The Iowa Journal _204

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The Iowa Journal _204 Powered By Docstoc
					The Iowa Journal #204 Iowa Angles on U.S. Economic Crisis Original Air Date: October 30, 2008 Iowa Public Television
Paul Yeager: The world's economy is reeling from a global financial meltdown. But how is Iowa doing? What can we expect in the coming months and can Iowa position itself to prosper? That's the focus tonight, along with a look behind the headlines, next. Funding for The Iowa Journal has been provided by Friends, the Iowa Public Television Foundation. Generations of families and friends who feel passionate about Iowa Public Television programs. Any by MidAmerican Energy Company, helping to harness renewable sources of electricity through its investment in wind power. Information is available at MidAmerican Energy, obsessively, relentlessly at your service. From river to river, border to border this is The Iowa Journal. Yeager. Here is Paul

Paul Yeager: Hello and welcome to The Iowa Journal. Whether buffeted by inflation or higher energy costs, or deflation and falling fuel prices, most businesses can adjust to a changing economy. Currently though it is hard for businesses or anyone else to discern just what the economic climate is. The stock market is schizophrenic. The record high gasoline prices of last summer have fallen to levels 50% lower. And while interest rates continue to fall and money has never been cheaper for banks; lenders, stung by the sub-prime debacle, are reluctant to lend to homeowners, consumers or businesses. We'll examine what pitfalls and the opportunities this climate may offer Iowa in a few moments. But first we'll turn to Kay Henderson of Radio Iowa for a look behind the headlines. Kay, this is a story that we were going to talk about already, Agriprocessors, but then some more serious news. Yesterday we were going to talk about the ten million dollar fines in labor violations. That's not even the biggest story now. Now, it's the former CEO has been arrested and is in court. What's going on there? Kay Henderson: Well, I know I'm supposed to talk about behind the news but I kind of want to go 20,000 feet above because this is a very interesting story. It's a little bit about globalization because the meat packing industry has this bid by a Brazilian meat packer to buy some American based meat packers and become the world's largest meat packer and America's largest meat packer. And then over a course of decades you've had this movement started by Iowa Beef Processors which used to be based in Sioux City, we sort of break unions which then sort of ushered in cheaper labor and we have the immigration issue and it's all sort of come to bear in Postville in that you had the Immigration and Naturalization Service raid earlier this year and, of course, now it appears that the feds are moving on multiple fronts actually confronting the owners of this plant which heretofore has not been done in the meat packing industry, it hasn't really boomed up to the corporate level so this is really kind of a watershed moment in the whole history of the meat packing industry. Paul Yeager: Because as you said it's going to be big news in Iowa just because it's been Agriprocessors and that's been in the news but on a national level.

So, ho much national attention do we anticipate this story is going to gather? Kay Henderson: I was watching cable television last night and they have a little scroll that comes across the bottom and tells you the nation's top stories. The ten million dollar fine against an Iowa meat packing plant was the top story. This arrest will be a top story because also the family that has owned this plant is connected to the city of New York City. This is where their base of operations was because they have a kosher butchery in New York City as well. Paul Yeager: I need to move on here real quickly to a couple of other things. Let's move to Cedar Rapids now where earlier this week there was the first demolition of one of the 71 homes that had been affected by the floods that they're going to tear down right now. This is a look at some of what is after, they're trying to clean up the foundation. They have a big job ahead. What is going on in Cedar Rapids right now? Kay Henderson: Just think back to when the flood waters occurred. That was in June. This is a long time coming for these homeowners in Cedar Rapids and winter is upon them. It may be warm today but it's going to get cold next month and a lot of these people still don't know the outcome of their property despite the 71 homeowners that you referenced here. Paul Yeager: And one other thing that Governor has said tomorrow is the last day, the 31st, to register if you think you're going to need any funding. But there is also another significant thing that he said about the amount of funding that is coming to the state. Kay Henderson: He expressed some disappointment that the federal government was not advancing as much money as he thinks that Iowa deserves. There is a possibility that some of this will be revisited when Congress comes back in session. In November when Congress meets in a lame duck session after the election this will be an issue that will be addressed. Paul Yeager: And the final thing we want to talk about is tomorrow, on Friday, Senator Barack Obama is going to be in Des Moines. John McCain and Sarah Palin spent a couple of days here last week. So, again, Iowa in the middle of these last minute rushes. But let's talk about some of the early voting in the final 20 seconds, Kay. What are the early voting stats looking like statewide? Kay Henderson: Whereas in other states you have had exponential growth in early voting that has not been the case here. The Obama campaign claims to be targeting what they call the sort of fringe voters, people who have not had a history of voting at all or maybe they voted just once in the past three elections, those are the people they say they have been targeting and they say those votes are more valuable to get ahead of election day. Paul Yeager: We'll see how that goes. Kay Henderson of Radio Iowa, as always, thank you for stopping by The Iowa Journal tonight. Paul Yeager: In the past few months the nation's economy has been hammered by a financial crisis that has tightened commerce around the world. The visible effects include layoffs, a delay in planned business expansions, a fall off in retail sales and an investment climate that has scared the socks off shareholders. The effectiveness of massive government interventions both here and abroad to prop up financial institutions is still in question. But in recent days talk of the economic depression has ebbed. Ironically the market today was heartened by news the economy in the third quarter has contracted less

than expected. In recent years some Iowa communities have endured dark economic times and now find themselves on the road to recovery. A case study in resiliency is the city of Newton which a few years ago lost its main employer. More than a century ago Maytag began taking root in Newton, Iowa, growing into the community's largest employer. The town faced its own economic crisis when Maytag closed its doors. At its peak the company employed 4,000 workers in a community with a population of some 16,000. The loss took an emotional toll on the workers and the community at large. The plant's closing triggered a response from Newton's leaders that has helped draw new industries to the community providing jobs and a fresh outlook towards the future. Craig Hamilton: People then realized that maybe this was an opportunity that we could look at being more diversified. Chaz Allen: There's four E's we work on. There's employment, there's entrepreneurship, there's education and there's entertainment. We want that to be the focus of our community. The Iowa Speedway, one of the first and most visible developments following the close of Maytag bolstered sagging spirits. It meets the entertainment component of Newton's transformation. Development surrounding the Speedway includes two new hotels with one just breaking ground, a new travel plaza and a possible expansion of the airport. Chaz Allen: Next year we have the nationwide series from NASCAR that will be here and anywhere from 55,000 to 70,000 people will come through Newton for a weekend. On the heels of the Speedway, the city was developing a new manufacturing base. The empty space that was formerly known as Maytag Plant 2 was a resource that helped the city in its effort to create jobs. Craig Hamilton: We had about two and a half million square feet of existing space on the north side of town. We got to see some projects that most communities would not see because they just don't have that space. Trinity Structural Towers is renovating a portion of the space to produce wind turbine towers. IT is anticipated the facility will employ 140 workers. The location of the facility is enhanced by its proximity to an interstate highway and to installation sites. Craig Hamilton: A lot of wind turbines are going up in the north central United States and because the pieces that make up these turbines are relatively big transportation costs are a huge factor. So they tend to locate the manufacturing near to where the final turbines are going to be installed. A second wind industry manufacturer, TPI Composites, decided to construct a new wind blade production facility in Newton. TPI has made a commitment to provide 500 jobs with the potential of adding 300 more positions. Governor Culver, an advocate for making Iowa a renewable energy capitol, attended TPI's grand opening on September 16, 2008. It took more than just Newton's location to draw wind industry to the community. It also took the willingness to create partnerships and to work out financial incentives. Craig Hamilton: All the agreements were always a four way kind of a thing between the state and the city and the county and TPI and we had to get pretty

creative and we really couldn't have done it without the help of all the groups working together. Financial tools including the state's Economic Development Set-Aside and Tax Increment Financing were implemented with the belief that the long-term benefit would outweigh the initial costs. Chaz Allen: Payroll at TPI you're talking a first initial payroll of $15 million a year. These are 21st century jobs that as the wind industry expands and they diversify energy that we're on the front line right now. A new biodiesel plant and growth in the telecommunication industry has also added new jobs to Newton. Craig Hamilton: We've probably increased employment in Newton planned and projected by about 1400. So we're making some progress. The completion of renovations to a portion of the former Maytag headquarters near Newton's downtown will offer educational enrichment. Craig Hamilton: Those two buildings at the other end of the complex were given to DMACC to renovate and create an expanded career academy both for the high schools and for more adult and continuing education in the evening hours as well. So, that's going to be a tremendous asset to the entire region once that gets done. Paul Yeager: We have lots of questions we want to get to tonight and hopefully we'll give you some answers on this topic. Let's take a look at some of those questions we're going to talk about. What impact will the current liquidity crisis have on Newton and other communities who are seeking to grow? What role can the state's private and public sectors play in economic development? And a third point we want to talk about is amid the current financial turmoil what are the emerging opportunities for Iowa? We have a great lineup of guests tonight. We have three active members of the state's manufacturing, technology and investment sectors. Charles Sukup is President of Sukup Manufacturing, one of the largest makers of grain bins in the world. Mr. Sukup is also Chairman of the Iowa Association of Business and Industry. Joe Crookham is President and Principal Owner of Musco Lighting. The company has provided high-tech lowenvironmental impact illumination for all manner of sports and other venues in the U.S. and abroad. Erich Lohmeier is Co-founder and Managing Director of NCP Incorporated, an investment banking boutique focusing on mid-market merger acquisition and private financing opportunities. Gentlemen, welcome to the program. Erich, actually I want to start with you here. When we talk about the current liquidity crisis in Newton what do communities need to do if they want to be more like Newton? Eric Lohmeier: I think frankly Newton has surprised a lot of us to the positive so really hats off to Newton because a couple of years ago the Maytag acquisition had fallen through or gone through and it was really a community in need and I think Newton has done quite a few things and very, very successfully. One is I don't think you can count out the legislative success that Newton has had and that is both on a local level, you saw the Mayor on the show there, as well as the state level and that is both the legislature and the Governor as well as the federal level. That was a very high level acquisition that made the front pages of the big papers and Newton had done a real job of saying, hey, this is America, this is Main Street and Newton has done a fantastic job really leveraging Iowa's infrastructure and the things that Iowa has got a very

terrific manufacturing base, a very great engineering school just north of here and has done a really good job of saying here are the strengths of Iowa, here is a qualified and fantastic workforce and really what can Newton do for your industry. Paul Yeager: So, Charles, with your role not just with Sukup but with the Iowa Business Group how do you translate that message to businesses on a statewide level then? Charles Sukup: Well, right now we're kind of hearing from businesses and we just recently had a manufacturing luncheon from the Iowa Association of Business and Industry to celebrate our heritage and one of the two big strengths of Iowa which is manufacturing and agriculture. And that is a phase that has a lot of transition and changing in it but we highlighted three companies that are really making advances in that area and building the manufacturing base. One concern that we have is the changing rate in the dollar. We like to call it a competitive dollar rather than a falling dollar but that is a strength in manufacturing. For the business side what we're hearing from our members in the Iowa Association of Business and Industry is that basically they haven't seen too much effect yet from the national economy. We have kind of been an island of stability and like most cases it takes a little time for things from the coast to reach us here which is an advantage for us at this point. Paul Yeager: You all have international interests but, Joe, with Musco when we talk about money falling from the sky it appears recently with the federal government there was some money that fell to these businesses. What impact has that federal money to businesses and banks had on economy, Musco or any others? Joe Crookham: Those issues like the federal government getting involved in that don't really impact us directly. They stabilize their financial market around us and that is important to have a stable market. But a business that is not out on the edge financial probably has relationships that will work their way through that. You may be doing business with a bank that gets itself in trouble and you have to find another one. But in general we have not found any real problem with that. I get concerned about the fact that there is too much shortterm reaction and not enough long-term planning and businesses that run with a long wheel base probably aren't seeing anything real severe at this point. Paul Yeager: We talked about banks and dealing with banks. What has your relationship with Iowa based banks, Midwest based banks excluding Chicago been with trying to continue your business operations of borrowing money, trying to move forward with your company? Joe Crookham: There really isn't any problem from our standpoint. We're working with our banks on our five year plans and talking to them about that and they're building the financial packages based up on that. So, a short-term, 90-day, six month, even one year impact on the financial market for businesses that are looking at things on a long-term basis, working with the banks as business partners I wouldn't think that they should have all that big a problem. Eric Lohmeier: Can I add something to that? I want to underscore this because this is really the silver lining when you're in an economic environment. I don't think anybody is going to underscore that this is something to where it's any kind of a tail wind for families and for a lot of businesses. But both businesses represented here as well, somewhat representative of our client base, there is a silver lining in this and that silver lining is there are phenomenal opportunities for well-placed, lower leverage type of businesses both to

consolidate market share as well as to look at some additional potential new markets where sometimes when the economies are pretty fast and furious you never have the ability to do that with some kind of competitive pressures. Paul Yeager: But look at Sukup and Musco were both starter companies at one time. What is the environment like though if someone is trying to get into that startup mode? Eric Lohmeier: And there is the other side of the equation and I can tell you I'm going to do a quick story here hopefully. I was in Chicago recently and had the fortune to meet with a senior executive in one of the nation's largest banks as a part of this conversation. We got onto the real estate markets. And he said, we'll buy an inch of our deposit base, which is one of the highest in the country, we are one of the largest real estate lenders in the country and I can tell you right now we are out of the real estate lending business. That is from one of the largest banking companies in the United States and this is after the bailout had passed. So, from a standpoint you can work that down into kind of small new businesses and the one thing I can say is much higher equity participation, it's much more difficult to get capital, you're going to have to really stress a business model to a higher return type of opportunity, a low leverage opportunity in this environment because otherwise it's going to be very difficult. When they're not lending on real estate collateral that just kind of tells you it filters down. It's a tough go for a newer business or a venture type of business to access leverage finance so it's equity, it's an equity game today. Paul Yeager: An equity game. So, Charles, go back with the family and you're trying to start Sukup Manufacturing in Sheffield. Is this an environment you think you could thrive in? What would you look at for trying to find liquidity or where you would start? Charles Sukup: Well, I think the key to that is just staying to the basics. We're always looking at some silver bullet at a time like this whether you're talking about in the legislature, what the state does or locals do, doing the basic to help support businesses, make it easy on them to add jobs because right now you've got a confidence situation that people are looking at well maybe we'll err in not adding rather than adding. And one of the positive things there is the banks in our state are very solid and strong, agriculture we don't have a fundamental falling out of the bottom on it. I was speaking with my old college roommate who is a banker in northern Iowa and one of the great things they did was raising the deposit insurance to $250,000. He said the throwback they actually had an older person come in and wanted $250,000 in cash in our currency and you have a few people doing that and you've got a problem. Well, that has gone away since the congressional act stepped to the plate there. And it is a great, as Eric was saying, it's a great opportunity and Iowa businesses are stronger overall in their operating surpluses than those on the coast and further and just in the Kiplinger Letter they had great opportunities for people out there, every time does it and I think really a lot of our companies are better positioned in that area. But you've got to be cautious and make the dollars meet and slowly progress. Paul Yeager: Move that way forward. Joe, how do you make all those assets then come together and make things happen? Joe Crookham: The key thing I believe in building a business is making sure you keep a view on the long-term strategy and what it is. Moments like this are real attention getters and you really do have to pay attention to what is

happening at this point in time. But you just need to be working a long-term game plan. And when we started our first year in business we did less than $1000 in total volume. So, I know what small is. But even when you're at that stage you need to be thinking about where you want to get to long-term and accept the fact that there will be ups and downs in the short-term. And right now we're all being pummeled with all kinds of news about the people that are out on the extreme edge that are causing a problem and the financial market, of course, when they get in trouble they've got to deal with the money supply issues. Paul Yeager: The extremes make the news a little bit. I want to ask Eric a question. From a standpoint of public and private partners we talk about a merging of the two. Vision Iowa was a good model of that. Is that from your vantage point a way to kind of move us forward? Is that type of involvement between the two? Eric Lohmeier: Those are wonderful programs because they're seed programs in general. But the specifics from a state or even a federal package trying to kind of seed new businesses and new opportunities I think frankly money is much better spent bigger picture at the government level. And I'll just get into two of my passions which is infrastructure investment -- that would be the general but specific to that I'll include education as a big part of that infrastructure investment -- and making Iowa a great place to do business. There are opportunities for us, we've got a wonderful resource, a history of being an education leader from a state perspective and a lot of the young people it's very true, it was for myself and everybody I knew frankly, left the state at least for some time, some of us come back, a lot of us don't, but a way to do that is how do you directly incentivize people and that is the engineering, the math, the sciences, how can we do that possibly through frankly tuition credits, debt forgiveness and very targeted opportunities I'd love to hear some of the challenges or positives that you face in attracting talent to your own businesses. But I think from that perspective, again, every bit as important as the infrastructure of our state and that gets to the roads and to the airports and to the railways, etc. I think that is where the state and the governments really are best positioned to get a real return on that investment. Paul Yeager: Joe or Charles, you can answer. Joe Crookham: I absolutely agree. The infrastructure is a key issue. Our company is investing very heavily in our community in recreation, supporting development of recreation facilities and educational facilities because that's how you attract and keep the team members you need to make it move forward. You touched on the infrastructure issue and that is one of the Achilles heels of Iowa business is in 1905 Iowa had 11 members of the U.S. House of Representatives. Today we're very close to going from five down to four and I think a lot of our problem is a lot of our infrastructure plan today is still based upon logic that was used then. I would give as one key example that is a critical problem for us could be a decision maker as to whether or not our team is going to be able to stay with its corporate offices here. We have 106 airports in Iowa most of which are inadequate to serve business in any meaningful way and we don't have the kinds of airports we need and we spend a lot of time fighting about the right to keep local airports. It's like the one room schoolhouse. And if you don't have the business infrastructure in the state you're in deep trouble and business means airplanes. We fly almost daily and our customers expect us to be able to do that and we're struggling over the question of how you get an airport that really meets your needs.

Paul Yeager: So, is that something that is holding you to the state? active in looking at a different place to move some operations?

Are you

Joe Crookham: We are actively and we will as long as there is a fight left in it we will fight to get things done so that we can stay here but it does cause me grave concern. Our county road system in the state was built in the 1900s, the early 1900s and we're paying a huge amount of money. Our best guess would be that we spend about a million dollars per county on grave for roads that don't need to exist. That's $100 million a year. Paul Yeager: We've talked about that with the head of the DOT about the future of roads. If you would take some things away but you look at an industry that is dependent on roads is farming. What is your take on if we were to remove some of these roads from the infrastructure? Charles Sukup: Well, we certainly need them for the farm to market and getting the proper priority on it. One of the things we should talk about too are the opportunities that are out there and renewable energy that was touched on in the clip that you had from Newton there, bioenergy, biofuels, part of the strength has been what's happened with ethanol which is the first step on biorenewable energy and there is work being done at Emmetsburg on cellulosic ethanol conversation, Iowa State University has a big effort on biorenewables and the bioeconomy and that really is a fantastic opportunity. And there's a wonderful organization 25x25 advocating as a realistic goal that by the year 2025 that 25% of American energy come from renewable energy, biorenewables and yet continue to feed the world. Paul Yeager: You have less than a minute for this question but is there enough capital directed towards this emerging market? Eric Lohmeier: Again I'm going to have to say that I think that's best a publicprivate partnership. I think you touched upon that earlier and we got a little bit away from it and strayed. But I'll keep this short and sweet because I think both of you could comment. But I think that's where through tax incentives and through the private industry Newton has done a terrific job of bringing some of that industry to Iowa is where you can really do some of that kind of targeted investment for the renewable energy and I think that's a national security issue too. Paul Yeager: Where do you think the capital would be best spent on emerging technology? Joe Crookham: Again, it needs to be long-term investment. We started in looking at environmentally responsible lighting, we've managed to cut in the life cycle cost of lighting sports facilities, places of that sort. don't think there's any, again, it's not the silver bullet thing, it's a term strategy for being in a responsible position on energy. 1979 half So, I long-

Charles Sukup: We have to be very careful we don't pick winners and choosers and target it too specifically that we skew the results, that we sew the seeds and you're always surprised what blooms and what withers in regards to it. But there's some tremendous possibilities out there in the biofuels, bioenergy and it's going to stay. The corn prices have gone down but they will rebound here and it's the first step to what the oil situation is to be a very short period of time in the overall history of the world but oil has been the primary energy source.

Paul Yeager: That's Charles Sukup, he's President of Sukup Manufacturing and also the Chairman of the Iowa Association of Business and Industry. Next to him is Eric Lohmeier, Co-founder and Managing Director of NCP. And Joe Crookham is President and Principal Owner of Musco Lighting. Gentlemen, thank you for this discussion. That will wrap up tonight's edition of The Iowa Journal. Join us next week when The Iowa Journal will be devoted to questions that have arisen over the government mandated transition to digital television. If you have issues we'll have answers. Until then, I'm Paul Yeager. Have a good night. Funding for The Iowa Journal has been provided by Friends, the Iowa Public Television Foundation. Generations of families and friends who feel passionate about Iowa Public Television programs. Any by MidAmerican Energy Company, helping to harness renewable sources of electricity through its investment in wind power. Information is available at MidAmerican Energy, obsessively, relentlessly at your service.

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