Strategic Importance of

Wall Street West

Lehigh Valley Community Forum August 23, 2007

Luc M. Miron DCED Technology Investment

Office

Key Component of the Rapidly

Evolving “Innovation Economy”

Opportunity + Competitive Advantage

Strategic Importance of Wall Street West

Two (2) Components

– “Economic Development” Component (Wall Street West)• Extend synchronoussynchronous fiber optic connectivity between

Northeast PA (NEPA) and NYC

– “Workforce Development” Component (WIRED)• Federal DOL program - successful $15M grant award• Goal: Implement a transformational regional strategy

through the intersection of workforce/economic development objectives around Wall Street West remote facilities

Wall Street West / WIRED Initiative

Project Impetus

– September 11 terrorist attacks caused major interruptions– Demonstrated vulnerabilities of US financial system– Interagency Paper on Sound Practices to Strengthen the

Resilience of the U.S. Financial System (April 3, 2003)– DCED/Commonwealth commitment to implement– WIRED funding – $15 million federal DOL grant

Wall Street West: Impetus for Project

S.E.C. Recommendations (Sound Practices):1. Identify clearing and settlement activities in support of

critical financial markets

2. Determine appropriate recovery and resumption objectives for clearing and settlement activities in support of critical markets

3. Maintain sufficient geographically dispersed resources to meet recovery and resumption objectives

4. Routinely use or test recovery and resumption arrangements

Interagency Sound Practices White Paper

• Two types of data processing lead to two different requirements

1. Batch Processing - Typical of most banks, and some insurance companies (asynchronous)

• Requirement is for space, power, and bandwidth, no inherent latency limitations

2. Real Time Processing - Typical of brokerage houses and mutual funds (synchronous)

• All transactions must be mirrored in real time• This translates to maximum latency of roughly 6 milliseconds;

this latency corresponds to 125 route miles or less of fiber

Law of Physics

Attractiveness of NEPA

. NYC

Proximity to NYC –within 125 fiber miles

Separate power grid from NYC

Different water shed

Potential labor pool; fastest growing counties in PA

“Business Case”: lower realty costs, labor costs, etc

Availability of potential locations

Critical mass of back office industry peers

Pennsylvania’s Strategy Elements:

– Focus– Research & Commercialization– Capital– Workforce– Infrastructure

Focus:• IBM Global Competitiveness Report

Identified four growth-oriented industry clusters and 11 subclusters:

– Life sciences • Integrated Biopharma Manufacturing• Biotech Research• Medical Equipment and Devices

– High technology• Next Generation Electronics• Alternative Energy

– Advanced manufacturing and materials • Powdered Metals• Agro-Food Processing• Prefabricated Housing

– Business services • Creative Industries• Regional Headquarters• Financial Services/back office/transactions

Targeted Business Development

Competitive Cluster

Test Sub-sector

A. Life Sciences A1. Integrated bio-pharma manufacturing

A3. Medical equipment & devices

A2. Biotech research A4. Advanced medical devices

B. ‘High technology’ B1. Next generation electronics B5. Alternative energy-solar panels

B2. Alternative energy-wind blades B6. Alternative energy-waste coal

B3. Alternative energy-wind generators

B7. Alternative energy-bio fuel

B4. Alternative energy-wind turbines

C. Advanced manufacturing & materials

C1. Powdered metals C4. Tooling/metal fabrication

C2. Agro-food processing C5. Fine chemicals

C3. Prefabricated housing C6. Defense production

D. Business services D1. Creative industries D4. Financial services/back office

D2. Regional HQ D5. Printing/publishing

D3. Financial services/transactions

D4. Financial service backofficeTotal weighted quality scores

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

Allentown-Bethlehem-

Easton,Lehigh Valley

Columbus,OH

Elkhart, IN Erie,Northwest

Harrisburg,Southcentral

Middlesex-Somerset-Hunterdon,

NJ

Orlando, FL Pittsburgh,Southwest

Raleigh, NC Reading,Southeast

Richmond,VA

Rochester,NY

Scranton-Wilkes-Barre,

Northeast

StateCollege,Central

1. General business environment 2. Local potential to recruit skilled staff 3. Presence of industry / cluster 4. Flexibility of labor & regulations 5. Infrastructure 6. Real estate 7. Living environment

D4. Financial service backofficeAnnual operating cost (million USD)

0.0

5.0

10.0

15.0

20.0

25.0

30.0

Allentown-Bethlehem-

Easton,LehighValley

Columbus,OH

Elkhart, IN Erie,Northwest

Harrisburg,Southcentral

Middlesex-Somerset-Hunterdon,

NJ

Orlando, FL Pittsburgh,Southwest

Raleigh, NC Reading,Southeast

Richmond,VA

Rochester,NY

Scranton-Wilkes-Barre,

Northeast

StateCollege,Central

Utility costs

Tax costs

Real estate costs

Labor costs

D4. Financial service backoffice

Elkhart, IN

Erie, Northwest

Allentown-Bethlehem-Easton, Lehigh Valley

Columbus, OHHarrisburg, Southcentral

Middlesex-Somerset-Hunterdon, NJ

Orlando, FL

Pittsburgh, Southwest

Raleigh, NC

Reading, Southeast

Richmond, VA

Rochester, NY

Scranton-Wilkes-Barre, Northeast

State College, Central

5.0

5.5

6.0

6.5

7.0

7.5

80859095100105110115120

Operating cost index (average = 100)

Qu

ali

tati

ve

sc

ore

(Sc

ore

fro

m 1

to

10

)Cost-Quality Ranking

Pennsylvania’s Strategy Elements:

– Focus– Research & Commercialization– Capital– Workforce– Infrastructure

Research: Economic Engine & Leverage Effect– 260 Colleges and Universities– Pennsylvania ranks fourth in academic

Research and Development and its world-class academic/research institutions garner substantial NIH funding-- $1.4 billion in 2004.

• More than 22,000 students received degrees in the engineering and sciences fields.

• Pennsylvania provides over $130 million to academic research projects each year.

• Job Creation – approximately 36 jobs per $1 million of research

+ Construction and service sector positions + Indirect jobs (multiplier effect)

• Increase the number of start-ups and the number of company attractions to the state through enhanced research pipeline

• Innovation in existing companies

Research is a Powerful Tool

Commercialization:

Keystone Innovation Zones– Capitalizes on the Commonwealth’s greatest asset – our young

and talented graduates and our world-class college and university system.

– Designates zones in colleges and university communities that will foster innovation and create entrepreneurial opportunities to keep young, talented graduates in Pennsylvania.

Pennsylvania Provides:

– Operational funding for public/private partnership, incubators

– “Starter Kits”: Funding for university technology transfer and key faculty hires

– Tax credits for start-ups– Capital for growth

Erie

Warren McKean Potter Tioga Bradford Susquehanna

Wayne

Pike

Monroe

Carbon

Bucks

Montgomery

Phila.

Delaware

Chester

Berks

Lancaster

YorkAdams

FranklinFultonBedfordSomersetFayetteGreene

Washington

Beaver

Allegheny

Butler

Lawrence

Mercer

Crawford

Venango

Forest

Clarion

Armstrong

Westmoreland

Indiana

Jefferson

Clearfield

Huntingdon

Centre

MifflinJuniata

Perry

Cumberland

Dauphin Lebanon

SchuylkillSnyder

Union

Lycoming

Sullivan Wyoming

LuzerneColumbia

Lackawanna

Lehigh

Northumberland

Clinton

Cameron

Northampton

Montour

Cambria Blair

Elk

•

Pennsylvania’s Strategy Elements:

– Focus– Research & Commercialization– Capital– Workforce– Infrastructure

Capital Goal is to encourage and partner with private sector to fill gaps

Early Stage– Ben Franklin Technology Partners – Venture Capital: $60 million state investment generated $240 million in new

capital. Growth Stage:

– Venture Capital: $310 million state investment will generate $900 million in new capital.

Maturity and Reinvention

– Working Capital• Second Stage Loan Guarantee + PNC’s Pennsylvania Working Capital Growth

Fund = $200 million

– Construction• PIDA + Sovereign Bank’s Pennsylvania Small Business Growth Lending

Program

– Machinery and Equipment• Core Industries + Citizens Job Bank

Technology-based Economic Development Tools Along the Continuum

Pennsylvania’s Strategy Elements:

– Focus– Research & Commercialization– Capital– Workforce– Infrastructure

Workforce:

Advanced technology “knowledge workers” to retain and attract high-tech employers

• Without a highly skilled workforce, employers in life sciences, information technology, advanced manufacturing and business services are less likely to locate in Pennsylvania.

• PA needs to capitalize on a solid base of students and research activity; translating it into new “family sustaining” employment.

• Through WIRED (Workforce Innovation in Regional Economic Development) initiative, the U.S. DOL will invest $195 million in thirteen regional economies

• NEPA is one of 13 national awards in 1st cycle funding- $15 million over next 3 years (“A WIRED Wall Street West”)

• Regional transformational strategy involving economic development, workforce development and education

Workforce: WIRED Grant

Pennsylvania’s Strategy Elements:

– Focus– Research & Commercialization– Capital– Workforce– Infrastructure

Infrastructure/Sites

• More than $1 billion in infrastructure improvement funding available through the Economic Stimulus Package.

• Used for acquisition/site preparation/on-site infrastructure/construction

• Focus on brownfield sites

The Business Case •DCED IBM Global Competitiveness Study identifies

Financial Services as a key growth industry where PA has a competitive advantage

•Moran, Stahl & Boyer, LLC: 25,000 residents in Northeast PA employed in the Financial Services and Insurance Industry (Bank of America; Sallie Mae; Wachovia; Sovereign; PNC Bank;

Prudential Financial, etc.)

•U.S. Dept of Labor Financial Services Factbook 2005: Financial Services and Insurance constitute nearly 8% of PA Gross State Product ($36 B)

•U.S. Dept of Labor Financial Services Factbook 2006: Financial Services and Insurance Industry will grow by 12% to 2012

The Business Case •New York Times 12/05: “Allentown, Bethlehem and Easton drew 14,000 new residents from the New York Metro Area in 2005 -- doubling migration numbers from 1998.”

•Penn State Data Center: Pike County led all PA counties in population increase from ‘04 to ‘05, followed by Monroe County. Pike has also been the fastest growing PA county since 2000, up 21.7 %, +10,035 persons, followed by Monroe, up 17.7 %, +24,547

•Penn’s Northeast: “Locating a 500-employee business unit in Northeast PA (vs NY/NJ Metro) would

save the company $83 M over 5 years in taxes, payroll and real estate costs -- if located in a KOEZ, $165 M by 2013”

“Build It and More Will Come”

Lackawanna & Luzerne Counties

Back office operations, data center, business processes, insurance, etc

• 15,077 employees (source: Penn’s Northeast)

Lehigh Valley

Call centers, back office operations, etc • 10,016 employees (source: Lehigh Valley EDC)

Financial Services Industry in NEPA Region

Wall Street West/WIRED Key Deliverables

• 5 to 10 mid- to large-sized financial services firms establishing or growing operations in NEPA

• Creation of approximately 1,000 jobs and training 1,500+ during the WIRED grant period

• Branding NEPA as industry standard for business continuity and disaster recovery while bolstering NYC as ‘financial services capital’ of the world

• NEPA business growth in financial services and in all vendor support operations to the industry

• Wall Street West leads to other opportunities

– Data centric or data intensive needs

• And it’s also about “Main Street”

– Improving “last mile” situation in NEPA

And It Gets Better…