Fife's Myth

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The surplus is accompanied by continued strong population and job-growth rates. As of April, Arizona was second in the nation in creating new jobs and, not surprisingly, second in single-family housing permits for the first five months of 1997 at 13,111.

The euphoria surrounding the progression of positive economic reports makes it exceedingly easy to overlook negative information that indicates rapid economic growth is not necessarily good. In fact, Arizona's boom appears to be having a negative impact on personal-income growth.

Arizona, Montana and Vermont are the only three states where the poverty rate increased in the last year. Arizona's rose to 18.3 percent, up from 16 percent in 1995. The spike in poverty is reflected in Arizona's anemic personal-income growth.

Arizona's growth in personal income is below levels obtained during previous economic expansions. Economists say the flood of new workers into the state tends to depress wages even as the number of jobs increases and tax collections rise.

"We are creating a heck of a lot of jobs, allowing a heck of a lot of people to move here from other states, but they are just not making that much money," Rex says.

In July, JLBC economists warned legislators that, "Historically, Arizona's economic expansions feature double-digit personal-income growth that last two to four years, but that may not happen this time."

Despite the length and durability of Arizona's current economic expansion, which began in July 1991, annual percentage increases in personal income have not matched the levels obtained during Arizona's last boom economy, from 1984 to 1986 during Democratic Governor Bruce Babbitt's tenure.

The drop in personal income doesn't appear to be evenly distributed. Department of Revenue data show a rapidly increasing number of Arizona tax filers is making more than $200,000 a year. The number of taxpayers making $50,000 to $75,000 is up as well, but at a much lower rate.

Further analysis of the personal-income numbers reveals another disturbing trend: Inflation-adjusted per capita income is falling further below the national average.

Per capita income is a volatile economic variable, rising and falling with economic cycles. During previous cyclical peaks, per capita income reached 93 percent to 94 percent of the national average. This time, however, Arizona's per capita income is only 87 percent of the national average, and is not expected to climb further as the state's growth rate slows during the next few years, says ASU's Rex.

Arizona's per capita income ranks seventh out of 11 Western states. Colorado (105.2 percent), Washington (103.1 percent), California (103.8 percent) and Nevada (106.8 percent) all have per capita incomes greater than the national average. Arizona outperforms Idaho (81.2 percent), Montana (78.7 percent), New Mexico (77 percent) and Utah (80.2 percent).

Historically, Arizona has been below the national average for a variety of reasons, including its proximity to a huge labor pool in Mexico.

"It's not so much the level that is a concern to me," says Rex. "The [downward] change over a time is a concern. We have deteriorated in terms to others in the West and to ourselves over time."

Rex, one of the few economists to foresee the devastating recession that gripped Arizona in the late '80s, is alarmed by the dramatic decrease in per capita income as compared to the national average.

So is the state's senior economic forecaster, Robert Eggert.
Founder of the widely respected newsletter Blue Chip Economic Indicators, Eggert has made a national forecasting reputation for himself from his Sedona retirement home.

Eggert calls Arizona's flagging per capita income "a rather severe problem."
It is so vexing, Eggert intends to raise the issue with Symington's successor, Governor Jane Hull.

"I think it is that important," Eggert says.
Eggert and other economists say the root of the problem is that Arizona continues to attract corporations that pay below-average salaries. Such enterprises typically take a short-run view of the economy, and support tax cuts.

The state welcomes such companies with open arms. To be eligible for economic-development grants, the Arizona Department of Commerce requires a prospective business to pay wages that are at least 80 percent of the average wage in the county in which it would be located (exceptions are granted for "companies that demonstrate superior economic impact benefits to Arizona"). The average wages paid by grant recipients have fallen from nearly $35,958 in 1995 to $29,854 for fiscal 1997.

Corporations that pay above-average salaries, such as Texas Instruments--which Eggert describes as a company worth pursuing--are less concerned about income tax rates than about the condition of a state's environment, education and transportation infrastructure.

"We need to do more in getting the kinds of businesses that have a proven record of paying higher salaries," says Eggert, who generally is in favor of income tax reductions. "That's step No. 1."

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John Dougherty
Contact: John Dougherty