Economic Development (07/26/2005)

Final
STAFF SUMMARY OF MEETING

ECONOMIC DEVELOPMENT

Date:	07/26/2005	ATTENDANCE

Time:	09:32 AM to 02:57 PM	Bacon	X
		Evans	*
Place:	HCR 0112	Lindstrom	E
		Massey	X
This Meeting was called to order by		Tapia	X
	Representative Borodkin	Borodkin	X

This Report was prepared by
	Jason Schrock
		X = Present, E = Excused, A = Absent, * = Present after roll call

Bills Addressed:		Action Taken:
Introduction and Presentation by Tucker Hart Adams on Economy Presentation by Tom Clark on Business Location Decisions Presentation by Jim Reis on International Trade Presentation by Brian Vogt on Colorado Economic Development Committee Discussion with Advisory Group		- - - - -

09:34 AM -- Introduction

Representative Borodkin, chair, introduced the committee and discussed the committee's charge. Other committee members present were Representative Massey, Senator Bacon, and Senator Tapia. Senator Evans arrived later. Legislative Council Staff present were Jason Schrock and Josh Harwood. Nicole Hoffman and Ed DeCecco were present from the Office of Legislative Legal Services. Representative Borodkin discussed the advisory board that was created to help the committee in its work.

09:39 AM -- Presentation from Tucker Hart Adams on Colorado's Economy

Dr. Tucker Hart Adams, President, The Adams Group, Inc., discussed Colorado's recent economic indicators. Most of these indicators were positive. Colorado was one of last states to come out of the recession and is finally moving in the right direction. She indicated that job growth for the first half of 2005 was 2.3 percent over the same period last year. Although the state is experiencing only modest job growth, this indicator is positive compared to the state's employment picture during the economic downturn. She discussed how the state's 4.9 percent unemployment rate was not a reliable indicator because of the job market's volatility. Colorado's personal income growth is outpacing the nation's. Nationally, inflation-adjusted personal income growth is negative, while it is positive in Colorado.

Dr. Adams continued by indicating that housing construction and home values were both positive, but that the effective vacancy rate was relatively high; there are a significant amount of empty apartments in Colorado. The commercial vacancy rate is about 21 percent. Nonresidential construction is strong. She indicated that inflation, measured by the Denver-Boulder-Greeley consumer price index (CPI), was low. However, she explained that the index does not measure home ownership costs, only rental costs, and thus, the index likely understates real inflation in the area. The state's population is growing slowly compared to its historical trend; there are not as many people moving to Colorado as there were in the 1990s.

Dr. Adams explained that Colorado's economic forecast looked positive in the near term, as long as the national economy continues to grow. She stated that job growth will likely continue. She discussed concerns she had with the economy. Oil prices could continue to go up due to production constraints and significant increases in demand worldwide. She stated that higher oil prices could cause inflation and impact tourism in Colorado. She also expressed her concerns about consumer debt levels. Debt levels in Colorado are some of the highest in the country. Since consumer spending makes up such a large portion of the economy, even a small reduction in consumer spending would hurt the economy.

09:47 AM

Dr. Adams continued by discussing her concerns about the possibility of a housing bubble. She explained that there is an oversupply of housing and that there was a lot of speculation in the real estate market. She stated that interest rates will rise as foreign investors buy less treasury securities, especially now that China has decided to revalue its currency. Consumers who have used adjustable rate mortgages to buy larger houses could be in trouble when their payments rise. Also, rising rates could cause consumers to feel less wealthy, which could reduce spending and cause a slowdown in the economy.

Dr. Adams stated that the state legislature is in a position to impact higher education. The dynamic global economy requires workers who are well educated. Also, a growing economy requires fluid labor markets. She stated that legislatures and local governments can enact policies that impact the business climate.

Senator Tapia discussed his concerns that the Denver-Boulder-Greeley CPI is not representative of the entire state. Dr. Adams explained that economists have to work with what is available and that the Denver-Boulder-Greeley CPI takes into account 55 percent of the state's population. Senator Tapia also discussed the affordability of housing and that people are living beyond their means. Dr. Adams indicated that consumers can function outside of basic market fundamentals for only a short period; overextended borrowing will hurt consumers and the economy in the long term.

10:03 AM

Dr. Adams stated that telecommunications infrastructure enables people to do business from anywhere and that the state could help rural areas obtain better infrastructure. However, she acknowledged that small businesses that do business over the Internet do not contribute much in property taxes.

Senator Bacon commented that an economy with a fluid labor market needs a good safety net to deal with gaps in employment and a viable transportation system. Dr. Adams stated that FasTracks will improve the Denver area's public transportation system, and that the country needs to figure out a way to provide adequate basic health care to everyone. Child care also needed to be affordable. She commented that some social safety net issues could only be addressed at the federal level.

The committee discussed Referenda C and D and whether they would enable Colorado to provide a better social safety net for Coloradans.

10:15 AM

Dr. Adams concluded her presentation by stating that policy makers needed to consider trade-offs when it enacts policies. If the state spends money on one policy, it cannot spend money on something else.

A member of the advisory board to the committee, Mr. Tony Robinson, CU-Denver instructor, discussed a potential housing bubble. Dr. Adams stated that predatory lending is not much of a problem; consumers are mostly living beyond their means. She stated that she preferred spreading the costs of providing affordable housing as widely as possible.

Another member of the advisory board, Ms. Marguerite Salazar, representing a health center in Alamosa, discussed her concerns with calling Colorado the 7th richest state. She thought that a relatively small number of rich Coloradans presents a false picture. Dr. Carolyn Siegel, member of the advisory board from the AFL-CIO, commented that the state needs to look at economic development from the perspective of enabling low-income Coloradans to become more self-sufficient and decreasing the number of Coloradans who are unemployed or underemployed.

10:28 AM -- Presentation by Mr. Tom Clark on Business Location Decisions

Mr. Tom Clark, Vice President, Metro Denver Economic Development Corporation, presented information to the committee on the reasons companies locate in a certain area. He explained the top reasons why companies locate in Colorado, such as its quality of life, its low tax and regulatory burden, and its highly educated workforce. He explained that although Minnesota has a high income taxes, it has a robust economy due to a highly productive workforce resulting from a good educational system. He indicated that Colorado experiences a shortage of suppliers and manufacturers.

Mr. Clark listed the major industries in Colorado. The construction of the Fitzsimons Life Sciences Center will make Colorado a major hub for the life sciences industry. He also commented on the state of the tech industry. Some larger companies have consolidated, but there remains a significant amount of smaller software companies in the region. He also discussed the needs of each industry. Some industries rely more on good roads and infrastructure, while others also have needs such as a good educational system and a good tax and regulatory climate. The renewable energy sector has significant potential in the state due to the existence of the National Renewable Energy Laboratory in Golden.

10:39 AM

Mr. Clark continued by discussing rankings on Colorado's economic competitiveness. Colorado ranks high in several categories, especially as it compares to its competitors. However, it scores mediocre in other categories, but he stated that he thought these areas can be addressed. Colorado consistently ranks among the most livable states, although it dropped in the ranking during the economic downturn that began in 2001. Colorado scores high in venture capital, research and development spending, and the number of patents granted. Colorado is in a strong position regarding the education level of its population, but weaker in its graduation rates and the percentage of students going to college. Although Colorado ranks high in educating college-bound students, it has a relatively low percentage of college-bound students. Colorado scores in the middle in its salaries for public school teachers, school spending, and other education-related rankings. However, Colorado does have a high population of individuals with science and engineering degrees.

Mr. Clark indicated that Colorado is a relatively healthy state. It has low infant death rates, low disease rates, and it is traditionally one of the thinnest states. However, health care costs are 30th highest in the country. The number of retail prescriptions filled are relatively low. Colorado has a nursing shortage. He indicated that the cost of housing in Colorado is generally considered high and it has a relatively high crime rate compared to other states - 33rd. He continued by stating that Colorado's air quality is improving, except for the Denver area's brown cloud problem. Colorado's charitable giving is in the top half of the country.

Colorado is a frugal, low tax state; it has the 10th lowest state and local tax burden. It is the 41st lowest in government spending and has high personal income per capita. However, the state ranks 37th in costs for doing business, mostly due to high wage demand and its tax structure. Colorado ranks 23rd in road spending and 5th highest in spending on bridges. It ranks 11th best in the productivity of the workforce. Mr. Clark concluded by stating that Colorado ranks favorably in many economic competitiveness indicators. However, it scores only mediocre in its ability to move products and services efficiently and in educational indicators. He stated that these rankings are going in the wrong direction.

Mr. Clark indicated that Colorado's entrepreneurial climate is somewhat similar to the Silicon Valley; Colorado businesses are able to foster and invest in good ideas. Representative Borodkin and Mr. Clark discussed the economic importance of transportation infrastructure and aviation centers in the state.

Senator Tapia discussed the importance of infrastructure and how a lack of a water supply can be a barrier to growth, especially for certain water intensive industries. Mr. Clark indicated that the water-intensive semiconductor industry was negatively impacted by Colorado's cost of water, and that some smaller beverage producers may locate elsewhere due to Colorado's water issues. He stated that the most important policy decision Colorado government can make is to invest in the state's infrastructure.

Mr. Tony Robinson discussed the need to improve access to higher education.

Senator Evans stated that 61 percent of students do not go on to postsecondary education, which is lower than national average. He stated that some of the 61 percent go back to community college at a later time, but the state does not know what the remainder of these students are doing. He stated that only 11 percent of Colorado high school graduates stay in college. He continued by discussing the state's need to improve its school to work programs. He discussed the smaller percentages of certain socioeconomic and minority groups attending college.

Representative Borodkin commented that individuals who do not go to college can be productive and earn high wages. The state needs to assess how it can improve educating and training individuals who do not go to college.

11:24 AM -- Presentation by Jim Reis, World Trade Center, on International Trade and Business in Colorado

Mr. Jim Reis, President of the Denver World Trade Center, opened by discussing his organization, which is a privately-funded organization that is part of a worldwide World Trade Center network. He indicated that the goal of the center is to increase Colorado activity in the global marketplace. He indicated that the state exported $2.8 billion worth of products and services in 1989, when the World Trade Center first opened. Exports increased to $6.7 billion in 2004. He stated that international trade has created 20,000 jobs in Colorado. However, he noted that the state has also lost jobs due to globalization. Mr. Reis commented that the Bureau of Economic Analysis indicates that 5,000 direct jobs are created for every $1 billion in exports.

Mr. Reis explained some statistics on Colorado's trading partners. Statistics on Colorado's involvement in international trade were distributed to the committee (Attachment A). He stated that China is increasingly a significant importer of Colorado products. NAFTA members receive 36 percent of Colorado's exports. Japan used to be the largest importer of Colorado's goods and services, but changes in the Japanese economy and the proliferation of free trade agreements have caused Japan to import less than other countries. He stated that developing economies can benefit by international trade; international trade increases the wealth of other countries, which benefits the American economy. He stated that Kodak's exports to Australia have doubled since the Australian free trade agreement was implemented. He stated that Colorado telecommunications exports to India have increased 40 percent because of its developing economy.

Mr. Reis commented on the importance of education, particularly in technology, to the future of Colorado in the global economic marketplace.

11:38 AM

Mr. Reis continued by discussing the increase in Colorado jobs due to globalization. He indicated that there were 76,000 employees in Colorado employed by foreign companies; 1 out of every 9 manufacturers in Colorado are foreign-owned companies. He stated that the country's trade deficit exists because the United States is a large consuming nation.

Mr. Reis stated that the world will continue to increase its business with Colorado as long as it continues to build a strong economy, which must include the presence of an educated workforce. He explained that the state needs to leverage the most out of each dollar it spends on economic development and business expansion because Colorado does not spend has much as other states. Also, the state needs to partner with the business community, continue to support the efforts of the Office of Economic Development, and maintain a presence around the world by building partnerships. He urged the committee to help their constituents understand the importance of international trade. He stated that society needs to help workers who are displaced by the dynamic global marketplace transition into new employment.

Mr. Reis commented on the need to continue to obtain more international flights to Colorado and support tourism, particularly international visitors. He explained that international tourism efforts are extremely important because foreign visitors discover ideas for their markets which increases international trade in Colorado.

11:52 AM

Representative Borodkin asked about the quality of jobs generated by international trade. Mr. Reis explained that companies that export tend to pay 10 to 15 percent more than companies that do not. Also, jobs involved in international business tend to be more complicated and require more experience; thus, they generally pay more.

Mr. Reis stated that he does not have specific policy prescriptions regarding how the state can support efforts in international trade. The legislature needs to be aware of international trade when it is making policy and the state needs to increase its partnerships internationally.

Representative Massey asked about organizations that help companies with exporting questions and trade rules. Mr. Reis explained that the Denver World Trade Center works with federal government organizations and the Office of Economic Development and International Trade to provide assistance. The committee discussed whether schools have programs dealing with international trade and the need for the business community to partner with schools to create such programs. Senator Tapia discussed the drop in international students in the country after the 9/11 terrorist attacks. Mr. Reis discussed the importance of international students, but indicated that the country needed to also balance this need with security concerns.

12:05 PM

Ms. Carolyn Siegel, member of the advisory board, discussed the negative impacts of international trade in Colorado, such as the loss of jobs due to outsourcing. She also commented on the possible negative consequences of the country's large trade deficit. Mr. Reis indicated that there was a lack of data on imports into Colorado, but stated that it was likely that the state had a trade deficit as does the entire country. He also explained that the state cannot do much to stop the changes that are resulting from Colorado's involvement in the global economy. Ms. Siegel concluded by indicating that the state needs to look at the whole picture and should help keep good jobs in the state.

01:35 PM -- Presentation by Mr. Brian Vogt on Colorado Economic Development Issues

Advisory board members present introduced themselves and indicated the expertise they can provide to the board. The members present were Mr. Brian Vogt, co-chair, Office of Economic Development Office, Mr. Tom Clark, co-chair, Metro Denver Economic Development Corporation, Mr. Bill Becker, Adams County Economic Development, Ms. Carolyn Siegel, AFL-CIO, Mr. Tony Robinson, CU-Denver, Ms. Marguerite Salazar, Valley-Wide Health Systems, Mr. Will Point, sitting in for Matt Baker for Environment Colorado, Ms. Carla Perez, Carter and Burgess, Ms. Su Hawk, Colorado Software and Internet Association, and Mr. Bonifacio Consyleon, Byerly & Consyleon Construction.

Mr. Brian Vogt, Director of the Colorado Office of Economic Development and International Trade, began by indicating that he looked forward to the upcoming dialogue on moving Colorado forward as a state. A folder providing materials on the Office of Economic Development's programs was distributed to the committee. He stated that Colorado is in a state of recovery. He indicated that his office's approach to statewide economic development involves forming partnerships with local communities and organizations, where everyone has a place at the table. He indicated that each industry in Colorado is critical to the state's future. The state needs policies that will help amplify its potential. He mentioned that the nanotechnology sector was recently cited has having strong potential in the state. However, the state needs to work on making this potential become reality.

Mr. Vogt continued by stating that economic development is a long-term endeavor and that the state needed to be more proactive. Colorado has been generally reactive in the past because it has not had difficulty in attracting entrepreneurs to the state. He discussed the importance of the tourism industry in Colorado.

Mr. Vogt explained a five-point plan that his office is working on. The first point of the plan is integration. The state's economic development and business assistance organizations need to work together and pool their resources. The second point of the plan is communication. He indicated that there were abundant resources to help businesses and that the state needed to ensure that businesses know what is available. The Advance Colorado Center is a headquarters for industry associations to support innovation and help entrepreneurs grow profitable, sustainable businesses. The third point is culture. The state has wide ranging interests that compete with each other. He stated that this competition needed to stop and that each industry is interrelated and critical to the entire state. He commented on the economic development conferences that are upcoming in the state that will help market the state. The fourth point is policy. The state needs to ensure that is has the right policies in place to ensure that the state is competitive with other states, as well as other countries that are competing for Colorado business. He discussed the possible need for legislation to create a net operating loss program for the biotech industry because other states have the program. The state needs to decide on what are the most effective incentives for each industry. Although he stated that he was not completely comfortable with the use of incentives, he explained that the state needs to realize that it operates in the real world which uses incentives. The fifth point of the plan is strategy. Policy makers need to understand that Colorado's recovery is the result of a multitude of business decisions that have been made over the past few years.

02:01 PM

Mr. Vogt explained that the state needs to get on the same page so that it understands its current economic development policies and programs. State policy makers and the Office of Economic Development need to better communicate its economic development programs. Also, the state needs to look at questions that it does not have answers to, such as what is the appropriate role of incentives and how to effectively fund tourism promotion in the state.

Senator Tapia discussed the state's challenges and opportunities regarding education. He stated that the state needed to look to the future to anticipate which areas the state needed to educate people to compete in the economy. Mr. Vogt discussed the existence of grants available from his office for companies to help train its employees. Education should be a lifelong endeavor and should continue to anticipate the future.

Representative Massey discussed an Oklahoma statewide institute of science. Mr. Vogt indicated that the state has several tools in place to help it succeed in the science and tech industries and that the state needed to continue to support these tools.

02:14 PM

Senator Bacon discussed the need to come up with a broad cohesive economic development policy and not have a piecemeal approach to economic development. Mr. Vogt discussed that his office is working on having local communities create longer terms plans so that they know where they are headed. These plans will help the state understand what they need. Senator Bacon questioned whether the state needed to assess what kind of economic development the state wants, such as the type of jobs and benefits it wants to provide. Mr. Vogt commented on how the market does a good job of showing what jobs are needed and that planning for the future is important.

02:24 PM -- Advisory Board Discussion

Mr. Tom Clark and Mr. Brian Vogt, co-chairs of the advisory board, discussed their thoughts on how the advisory board could derive an economic development plan. Ms. Su Hawk, advisory board member, discussed the status of the technology sector in the state and commented on the significant number of jobs that were lost during the economic downturn. She indicated that tech jobs command high salaries, require a lot of skill, and are very important to the state's economy in the future.

Mr. Vogt discussed the process for developing economic development plans. Effective plans require the help of communities statewide. Local communities will cumulatively inform state policy makers on what policies and approaches are needed. He stated that the advisory board may have 6 to 8 meetings. He also explained that the board needs to address questions that the state does not know the answers to, such as the importance of incentives. Mr. Clark commented on the need to find ways to measure the progress of the state's economic development policies. He stated that the biggest challenge he has encountered in discussing economic development is the lack of context among policy makers.

Ms. Marguerite Salazar commented on the need to discover the barriers to economic development in the state so that they can be removed.

Mr. Bonifacio Consyleon discussed the need for an assessment of what the state's strengths are, especially in its rural areas.

Mr. Bill Becker indicated that he liked the idea of developing a master economic development plan. He also mentioned that the state needed to evaluate its performance in retaining businesses in the state. About 70 percent of new jobs are created by existing businesses. The state needs to develop a method to analyze business location decisions, such as why businesses move to the state, why they consider leaving, and why they do not move to the state.

Representative Borodkin stated that all the committee's recommendations to improve the state's business climate will not need to require legislation.

Mr. Tony Robinson discussed the need to measure the success of incentives, such the number of jobs created and wage levels. He stated that some states, such as Illinois and Florida, publically provide performance indicators of businesses that receive incentives.

Mr. Vogt reiterated that the state needs to get everyone on the same page regarding its current economic development incentive programs and then evaluate whether the state needs better accountability. He stated that the state has incented 2,450 jobs this year to date, and that all the state's incentives are performance based, including its Enterprise Zone program, Colorado First program, Existing Industry program, and its Economic Development Commission grant program.

02:44 PM

Mr. Tom Clark discussed broadening the concept of incentives to include incentives to invest in human capital, such as providing money for training. The state needs to look at strategic investment incentives in both human and physical capital. Mr. Becker stated that most incentives in Colorado are performance based and that most are provided by local governments. Ms. Siegel also discussed the need to track incentives.

Ms. Su Hawk explained that the committee needed to have a sense of urgency because of its strong economic competition, a sense of seriousness due to the large stakes involved with competing in the global marketplace, and needed to create synergy to assess the best way the state can work together. She also stated the committee could help engender a sense of pride to businesses for operating in Colorado.

02:52 PM

Representative Borodkin explained the deadlines that the committee has for requesting bills and stated that the committee can recommend up to 8 bills.

02:57 PM

The committee adjourned.