Governor Jon Huntsman's Economic Summit Speech
Mar 20, 2008
Grand America HotelSalt Lake City, Utah
Our Current World
We are experiencing extraordinary times in this state. My objective in just a few moments is to put in perspective where we are going as a state and what it might mean to you.
I want to thank so many who were responsible for the break out sessions we have had today, for the interaction that has been provided, and for the overviews that have been articulated. Josh James, one of my favorites, was here earlier today. So many are participating in making the connections that are providing for the most successful business state in America, and there are all kinds of reasons why many of us in this room believe that to be the case.
But in today's world, at least nationally, we are hearing about the housing crisis. We are hearing about sub-prime loan problems. It's a confusing environment. The credit markets are freezing up. The stock market has gone from up 400 a couple of days ago to down 200 yesterday, and up 108 when I stepped out of my office today. The collapse of Bear Stearns, who would have ever guessed two bucks a share to date? All of this leaving us on the doorstep of what could be a recession in the minds of some.
The Federal Reserve has lowered the federal funds rate, the overnight transfer rate 75 basis points in the last few days, and that's 2.25 percent. The discount rate, or the direct lending rate, which I think is most important to most of you in business is now at 2.5 percent.
The Roots of Our National Uncertainty
There is a lot of uncertainty out there. What's behind it all? Where did it begin? I'm not sure that anyone can rationally explain what's behind all of this. Let me give you a sense of what I think is behind some of what we are experiencing. I think a lot of it started back in 1998, if you want to trace the roots of the crisis that we are looking at nationally. The real estate market became a bargain for many buyers years ago. Wall Street made it easier to get loans. The mortgage business fundamentally went from local to global with a whole lot of new financial instruments that were made available. And like with so many other forms of innovation, it seems that it was soon too much of a good thing.
Sub-prime mortgages were there for those who were stretching to afford a home. They came with higher interest rates even if they were disguised a little bit at the beginning by lower initial rates. The sub-prime mortgages were then bundled by many of the really smart people on Wall Street and sold to different groups of investors and then leveraged way up.
We are just now understanding what all of this means to all of us. And because housing prices nationwide had never fallen before, who should have worried about what was going on? It was never going to reverse its trend of going upward. We were in safe territory.
This scenario was exacerbated by two fundamental problems. Homebuyers were putting too little equity down on their new homes and the Federal Reserve made all of this possible by sharply reducing interest rates to prevent a double dip recession, after what many of you remember as the technology burst of 2000. This toxic combination, the sheer number of bad investments, coupled with the potential of these bad investments to mushroom and proliferate into more, has shocked Wall Street, even as we watch the financial channels today. It has shocked Wall Street into a state of deep conservation. Firms are hording cash today instead of lending it out until somehow they understand how deep this housing crisis will be, and in fact how exposed they are as firms.
Therefore, some investors and institutions are facing what I call the 'double-whammy' effect. Lenders are demanding their money back, and in some cases shutting the door on new loans going out. Hence you have the Bear Stearns effect and who knows where this is going to metastasize as we move forward.
Suffice it to say, bubbles lead to busts, busts leads to panic, and panic can lead to deep economic downturns. That is the state of the nation in which we find ourselves. This is the environment nationally and we must not let, as participants in this great economy, the negativity of what we're hearing about throughout the nation become a self-fulfilling prophecy.
Utah's Fundamentals
Our state is resilient and it is strong, and I believe we are going to remain such. Yes, we are cruising along at 30,000 feet and we are experiencing some wind shears, generally tied to the nation's economy, but we're doing okay.
Just promise me this: in our own individual corners of life and your individual pursuits and endeavors, that we will not allow the nation's picture to somehow cloud our own thinking here in the State of Utah. We must not let it become a self-fulfilling prophecy, because we are better than that, and we're stronger than that as a state. Let me tell you why.
Our fundamentals tell the story.
Our demographics are extraordinary. Any state in America would want our demographics. I'm sure Dave Baglee at IM Flash thinks every day that he has landed in a Mecca for finding the right kinds of people to work in his facility - young, well-educated, and productive.
We have high migration into the state. Our population grew by 85,000 last year - that's our run rate as a state year in and year out now. That is essentially swallowing whole a city the size of Ogden every year. That's good for growth.
We have the third highest population growth rate in the nation today. We have the youngest population in the nation. We are young and we are dynamic in this state, one of our truly great assets. We have the third highest life expectancy in the nation, almost 79 years. We also have the 11th lowest poverty rate in the nation.
From a managerial standpoint, I see my friends in the Legislature who are here and we have them to thank in large part about what we see and read about. We had the third highest revenue surplus year in our state's history last year. We've had three of them.
Now, you would read the headlines during the last legislative session and think that we've fallen into this great abyss from which there is no recovery, without reading the real numbers. We only had a $775 million surplus as opposed to $1.1 billion surplus as opposed to a $1.7 billion surplus, three years of excellent revenue growth in this state. We have the largest rainy day fund in history. Now, just to give you a sense of this, when I came into government from business, we worked on the leverage principle. Every one of the businesses that I was associated with before was leveraged to the hilt, to the point where you could barely sleep at night and you were afraid you were going to hit the wall any day now. Not so in government. Your debt to equity ratio is probably 1 percent or something about that. We have the highest rainy day fund in the history of our state, a lot of money squirreled away in anticipation of a downturn.
We have a AAA bond rating in this state. You might say that's pretty cool. That is pretty cool! There are only a half dozen states in America left with a AAA bond rating which gives us a preferred cost of capital when we reach out and try to finance projects, like the great I-15 project that we are going to be looking to next year through Utah County. This project is going to be probably the biggest infrastructure project we've ever done in the history of this state. We are going to be looking for a preferred cost of capital that we are going to get as a state because of our AAA bond rating. Finally, we are the best managed state in the nation. Nobody can take credit for that. That's the amalgamation of a lot of good work by a whole lot of people both in the legislative branch and the executive branch, done by the Pew Center which is a very notable group that does those rankings. Job growth in our state is the second highest in the nation. We're doing alright there, behind Wyoming. They are ahead of us a little bit in terms of job growth and of course it's tied to natural resources, and so are we to a certain extent. The picture is good on job growth. Construction and technology are down a bit, but every other category is up.
Our unemployment rate is 3 percent, at a time when our nation is knocking on the door of about 5 percent. It's fourth or fifth lowest in the nation, and it too remains one of our biggest challenges as a state today. What we're hearing from you is, "Where do we find people to accommodate the expansions that we are planning for the future in this state?" That is a challenge and we need to do something about it. We have the highest personal income growth in the country. This is one that I think we all ought to be proud of. We've complained forever about the jobs that are created in this state and how they don't necessarily carry with them a corresponding or concomitant bump up in income. We're seeing the highest personal income growth in the country, just under 10 percent, which says something very good about where our jobs are going and what kinds of jobs are coming into the state.
We are leading the nation in home appreciation. But we are finding something quite interesting taking place. We are just now, with the month over month increases that we have seen, leading the nation month over month for practically a year. We are just now knocking on the door of an average home price that is roughly $220,000, which is basically where the nation is in terms of average home value. So what you find here is not what you find in Clark County, or not what you find in Maricopa County where there is artificiality built in the market place. I think you find housing generally in this state that is consistent with real market value which is to our advantage. All categories in travel and tourism are experiencing gains, including the ski industry. Thank you to those of you who are involved in Ski Utah. We had our fourth consecutive year of record breaking numbers. Now what you are hearing this year are a lot of foreign accents on the slopes. Why is it? It's because the value of the dollar has plummeted, and we're bargain basement for a lot of people who never before could afford to come here to ski and this year they are finally able to do that.
New Businesses in Utah
Barnes Aerospace Now what's happening in our state from a real economic development standpoint? Let's take Barnes Aerospace in Ogden for example - a leading manufacturer of aerospace components in Utah since 1989. Today, the Barnes group is expanding its manufacturing footprint by 50 percent. They are adding hundreds of highly paid and technically skilled positions to the workforce right here in Utah.
In the words of their CEO, Greg Milzcik, "Barnes Group searched the globe for the best place to expand. After a close examination of possible locations, workforce and economic environment Utah was the clear choice. We found the Utah workforce to be highly skilled and the Utah State government a good partner for Barnes Group's growth objectives on a global scale."
Thank you, Barnes Aerospace, for looking throughout the entire world and concluding what we all know to be the case, that this is the best place to do business.
Charlotte Pipe Charlotte Pipe in Cedar City is a 107 year old company and market leader, based in Charlotte, North Carolina, that wanted to sell plastic pipes and fitting to the West Coast's plumbing sector. The fast track process that they were exposed to here in this state took only seven months from permits to a finished 148,000 square foot facility on 50 affordable acres that will begin producing pipe this very month.
We now have Port 15 Industry Park in Cedar City. The state passed an economic development tax increment incentive and the local government and school district created an economic development authority (an EDA) to encourage the company to build their new plant in Cedar City. Twenty percent of the taxes collected by the EDA will be used to create a workforce housing fund. It will provide low-interest loans to the essential service employees who we all need in our communities - police and fire personnel, and educators. This is something we need to do more of.
To Mayor Gerald Sherratt, who is here in the crowd, I say: You rock man! You are the best. Not only a great mayor, but you are visionary when it comes to economic development and were it not for you and the way in which you are presenting your city from an economic development standpoint, we would not have this great Charlotte Pipe success story. Thank you for what you do.
Disney Interactive A small Utah company called Avalanche Software was founded back in 1985 by four great innovators here in this state that saw a wonderful opportunity in the video game industry. Over the years, the company grew to roughly 100 employees. They caught the attention of the Disney Company who bought Avalanche in 2005.
Now Disney Interactive has decided that Utah is where it wants to grow significantly in their interactive media studio capacity. Today I am pleased to have with us Mr. Bill Van Overbeck, who is Operations Director for Avalanche Fall Line - Disney Interactive.
Disney Interactive, today, will be announcing that more than 500 extremely well paid jobs will be coming here to Utah in the video game sector as a result of what they have experienced in this state. So to you, Bill, I say thank you very much for what you are doing. At a time when just the opposite should be taking place, we've got some great jobs that are still in the pipeline.
Our Goal
What is our goal as a state? We can't walk out of this room until we all understand fundamentally what our state goal is from an economic development standpoint. Our goal has and always will be to have the premier economy in the United States. That is our goal and we will not rest until we can prove that point year after year after year. So it's therefore no surprise that we're receiving some good accolades and recognitions nationally.
The Beacon Hill Institute cited us as the most competitive state for business. The Kauffman Foundation reports Utah is the most dynamic state in America. I don't know about you, but I would take the most dynamic state over practically any other category, because dynamism suggests that you've got a sense of entrepreneurship that is thriving, alive and well in your state. There is a sense of energy that exists and that is awfully important given the trajectory that we're on.
Just last week, ABC News reported Salt Lake City is number one for jobs. Forbes Magazine has ranked Utah as the second best state for business. CNBC has placed Utah as number three among America's Top 10 States for Business that they rolled out just a while ago.
We just received yesterday a letter from a very important Pollina survey. The Pollina Report, as some of you in this room know, is the gold standard for economic development evaluations. All I would say is stay tuned because they are going to be rolling out their Top 10 list next week, and I think we are going to find ourselves in a very prominent position there.
Thank you for doing what you are doing to ensure that we are recognized nationally for our work. Again, our goal is to have the premier economy in the United States - nothing short will suffice.
Maintaining Our Preeminence
What are we going to do to maintain our preeminence? Let me run through a few things that are important that you are going to see all of us working on, on an ongoing basis. 1. Revamp Utah's Tax Structure With members of the Legislature, we have revamped our tax structure in this state. We've had the most significant tax reform in our state's history. Now this is done with an eye toward competitiveness. We in state government know that all we can do is create a more propitious and competitive environment for you, the entrepreneurs, the investors, and the business folks. You fill in the blanks in between.
If we don't have a competitive environment, no one is going to knock on our door and our businesses in this state are going to leave. A big part of that is our tax policy. We've addressed that now. In January, everybody saw that our taxes are changing. Income taxes have gone down 30 percent, from 7 percent down to 5 percent. It's a time when we're finally getting some kudos for doing a right thing from a tax policy standpoint. 2. Fund of Funds Thank you Jeremy Nielsen and so many others who are involved in the Fund of Funds. This last session, the fund increased from $100 million to $300 million. We can finally say in this category that we are approaching best in class in the entire nation. More than 1,000 Utah jobs have been created because of the funds portfolio and what it is attracting to the state. Twenty-five Utah companies have been created within the funds portfolio, receiving $127 million in investment as a result of the good work that is going on. 3. Recruitment Companies are moving to our state for 21st century reasons. They want livability, access to workforce, good education, and did I say they want livability? When you can do business anywhere, all of a sudden quality of life and livability become the most important aspect of economic development. We have cornered the market, my friends, on livability and quality of life and this is one of the reasons that we are doing well.
What are we finding on the recruitment side? Proctor and Gamble is constructing their very first greenfield site in 30 years in Box Elder County. ATK's Launch System's President Ron Dittemore is here. ATK has been a long time partner in this great state has now brought the headquarters of ATK Ammunition System to this state. As their CEO, Dan Murphy said recently, "We could have gone anywhere and we chose Utah for its workforce and its quality of life."
4. Global Opportunities for Utah Companies Lew Cramer is here and if you haven't met Lew Cramer, I want you to shake his hand. He's the CEO of our World Trade Center here in Utah - a one stop shop for businesses that are trying to figure out the big complex and often times murky world out there. You want market intelligence, you want export financing leads, you want to talk to experts who know something about the markets you are trying to export your product into and you for whatever reason, can't quite figure it out. What better thing can we do than to have a one stop shop for international business?
Lew Cramer is about the best in the country at this particular thing. In his previous life, he ran all of the trade promotion and commerce department embassy offices throughout the world so he knows something about this.
We've done trade missions to Mexico, Canada, China, and India. We set forth to conquer four countries that we argued were the most important to our long term economic vitality. We've covered all of them and it's now time that we continue building those pieces culturally, economically and educationally.
5. Rural Fast Track Program
I want those of you who are here to tune in to what's going on here. For the first time in our state's history, we are finally listening to what people are saying out there. We are providing incentives to local businesses that want to expand and grow like any other business. In the past it's always been showing some sort of difference to those coming in from the outside. We've heard you speak and we've heard your concerns about the inconsistency in that policy and for the first time in our states history, we have changed that.
Rural projects, as a result of what is going on now, account for 60 percent of the state's economic development. We've decided that we will continue to take care of our own because like Josh James and others who are here, our best ideas and our best intellectual property is going to come right out of the minds of our home grown entrepreneurs.
Our Future Focus
Now, our future focus. What are we going to do to make sure that we get to where we need to be that we maintain a position of preeminence from an economic development standpoint?
We've also heard from you that we need to improve the way in which the state is conducting its workforce development and its technical training. I too am not totally convinced that we've arrived at our preferred destination in that regard.
Workforce Development We hear that we have critical workforce needs in this state. Where are the mechanics? Where are the welders? Where are the machine tool operators that keep many of the shops running day in and day out? We're not doing a good job in this particular area. We need to improve the way that we are approaching workforce development and technical training and we're going to do it.
We're going to back up this year and take a good look at the way in which we are approaching workforce development and training, and we're going to get it right! We're going to make sure that we maximize the capacity of our applied technology centers that are today not being maximized. They're doing a great job, but we need to maximize capacity so that we are able to produce the kind of workforce that so many of you in an operating sense and in a manufacturing sense need.
We are off to a pretty good start. We have some Department of Labor grants that are taking us in a very propitious direction. The Davis Applied Technology College was awarded a $2.2 million grant that is going to assist in their teaching programs as it relates to aerospace, defense and sporting goods. In case you haven't been up to Ogden recently, there is a small winter sports cluster that is taking off, and we are all of a sudden becoming a focal point in the country as a sports Mecca for manufacturing, for headquartering, and it's a very exciting thing to watch play out.
Similarly, Utah Valley State College was awarded $1.7 million to increase the number and quality of graduates in their mechatronics degree programs.
We are making some good progress as it relates to workforce development and training but we need to do a whole lot more. We've heard from you that this needs to be an area where we provide some focus, effort, and concentration. Education 1. Teacher compensation: In public education, I think we are doing a great job as it relates to teacher compensation. You've heard me talk about it before, and you're going to hear me talk about it more and more as we move into the future. Not just teacher compensation but more opportunities for our kids generally. We don't have enough opportunities for kids, all of whom enter the classroom and learn a little bit differently. We just haven't gotten that one right, and we need to sharpen our pencils on that.
Teacher compensation, however, for me and I think for many of you, is critical to making sure that the connection is made with the student in the classroom. We've seen a 19 percent increase in teacher compensation in three years. Now I challenge you to find another state in America who has done more for teacher compensation or general education spending than we have right here in this state. That amounts to just over $5,000 on average for new teachers in the last three years.
Are we slowly catching our neighboring states that we have long been behind? Absolutely we are. And there will be a point in time in the next few years when we actually pass them and probably pass the national average as it relates to teacher compensation, because you cannot pay teachers enough for the work that they do and the way in which they are molding and shaping the minds of tomorrow.
2. Early childhood development: If we get this one right combined with the next one that I'm going to tell you about, we can go along way in solving the achievement gap that we have in this state and that every other state deals with. Early childhood development - we must get that kindergarten to third grade piece of education right.
We've rolled out extended day kindergarten thanks to the Legislature. There's more happening there than ever before and we can extend it to other places in this state. As I go around to different school districts and hear the teachers, the parents, and the administrators talk about how this is hitting the mark, you know that we are doing something awfully important for our young kids.
3. Higher education: K-3 literacy and K-3 numeracy are hitting the mark as it relates to developing these young minds. If we can combine that with a K-16 world view, which is to suggest that every one of our kids will get a shot at higher education in some way shape or form, our state will be unbeatable. We know that some people are going to go to research universities, some are going to go community colleges, and some will want to get a technical background. But in today's flat and competitive world, every kid in this state needs an opportunity for something at the higher education level.
4. USTAR: It also means taking the great ideas that are behind USTAR, the Utah Science and Technology Research undertaking, and moving it back into our schools. We know what our industries of tomorrow are likely to be, and many of you are participants in them at the higher education level. It's time that we now take that philosophy and back it into our schools and ensure that, from a math and a science and a language standpoint, we have the kinds of students that are going to get out and do what needs to be done in this ever-complicated global market place. Health System Reform You've heard a lot about it and there's much that's going on and much that we can look forward to. The current system, and we've hear this from Lane Beattie and many others who are involved as business leaders in our state, is economically unsustainable.
Health care costs are killing our small businesses in this state. It is an unsustainable trajectory that we're on and therefore we cannot wait. We must act, and we are doing something about it. We are going to come out of this multi-year effort with health care policies that are more accessible, more affordable and more portable.
You have the Legislature to thank for things like being able to buy a health insurance policy on a pre tax basis - something that companies and organizations have been able to do, but it has always been beyond the reach of the individual.
With you as entrepreneurs moving as quickly as you are, and with people undertaking a number of different jobs during their lifetime, it is important that beyond just the affordability aspect, we have portability.
It's going to take some insurance reform. There's no doubt about that. It's going to take the tax credits that I talked about. It's going to take a sense of transparency that will equip our citizenry and consumers with more information about what they're staring down when they go into a doctor's office, when they go into a procedure, what choices they have and what costs are then associated with those choices. What a great world that would be.
Finally, let me say that it's time to think big. Think big as it relates to things like a research park. I go back to 1968 when people in this state started talking about our very first research park. By 1972, Governor Calvin Rampton launched the University of Utah Research Park.
Some of you are located there and all of you are familiar with it. It spawned at the very beginning with companies like Evans & Sutherland. They were famous for other things like streaming stars for the Star Trek movie, which is a little bit of trivia that probably no one is familiar with.
Today the research park is a place known for innovation and great success; 42 companies, 4,700 employees call the park home, and annual in-state productivity exceeds $550 million. Seventeen companies have launched from technologies developed out of this park in just the last year alone.
From 1972 right through to where we sit today, we've seen things like Mario Cappecchi who has knocked it out of the park with respect to his genomics research and awarded a Nobel Prize. We see the Brain Institute which is conquering diseases like Alzheimer's and strengthening brain synapses. We see players like Myriad Genetics who are leading the way in addressing and finding cures for cancers through discoveries like the BRCA1 and 2 breast cancer genes.
Now imagine if we sat around in this room back in 1972 and tried to imagine all of the things that our state would dream up and conquer and develop and innovate. Our minds would be boggled if we were to sit down and do the tally sheet based upon where we are today.
Now, in Northern Utah, outside of our state's largest employer, Hill Air Force Base, a new development is emerging. I want us to think about this in the same terms - Falcon Hill Aerospace Research Park. Many of you here don't know much about it, but you will. Aerospace and aviation is one of the economic clusters that we have focused on in this state with great acuity and great energy. We have a focus in this state like never before on materials, composites, on propulsion systems - things that are really going to make a huge difference.
As we think about where we're going as a state, I want us to think in terms of the research parks that we spawned in 1972 and what we have to show for them today. And I want us all to think about what this Falcon Hill Aerospace Research Park, as we get it off the ground today, is likely to spawn 35 years from now if we're all lucky enough to gather in this room and do the tally sheet from it. I suspect we are all going to be mind boggled by the ways in which Utah has again been at the forefront of economic development, creativity, entrepreneurship, and innovation.
Our Future Success
Finally, our success depends on you and if you're not giving us feedback on what is working and what is not working, we don't function as a state. You know who our head of economic development is, Jason Perry. You know where the buck stops - it stops in my office. We take responsibility for it. There always needs to be a responsible party for anything worth doing in life, and we are the responsible party.
We've heard from many of you in this room and we want to hear more. That is the only way we are going to continually refine and make even better what we've seen in the last few years, the performance of this state. Thank you, thank you, thank you, for doing everything you have done in making Utah the greatest state in America. It's a pleasure to be with you - thank you so very much.
