Local Economic News

Hostapaloooza was in Scottsdale on Thursday.

It's a one-day information-technology festival that allows Microsoft and its business partners to show off the latest cloud-computing applications that Web-hosting companies and other IT-services companies can offer customers.

It was in the Valley because we have a comparative advantage in providing data center services.

Toys "R" Us has started hiring their seasonal staff. According to the article they will hire almost as many temporary staff as they have full time staff during the rest of the year.

Goodyear has provided enough tax incentives to entice Sub-Zero out of their manufacturing plant in Phoenix and into expanded space in Goodyear's foreign-trade-zone. This reduces their property taxes by 75%. The remainder of what Goodyear will collect in taxes over 7 years will just cover the incentives that they will pay Sub-Zero as they staff up.

Finally, First Solar probably won't get their $1.9B loan guarantee from the feds for their Topaz project but it looks like they will get guarantees for two others.

The Energy Department has given preliminary approval for a $680 million loan for the Antelope Valley project and a $1.88 billion loan guarantee for the Desert Sunlight project.

The loan guarantees reduce the risk to lenders and hence reduce the interest rate First Solar pays on financing for the projects.

Compare and Contrast

A couple of new business deals were announced yesterday. In the first,

San Francisco-based Digital Realty Trust Inc. hosted a grand-opening ceremony Wednesday to tout the completion of a 226,000-square-foot expansion to its existing 293,000-square-foot data center at 2121 S. Price Road in Chandler.

They also provided a reason for locating here.

Warner said West Coast businesses that offer Web-based technology for consumer and commercial use have been choosing metro Phoenix to place their equipment because it is much cheaper than in the major California markets.

The cost of power alone for a 10,000-square-foot user inside the Chandler data center would go up by about $600,000 a year if it were to relocate to a similar facility in Los Angeles, he said.

So basically it was a decision driven by cost. We have a cost advantage here in Phoenix compared to the next best alternative so we get the business.

The second business was,

A Pennsylvania-based building-materials and glass company said Tuesday that it will open its first North American solar-manufacturing facility in Goodyear by the end of 2011, supplying the area with 50 new jobs.

It was also interested in cost savings.

The company is applying for the Arizona Renewable Energy Tax Incentives Program, which was passed in 2009 by the state Legislature to promote renewable energy in the state.

Companies in solar, wind, geothermal and other renewable-energy industries that expand or relocate to the state are given up to 10 percent refundable income-tax credits and up to a 75 percent reduction on real- and personal-property taxes for up to 15 years.

Also

Saint-Gobain, which has glass and abrasives facilities in Scottsdale, also will receive a federal tax credit from the U.S. Treasury Department for expanding in Arizona. The credit is for 30 percent of the company's investment in the state.

Actually the second business wasn't interested in cost savings. It was after government subsidies. From a public policy standpoint, I would much rather have more of the first type of company rather than the second.

Solar is NOT a Substitute for Oil

Actually there is one more thing to be said on the prior topic.

During the Solar Summit apparently some people still think solar is a replacement for oil.

“She [Giffords] often says, ‘If oil literally rained from the sky, you can bet we would all keep our buckets handy. With solar energy, we have an oil substitute that does fall from the sky. We need to get smart about capturing it.,’ ” Carusone said.

Solar generates electricity which is used almost exclusively for fixed energy consumption. Oil is turned into transportation fuels and chemical feed stocks. Although electricity and oil are both "energy," there is almost no substitution between the two.

Against It Before She was For It.

Apparently former Arizona Corporation Commission Chairman Kris Mayes has changed her position on the proposed power line from Arizona to Southern California. She was against it before she was for it. Michael Giberson over at KnowledgeProblem has the details.

I wrote about the issue here, here, here, and here. Related stuff here, and here.

Not a lot more to be said except that this is an excellent example of this year's Honors topic: The Democratization of Information. The internet has a memory.

Jobs Plan - Monday Evening Summary

The plan calls for permanent tax increases to pay for temporary tax reductions and spending increases. This makes no economic sense.

For a more thorough review of what this means see Megan McArdle.

Jobs Plan - Paid for by Someone Else

The final point in the President's jobs plan is that it is fully paid for. By this he means that the cost will be offset by future taxes or spending reductions. To do this, he gives the Joint Committee the task of finding an additional $447 billion in cost savings. In short, he outsourced the tough part of the task to another branch of government.

Update: This is no longer true. He proposed paying for them with permanently higher taxes.

Jobs Plan - Expensing Capital

Another part of the President's job plan is intended to help small business. It includes expensing capital, government reforms and a reduction in regulations.

Expensing capital will probably help increase investment. It lowers the cost to the company and provides a faster payback on their investment. The downside is that the government gets the same amount of tax revenue, just later rather than sooner.

The government reform and regulation reduction looks pretty iffy. Business will wait and see if they really happen. On the flip side, new regulations will continue to be written for the next year or two just to implement the healthcare law and Dodd-Frank. On net, this will be an increase in regulation.

This portion of the President's plan doesn't reduce the major cause of the uncertainty businesses face, so I don't think it will make much difference.

Payroll Taxes - Temporary versus Permanent

The President's job plan has a bunch of stuff in it. One part reduces Social Security taxes on employers. This comes in a couple of forms. First, the rate is cut in half for a year for the first $5 million in payroll for a company. Second, the payroll tax is waived for new hires and on raises given during the year.

This is standard Keynesian stimulus. It is targeted, temporary and timely. It specifically targets smaller businesses where most of the job growth occurs. It is temporary since it is one year only. And it is timely since we need to deal with the unemployment now.

The question of course is will it work. I don't think so. If you've got $2.5 million in payroll today, the savings would pay for one person for a year. If you think that this is enough to get the company to hire one more person, then you must also believe that that person will get laid off when the incentive goes away.

The tax holiday on new hires and raises is helpful, but does saving 6.2% on either really tip that scale toward new hiring (or raises.) What it means is that for one year, an employer can pay for raises and new hires with 94 cent dollars. Again, if this will really tip the scales toward hiring someone, then it also means they will get laid off when payroll dollars cost 100 cents again.

Part of what drives hiring is investment. What drives investment is expected future profit. Profit depends upon both cost and revenue, and the proposed tax cuts help deal with the cost. However, the cost saving isn't permanent but the investment is. So I suspect that the investment won't get made. Without the investment you won't get the hiring.

We need a more stable business environment for investment to take off. That means permanent changes to the tax code and a stable regulatory regime. This part of the President's plan doesn't meet those criteria.