December 1, 2008

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Washington and Iron Counties

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Southern Utah

Washington and Iron Counties

December 1, 2008

We’d like to give a special thank you to Russ Behrmann, president of the St. George Area Chamber of Commerce, for moderating the discussion and Worker’s Compensation Fund for hosting the event. The state of Utah is truly beginning to feel the economic crunch and Washington and Iron counties are no exception. Local business leaders share their plans to keep the area’s economy moving even in a stalled economy. Our experts also discuss what southern Utah has to look forward to, including the new St. George Municipal Airport, University of Utah affiliation with Dixie State College and the reopening of the Iron Bull Mine. Participants: Drew Heaps, Holiday Inn; Randy Cosby, InfoWest; Doug Watts, Watts Construction; David Watson, SunFirst Bank; Hal Anderson, Soltis Investment Advisors; Ray Rosenthal, Commerce CRG; David Clark, Zions Bank; Russ Behrmann, St. George Chamber; Chris Peterson, Riverwoods Mill; Chip Childs, SkyWest; Kenneth Sizemore, Five County Association of Government; Jeremy Dickamore, Commerce CRG; Linda Baker, Worker’s Compensation Fund; Martin Lewis, Utah Business magazine; Maria Twitchell, Cedar City Tourism and Convention Center; JoAnn Gordon, Dixie Center. The nation has experienced severe economic trouble the past few months. How have Washington and Iron counties been affected by the economic storm? Watson: The thing that’s really hurt some of the local industries and the smaller banks, community banks and even some of the bigger banks are the developments that came to a standstill. Developers can’t sell and they’re struggling with cash flow to make their payroll. So, we hope word gets out that the banks are still in business. But, if you look at the business development that’s going on still in southern Utah—there are long-range commercial plans. Residential, on the other side, is somewhat reactionary. But, look at the businesses that have come here and are in the five and 10 year planning stages. Walgreens is still going in. The new restaurants are still coming in here and opening up. And there’s the new Marriott. The commercial construction sector is still confident about the future of this area and that industry is what will help pull the residential sector out. Overall, I predict [Washington and Iron counties] will experience a little bit quicker recovery than the state and that we will do much better than the nation. Watts: There are still clients out there, such as Walgreens and Maverick stores that are still building, and there are still more plans on the drawing board. The restaurants are also still building here. And then there are a lot of public institutions and schools that are continuing to build, which is not necessarily a commercial market, but that’s where some focus is. Health care is also growing; IHC is doing some great things here. Rosenthal: The first two-thirds of this year was still moving along pretty good for us. Since that time, it’s really slowed considerably. A lot of people would like to get building and get moving, but can’t get a loan—that’s what we’re hearing now. The banks are asking for more up front and also the interest rate is higher. In some cases, those people who want to build just say, “fine, we would like to do it but we can’t.” But, we have still seen some pretty fair construction going on. Some are in the process now of building. So they’re not stopping, but the companies that are not as quite as well financed are having problems. There are some people that actually had their plans drawn, secured their land and would now like to pull their building permit. From our projections of what’s happened here in the last six months, many of these are contractors and people who rely on the residential market. Nothing is happening, so they’re just having to stall their plans. Some of the other people who have been in business a long time are little better prepared and they’re going to go ahead with building. I think that people here believe that St. George is one of the last cities to really feel the downturn, but I think we’ll be one of the first to feel the uptake. St. George is St. George. People like to live here because, well, it’s a great place to live. And we still have national companies coming to the state asking about Washington County, certainly a lot hear about us from EDCUtah [Economic Development Corporation of Utah]. EDCUtah knows that Washington County has great opportunities. So when companies are looking in Utah, they consider Washington County because the market is still growing. Washington and Iron counties are beginning to become a major hub for much of the Western United States. Why do you think that is? Rosenthal: A key factor here is that we are so close to both the Las Vegas market, the Southern California market and the Phoenix market. From here, you can get anywhere in the Western states. With the extra cost of gas, companies are finding that their freight costs are becoming one of the major costs of their products. So they’re saying, “It makes sense for us to be living out here.” Cosby: We’re starting to see people and companies relocating here. I think there’s a company that’s building right now that does credit card processing, for example. There is still motivation to move here. We’re on par in many ways of what you can get in Las Vegas and with what you can get in Salt Lake. However, Washington County’s in-formation industry is not growing very quickly right now. But the infrastructure is here, the vibe is here and the connectivity is here. When the uptake happens, we’re posed to be ready to build and to grow. But just like every other business right now, everybody in the industry is being very conservative. Previously, companies would come here thinking there’s no fiber, or that there’s only one choice in a carrier or that we don’t have a secure data facility. Those things have pretty much been taken out of the way—we have those things. Now we’re just waiting for the economy to pick up. The new St. George Municipal Air-port is currently under construction. What does the expanded airport mean for the local communities? Childs: I think it’s a great time to have the St. George Airport project. When [Sky West Airlines] sat down with the city of St. George and discussed the airport, we spent a lot of time looking at the market conditions that we have at the existing airport. Our concerns for the airport that’s being built is that we need to spend a lot of good resources in making sure that we have the right emphasis on flying in and out of St. George. There’s no doubt that the infrastructure increases a significant amount of our reliability. We’ll be able to fly any airplane we have in our fleet there up to the 90-seat jet. Though there’s not a demand for it right now, it is certainly a project where, once the airport is built, we can focus on providing that service. We also have to educate the local community to make sure they understand what the possibilities are. We are here to make sure that the airport will be a very valuable product for the community. The main thing we’re focused on is educating people on what the capacity is with the airport and what the market demand in the community is. We really need to have some things emphasized and educate what to do to make sure that the airport is valuable. Watts: Right now St. George has three services into Los Angeles. But getting a straight flight from St. George to L.A. has been very difficult to develop. The main reason we have that market to L.A. is to get commuters back to Las Vegas, which is the way the hub works. With Delta’s hub in Salt Lake, we also have access to destinations all over the world. It will be a lot more efficient with the new airport. How has Cedar City’s Industrial Park affected the local economy? Dickamore: There are absolutely tremendous possibilities in Cedar City. The Industrial Park has been a great project. The big problem has been companies coming in and wondering mainly about the city’s employee base. Cedar City is a small town and when we were doing well, our employment rates were so low that a lot of times companies didn’t want to take the time to come down, because they thought they couldn’t find employees. Charlotte Pipe came in and built a 125,000-square-foot facility. They had to actually start turning away applicants fairly quickly and they were very happy with their employees that they transferred many employees out to other locations. The company said that Cedar City employees are the best employees they ever had in a location. So we struggle to get the word out and let companies know that yes, we have employees here, and not only employees, but great employees. The other big thing with the Industrial Park, which we saw with Fort Pierce, is it kind of puttered along for the first few years and then we got a big project in there and it took off from there. We’ve had to concentrate on ensuring that the park’s growth is moving forward. Charlotte Pipe had a few snags in getting the next group in there, so it stagnated their growth. Then we hit this little economic downturn and it’s really affected the strength rolling forward. So if we can get the right numbers rolling and start attracting people, the Industrial Park will grow and it will be a fantastic project. Utah’s unemployment rate is currently at 3.5 percent. How have Washington and Iron counties been affected by the employment slowdown? And, what industries are experiencing major layoffs? Watts: The construction sector is obviously suffering right now. There’s a lot of people who are out of work and that’s because of the residential meltdown. However, there are two things I’d like to point out: Even when the unemployment numbers were low and companies, like Viacom and other large companies, were moving here, there was always a concern about having enough employees. And that turned out not to be the case. If the company is a good company, they can find good employees. So, that’s one side of the story. The other half is that with the unemployment numbers the way they are, there’s more availability of employees. I think that that should perhaps attract companies, because when they look at Washington County, they don’t see labor shortages right off the bat. I see that as a positive thing for the area’s economic development. Twitchell: A few years ago, the travel and tourism industries were complaining that they couldn’t find enough employees and now the companies are easing up a little bit and there’s certainly more employee base to service that area. These are typically lower wage jobs, though, so they’re not easy to fill. We have a company, our local ski resort, that has extreme difficulty in finding employees, even now. They’ve had to go to South America and bring employees with work visas here for short seasons. But certainly it’s a little easier to find employees now. Heaps: As for Holiday Inn, a couple years ago we were lucky to get one or two applicants per position. Now there has been a shift. We’re seeing a lot more applicants. Peterson: Since the economy has changed, we’ve struggled to keep employees. We’ve found that people can go get two dollars an hour more or three dollars an hour more at other companies. So it’s hard to keep employees. We’ve also experienced two rounds of layoffs during the past 12 months have been able to stabilize and rehire some people. We have also found that people are more thankful to have a job and they work harder. We’ve increased the caliber of our employees and it’s helped us to be more competitive. When we post a job out there, it’s a lot easier to get some good quality applicants. So it’s been a good thing or us. Cosby: Let’s talk about Cedar City. The strange thing that’s happened when the companies came in and looked at the employment numbers and said there’s no way we’re going to be able to open a plant here, but then they filled the jobs in one day. I think we’ll see underemployment. We have low-paying jobs in this area. Right now it’s not hard to get good quality jobs. But we open the iron mines, we open copper mines and we open these other things—so, underemployment may not be as big of an issue and it may be harder to bring people here because people are actually making decent money and it might be hard to pull them away from these types of jobs. So what’s the long-term for that? That’s kind of a concern I’ve got long term. Baker: We insure a large portion of the employers and some of the smaller employers in the southern Utah region. We’re about 10 percent lower in premiums due to losses of some companies and companies that have gone out of business. And, then there are companies that have decreased their employees. So, since a company’s workers’ compensation insurance is based on its payroll, we’ve seen a 10 percent reduction and a 10 percent reduction in our claims, as well. But on another note, with employers moving into the area, Utah has the lowest rates in the nation for worker’s compensation rates for manufacturing, so that’s also been a big benefit as well. We’ve got some great ability to attract companies on that. What has happened this past year to the area’s travel and tourism industry? Gordon: Zion National Park is experiencing the highest visitor rates its had in a long time. Rates were up 5 percent and that’s because of the international market. When the dollar is down [international tourists] have a tendency to come over and visit. You can probably find that the average language of the tourists is not English. You can hardly understand the person next to you, but they’re coming here. As far as the Dixie Center, our budget is down and our revenue is down by about 10 percent. The trade shows, the little meetings that come to the center and the banquets are way down. But as far as the conventions, they are holding their own or have even increased. Our 2009 is going to be the best convention season we’ve ever had. And, we’ve got more conventions scheduled. In fact, we’re five or six up from what we normally have. So we’re not experiencing a hit as far as conventions are concerned. So we’re still doing pretty good. Twitchell: Since Iron County is typically a driver destination, we generally don’t see a lot of the international market—their concentration is definitely in the Zion and Bryce parks areas. But tourism in Iron County is a little different. We certainly saw an adjustment when gas prices hit their all time high. We were a little worried, but our tourism actually stayed pretty steady. And the nice thing, too, was a lot of international markets started discovering us and started coming over onto our side of the mountain. A lot of it was because those previous locations that [the tourists] were using were full, so they were pushed into our area. They were also very attracted to centralized hub locations, which has been a little different in years past and Cedar City certainly is one of those hubs where people come in, unpack and go out and participate in the activities. We also had an interesting year in terms of attendance to our attractions and our scenic areas—they had one of the best years they’ve ever had. But yet, our hotel sales dropped slightly. So what we feel is happening is people are coming in and still enjoying their vacations, they just weren’t doing it as long as they’ve typically done in the past, which is, three- or four-day vacations. Watson: The Shakespearean Festival had its best year ever. And this past summer was the best year ever in terms of receipts there and that confirms that people are coming to enjoy these activities here in southwestern Utah. But my understanding is Tuacahn [Amphitheatre] also had one of its best years ever. So we’re seeing that vacation phenomenon happening and we definitely are a tourism magnet here in southwestern Utah. Heaps: We too had an increase in international tourism. June was really flat. I think once gas prices hit, people kind of held their breath a little bit and then they realized what it was and started traveling again. So, tourism was huge this year for us after June and into July and August, which was very strong. What’s going on with the Lake Powell Pipeline? Clark: I’m absolutely supportive of [the Lake Powell Pipeline]. It’s got to be here. There is a gross amount of misinformation out in this community about how we’re going to finance it, but most of what’s being said are absolute scare tactics. There is a financing plan to work through from former Governor Walker’s plan to the state treasury figures regarding how we’re going to do this. This is absolutely critical to this end of the state. We are very dramatically going to find what it’s like to have water rationing and water shortages out here without the Lake Powell Pipeline coming into this community. Watts: The public’s awareness of the pipeline is low. The reality is the water is ours. It’s there for us to take and if we don’t use it, it’s going to be going down river to Las Vegas. Sizemore: There’s a very strong supporting team in Iron County for the [Lake Powell Pipeline] project. I think we need to remember that the Wasatch Front is built on a huge water project—the Central Utah Water project. The Wasatch Front wouldn’t exist without the infrastructure and investment that was made over decades to make that water project happen. We can’t just stop and say that the state has done what it needs to do. This is the next step in the state’s water development plan for this part of the state and we can’t just ignore the fact that we need to continue to look forward to the future generations and what they will need. Clark: I would call this the Lake Powell Planning Project. I think it’s wise and prudent for all of us to make sure that we plan wisely, get the best information and when we have all those facts then we make a determination. Cosby: There are other alternatives that should be discussed according to those who are opposed to the pipeline. Clark: The last two water projects in Washington County are fully underway right now. You have to understand the environmental community has already set minimum levels of water that must flow down the brooks and rivers. The water might flow through here, but where do you store it? There are very few places in which you have that capacity to hold it. That’s one of the benefits of Lake Powell—we have a huge existing storage facility. Now, it’s a long straw and it could be very expensive to bring that straw into the community. But that’s part of that planning process. Lake Powell will deliver a gallon of water for one tenth of one cent at today’s price levels. It is a large project, but has a fairly inexpensive delivery price for a gallon of water. Palladon Iron Corporation in Iron Country recently reopened the Iron Bull Mine. How are the area’s mining operations fairing? Sizemore: I think we haven’t discussed a dynamic that is coming about that I haven’t seen in my two-plus decades working here and that is commodities in southwestern Utah are going to take a big part of the stage that we haven’t seen for decades. A good example is the Palladon mining operations with the iron mines. They’re opening it up and starting to produce ore again out of the iron mines in Iron County. The Alton coal fields in Kane and Garfield counties are just getting through the permitting process. So, we may see coal coming out of there soon. We also have the break pipe uranium mines on the Arizona strip. Overall, we haven’t seen this type of commodity development for a long, long time. I think it’s going to be an important base in the next decade and a half or so of development here in southwestern Utah. Hall: I’m excited that we have those resources and the global demand for them. There is going to be a long-term enormous demand for anything relative to infrastructure built in China, India and in Eastern Europe, so I think it’s a great way for our economy to go online and deliver those resources to the world. What do Washington and Iron counties need to ensure economic viability and stability during the next 10 years? Watson: One of the things that we’ve seen in our work at a regional level is the lack of capacity in electrical service. We’ve seen electrical service improve from having regular brownouts during the summer season that we’ve now overcome. But in order to make a large investment a reality, we need an even more robust electrical distribution system. So in the short term, I think that just as we have gone out aggressively and acquired the fiber and have that for information technologies, we need to increase the capacity in our electrical systems. And, one huge barrier to that is the federal land ownership pattern in southwestern Utah and the dilemma of trying to get distribution lines across those public lands. We’ve been working for 18 months now to try and figure out how to get electrical power to Ticaboo, which is mining uranium again after a 25-year hiatus. And we’ve got more than 1,000 people living there and they’re buying electricity generated by diesel costing more than 40 cents a kilowatt an hour to run their operations. So, I think that one short-term dilemma that we need to face is getting that electrical distribution capacity into our region. Clark: Legislation this year uniquely changed the Utah Tax Code that allows people to have solar panels in a remote location owned by somebody else, but be able to share that ownership. It’s very innovative and I think a very positive step, too. Solar power does have its spot, wind has its spot and geothermal has its spot all within the state of Utah. But the generation capacity of our state is behind the curve. There’s been somewhere near 200 coal plants planted then pulled off because of the environment. We have yet to have nuclear plants built in this country in more than three decades. So, we here are behind the curve on generation and we are behind the curve on transmission and delivery. We are also actually behind the curve on major highways and transportation corners throughout the state of Utah. All of these things are critical infrastructures that we need to add in order to keep vitality within the state. All of those have capital costs and for people to be willing to extend that capital into it they’ve got to have a fairly good element of return. Right now, where things are, it is very challenging. The other aspect that we need to have here are some of the basic cornerstones, like health care. I applaud those around the community that have put together a health care system. I understand that there are well over 1,000 new jobs because of the new hospital. I also see a great possibility with the new airport. There is not a vibrant economy in a metropolitan area that doesn’t have a major successful airport. Another key component that needs to happen is there needs to be a strong plan for growth. Washington County has about 5 percent of the population of the state. We generate about 6 to 7 percent of the revenue. We produce $1.20 of what the average citizen produces in the way of the dollar. We have an economic engine down here. The whole state is sputtering right now, and we are certainly doing our share of sputtering. But there’s a great opportunity in the next 12 months if we can get through it all with a cast iron stomach. We have all the basic infrastructures, but we still need to have a guidance plan of what it is we want to be as we continue to grow. We also have such a great opportunity to have such great schools here and the four-year degree out in Dixie and graduate programs at Southern Utah University. We need [funding and support] to continue from the state standpoint to make sure these institutions are viable and meet the needs of our community. And it doesn’t necessarily mean just only a four-year degree—there are the certificates of other aspects of applied technology that are adding value to individuals and helping their earning capacity. I think those educational institutions are absolutely critical. We are committed from a Legislative contingency to make sure that they continue to have their fair share of the state of Utah. I don’t think we’re going to be bashful about asking for our fair share of the state’s resources when it comes to making sure that our community’s needs are met as well. Childs: Volatility is what really creates problems. I think even for southern businesses it creates problems. It would be great to have a nice stable growth platform, so you do have the employees that you want to have at your business and you’re not laying off and hiring constantly. That’s where we are in the airline industry today. If somebody could tell us where oil was going to be and peg it there for about a year and a half, we would have a more stable platform. But it’s the spike that happened in oil last spring that created absolute havoc for us. I think it’s important to know the interesting times we live in are all about the market of huge volatility in everything. It’s that uncertainty that creates panic. If there’s any way locally to try to operate in a very stable manner and a consistent manner, we would be much, much better off in southern Utah. Rosenthal: What we’re seeing and what we’ve been able to do is sell the area pretty well. Each time we have another company come here, it’s easier to sell to future companies because they have another person to talk to. But when you’re going with the economic development project, particularly for the manufacturing companies, they pay higher wages and they usually have a good benefits package. The jobs that these companies create have kept people here. Before you had to send your kids out someplace else, because the kids could not get a decent job or a decent paying job, so they couldn’t afford to live in St. George. But when you bring these companies in and they pay a decent wage, people stay.
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