Jobs that stick: Will city be an economic engine?

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Aug 27th 2010 - by Fix My PC FREE in: News | 0 Comment

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

A self-taught computer geek, Sippel launched Applied TechSolutions a decade ago with $15,000 in savings and the faith thatmost every company could use help with its information technologysystems.

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

Today, the firm counts two dozen employees and is housed in afunky converted warehouse on Madison’s east side. There’s anopen-air feel to the office at 203 S. Paterson St., with greenbeach umbrellas helping to shield computer screens from outsidewindow glare.

Despite the recession, Applied Tech revenues grew 10 percentlast year to $2.2 million and the firm continues to add staff, withworkers 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 seeingmore clients starting to think about making upgrades to theircomputer systems.

To Sippel, creating more well-paying jobs in the Madison areacomes down to finding individuals willing to cook up an idea andrun with it. One frustration, he says, is the continued emphasis onattracting outside money for the next great thing rather thansupporting the small businesses that already exist.

“For a lot of these big investors, it seems like there’s only anexit plan — not an interest in creating jobs that stick,” hesays.

And as the Great Recession drags on, that is indeed thequestion: What can Madison really do to grow its economy andgenerate enough jobs to keep the region thriving? For an areaformerly insulated from economic realities thanks to the Universityof Wisconsin and state government, it’s a critical discussion.

Over the past five years, the Madison Metropolitan StatisticalArea, which comprises Dane, Columbia and Iowa counties, has lostnearly 11,000 private-sector jobs, or more than 4 percent of thearea’s total nongovernment positions. from high-tech medicalequipment maker TomoTherapy to high-end appliance maker Sub-ZeroFreezer, few local companies have been spared the pain, whetherit’s layoffs, pay freezes or threats to send jobs to otherstates.

And while there were still 84,400 government jobs here as ofJune 2010, roughly one-fourth of the total employment in the area,that may change too. with politicians of all stripes vowing to cutspending — Democratic candidate for governor Tom Barrett evenboasts about “putting Madison on a diet” — the number of publicjobs here could well drop.

The downturn has intensified the feeling among economicdevelopment insiders that Madison should be doing better with itsnatural gifts. Blessed with one of the top research universities inthe world and a highly educated population, the city enjoystremendous advantages. a stable economy has resulted in goodschools, low crime and a healthy environment.

But while the UW continues to churn out the Ph.Ds, that scenariohasn’t translated into thousands of new high-paying jobs. Even themuch-touted biotech revolution has arguably fallen short on thejob-creation front, with critics calling it a fad that could fadeif investment dollars slow and marketable products fail tomaterialize.

“The attitude in Madison has been that we don’t need to reallydo anything, we’re just happy to trade among ourselves,” says TimCooley, the first economic development director in city history.”But the world isn’t that way anymore. We need to createopportunities throughout the strata of our economy. right now, allwe’re doing is exporting brains.”

Just reaching the office of Madison’s economic developmentdirector can prove daunting. the creaky elevator taking visitors tothe third floor of the aging Municipal Building features a notewarning of possible malfunctions, adding that maintenance crewshave been contacted. Cooley’s small office features a rattlingwindow air-conditioner and cardboard postal boxes on the floor hecalls “Silicon Valley briefcases.”

A Madison East High graduate and 1975 graduate of theUW-Madison, Cooley spent much of his professional career inCalifornia, most recently as a business consultant working withcorporate boards, universities and public institutions in the BayArea.

The local business community had long called for an economicdevelopment director at City Hall, but Cooley’s hiring didn’t comeeasily. Mayor Dave Cieslewicz initially tapped liberal formerMadison School Board member Bill Clingan for the role. that choicecreated a backlash among business leaders and led to theresignation of University Research Park director Mark Bugher fromthe city’s Economic Development Commission.

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

The outspoken Cooley has ruffled feathers among city staff andsome City Council members. his recent effort to streamline theapproval process for new development projects has sparkedcomplaints that city officials are trying to block neighborhood andcitizen involvement in the process. and others question Cooley’soverall approach to economic development.

“I think (Cooley) has fallen into the same trap that mosteconomic development professionals do of chasing the ‘big one’ —that a big development or company location will solve ourproblems,” says east-side Ald. Satya Rhodes-Conway. “Bringing innew companies is important, yes. But Madison shouldn’t join therace to the bottom to attract them.”

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

“I was lunching the other day with (UW System President) KevinReilly, and I told him we need to come up with 8,000 to 10,000 newjobs each year for the 40,000 grads he keeps turning out,” saysCooley. “Otherwise, it’s a crappy return on our investment if youdon’t have any way to support these kids and get them to stayhere.”

Sharing some of Cooley’s frustration is Troy Thiel, a realestate broker and former candidate for City Council who relocatedhere from Evanston, Ill., in 2002. Thiel says he’d heard so manygood things about Madison that he was disappointed to discover acommunity largely resting on its laurels.

Thiel says he’s found Madison guilty of “grade inflation” whenit comes to assessing its own performance. He says those callingthe 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 interms of attracting and retaining good jobs,” he says. “Eventually,this will cause significant fiscal issues and affect our quality oflife. Actually, it already is.”

The drop in property values alone should serve as a warningsign, says Cooley. Property values in the city fell by $671 millionlast year, according to the city of Madison assessor. Commercialproperty saw a nearly 14 percent decline, as storefronts wentvacant, offices closed and retail tenants moved out.

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

To Cooley, the equation is pretty simple: Government servicesequal the tax rate times the amount of taxable property. Ifproperty values are falling, policy makers are only left with twochoices.

“If you live and die by the property tax, your choice is eitherincrease the levy or cut services,” he says.

Given that Madison can’t extend its borders much farther orstart taxing the UW, Cooley says the only choice is to expand thetax base through new infill development.

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

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

An attorney by training, Conroy joined Third Wave Technologiesin 2004 and was named president a year later. the company wasfounded in 1993 by UW professors Jim Dahlberg and Lloyd Smith, whodeveloped a technology for molecular diagnostic testing. Thecompany made a public stock offering in 2001, with a listing on theNASDAQ stock exchange.

Conroy helped negotiate the 2008 sale of the company to HologicInc., the giant Boston-based medical diagnostics firm thatspecializes in women’s health. Third Wave has been working on atest for human papilloma virus.

Conroy — whose name was floated as a possible Democraticcandidate for governor before Barrett entered the race — is nowheading another biotech startup, Exact Sciences Corp., which isworking on a test for colon cancer. that company debuted on theNASDAQ last year and has grown from four employees to 30 in itsfirst year.

“Madison doesn’t have any shortage of great people or greatideas,” says Conroy, 45. “The difference is we have one venturecapital firm. Boston has over 100 and California has 200.”

The lack of early stage investment has long been viewed as aproblem 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 stateregularly pulls in less than 1 percent of all the venture capitalraised nationwide.

To that end, a recent report from Competitive Wisconsin, theWisconsin Economic Development Association and the WisconsinCounties Association calls for a new economic developmentorganization called “Accelerate Wisconsin” that would oversee a$500 million state-backed venture capital fund. Ohio recentlyrolled out its own $700 million venture capital fund aimed atgrowing that state’s economy.

Wisconsin did launch a $50 million tax credit program for earlystage companies a decade ago but the results were mixed as it endedup costing $38,000 per job created, according to one analysis. TheCAPCO program was dropped last year after the Legislature failed toreauthorize it.

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

“Most of the big venture capital is still on the coasts, and I’mafraid there’s not much we can really do about that,” says SeanRobbins, executive vice president of Thrive, the eight-countyregional economic development group run through the Greater MadisonChamber of Commerce.

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

And while a corporate buyout can enrich the company founders orearly stage investors, it doesn’t always translate into long-termjob growth in the local community.

For example, one of Madison’s first “high-tech” success storieswas Lunar Corp., which was housed in a flashy $11 million buildingin the Old Sauk Trails Business Park. an outgrowth of UW-Madisonresearch, Lunar Corp. was later purchased for $142 million by GEHealthcare, a subsidiary of General Electric Co.

But when the recession hit, GE Healthcare closed the formerLunar offices in 2009, moved the remaining employees to otherlocations, and put the building up for sale. it remains vacant amidthe worst office market here on record.

In 2005, Bone Care International of Middleton was sold for $600million to Genzyme Corp. of Cambridge, Mass., with those operationsmoved 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 tenantsin the University Research Park, Novagen was purchased in 1999 by asubsidiary of Merck but in June 2009 moved research operations toSan 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 CarlGulbrandsen, managing director of the Wisconsin Alumni ResearchFoundation.

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

Just this month, Toronto-based multinational Celestica purchasedAllied Panels, an Austrian company with a dozen employees inMcFarland making high-definition screens for medical imagingdevices. Rather than moving, the firm is looking to add anotherfive to eight employees here next year.

“Celestica is a $7 billion company, and they have greatconfidence in us,” says Lyle Gold, marketing director for AlliedPanels.

And other recent developments have business leadersencouraged.

Epic Systems has solidified itself as a national leader inelectronic medical records and continues to add to its staff of3,800 at its sprawling headquarters in Verona.

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

And Cellular Dynamics International, started by UW stem cellpioneer James Thomson, has attracted more than $40 million inprivate investment over the past months and is ramping up itsexpansion efforts. the company has grown to about 80 employeessince its launch in 2004.

Several business-boosting development projects are also in theworks that economic development officials hope can turn more ofMadison’s brainpower into well-paying jobs.

The $150 million Wisconsin Institutes for Discovery is scheduledto open before the end of the year. the wedge-shaped facilitybetween University Avenue and West Johnson Street will house thepublicly funded Wisconsin Institute for Discovery and the privateMorgridge Institute for Research.

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

The city is also pursuing the “Madison Sustainability Center,” a50,000- to 70,000-square-foot business incubator that wouldshowcase sustainable technologies and environmentally sounddevelopment. the center is eyed for the East Washington or CentralPark corridor and could one day rival Monona Terrace or theOverture Center as a tourist draw.

“We need to put the commercialization process on steroids,” saysRobbins, 31, whose father, Mike, was a real estate professor atUW-Madison and colleague of the legendary James Graaskamp.

Robbins says the Madison area must think in terms of things itcan export, whether a manufactured product like Epic Systemsmedical software or a financial service such as the insurance soldnationally by American Family. a good exporter not only brings innew money to a community, he says, but creates opportunities forother local support services such as IT, accounting or healthcare.

“We can win,” he says. “We just need to make sure we are in theright race.”

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