Ronald J. Hansen

The Republic | azcentral.com

Arizona executives see K-12 education as a significant problem in the state

Tax and regulatory issues are not major problems, but are seen as popular remedies

More job-ready talent in key fields is needed from the state's universities

Arizona's educational system and the workers it produces are viewed as major impediments to better economic growth, a survey of business executives here has found.

Collectively, the executives didn't see taxes or regulations among their biggest problems, though these have remained popular policy prescriptions.

Instead, nearly three-quarters of the survey's respondents saw improving K-12 as the most important task for local governments, and 56 percent saw boosting K-12 funding as the state's biggest job. Similarly, many of the executives wanted better-trained workers and more funds for higher education without abandoning pro-business tax policies.

The survey of 400 business executives was conducted in November on behalf of the Arizona Commerce Authority, the Arizona Chamber of Commerce and Industry, the Greater Phoenix Economic Council and Alliance Bank.

The findings from a powerful political constituency helps explain the push in recent months for education reforms in Arizona, a subject that lately has overshadowed tax cuts, a customary favorite at the state Capitol.

Many in the business community are supporting Proposition 123, a measure that, if passed by voters in May, would increase funding for K-12 public education for 10 years in large part by taking more from the state's land trust fund. Supporters say it would improve education without raising taxes. Critics say it would raise property taxes and weaken the trust fund while leaving schools with no permanent funding solutions.

“While the results didn't surprise me, I was a little taken aback at how strongly the need for investment in education came through,” said Jim Lundy, founding president and CEO of Alliance Bank.

Chris Camacho, president and CEO of GPEC, said the findings show that the business community expects Arizona to put more resources into education, and improve its brand.

Glenn Hamer, president and CEO of the Arizona Chamber of Commerce and Industry, said the results underscore the need for Prop. 123.

“There is a very real skills gap in our workforce. The state needs a K-12 system that will develop critical thinking along with hard skills, like coding, for the economy into which they will graduate," he said in a statement.

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Morgan Abraham, a Tucson businessman in real-estate finance who also chairs the No on Prop. 123 campaign, agrees that Arizona's educational systems need improvement, but sees the ballot measure as doing it in a troublesome way.

"I'm absolutely on board with more funding for education," he said. "But 10 years from now, we're going to have a depleted land trust. There's a surplus in the general fund. We should be using that."

The survey found that while executives were generally optimistic about their near-term business prospects and see Arizona as an improved place for commerce, many still see the state as falling short of their ideal. Only two in five of these leaders thought state legislation and regulation was on the right track for a healthy business climate.

Half of those polled picked the education system as a challenge to doing business in Arizona. The quality and availability of the workforce came in second with 42 percent. State government, a broad label that didn't specify whether it related to things like leadership or policies, came in a distant third with 27 percent.

In a sign of the competition Arizona faces elsewhere, a report accompanying the survey noted that in 2014 CEOs in talent-rich Silicon Valley put educational improvements No. 2 on a similar list of needs.

The survey asked respondents to choose the top three benefits of doing business here. Two-thirds agreed quality of life was in that category. The state's climate came in second with 56 percent. A low cost of doing business came in third with 47 percent.

Just 14 percent picked top-notch universities or access to skilled labor.

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Only 2 percent said a negative image of Arizona made business challenging here. Even so, enhancing the state's image was the most popular choice to have a positive impact on Arizona business, with 67 percent.

Increasing the flow of graduates with backgrounds in science, technology, engineering or math was next with 61 percent.

From there, the executives splintered quickly. Thirty-four percent picked immigration reform and 32 percent picked increased access to venture capital, something woefully lacking for years. There were 21 percent who supported either tax increment financing, lower taxes generally or reduced regulations.

Many executives gave Arizona's labor pool credit for a willingness to learn and for their personal values and team attitude. At the same time, similar numbers of the executives noted labor pool weaknesses in math and science skills and in communications.

Overwhelmingly, the executives said local government's biggest role could be in improving education, with 74 percent choosing that. Related to that, 47 percent said local government could improve workforce development. Streamlining the business permitting process was third at 40 percent.

At the state level, 56 percent said increasing funding to K-12 education would do the most to improve the business climate for their company. Increasing the funding for higher education came in third with 43 percent.

Between those two, pro-business tax policies came in second with 46 percent, suggesting that whatever clear call for better schools exists, it also comes with a desire to pursue lower taxes as well.

Nearly 70 percent of respondents said the K-12 system was worth their personal involvement. After that, shaping a path to legal-immigration status came in a distant second with 36 percent and comprehensive tax reforms garnered 31 percent.

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Four of five respondents were concerned about government debt as a threat to their business. Almost as many, 73 percent, were concerned about the perception of Arizona's government by those outside the state. That likely reflects the long shadow of Senate Bill 1070, the state's polarizing 2010 immigration-enforcement law and its flirtation in 2014 with SB 1062, a bill widely seen as permitting religious-based discrimination against gay marriage.

A majority of respondents were also concerned about what they view as over-regulation, their tax burden, international events, high unemployment and other issues.

More than a third of respondents said they had plans to expand their business in the next 12 months, with 89 percent of those growing businesses doing so in Arizona. Most expected to hire additional workers in the next year.

The survey's respondents came from a cross-section of industries, with finance-related companies representing the largest single segment at 18 percent. More than 60 percent came from businesses reporting less than $10 million in revenues and more than half from companies with 20 or fewer employees. Eleven percent had 500 or more workers and 18 percent had more than $100 million in revenues.

Lundy said he would like to make such surveys of business leaders an annual feature.

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