Facing death in the Legislature earlier this year, the Arizona Department of Commerce survived and there is a sense that the threat to its existence may have diminished.

A top official of the state’s economic development agency, Joe Yuhas, says more legislators and business leaders are seeing the value of the Commerce Department.

“I think there are still those who doubt the need for a statewide economic development agency,” says Mr. Yuhas, deputy director of Commerce, “but they are fewer in numbers. We need to make the case every day that Arizona cannot afford to be the only state in the nation without a viable statewide economic development organization.”

Mr. Yuhas says there are only five states that spend fewer general fund dollars on a statewide economic development agency than Arizona’s $3.6 million: Alaska, Nevada, Idaho, North Dakota and New Hampshire.

Two lawmakers who hold the purse strings aren’t letting Commerce off the budget hook yet. Tough times are ahead for Commerce and virtually all state agencies.

Sen. Bob Burns, R-Dist. 9, chairman of the Senate Appropriations Committee, says he hasn’t thought much about Commerce lately. But, he says Commerce and other agencies will face “a more difficult time” with their budgets next year.

Rep. Russell Pearce, R-Dist. 18, who heads the House Appropriations Committee, says the idea of giving Commerce a zero budget for fiscal 2004 was not his. He says he likes the suggestion of consolidating Commerce and the Arizona Office of Tourism. Without elaborating, Mr. Pearce says he favors moving some of Commerce’s functions to the Secretary of State’s Office.

“I would like to reduce the size and scope of the work at Commerce,” Mr. Pearce says.

A third legislator, Rep. Phil Hanson, R-Dist. 9, chairman of the House Commerce and Military Affairs Committee, says he was extremely supportive of maintaining Commerce as a separate department.

“It has been my feeling all along that Commerce and Tourism have separate areas of responsibility,” Mr. Hanson says. He says Commerce has shown leadership in efforts to preserve the state’s military bases from being closed because of encroachment by residential development.

Like the appropriations chairmen, Mr. Hanson expects budget battles almost across the board due to the state’s continuing soft economy. With regard to Commerce, Mr. Hanson says, “I think the gauntlet was thrown down [in the past session], and it will be easier to maintain the status quo for both Tourism and Commerce.”

Mr. Hanson discounts the controversy that erupted when Lydia Aranda, new small business services director at Commerce, sent a e-mail promoting a Democratic program sponsored by Governor Napolitano. “I don’t think it will have any influence on the department — one person doing one thing, that I don’t condone.”

Commerce officials say Ms. Aranda was given an official reprimand and no further action is planned.

Staunch Supporters

Under siege at times, the Commerce Department is not without its staunch supporters. When lawmakers unveiled a zero budget for Commerce, a group of more than 200 organizations and individuals formed the Coalition for Economic Prosperity and lobbied the Legislature to save the agency.

Commerce also has a vocal critic from the Phoenix branch of the National Federation of Independent Business (NFIB). One of the most high-profile business recruitment efforts of the Commerce Department and other economic development players triggers a response from a group that represents the interests of small business.

Mr. Yuhas mentions TGen, formally known as the Translational Genomics Research Institute. “We’ve demonstrated what we’re capable of doing by landing the TGen project,” Mr. Yuhas says.

But Michelle Bolton, Phoenix director of the NFIB, which represents 8,700 small businesses, says, “When you see the Department of Commerce focuses on biotech, that’s frustrating to our members. We hear there will be benefits down the road. How far down the road? Biotech — that’s great, but will it have a direct impact on the majority of small businesses?”

Mr. Yuhas says there is more to come: “We are having discussions with dozens of bioscience companies that are looking at Arizona as a place to locate because of the foundation that TGen has laid.”

The Commerce Department strategy, he says, is to create high-paying jobs through diversification of the state’s economy.

Mr. Yuhas says Commerce has 85 fulltime employees and all 85 in some way are involved in meeting the needs of the small business community. “The best thing we can do for small business is not grants and loans,” he says. “The best thing is to expand the market. I’ve heard comments that we’re concerned about major employers, but those companies demand a supply chain of goods and services that inevitably impact the small business community.”

Saundra Johnson, associate director of public programs at The Flinn Foundation, a privately endowed grant-making organization, says the foundation was heavily involved with Commerce and others in attracting TGen and has pledged $15 million to TGen over the next 10 years. “The Department of Commerce was very helpful,” she says. “They had the right players get involved to get as many opinions as possible. We had not traditionally worked in economic development before, but we see biosciences as an economic development driver for a knowledge-based economy.”

Despite the promises of good times ahead for small businesses, Ms. Bolton of the NFIB, says, “There are some folks on the governor’s staff who don’t appreciate me or my organization. I was told that I criticized the governor too much on tax issues.”

Ms. Bolton says her phone calls to members of the governor’s staff go unreturned and she dismisses the perception that the NFIB only supports Republicans.

“We want more dialogue,” Ms. Bolton says, adding that the NFIB has a good working relationship with several state agencies, including the departments of Revenue, Economic Security and AHCCCS.

Noah Kroloff, economic adviser to Ms. Napolitano, was quoted earlier this year as saying the NFIB is more “ideologically driven” than other business groups, which makes it more difficult to heal rifts.

Now Mr. Kroloff says, “I think what is important for us to be doing is how we can move forward together. We continue to work with all of them.” He mentions the Arizona Small Business Association, the Greater Phoenix Economic Council, the Greater Phoenix Chamber of Commerce and the NFIB as players to “move Arizona’s economic agenda forward” and work for “good common sense legislation.”

And Mr. Yuhas says he is “disappointed” that Commerce doesn’t have the same working relationship with NFIB that it has with other small business groups.

Mr. Kroloff identifies small business initiatives to enhance what Commerce does:

• Make licensing and permitting more friendly. “It can be overwhelming,” he says. “There are more than 50 state agencies involved in permitting.”

• Streamline the job training program so that ultimately smaller companies could band together giving them better access to funding.

• Expand AzBusinessLINC.com, a supply chain Internet network that keeps Arizona suppliers connected with Arizona merchants, and keeps Arizona dollars in the state.

Michael York of the Small Business Development Center Network of Maricopa Community Colleges, says he works closely with the Commerce Department in three key areas: helping small businesses apply for federal re
search and development grants; the Internet business link touted by Mr. Kroloff; and helping new businesses get started.

A recent change, Mr. York says, is that most of the information on starting a new business is available on the Internet, whereas formerly packets of printed material were mailed to would-be entrepreneurs within hours.

Rural Development Conference

Mr. Yuhas, deputy director of the Commerce Department, comments on the Governor’s Rural Development Conference, a long-running annual event, which this year has taken on a partner, the Arizona Association of Economic Development, a broad-based group of economic development professionals.

“This partnership gives us greater participation and an agenda that meets the needs of the state, local communities, and the public and private sectors,” Mr. Yuhas says. “This conference will further break down barriers that contribute to a parochial attitude.”

The conference, which attracts economic development experts from around the state, is scheduled for Oct. 1-3 in Prescott.

Gary Marks, executive director of the Prescott Valley Economic Development Foundation for the past 4 1/2 years, says the area has a good relationship with the Commerce Department. He credits Commerce for helping produce a new, colorful, marketing brochure promoting Prescott, Prescott Valley and Chino Valley. “It’s the first time we’ve had a regional marketing piece and the Department of Commerce greatly assisted us,” Mr. Marks says.

He also credits Commerce with helping the region’s telecom task force do a better assessment of telecommunications and connectivity among local businesses.

Mr. Yuhas of the Commerce Department says during fiscal 2003 the agency successfully recruited 54 businesses that during the next three years will create more than 14,000 jobs with an average salary of $40,420, and will generate more than $400 million in tax revenue for state coffers. With a general fund appropriation of $3.6 million, Mr. Yuhas says the agency generates a 3,000 per cent return to the general fund. “Do the math,” he says. —