood Sanders, a professor of public administration at the University of Texas-San Antonio, said in a breakfast presentation Thursday at Old Pueblo Grille. The presentation followed an appearance before the City Council, arranged by Councilman Steve Kozachik.

Mistakes or inconsistencies noted by Sanders:

• In the body of the report - analyzing the prospects for the hotel - the numbers of people attending conventions and trade shows, as well as the total attendance of the Tucson Convention Center in 2007 and 2008, are dramatically overstated when compared with the actual supporting data attached at the end of the report. For example, the number of conventioneers in 2008 is 17 times as large in the analysis as in the appendix. And total attendance is 108 percent more in 2007 and 112 percent more in 2008.

• The report says that the gem show was not held at the Tucson Convention Center in 2008. It was.

• Errors in basic arithmetic are made, including in a passage in which five trade shows and five conventions add up to 12 shows.

• An assumption is made that Convention Center attendees who stayed at the hotel would stay for 2.4 days, while an HVS report for the city of Phoenix’s convention hotel assumed convention guests would stay for only 1.2 nights.

Tom Hazinski, HVS’ managing director, said, “Sanders has a history of incomplete use of numbers and distortions, which is why he has no credibility in the industry.”

Hazinski said he relied on the TCC for his data, and said there is a discrepancy in the number of events because the larger figure includes arena events and internal meetings.

The report is critical to plans to the build the hotel because all of the other studies of the hotel accept the HVS numbers uncritically, including the study of the hotel’s economic impact and the capital plan that would be used to sell the project to the bond market.

“The HVS study is the foundation for everything else,” said Rio Nuevo Board member Alan Willenbrock, who attended the breakfast meeting.

All the projections on how full the hotel will be, how much money it will bring in and how much tax revenue it will generate come from the HVS study, Willenbrock said. The Rio Nuevo Board could get in legal trouble if it sell bonds based on a report that’s questionable.

“You really have to question the validity of what’s in there,” Willenbrock said of the report. “I don’t see how you can come to any other conclusion.”

Stephen Moffett, president for hospitality at Garfield Traub, the hotel’s developer, also expressed concerns about the discrepancies.

“It does raise questions about the validity of the study,” Moffett told the crowd at the breakfast meeting. “I’m concerned about the mistakes in the numbers.”

He also said, “It’s not my job to review the HVS report.” He said Hazinski should come to Tucson and explain his numbers.

Moffett later backed off from his comments and said he didn’t think the errors compromised the report or made it inaccurate.

Kozachik, who has been critical of the hotel and Moffett, seized on Moffett’s original comments, saying Moffett finally was expressing the same sentiments that Kozachik has been voicing for months.

“It’s nice to have him on board and singing the same tune,” Kozachik said, adding that usually his comments leave Moffett “out cussing in the parking lot” rather than agreeing with him.

Kozachik said the city and Rio Nuevo need to rewrite the script of the hotel plans, “especially if the developer doesn’t believe his own study. How can you possibly come to us and sell us on his concept if he doesn’t believe the cornerstone of his own data?”

The HVS report showed the new downtown convention hotel would make money because it would have 69 percent room occupancy at $163 a night.

The HVS study included assumptions that most or all of the projects from the 2000 Rio Nuevo master plan will need to be completed, along with the modern streetcar and a Convention Center expansion, for the hotel to meet the 69 percent occupancy rate.

HVS later amended that to say only “progress” needs to be made downtown to meet those projections.

Willenbrock said he was most concerned about the assumption that those staying at the Convention Center would linger twice as long as those in Phoenix. “Conspiracy theorists will say they picked that number to produce an end result,” Willenbrock said.

Mayor Bob Walkup said he wasn’t concerned about the numbers in the report.

The city needs to be prudent and ensure the math is right and everyone understands the numbers, Walkup said. “This is part of the normal process of due diligence,” he said.

Contact reporter Rob O’Dell at 573-4346 or rodell@azstarnet.com

Rob O’Dell Arizona Daily Star | Posted: Thursday, July 8, 2010 12:00 am | Comments

A speaker brought by Councilman Steve Kozachik criticized Tucson’s new convention-hotel plans Wednesday, saying the hotel wouldn’t meet its projections and would likely cost taxpayers money.
Heywood Sanders, a professor at the University of Texas-San Antonio, told the council that convention centers are overbuilt nationally and that the city’s consultant on the hotel has missed projections on nearly all the hotels it studied.
Tucson and the new Rio Nuevo board are in the final phases of deciding whether to build a $190 million Sheraton convention hotel next to the Tucson Convention Center.
Sanders gave a 30-minute presentation saying convention centers have been overbuilt nationally, with their supply far outstripping demand.
Because of this, convention hotels have to resort to offering steep discounts on third-party sites such as Priceline and Expedia as a way to stay full, Sanders said.
He produced receipts showing he stayed at convention-center hotels in Houston and St. Louis for $50 to $56 a night during midweek. In Phoenix, he stayed at the Hyatt for only $42 a night midweek, he said.
“The dynamic is the downtown hotels will vigorously compete for business,” if they aren’t being filled by conventions, Sanders said. “When there’s an oversupply, rooms get down to rates that are pretty remarkable.”
By contrast, a study done by HVS Convention, Sports and Entertainment said Tucson’s new downtown convention hotel will make money because it will have 69 percent room occupancy at $163 a night.
Kozachik asked Sanders if that room rate and occupancy could be achieved in Tucson. “I don’t think that’s plausible here,” Sanders said.
The HVS study included assumptions that most or all of the downtown Rio Nuevo projects need to be completed, along with the modern streetcar and a TCC expansion, for the hotel to meet the 69 percent occupancy rate. Later, HVS said only “progress” needs to be made downtown to meet those projections.
Sanders said many of the HVS studies on other hotels were wrong because they overestimated the number of convention visitors and how many of those visitors would then stay at the convention hotel next door.
HVS has a “tendency to overestimate what the convention center will do” in bringing in attendees and converting them to room nights, he said. “That gives me pause,” Sanders said.
Specifically, HVS missed its projections badly for publicly funded convention hotels in Overland Park, Kan., and Bay City, Mich., Sanders said.
Tucson Mayor Bob Walkup asked Sanders to cut his presentation from 40 minutes to 20 and wanted to know if Sanders was a paid speaker; Sanders said he was not.
Councilwoman Karin Uhlich asked how he paid for his Tucson trip, and Sanders said his travel expenses were paid by the radio show “Wake Up Tucson” on The Voice 1030 KVOI-AM.
Uhlich and Councilwoman Regina Romero said later that they were concerned about the risks Tucson’s taxpayers would take on with the hotel.
Contact reporter Rob O’Dell at rodell@azstarnet.com or 573-4346.

TUCSON, Ariz. — Following is a rundown of activities that occurred over the last 24 hours in the Tucson Sector.  This is only a thumbnail of each incident and an invitation to contact the Tucson Sector Communications Division for more information.

Significant Arrests

(NGL) Nogales agents arrested an illegal alien Monday who has an extraditable warrant for sexual assault from Dallas, Texas. The warrant was discovered using the Integrated Automated Fingerprint Identification System (IAFIS). The Nogales Police Department took custody of the subject for extradition.

Agents from the Nogales Station also arrested an illegal alien Monday who had previously been convicted for manslaughter. The charge was discovered using IAFIS. The subject was held for prosecution.

(CAG) Casa Grande agents arrested an illegal alien from Honduras Monday who has a prior conviction for sexual abuse of a child under the age of 12. The subject was held for prosecution.

Border Patrol agents continue using IAFIS to identify illegal aliens with serious criminal histories. The Border Patrol is committed to working with local, state, federal and tribal law enforcement agencies to bring these criminal aliens to the proper law enforcement resolution. Agents remain vigilant in order to prevent criminal aliens from entering our communities.

Significant Seizures

(TUS) Tucson Station agents and a Border Patrol Canine team were conducting checkpoint operations late yesterday when a canine alerted to a hidden compartment containing 246 pounds of marijuana. The marijuana, worth more than $197,000, vehicle and driver were taken to the Tucson Station for processing.

(CAG) Agents from the Casa Grande Station, with assistance from Customs and Border Protection (CBP) Office of Air and Marine (OAM), seized 11 bundles of marijuana yesterday after subjects abandoned their load and absconded. The marijuana, weighing 520 pounds and valued at more than $417,000, was taken to the Casa Grande Station for processing.

(NGL) Nogales Station agents discovered 197 pounds of marijuana yesterday west of the Deconcini Port of Entry. The marijuana, worth approximately $158,000, was taken to the Nogales Station for processing.

The Border Patrol continues to use a proper mix of infrastructure, technology and personnel to protect our Nation’s borders from all potential threats. Cooperation and coordination with CBP components, such as OAM, continue to yield positive results throughout the Tucson Sector.

Recoveries

(CAG) Agents assigned to the Border Patrol Search, Trauma and Rescue (BORSTAR) Team found a deceased person yesterday and turned the scene over to the Tohono O’odham Police department (TOPD).

Smugglers continue to put peoples’ lives at risk in their attempts to profit from illegal activity.  As temperatures continue to climb, the Tucson Sector Border Patrol stands ready to render humanitarian aid to anyone found in distress.

To report illegal activity anytime and remain anonymous, call 1-877-USBP-HELP. U.S. Customs and Border Protection is the unified agency within the Department of Homeland Security charged with managing and protecting our nation’s borders at and between official ports of entry. CBP is charged with keeping terrorists and terrorist weapons out of the country while also enforcing hundreds of U.S. laws.

Contact: CBP Public Affairs

Tucson Sector

Communications Division

520-748-3210

The time is now for job recovery

By Guest Opinion  Published: April 23, 2010 at 8:53 am

Arizona is in desperate need of a job-creation package that will accelerate economic recovery. Our budget challenges will remain until 2014, 2015 and possibly 2016. Arizonans cannot afford to wait five years for a jobs-package.

Globally, the formula for economic prosperity follows the same pattern: an improved tax climate for business, greater investments in innovation and education, and a targeted, state-led economic development strategy. The passage of S1403, the Renewable Energy Tax Incentive Program, has demonstrated success for Arizona. We will have similar success with a job-training program, a quality-jobs initiative and the restructuring of the enterprise zone.

In the Mountain West, competitor states have better business tax climates than Arizona. Four states ranking in the top 10 nationally are Colorado, Utah, Texas and Washington. The 2010 State Business Tax Climate study ranks Arizona a mere 28th.  To suggest that Arizona does not need tax policy work is short-sighted. In addition to having better business climates, these same states have implemented smart economic development strategies.

Texas is widely respected for its comprehensive state economic development approach and has cut taxes. Colorado recently passed the most aggressive renewable energy platform in the country. Meanwhile, Utah and Washington are becoming centers of excellence for innovation.  None of these states are experiencing a budget shortfall like Arizona.  Suggesting Arizona’s economic future will benefit by standing pat in the global contest for jobs is careless.

Our current economic crisis has a re-occurring theme of recession: 1981-1984, 1989-1992, 2000-2002, and now 2007-2014. Each recession occurs more frequently, hits harder and lasts longer.  For the first time in history, Arizona will lag other states in economic recovery. Employment levels aren’t expected to normalize until 2014. It’s hard to imagine, with this evidence, that state leadership doesn’t need to do more for Arizona’s economy. Equally concerning is the notion that improving the climate for job-growth will negatively affect Proposition 100 or that a jobs bill should wait until Arizona’s budget challenges are fixed. Can we really remain stagnant another four years while competitor states like Utah, Colorado and Texas improve their competitive position?

House Speaker Kirk Adams and others have called for a balance between economic development programs and tax policies to increase Arizona’s competitiveness. This proposal modernizes Arizona’s enterprise zone, restores job training and encourages quality jobs through the expansion of base industries. It increases sales factor to 100 percent, which will place Arizona first in the nation for base industries; it reduces corporate income tax, moving us from 24th to eighth nationally; and it establishes a capital gains tax for small businesses. These measures will dramatically increase Arizona’s ability to produce jobs.

The Senate has wisely structured tax policy to improve our competitiveness while reducing any potential threat to the budget. For the first time, state policymakers have blended a competitive agenda through improved tax policy and stronger economic development initiatives.  Arizona will not recover nor change our long-term outlook unless we address both areas. The speaker’s proposal and the improvements made by the Senate make this jobs package a winner for Arizona families.

— Barry Broome is president and CEO of the Greater Phoenix Economic Council.

Times are tough, revenues are down, cuts have to happen, taxes are going up.  What we need to start focusing on at the national, state and local level is increasing revenues by attracting more businesses.

I know we sound like a broken record but unless and until we start paying attention to the supply side of our economy we arent’ going to recover and we are doomed to experience future economic roller coaster rides in our state and city.

From an economic perspective people fit in to the following categories:

- Retired - living off their retirement investments, savings and social security.

Government Sector
- Students - living off their parents, loans and grants and transitional employment.
- Military - employed by taxpayers.
- City, County, State and Federal Employees - employed by taxpayers.
- Educators - elementary school through college - for the most part paid for by taxpayers.

Private Sector
- Employees - earn their living because someone started a private venture to offer a good or service.
- Entrepreneurs - embarked on a venture by risking capital and time with the goal of turning a profit.

When you look at the above the groups it’s the employees and entrepreneurs that create the economic engine that support the entire system.

Looking at southern Arizona’s core issues you’ll find a big of a government sector, our largest employment group at 21%. You’ll see a large retiree population fueled by great weather and great amenities. We have a large student population with a major state university and a vibrant community college system. The sector that seems to be missing is the business community. We lack major manufacturers (Raytheon employs 11k out of a total of 1 million people or 1% +/_), finance or tech industries.  The service sector makes up our second largest employment sector at 17%. Service based tourism and retail jobs keep our average annual wages at or near the federal poverty levels.

What are we to do? It’s going to take action from the federal government in the form of loosing credit markets and funding for small business in particular. It’s going to take a refocus from our local leaders on the basiscs. It’s also going to take some taxing and regulatory changes at the state level that makes our state a more attractive place for businesses to relocate.

We’ve done a number of comparisons between Texas and California in this blog over the past year and the further our economy drops the clearer it becomes that we MUST start looking at the core policies that keep business from coming to Arizona. (More on Texas v California - HERE - HERE - HERE - HERE - HERE - HERE - HERE - HERE - HERE - HERE - you get the point).

Arizona is at a tipping point. We can follow our old boom bust cycles based on real estate and growth or we can set the table for future economic prosperity and turn our state into one of the top states to do business in the country. Once the economic engine is in place our educational spending will go up, our social service programs will have more options and the sun will start shinging brighter.

Arizona House Republican have a plan but they need our help. It looks like the House has the votes but they’ll need at least 2 out of the following 4 Republican State Senators to vote for the plan:

Sen. Carolyn Allen
R-Scottsdale
Personal: 71, legislator
Committees: Healthcare and Medical Liability Reform; Commerce and Economic Development; Veterans and Military Affairs
Contact: 602-926-4480; callen@azleg.gov

Sen. Barbara Leff
R-Paradise Valley
Personal: 61, volunteer, former medical social worker
Committees: Commerce and Economic Development; Finance; Healthcare and Medical Liability Reform
Contact: 602-926-4486; bleff@azleg.gov
Web site: barbaraleff.com

 Here’s a full list of our Arizona Legistlators - HERE

House GOP plan would slash taxes for AZ businesses

 
MESA — House Republicans want a package of tax cuts for business they say will stimulate job growth, including one that would increase property taxes of homeowners.
The plan unveiled Tuesday would:
• Slash the corporate income tax rate paid by the state’s largest companies from its current level of slightly less than 7 percent to 4.5 percent — a 35 percent reduction.
• Cut income tax rates for individuals and most small- and medium-sized businesses by 10 percent.
• Permanently repeal the statewide property tax.
• Reduce assessment ratio used to determine how much businesses pay in property taxes to cities, counties and schools — a move that would shift more of the tax burden to homeowners.
At one time businesses paid property tax on 25 percent of the value of their land, buildings and equipment. The rate has already dropped to 22 percent, and lawmakers have approved cutting it to 20 percent in two years.
The new proposal would take the ratio down to 15 percent by 2016.
Local governments would have to raise rates for homeowners, whose assessment would remain at 10 percent of their property value, to make up what businesses would no longer pay.
House Speaker Kirk Adams, R-Mesa, acknowledged the state’s current $1.5 billion deficit when he unveiled the plan, saying that is why the tax cuts would be phased in over four years beginning in 2012.
He offered no specifics for how House Republicans plan to address the deficit in the meantime.
Senate President Bob Burns, R-Peoria, however, was less than enthusiastic. He said there is merit in the goal of House Republicans to make Arizona “a more business-friendly place.” But he said the move may be premature.
“You’ve got to stop the bleeding of the state right now,” he said.
“That’s got to be the No. 1 priority,” Burns continued. “And these other things are OK, but we’ve got to focus on getting this budget squared away.”
Adams, however, said the deficit makes this the best time to reform and reduce business taxes: when people are focused on creating jobs.
Despite shifting more of the tax burden to homeowners, Adams thinks he can sell the plan to voters.
“The citizens of Arizona understand more now than ever the importance of jobs because there isn’t a person in the state who has not been affected by job loss or knows someone who’s lost their job or lost a significant portion of their income,” he said.
But House Minority Whip Chad Campbell, D-Phoenix, said that will never sell with homeowners who already are struggling to pay their current property tax bills. And the move comes even as two groups are gathering signatures to put measures on the November ballot to lower property taxes even more than they are now.
Campbell said Democrats might be more inclined to support another part of the package, which provides tax breaks to firms that produce new jobs if those jobs pay at least 25 percent more than the median wage and if the firms fund at least half of each worker’s health insurance.
  By Howard Fischer
Capitol Media Services
Tucson, Arizona | Published: 01.06.2010

Looks like the $200 billion in federal stimulus that was sent down the states last year came with a number of strings attached. The strings provided one time federal financial injections that came with multi year commitments in health care, education and unemployment. The WSJ ran an opinionthat details the financial handcuffs.

For example, the stimulus offered $80 billion for Medicaid to cover health-care costs for unemployed workers and single workers without kids. But in 2011 most of that extra federal Medicaid money vanishes. Then states will have one million more people on Medicaid with no money to pay for it.

A few governors, such as Mitch Daniels of Indiana and Rick Perry of Texas, had the foresight to turn down their share of the $7 billion for unemployment insurance, realizing that once the federal funds run out, benefits would be unpayable. “One of the smartest decisions we made,” says Mr. Daniels. Many governors now probably wish they had done the same.

Second, stimulus dollars came with strings attached that are now causing enormous budget headaches. Many environmental grants have matching requirements, so to get a federal dollar, states and cities had to spend a dollar even when they were facing huge deficits. The new construction projects built with federal funds also have federal Davis-Bacon wage requirements that raise state building costs to pay inflated union salaries.

Worst of all, at the behest of the public employee unions, Congress imposed “maintenance of effort” spending requirements on states. These federal laws prohibit state legislatures from cutting spending on 15 programs, from road building to welfare, if the state took even a dollar of stimulus cash for these purposes.

A little New Years outlook for you from the Arizona Republic. Looks like we are in for a rough few years. Tourism and construction (brought on my migration into our state) are still the big economic drivers. Comments about ‘diversifying out states economic base’ are encouraging for Phoenix but not as exciting south of the Gila.

As Arizona enters its third year of recession, recovery remains elusive.

Despite its increasing diversification, Arizona’s economy needs new residents to fill all the empty houses. It needs tourists and business meetings to fill resorts and hotels.

Arizona will bounce back economically only as quickly as its core industries revive, and that is projected to take four or five years.

But the fundamental strengths that have made the state one of the nation’s fastest-growing for decades haven’t evaporated.

Among them: sunny, scenic deserts; affordable housing; respectable clusters of semiconductor, bioscience, aerospace and defense industries; and the opportunity for year-round golf and other outdoor activities. And, of course, the Grand Canyon.

The recession has hurt Arizona more deeply than most states, and most economic analysts expect the state’s rebound to lag the nation’s largely because of severe government budget deficits and the weak real-estate market.

People must come to the state

What Arizona needs most to come roaring back is more residents. Newcomers would generate more businesses to absorb all the empty buildings and spark the construction industry.

Population growth and construction have been the core of Arizona’s economy for at least 50 years. Currently, a shortage of jobs here and an inability to sell homes elsewhere have contributed to a stunning population stall.

Economists with both Arizona Public Service Co. and Salt River Project estimate that, based on meter readings, population growth is virtually flat. The U.S. Census Bureau estimates Arizona’s net migration fell to about 42,000 in 2009, less than half of what it was every year since 2002.

Pete Ewen, an APS economist, said, “I haven’t seen this (flat population growth) before. . . . We have to go back probably to the 1920s to see something quite like that.”

He estimates there are 60,000 to 70,000 empty houses in the Phoenix area.

Without more people, commercial construction is unnecessary….

Consumers are anxious

Next, consumer spending must rise to boost businesses and replenish state coffers with sales-tax dollars.

A large reason the state’s economy is hurting and budgets are out of balance is that consumers, whose spending makes up two-thirds of the economy, have less to spend and remain hesitant to shop.

If they continue to hold back, said Jay Butler, realty-studies director at Arizona State University, Arizona’s economy could even contract again in what is known as a W-shaped recovery.

But consumers can’t be blamed, as they face layoffs, furloughs and reduced hours…..

There are reasons for hope

Finally, all the fundamental strengths must come into play.

Because Arizona has a history of recovering nicely from past recessions and it’s still a state likely to attract people who are tired of cold weather, experts expect growth to resume eventually.

Some signs to watch for: declines in the foreclosure and unemployment rates and initial claims for unemployment insurance, and increases in building permits and taxable sales.

As the global economy recovers, businesses will travel again and consumers will vacation farther afield, sparking the tourism industry.

Of course, Arizona’s economy today is broader than construction and tourism.

Topper said that when he compares Arizona’s job sectors with national averages, Arizona has slightly more construction workers than the national average but also more professional and business jobs, such as lawyers, accountants, financial experts and corporate managers.

“I think professional-business services is a position of strength for Arizona’s economy going forward,” Topper said.

Plus, it remains a state famous for offering a fresh start.

Jeff Morhet, president and chief executive officer of InNexus Biotechnology in Scottsdale, said Arizona is a mixing bowl with new residents who bring fresh visions and are not bound by tradition, past mistakes or loyalty to one industry such auto manufacturing or gaming.

Morhet, a Gilbert resident who came to Arizona 12 years ago from Texas, said, “It has got a population that is not burdened by any significant legacy or any single industry that it has to grow its way out of.”

Dennis Hoffman, also an ASU economist, harkens to a similar time, the severe recession of the late 1980s. Commercial real estate was overbuilt, savings-and-loan associations were seized by the federal government and billions in real-estate holdings were wiped out.

“People said real estate was a wasteland and no one would venture into it,” Hoffman said. “The state was in a budget mess. We threatened to raise taxes, which some people thought would doom us forever.

“We thought that people would never come back, that real estate was a bust. . . . What happened after that was five of the fastest-growing years we have ever seen.”