Jobs that stick: Will city be an economic engine?

2010-08-18T05:30:00Z 2010-08-23T11:34:19Z Jobs that stick: Will city be an economic engine?By MIKE IVEY | The Capital Times |

Kurt Sippel is one of those small-business entrepreneurs who economic development officials dream about.

A self-taught computer geek, Sippel launched Applied Tech Solutions a decade ago with $15,000 in savings and the faith that most every company could use help with its information technology systems.

Sippel also landed some early funding from the nonprofit Madison Development Corp. and low-cost rent in the Madison Enterprise Center on North Baldwin Street.

Today, the firm counts two dozen employees and is housed in a funky converted warehouse on Madison's east side. There's an open-air feel to the office at 203 S. Paterson St., with green beach umbrellas helping to shield computer screens from outside window glare.

Despite the recession, Applied Tech revenues grew 10 percent last year to $2.2 million and the firm continues to add staff, with workers commuting in from Fond du Lac, South Beloit and Beaver Dam, among other places.

"We're surviving OK," says Sippel, 44, adding that he's seeing more clients starting to think about making upgrades to their computer systems.

To Sippel, creating more well-paying jobs in the Madison area comes down to finding individuals willing to cook up an idea and run with it. One frustration, he says, is the continued emphasis on attracting outside money for the next great thing rather than supporting the small businesses that already exist.

"For a lot of these big investors, it seems like there's only an exit plan — not an interest in creating jobs that stick," he says.

And as the Great Recession drags on, that is indeed the question: What can Madison really do to grow its economy and generate enough jobs to keep the region thriving? For an area formerly insulated from economic realities thanks to the University of Wisconsin and state government, it's a critical discussion.

Over the past five years, the Madison Metropolitan Statistical Area, which comprises Dane, Columbia and Iowa counties, has lost nearly 11,000 private-sector jobs, or more than 4 percent of the area's total nongovernment positions. From high-tech medical equipment maker TomoTherapy to high-end appliance maker Sub-Zero Freezer, few local companies have been spared the pain, whether it's layoffs, pay freezes or threats to send jobs to other states.

And while there were still 84,400 government jobs here as of June 2010, roughly one-fourth of the total employment in the area, that may change too. With politicians of all stripes vowing to cut spending — Democratic candidate for governor Tom Barrett even boasts about "putting Madison on a diet" — the number of public jobs here could well drop.

The downturn has intensified the feeling among economic development insiders that Madison should be doing better with its natural gifts. Blessed with one of the top research universities in the world and a highly educated population, the city enjoys tremendous advantages. A stable economy has resulted in good schools, low crime and a healthy environment.

But while the UW continues to churn out the Ph.Ds, that scenario hasn't translated into thousands of new high-paying jobs. Even the much-touted biotech revolution has arguably fallen short on the job-creation front, with critics calling it a fad that could fade if investment dollars slow and marketable products fail to materialize.

"The attitude in Madison has been that we don't need to really do anything, we're just happy to trade among ourselves," says Tim Cooley, the first economic development director in city history. "But the world isn't that way anymore. We need to create opportunities throughout the strata of our economy. Right now, all we're doing is exporting brains."

Just reaching the office of Madison's economic development director can prove daunting. The creaky elevator taking visitors to the third floor of the aging Municipal Building features a note warning of possible malfunctions, adding that maintenance crews have been contacted. Cooley's small office features a rattling window air-conditioner and cardboard postal boxes on the floor he calls "Silicon Valley briefcases."

A Madison East High graduate and 1975 graduate of the UW-Madison, Cooley spent much of his professional career in California, most recently as a business consultant working with corporate boards, universities and public institutions in the Bay Area.

The local business community had long called for an economic development director at City Hall, but Cooley's hiring didn't come easily. Mayor Dave Cieslewicz initially tapped liberal former Madison School Board member Bill Clingan for the role. That choice created a backlash among business leaders and led to the resignation of University Research Park director Mark Bugher from the city's Economic Development Commission.

Clingan eventually took a job as community development director, with Cooley starting in February 2009 as economic development director at a salary of $107,700.

The outspoken Cooley has ruffled feathers among city staff and some City Council members. His recent effort to streamline the approval process for new development projects has sparked complaints that city officials are trying to block neighborhood and citizen involvement in the process. And others question Cooley's overall approach to economic development.

"I think (Cooley) has fallen into the same trap that most economic development professionals do of chasing the ‘big one' — that a big development or company location will solve our problems," says east-side Ald. Satya Rhodes-Conway. "Bringing in new companies is important, yes. But Madison shouldn't join the race to the bottom to attract them."

Cooley invites the criticism, however, and sees his role as getting the city serious about growing its private-sector economy. He says that is crucial if Madison hopes to keep offering the quality of life that has earned it top marks from a variety of sources as a great place to live, work and raise a family.

"I was lunching the other day with (UW System President) Kevin Reilly, and I told him we need to come up with 8,000 to 10,000 new jobs each year for the 40,000 grads he keeps turning out," says Cooley. "Otherwise, it's a crappy return on our investment if you don't have any way to support these kids and get them to stay here."

Sharing some of Cooley's frustration is Troy Thiel, a real estate broker and former candidate for City Council who relocated here from Evanston, Ill., in 2002. Thiel says he'd heard so many good things about Madison that he was disappointed to discover a community largely resting on its laurels.

Thiel says he's found Madison guilty of "grade inflation" when it comes to assessing its own performance. He says those calling the shots are more concerned about being seen as "progressive" rather than actually getting things done.

"Madison is a city performing far below what it should be in terms of attracting and retaining good jobs," he says. "Eventually, this will cause significant fiscal issues and affect our quality of life. Actually, it already is."

The drop in property values alone should serve as a warning sign, says Cooley. Property values in the city fell by $671 million last year, according to the city of Madison assessor. Commercial property saw a nearly 14 percent decline, as storefronts went vacant, offices closed and retail tenants moved out.

Compounding the problem is the fact that 58 percent of Madison property is already off the tax rolls, from parkland and the UW to churches or other tax-exempt entities.

To Cooley, the equation is pretty simple: Government services equal the tax rate times the amount of taxable property. If property values are falling, policy makers are only left with two choices.

"If you live and die by the property tax, your choice is either increase the levy or cut services," he says.

Given that Madison can't extend its borders much farther or start taxing the UW, Cooley says the only choice is to expand the tax base through new infill development.

Part of the frustration of those working to grow the economy is there is only so much anyone can do. Government can offer up incentives, incubator space or advice on growing a business, but at some point it comes down to individuals with an idea and the wherewithal to make it happen.

Kevin Conroy has been involved with two local biotech companies and has followed the national scene closely. He says the main thing holding back Madison is a lack of investors who can help new companies grow and established companies get bigger.

An attorney by training, Conroy joined Third Wave Technologies in 2004 and was named president a year later. The company was founded in 1993 by UW professors Jim Dahlberg and Lloyd Smith, who developed a technology for molecular diagnostic testing. The company made a public stock offering in 2001, with a listing on the NASDAQ stock exchange.

Conroy helped negotiate the 2008 sale of the company to Hologic Inc., the giant Boston-based medical diagnostics firm that specializes in women's health. Third Wave has been working on a test for human papilloma virus.

Conroy — whose name was floated as a possible Democratic candidate for governor before Barrett entered the race — is now heading another biotech startup, Exact Sciences Corp., which is working on a test for colon cancer. That company debuted on the NASDAQ last year and has grown from four employees to 30 in its first year.

"Madison doesn't have any shortage of great people or great ideas," says Conroy, 45. "The difference is we have one venture capital firm. Boston has over 100 and California has 200."

The lack of early stage investment has long been viewed as a problem here. State companies raised just $22.2 million of the $17.7 billion of venture capital raised in the U.S. last year, according to the National Venture Capital Association. The state regularly pulls in less than 1 percent of all the venture capital raised nationwide.

To that end, a recent report from Competitive Wisconsin, the Wisconsin Economic Development Association and the Wisconsin Counties Association calls for a new economic development organization called "Accelerate Wisconsin" that would oversee a $500 million state-backed venture capital fund. Ohio recently rolled out its own $700 million venture capital fund aimed at growing that state's economy.

Wisconsin did launch a $50 million tax credit program for early stage companies a decade ago but the results were mixed as it ended up costing $38,000 per job created, according to one analysis. The CAPCO program was dropped last year after the Legislature failed to reauthorize it.

Still, not everyone is convinced that more venture capital will suddenly turn the Madison area into a job-creating engine to rival Austin or Raleigh, both of which have grown their private-sector job base over the past five years despite the recession.

"Most of the big venture capital is still on the coasts, and I'm afraid there's not much we can really do about that," says Sean Robbins, executive vice president of Thrive, the eight-county regional economic development group run through the Greater Madison Chamber of Commerce.

Robbins notes that the drawback to venture capital is that investors generally want to keep a close eye on their investment. This can lead to companies being moved, gutted or simply shuttered once their technology is purchased.

And while a corporate buyout can enrich the company founders or early stage investors, it doesn't always translate into long-term job growth in the local community.

For example, one of Madison's first "high-tech" success stories was Lunar Corp., which was housed in a flashy $11 million building in the Old Sauk Trails Business Park. An outgrowth of UW-Madison research, Lunar Corp. was later purchased for $142 million by GE Healthcare, a subsidiary of General Electric Co.

But when the recession hit, GE Healthcare closed the former Lunar offices in 2009, moved the remaining employees to other locations, and put the building up for sale. It remains vacant amid the worst office market here on record.

In 2005, Bone Care International of Middleton was sold for $600 million to Genzyme Corp. of Cambridge, Mass., with those operations moved to the Boston area.

The latest example of a "buy-and-close" was the former Novagen, which shut down operations here last year. One of the first tenants in the University Research Park, Novagen was purchased in 1999 by a subsidiary of Merck but in June 2009 moved research operations to San Diego, ending the jobs of 70 staffers here.

"The good side of it is that when these companies are acquired, their founders can move on to the next great thing," says Carl Gulbrandsen, managing director of the Wisconsin Alumni Research Foundation.

Of course, not all companies move out when they are acquired. Hologic has kept Third Wave and its 150 employees in the University Research Park on Rosa Road. Madison-based biotech start-up NimbleGen Systems has kept operations here after being sold in 2008 to pharmaceutical giant Roche for $272 million.

Just this month, Toronto-based multinational Celestica purchased Allied Panels, an Austrian company with a dozen employees in McFarland making high-definition screens for medical imaging devices. Rather than moving, the firm is looking to add another five to eight employees here next year.

"Celestica is a $7 billion company, and they have great confidence in us," says Lyle Gold, marketing director for Allied Panels.

And other recent developments have business leaders encouraged.

Epic Systems has solidified itself as a national leader in electronic medical records and continues to add to its staff of 3,800 at its sprawling headquarters in Verona.

Virent Energy Systems has attracted more than $46 million in new investment capital for its technology to convert plant sugars into a fuel that can be blended into gasoline. The start-up has 80 employees and is looking to add another 16 this year.

And Cellular Dynamics International, started by UW stem cell pioneer James Thomson, has attracted more than $40 million in private investment over the past months and is ramping up its expansion efforts. The company has grown to about 80 employees since its launch in 2004.

Several business-boosting development projects are also in the works that economic development officials hope can turn more of Madison's brainpower into well-paying jobs.

The $150 million Wisconsin Institutes for Discovery is scheduled to open before the end of the year. The wedge-shaped facility between University Avenue and West Johnson Street will house the publicly funded Wisconsin Institute for Discovery and the private Morgridge Institute for Research.

Work is also under way on University Research Park 2, located off Mineral Point Road west of the Beltline. It's hoped the new office park can mirror the success of the first University Research Park, which counts nearly 4,000 employees and more than 100 companies paying salaries averaging more than $60,000 per year.

The city is also pursuing the "Madison Sustainability Center," a 50,000- to 70,000-square-foot business incubator that would showcase sustainable technologies and environmentally sound development. The center is eyed for the East Washington or Central Park corridor and could one day rival Monona Terrace or the Overture Center as a tourist draw.

"We need to put the commercialization process on steroids," says Robbins, 31, whose father, Mike, was a real estate professor at UW-Madison and colleague of the legendary James Graaskamp.

Robbins says the Madison area must think in terms of things it can export, whether a manufactured product like Epic Systems medical software or a financial service such as the insurance sold nationally by American Family. A good exporter not only brings in new money to a community, he says, but creates opportunities for other local support services such as IT, accounting or health care.

"We can win," he says. "We just need to make sure we are in the right race."


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