It’s no coincidence that as Arizona’s per student spending on education at all levels has declined for the past 38 years, that so has Arizonans’ per-capita personal income – from median in the nation in 1979 to the bottom tenth today, said Jim Lundy, CEO of Alliance Bank of Arizona.

To improve Arizona’s business climate, state and local governments as well as leadership groups should focus on increased K-12 public education funding, according to a survey of 400 Arizona CEOs that was shared in “Arizona 2016 CEO Outlook,” a report by Alliance Bank of Arizona.

Q: Why is education is Arizona business leader’s number one issue?

Jim Lundy, CEO of Alliance Bank of Arizona. Photo courtesy Alliance Bank of Arizona

A: When we did the survey, we weren’t really thinking about that (education). The focus was you’re a business owner – small, medium, big – you’re in Arizona and you’re going to either hire employees or not, buy new capital equipment or not, invest overseas or not – tell us what you’re thinking.

The results came back across the board the Number One issue is workforce development, investment in education and training.

That came across even more strongly among larger businesses who might have higher budgets and a more diverse mix of employees with different skill sets.

What was eye opening was it wasn’t we need lower taxes.

Businesses want a tax-favorable environment. Business wants an environment without too much regulation. Business is looking for ways to policies from state and local government that are business friendly as opposed to tying businesses hands.

That’s what you would expect, but what came out of the survey was that they actually feel pretty good about where Arizona is on those issues.

If we’re going to be serious about advancing Arizona companies, training our employees, creating a workforce that can work in sophisticated jobs and can frankly make enough money to support our governmental institutions, we need more education. That’s what really came through in this survey now.

The results are very supportive of the concept that the business community looks at education as a necessary investment in the future and its own ability to source the workers it needs to be successful.

The economy continues to change and evolve, and we need to invest in education to produce smarter, more technically competent, more versatile workers who can adapt to an economy that will continue to change and morph in ways that are really unprecedented.

That’s already going on so what we really need is an educational system that is flexible, that teaches people to think creatively, that teaches people to solve problems, but we have to invest enough money in it to attract good teachers.

We’ve got to recognize that a post-secondary degree, whether it’s a two-year associates degree from a community college, a technical training degree, a four-year degree, or an advanced degree, all of those are investing in the workforce.

Q: How do the top three challenges of doing business in Arizona –  education system, workforce and state government –  often outweigh the top three benefits – quality of life, climate, and low cost of doing business?

A: Arizona is a nice place to live. It’s reasonably affordable. The weather’s good, and there’s lots of sunshine. Those are natural advantages that I think people recognize.

But I think they’re also beginning to recognize that those alone are not going to get the job done in this increasingly complex, increasingly competitive world.

Several states in the country have set a post-secondary attainment rate as a goal, but Arizona has not set a goal. We only have 36 percent of our high school students go on to get either a two- or four-year degree. We need to set a goal.

Also, we may be creating skilled workers, but in a competitive economy they may be going other places to work where they can make more money.

Until about a decade ago, the Maricopa County Community Colleges system which provides either a two- year degree or the pathway to a four-year degree received at one time as much as 25 percent of its funding from the state. Now it gets none.

Do the business owners who took this survey, know those specific facts, maybe not, but when they say in your opinion what are the top three challenges – the education system, state government and quality and availability of workforce – that’s something that our leadership should do something about and they’re frustrated when they don’t.

Soon after Doug Ducey became governor, the legislature did away with a specific tax on businesses for workforce training, which has hurt efforts to recruit businesses to Arizona because there’s not another state we compete with that doesn’t have that.

We’ve declined relative to other states, because we’ve cut income taxes, reduced government, cut our investment in education, and cut workforce training. It shouldn’t be a surprise that other states are attracting and retaining companies that are more productive and have higher paying jobs.

Look, Arizona continues to be successful state and it’s a good place to do business, but if we don’t invest in this at all levels we’re going to decline relative to the other states and countries that we’re competing against.

I think that’s why there’s such a frustration with government at all levels. There’s a favorite mantra at the legislature amongst low-tax, small government advocates that the state shouldn’t be involved in picking winners and losers. Now, that’s a nice slogan, but the reality is in a complex, competitive economy we ought to be trying to help pick winners.

Arizona ought to be a winning state. To avoid being involved in smart policy decision making because that might ultimately favor companies that are smarter and can grow more is a fallacy.

We shouldn’t confuse the desire not to be involved in picking winners or losers with making smart investments whether it’s in education, workforce development or other things that are going to attract the winners.

Q: How would local government’s improving K-12 public education and workforce development along with state government’s increasing K-12 public education funding and providing pro-business tax policies benefit Arizona companies and attract business seeking to relocate to Arizona?

From Alliance Bank of Arizona’s Arizona 2016 CEO Outlook

A: Less than 70 years after Arizona became a state with an extraction economy – copper and agriculture –  our citizens were earning right at the nation’s median.

That is pretty remarkable and that can be attributed to the electronics, technology and aerospace boom that started in the late 1950s right after World War II and a big investment in the defense industry.

Today we’re in the bottom tenth of states for per-capita gross domestic product, despite a lot of good things that we’ve done, despite a lot of jobs that we’ve created. There are many reasons for it, but I do think that investment in education at all levels is one of the big reasons.

If you’re in the legislature for all the past 30 years, you might say  Arizona has had a higher population growth than many places in the country that didn’t have their population triple. I get that.

People come here and spend money, but when they have children and you have the next generation, you’ve got to invest in that and I think that Arizona has not been doing a very good job of that.

Arizona started individual income tax cuts in a very serious way in the mid 1990s, dropping from 5 percent to the current 3.5 percent.

When there’s a third less money to spend, maybe it’s not a surprise that our investment in education has gone down and our net per-capita GDP has gone down, because these things take time to unravel.

Arizona’s local governments – county, city and school boards –  are really at the forefront of our K-12 system. They’re at the ground level.

It used to be a given that most school bond issues if they were well thought out and presented, they passed. In recent years, that hasn’t been the case.

When you ask yourself as a business owner, what could local government do, the local school districts’ board leadership and the cities and the counties could recognize that a huge part of the funding mechanism comes from property taxes and bond issues, so the ability to articulate what that need is and meet that need with local financing is something that local government can do.

State leadership. What could the state do to improve the business climate? Fifty-six percent of the business leaders surveyed said the same thing – increase K-12 public funding that was number one, number two was pro-business tax policies, number three again increase higher education funding which was way ahead of streamline regulatory approvals.

Q: The business community has been key in restoring cuts to career and technical education funding, supporting Prop. 123 and many other education initiatives over the years. Why is it so important that businesses lead these efforts?

From Alliance Bank of Arizona’s Arizona 2016 CEO Outlook

A: Business leaders are meeting the challenges of competition every day. No matter what business you’re in, they key ingredient is your employees and your people.

You can gain an edge over another company in your space with technology, or you can afford to invest more in your plant or equipment – the physical investments of your business – but at the end of the day the great thing about capitalism is that capital seems to be efficient, seek out the people with the best ideas and invest in them.

It’s sort of back to my we don’t want to pick winners or losers. Capitalism has no problem picking winners and losers, it wants to pick the winners.

Capital is pretty efficient. It will seek out and find whatever business – whether it’s running a restaurant, whether it’s running a bank, whether its running a high tech manufacturing company, whether it’s running an aerospace company, whether it’s running and innovative startup to provide health benefits or dental clinic or you name it.

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If someone has proved a more effective, efficient way of meeting a market need, capital will find that and support it.

The real advantage over time and the way to emerge as a successful competitor is the skill of your workforce.

Better trained people, people who can solve problems, people who can think for themselves, not people who have got a bunch of facts, but people who can assimilate data that comes in different forms and different quantities and then take that new data and organize it in a way to solve problems are the ones who are going to make the difference in whatever business you’re in.

I think that’s why the business community is strong to articulate for more investment in education and workforce training, it sees the results when you can’t hire the skilled people that you need.

(The interview was edited for length and clarity.)