What we learned when looking back at business news from 2006 ...

Print Versionhttp://www.azbiz.com/articles/2006/12/29/news/news01.prtPage 1 of 71/9/2007Print PageWhat we learned when looking back at business news from2006: They're Coming!We’re all about business and TucsonAt Inside Tucson Business, we’re all about success and business in the Tucson region. If that makes uscheerleaders in some people’s minds, well, so be it.Once again, our staff and contributors looked back on a year’s worth of local business events and wereasked to rank them as to their lasting impact on the community. In other words, the events will most likelystill be affecting us out into the future.Unlike a year ago when the housing boom of 2005 easily was ranked the top story of the preceding 12months, this year’s votes were more disparate. Two who participated in our poll ranked the population boomas the top story but no two voted any other event at the top.In other cases, we asked if certain stories should be rolled together. Such was the case when it came to thevarious manufacturing announcements that occurred over the year. When it came to retail, some saw theopening of upscale brands as significant but others not so much. Still others thought the construction ofretail should be kept separately from retail itself. In the end, we combined them all.While some events were combined for our rankings, our voters distinctly saw the outcome of the Novemberelection as two separate events n the ballot propositions being more significant than the people who wereelected.For what it’s worth, the accompanying story looks back on 2006 and how events are impacting our lives aswe embark on 2007.As always we welcome your comments.1. People are coming, people are comingIn December, the U.S. Census Bureau reported Arizona’s population grew by 213,311 n closing in on 6.2million n making it the fastest growing state in the nation. Since the 2000 census, Arizona has climbed fromthe 20th to the 16th most populous state and is on pace to be ranked No. 10 by 2030, when the populationwill be over 10.7 million. One out of every five of us in Arizona now, wasn’t here in 2000. For Tucson, themost talked-about figure is when the metropolitan areas crossed the 1 million population mark. The CensusBureau reports data after the fact and is due to report year-old population figures for metropolitan areas inJuly. If the statisticians who watch these things are correct, Tucson should be tickling the underside of 1million when the official numbers come out. That means, of course, there are probably already more than 1million of us living here now.Outlook: Population growth is driving the local economy and will help the region weather economicdownturns other regions of the country will face. The trick, of course, will be managing the growth.2. Finally, we’ve got atransportation planIt’s not near enough money, nor will it come anywhere close to meeting the needs of the next two decades,

Print Versionhttp://www.azbiz.com/articles/2006/12/29/news/news01.prtPage 2 of 71/9/2007but Pima County voters in May finally approved a ½-cent sales tax that is supposed to produce $2.1 billionto help pay for construction of improved roads, public transportation, safety projects, bike paths andwalkways. Four previous tries over 25 years to get voter approval were unsuccessful so this was a majorstep at unifying this community. Pima joined Arizona’s 14 other counties in collecting sales tax specificallydedicated to transportation.Outlook: Already some of the mass transit improvements have taken effect, safety projects are beingconstructed and initial planning on road projects is underway. The key to success will be bureaucrats stayingon top of the plan to keep it moving forward to avoid inflationary issues that have hurt some of PimaCounty’s previously approved road projects. It is encouraging to note the first whimpers from a NIMBY n NotIn My Back Yard n group were quickly, and summarily, rejected by bureaucrats and politicians who are, sofar, standing firm that the 3-to-2 margin of victory reflects the will of the people.3. It may be slower, but housing has second best year everIt wasn’t a crash, but it wasn’t the forecasted “soft landing,” either. Anticipated for more than a year, thehousing market downturn finally arrived during the spring, sending sales plummeting to a four-year low,even as active listings soared to record highs. Responding to a national downturn in residential sales, shortterminvestors fled the Tucson market, leaving hundreds of new and nearly new homes looking for buyers.This, in turn, caused new home closings and building permits to slide downward, sinking by November totheir lowest level since 1998. Despite the downturn, home prices remained high for new and re-sale homes.Declining from $267,725 in May, the median cost of a new home was $257,681 by November. Down byslightly more than $10,000 from the peak, it was still higher than February 2006’s record median price of$253,928.Outlook: The market will continue to slow during the first quarter of 2007 but Tucson’s sustained economicand population growth will help turn the market around, putting prices and sales on an upward trend by2008, according to John Strobeck, housing industry analyst and owner of Bright Future BusinessConsultants, and Marshall Vest, director of the University of Arizona’s forecasting project.4. Rio Nuevo gets paid for nothingThe Legislature approved extending the tax increment finance district’s life for another 12 years, puttingpeople who pays sales taxes as far east as Park Place Mall on the hook for another $650 million to try tosalvage downtown redevelopment. But as 2006 ended, Rio Nuevo was sputtering once again without anexpressed vision. Several upscale condominium projects continue to be “imminently ready” to break groundn just as they have for years n but there seems to be little in the way of commercial development to supportanyone who might move into new residences. There are only so many times a person can go out to eat at arestaurant, even a good restaurant. There has been no concerted effort to get significant commercial retailinto downtown n no supermarket or other major shopping. Emblematic of the situation was NimbusBrewery’s proposal to locate downtown that now is going forward as a condo project, so far without acommercial component. To its credit, the Tucson City Council approved spending $53.7 million to rebuildMission San Agustín and a surrounding cultural heritage park west of downtown and Interstate 10.Outlook: In a word n lost. Somebody may have an idea where it’s headed but they’re not talking. Some atCity Hall are making noises about making sure the private sector does its part. The problem is, there are toomany opportunities elsewhere in this region for the private sector to want to put too much time and moneyon risky projects downtown. Whatever the vision is for Rio Nuevo, someone better articulate it n and soon.5. We’re makingthings here nowPella’s new window and door manufacturing plant on the southeast side has been the flag-bearer for aresurgence in the lagging Tucson manufacturing sector. The first Pella windows made in Tucson startedcoming off the line in 2006. Beyond that, La Costeña Foods announced it is transforming the former Slim-Fast plant on Tucson’s southeast side into a cannery, Glass Fiber Inc. said it will open a plant to manufacturestate-of-the art aircraft insulation, MacSteel Service Centers will open a distribution center for its metal

Print Versionhttp://www.azbiz.com/articles/2006/12/29/news/news01.prtPage 3 of 71/9/2007products and Global Solar Energy is moving and expanding its operations, all set to begin in 2007.Outlook: Marshall Vest, the chief economic prognosticator at the University of Arizona’s Eller College ofManagement, calls manufacturing jobs the gold standard of an area’s economy. Tucson had been lagging onthat score but no more. But a problem is looming: Good available manufacturing space has been gobbled upby these recent announcements, which could crimp ideas of other companies making decisions to relocatehere.6. More waysto spend moneyThere are so many retail projects actively being developed it’s difficult to count them all: Arizona Pavilionsand at least two more major centers in Marana, Westpoint Crossing on Tucson’s southwest side, TucsonMarketplace at The Bridges near 36th Street and Kino Boulevard, as well as other talked about projects inRita Ranch, Vail, Oro Valley and Sahuarita. And despite Federated Department Stores’ decision not to open aBloomingdale’s in Tucson and Nordstrom staying out of the market, the arrival of Tiffany & Co. and LouisVitton showed the Tucson market is ready for upscaleretailers. There was even a noteworthy juxtaposition infast-food restaurants: California icon In-N-Out Burger is building its first Tucson area store at 3711 E.Broadway in El Con, right next door to a Krispy Kreme Doughnut store that closed in 2006.Outlook: The region’s continued population growth is putting Tucson on the radar of more national retailersas well as more locations of those that are already here. Within two years, new retail locations should beopening so fast, they’ll be routine.7. Progress toward finding the cureThe C-Path Institute, established in 2005 as a cooperative effort of the University of Arizona, SRIInternational and the U.S. Food and Drug Administration, put together a research agenda and grew during2006 to occupy two offices in two office complexes on opposite sides of Campbell Avenue near River Road.Joining the effort in 2006 were 15 leading pharmaceutical companies, along with the University of Utah,University of San Francisco and the National Cancer Institute. Now working with C-Path researchers onseveral projects, they contribute to the search for better methods for drug development and testing.Meanwhile, the University of Arizona ended 2006 with the grand opening of a new campus building to housethe BIO5 Institute, capping a year where the center continued its research into plant and insect genetics andtheir impacts on human health. The BIO5 Institute has received a planning grant from the National Institutesof Health to support a statewide program to foster partnerships to increase patient access to new medicalbreakthroughs, and joined the genome sequencing project sponsored by the U.S. Department of Energy’sJoint Genome Institute.Outlook: While the general public is looking for miracle cures for everything from cancer to bad hair days,the biosciences revolution holds some of Tucson’s greatest promises.8. Voters take chargeArizonans decided more ballot propositions in November 2006 than did voters in any other state. Among themeasures having the biggest impacts on business were those that will institute a state minimum wage,control governments’ powers to use eminent domain condemnation, a handful of measures making life moredifficult for illegals in the state and rejection of a ban on same-sex marriages and some of the benefits thatcould go to those couples.Outlook: As the year ended businesses were adapting, for good and bad, to the impending institution of thenew measures. Fast-food restaurants were raising prices to meet their new labor costs and hopefullygovernments were rethinking their thoughts of condemning property for anything other than true public use.Governments can continue to offer benefits to same-sex couples without fear and the illegal immigrationpropositions were probably more symbolic than real. All told, voters’ decisions made Arizona among themost conservative and progressive in the same election.

Print Versionhttp://www.azbiz.com/articles/2006/12/29/news/news01.prtPage 4 of 71/9/20079. TREO gets a planUnlike economic development efforts that preceded it, TREO - Tucson Regional Economic Opportunities Inc. -is doing things in its second year of existence that had never been successfully accomplished. The economicblueprint now being prepared promises to be the most important document ever produced insofar asoutlining a future for this region.Outlook: The document is due to be released in a matter of weeks. Getting more than two people to agreeon what they’d like to see as Tucson’s future has been a nearly impossible task. This will truly be a test ofwhether this region can be unified toward a common goal and establish an economic beachhead from whichit can grow.10. More peopleanswer the phoneAs 2006 ended, local call center employment reached 16,000. Citibank, Convergys, Teletech, APAC andGEICO all expanded operations and were joined by the arrival of United Collections. All came in the face ofAOL shutting down its local call center during the year as a result of its shift from a subscription-basedservice to one supported through advertising revenues.Outlook: Call centers are not places for low-wage, low-skilled employees and Tucson’s location makes it anideal location to try to recruit English-Spanish bilingual employees. But with an unemployment rate hoveringat just under 4 percent n once considered full employment n further growth in this industry may be difficult.11. Copper makes a comebackNearly written off as part of Arizona’s history, soaring world prices brought copper mining back to life inSouthern Arizona. At slightly less than $3 per pound by year-end, copper has become a hot commodityagain. Phelps Dodge is proceeding with construction of a new copper mine near Safford, Augusta ResourcesCorp. wants to open a long-planned 15,000-acre mine at Rosemont Ranch in the Santa Rita Mountainssoutheast of Tucson and Bolsa Resources paid $1.2 million to buy the historic 545-acre Courtland Minesproperty, one of several acquired by the company in the Turquoise Mining District at the southeast edge ofthe Dragoon Mountains in Cochise County. In Pinal County, the Resolution Copper Co. says it is trying tofigure out how to tap what might possibly be the richest copper strike in U.S. history, 7,000 feet under anow-closed mine in Superior.Outlook: Copper’s high-flying times may be coming back down a bit, experts are forecasting that copperprices, which remained flat most of 2006 after peaking in May, will fall during the first three months of thisyear due to weakening demand in both the U.S. and China.12. Arizona and Mexico grow closerWhile many in the nation continue to haggle over immigration issues, Arizona, Sonora and the rest of Mexicocontinue to press forward on ways to capitalize on trans-border trade and economic development. Amongsteps taken during 2006, the Metropolitan Tucson Convention and Visitors Bureau opened an office inHermosillo, Son.; the Tucson-based National Law Center for Inter-American Free Trade and officials fromArizona, Sonora and Baja California Norte put the finishing touches on legal reforms to open up trade financeand real estate lending in their Mexican states, the Arizona Technology Council announced plans to reachacross the border to establish a research and development partnership with Sonora’s Impulsor strategicprojects group, and Customs and Border Protection officially launched the FAST (Free And Secure Trade)program to expedite shipments by previously approved shippers.Outlook: Relationships between the U.S. and Mexico will still face bureaucratic hurdles. For example, as theFebruary deadline approaches for making the switch to electronic manifests for all trucks crossing intoArizona from Mexico, only about half of the more than 5,000 growers and 150 importers using the ports ofentry have qualified.

Print Versionhttp://www.azbiz.com/articles/2006/12/29/news/news01.prtPage 5 of 71/9/200713. Defense spendingbenefits TucsonWhether it’s supplying U.S. military forces in Iraq and Afghanistan or developing innovations to supporthomeland security, Tucson companies had a hand in it during 2006. Raytheon Missile Systems, a majormissile and bomb supplier to both the U.S. and foreign armed forces, recorded more than $1 billion in ordersduring 2006. Also benefiting from military spending are several local firms, such as optics company EOSTechnologies, maker of the popular CROWS vehicle defense system for the U.S. Army. Several companies,including Northrup Grumman in Sierra Vista and Advanced Ceramics Research in Tucson, are developingunmanned aerial vehicles for military ground force support and border surveillance. In addition, Davis-Monthan Air Force Base and Fort Huachuca continue to support more than 30,000 uniformed and civilianemployees in Southern Arizona.Outlook: Washington politics, especially now that the Democrats are in charge of both houses of Congress,will have a hand in deciding defense spending budgets. But it may be politically incorrect these days to gosoft on terror.14. Airlines boostservice from TucsonNew York’s Kennedy International Airport, Washington D.C.’s Dulles International Airport and Newark’sLiberty International Airport are now all among 19 nonstop destinations reachable from Tucson InternationalAirport. Passenger traffic at the airport in 2006 was up 4.7 percent to almost 4.2 million people passingthrough the terminal. That’s not the case everywhere n Cincinnati, Minneapolis-St. Paul, Pittsburgh, Raleigh-Durham, N.C., and Manchester, N.H., are among cities seeing declining numbers of passengers goingthrough their airports. And, by the way, what a terminal Tucson has. As 2006 ended work was underway onmajor renovations of the two concourses.Outlook: The gateway to an area is through its airport. A successful market is reflected by a busy airport.Now the onus is on those of us who are here to support the service that’s available if there is to be hope ofcontinued growth. One positive sign already, United, which in October introduced the first-ever nonstopservice to Dulles, had originally planned to offer the service only until April but has now extended that toJune 6. With enough support, airport officials are hoping it will be extended to year-round.15. Union Pacific makestracks for more trainsThings have become so congested off-loading ships at the Port of Los Angeles-Long Beach, the Union Pacificcan’t get trains out of there fast enough so the railroad wants to build a state-of-the-art, 36-track, switchingyard at Red Rock in Arizona. Some neighbors are objecting but the plan has received support from the PinalCounty Board of Supervisors.Outlook: Union Pacific will have to acquire the land, most likely before the end of this year, from theDepartment of State Lands, which will sell it by public auction. If successful, the rail yard will only furthercement this region as integral part of an intermodal transportation system.16. Accenture WGCcomes to TucsonA Tucson stop during the first three months of the year, has been the oldest tournament on the ProfessionalGolf Association tour. The trouble has been in recent years, it was overshadowed by another tournamentfeaturing the top 64 invited pros in a match play contest. Well, no more. The Accenture World GolfChampionship Match Play Championship is coming here for at least four years and will be played for the first

Print Versionhttp://www.azbiz.com/articles/2006/12/29/news/news01.prtPage 6 of 71/9/2007time next month at The Gallery in MaranaOutlook: While the golfers are playing for some mighty big cash prizes n totalling $7.5 million last year n theboom to the Tucson region is the return of a first-class golfing event and what it brings in terms of exposure.For starters, there will be millions of dollars worth of national live TV coverage on the Golf Channel and NBC.17. Chicago White Soxsay they want to leaveTucson for spring trainingThis could be either very good news for Arizona or very bad news for Tucson. The White Sox, who want tomove to a new shared facility in Glendale, say they can get someone to take over their contract for springtraining at Tucson Electric Park by 2009. If they do, Tucson keeps three Major League Baseball teams, thePhoenix area adds at least two and the Cactus League is bigger than ever. But if the White Sox don’t find aTucson replacement, they’re supposedly on the hook until 2013 and things could get nasty. If they leavewithout a replacement, both the Colorado Rockies and Arizona Diamondbacks could, by the terms of theircontracts, follow the White Sox out of Tucson.Outlook: Jerry Reinsdorf, chairman of the White Sox, is sure acting confident. Reportedly, he’s got his eyeon getting the Baltimore Orioles to come to Tucson for spring training from Fort Lauderdale, Fla. It’s bigbusiness for Tucson, according to the Metropolitan Tucson Convention and Visitors Bureau, each teamaccounts for about $10 million to the local economy.18. Robert Shelton named president of University of ArizonaReplacing the likeable Peter Likins, UA president from 1997 to 2006, in July, Robert Shelton seems to havetaken to his new role in stride, embracing the Arizona Board of Regents’ push to move the state’suniversities to an “enterprise model” to help put the UA, Arizona State University and Northern ArizonaUniversity on more firm financial ground. Shelton has already started work to tightly nail down universityspending and increase outside funding.Outlook: A blitz of public relations appearances, his care for the students, faculty and community and hisapproachability, look to be putting Shelton on a track to be the UA’s most likable president yet. Some of hisbiggest tests will come over how the UA and city officials deal with a proposal to build a $175 million sciencecenter downtown, brewing concerns over the UA’s new medical school in Phoenix, and a projected $5 millionshortfall in the university’s athletic budget by 2011.19. Moderate Republicansget the boot and Congressional seat goes DemocratFor all the talk and high expectations, the November elections n except for the ballot propositions, rankedNo. 8 n the politicians that were elected may not have been as significant an event. Arizonans joined withother voters ousting Republicans and putting more Democrats in charge but it was a rocky road gettingthere. A couple of prime examples were in Congressional District 8 and Legislative District 26, where inprimary elections Republicans chose hard-line conservatives n ousting a moderate in the legislative district nonly to ultimately give the seats to Democrats in the general election.Outlook: With their new-found power, the onus is on Democrats to produce while Republicans try toreassemble their party. Whichever gets closer to the middle is likely to be able to begin to cement someauthority while the other flounders.20. Glassy-winged sharpshooter eyes vineyards

Print Versionhttp://www.azbiz.com/articles/2006/12/29/news/news01.prtPage 7 of 71/9/2007It’s only about a half-inch long and not dangerous to either plants or animals, but the glassy-wingedsharpshooter is the principal carrier of Pierce’s Disease, a lethal infection that destroys grape vines, nut treesand oleanders and its arrival has set off alarm bells in Southern Arizona. The Arizona Department ofAgriculture spent $700,000 during the summer trapping and spraying house by house to contain a muchlarger outbreak and try to protect the state’s $18 million wine industry.Outlook: With fingers crossed, state officials won’t know whether their efforts to eradicate the insect weresuccessful until springtime.Philip S. Moore, Joe Pangburn, Steve Emerine and David Hatfield all contributed to the writing of this report.E-mail comments for publication to editor@azbiz.com.© 2006 Inside Tucson Business. All Rights Reserved