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Regional Report: A Pro-Business Environment Fuels Growth in the Southwest

A pro-business environment, diverse economic base, and infrastructure investments are fueling growth in the U.S. Southwest.

Directory 2016
The American Southwest is a land of economic contrasts. Although its prosperity has long depended on natural resources such as energy, minerals, agriculture, and livestock, the states in this region also have vibrant high-tech and advanced manufacturing industries.

According to the Bureau of Economic Analysis (BEA), the Southwest was the fastest-growing BEA region for GDP in 2014 at 4.3 percent (U.S. real GDP grew 2.2 percent). The rate of GDP growth varied within the region. Texas is still the economic heavyweight, with its GDP growing by 5.2 percent. Its diverse mix of industries, pro-business climate, and available funding for projects are helping Texas to weather the current slump in oil prices. In September, Texas added 26,600 jobs across the state.

Oklahoma and Arizona are also experiencing strong job growth. Arizona has added over 58,000 jobs to its employment base, making it one of the top 10 fastest-growing states for jobs. In fact, Forbes has named Arizona as having one of the highest job-growth rates, with Moody’s Analytics predicting 3.1 percent job growth annually. Oklahoma’s jobless rate was the 18th-lowest unemployment rate among all states in August.

It’s been tougher for New Mexico. Employment levels are still below its pre-recession peak, with an unemployment rate about 6.8 percent. A big part of the problem is that New Mexico is more dependent on federal spending than any other state in the country. With tight budgets at virtually every level of government, for example, major defense contractors are competing for limited funding.

Pro-Business Climate
Texas is well known for its lack of corporate tax and individual income tax. The Tax Foundation ranks Texas as one of the top states for overall business tax climate. Texas continues to invest in transportation infrastructure, implement tax-reduction measures, and fund its deal-closing Texas Enterprise Fund.

Other states also continue to make themselves more business-friendly. Arizona Gov. Doug Ducey signed several bills this year that decrease regulatory burdens and streamline government functions. “In addition,” says Larry Gigerich, managing director for Ginovus, a site location firm in Indianapolis, Indiana, “changes made to Arizona’s job creation tax credit program have made the state more competitive.”

An estimated $450 million in federal and state funding is being used to upgrade Arizona’s border gateways — improvements include a new commercial-only port in San Luis matched by Mexico with a new facility just south. A $244 million makeover of Arizona’s largest port, Nogales III, has doubled the commercial and passenger throughput.

Historically, New Mexico has been the most liberal, labor-oriented state in the Southwest. Now, however, it is likely to be one of the next states in the country to adopt right-to-work legislation in order to better compete with the neighboring right-to-work states of Arizona, Oklahoma, and Texas. “Gov. Susana Martinez has made the state more competitive with a series of business-friendly tax cuts and new workforce training programs,” says John Boyd, principal with The Boyd Company, a location consulting firm in Princeton, New Jersey. “A right-to-work law would be the crowning achievement of her administration.”

Key Industries
Oil and gas is the major industry in the Southwest. The prolonged slump in oil prices has been especially hard on Texas. Oil exploration and production companies are cutting budgets as they try to adjust to the lower prices. Wells Fargo indicates that it “expects to see significant consolidation in the energy business during the next couple of years, with a significant loss of jobs in the industry as the operating environment tightens considerably.”

Fortunately, the Southwest has a diverse mix of industries. These include aerospace, defense, biotechnology, life sciences, ICT, semiconductors, alternative energy, and chemical products. “The Phoenix and Tucson regions have experienced growth in financial services, defense, information technology, manufacturing, distribution, and shared services,” says Gigerich. Texas is seeing success in automotive, energy, financial services, manufacturing, distribution, customer service, and shared services.

Arizona’s business climate and strategic location have made it an attractive location for growth opportunities in bioscience and healthcare, aerospace and defense, cybersecurity, manufacturing, and IT. For example, in February 2015 Apple announced that it would build a $2 billion international command center in Mesa. The project will create about 500 construction jobs and 150 full-time Apple jobs when it becomes operational.

Aerospace has a solid presence throughout the Southwest. In New Mexico, aerospace and defense has been one of the best-performing sectors. In July 2015, ARCA Space Corporation announced it would build a testing and manufacturing facility at the Las Cruces Airport, creating 100 high-paying jobs over three years, with an average annual salary of $52,000. The aerospace company, originally started in Romania, located its headquarters to Las Cruces in 2014.

Future Plans
Arizona, New Mexico, Oklahoma, and Texas are looking forward to a prosperous 2016. In fiscal year 2015, 120 companies made commitments to establish relocation or expansion projects in Arizona, which will generate about 18,000 jobs and $1.51 billion in capital investment over a three-year period. Those projects are also expected to generate 22,335 induced and indirect jobs, for a total of 40,649 projected new jobs over a three-year period. A third-party analysis indicates that these projects will generate more than $21.12 billion in economic impact for the state of Arizona over a five-year period.

New Mexico will continue to support entrepreneurs and high-tech start-up companies — many of them commercializing R&D discoveries made in the state’s national research laboratories, world-renowned research universities, and more specialized R&D facilities. These young companies are creating good-paying jobs as they expand.

Oklahoma will continue to invest in its high-growth sectors, including aerospace. For example, L-3 AMI recently expanded its facility in Broken Arrow that designs and produces a wide range of hardware products for use in simulators, training devices, and other applications. L-3 AMI duplicates any type of cockpit, workstation, or control console to a high level of fidelity and then delivers it to prime government contractors for final system integration.

“The support that L-3 AMI has received from both local and state entities has been invaluable in assisting our Broken Arrow facility to grow its workforce and gain the resources needed to continue to expand our business,” says Leonard Genna, president of Link Simulation and Training for L-3. “We recognize that the state supports our expansion efforts and is a key reason why we have been able to maintain and grow a stable workforce.”

And Texas plans to invest heavily in workforce development programs, higher education, and transportation infrastructure. Its positive business and quality-of-life attributes attract more in-migration than any other state. As a result, Texas continues to win big investment projects. For example, in May 2015 Kubota Tractor and Credit corporations announced plans to relocate their corporate headquarters from California to Grapevine, Texas, at a capital investment of $51 million. A Texas Enterprise Fund grant offer of $3.8 million will help finance the move.

“Our decision to relocate our corporate headquarters to a more central part of the U.S. was a major part of our future business strategy, but which state we would ultimately choose was not,” says Masato Yoshikawa, president and CEO of Kubota Tractor Corporation. “Texas ultimately helped make that decision easier. Its business-friendly climate, state incentives, and geographical location were important factors in our final decision.”

And in December 2015, Bostik, a leading global adhesive specialist for construction, consumer, and industrial manufacturing markets, opened its new manufacturing plant in Dallas. The facility will produce ceramic tile adhesives and floor preparation products. According to company officials, the highly automated design of the facility will offer a positive impact on safety, quality, and productivity. In addition to production, the Dallas location also offers a state-of-the-art on-site training and demonstration facility.

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