Longform

Fife's Myth

Page 3 of 5

If Fife Symington had such a powerful influence on Arizona's economy, he must have more than three dozen clones working as governors in other states.

Forty-three other states generated budget surpluses last fiscal year. Five states finished with zero balances and only one, New Hampshire, finished in the red, with a $10.2 million deficit.

Like the rest of the nation, Arizona's economic well-being is linked primarily to the nation's overall economic performance.

"We are tied to the U.S. economy, and as it is now, we tend to do a lot better," says Pollack.

Like most of its neighbor states in the Intermountain West, Arizona's economy seems to be magnified by the nation's, consistently outperforming the U.S. economy during good times, and faring worse than the national economy during recessions.

While Arizona's economy has diversified in the past six years, led primarily by major investments by Intel and other high-tech manufacturers, the state still is vulnerable to sharp economic declines because of the highly cyclical nature of the construction industry.

But don't look for any sharp downturn yet. Arizona's residential-construction industry is outperforming expectations, largely because the state continues to lead the nation in population growth.

The construction industry is further buttressed by the commercial real estate market, which is only now fully recovered from the 1980s' overbuilding debacle that led to a deep real estate recession. That downturn created the environment in which a desperate developer named Fife Symington committed bank and wire fraud.

Economists expect commercial real estate construction and industrial construction to remain strong the next few years even as residential construction slowly tapers off. If interest rates remain stable, economists predict the nation's economy will continue to grow at a relatively slow but sustainable rate of about 2.5 percent through 1999.

Pollack says Arizona is in for more good economic times.
"There is no end to this expansion in sight," he says.
But the expansion, Pollack cautions, is not being felt equally throughout Arizona. Phoenix has accounted for more than 80 percent of the economic growth.

"Tucson has done mediocre, while the rest of the state has been average," Pollack says.

Tucson has projected an antibusiness attitude, Pollack says, while rural Arizona faces numerous economic-development hurdles.

"Tucson is still smalltime," Pollack says. "Their attitude towards growth is not as a positive."

Pollack says Prescott and Flagstaff are the two cities in rural areas best positioned to capture the bulk of growth outside Phoenix.

One key to the economy's health, Pollack says, is a decadelong period of relatively low inflation.

"It's amazing when you consider inflation is so low," he says. "It's the longest period in price stability in two generations."

Low inflation along with a rapid increase in productivity driven largely by advancements in computer technology and international competition have increased corporate profits and fueled a burgeoning stock market.

Arizona's manufacturing sector has also expanded in the past decade and continues to grow while much of the nation is experiencing declines. Arizona's economy has become more diverse, and certain sectors, such as high tech, continue to rapidly evolve.

"The economy has really reached a much more mature stage than it was one, two or three recessions ago," says state Department of Economic Security economist Dan Anderson.

These factors, economists say, play a far bigger role in stimulating Arizona's economy than the Symington-era tax cuts, which have only begun to offset a round of tax increases imposed in the late 1980s during the height of the last recession.

While Symington supporters claim the tax cuts are a powerful stimulus to the economy, the data suggest otherwise. The first few years of income tax were very small, putting less than $100 back into a budget for an average family of four. Those tax cuts occurred about the same time Arizona's economy was surging toward its peak in 1995.

The largest tax cuts have been enacted since 1995, yet Arizona's economic growth rate is slowing, not increasing as the tax-cut supporters claim.

Because the Arizona Constitution requires a balanced budget, the state has historically enacted tax increases during recessions and tax cuts during expansions. Such reactive policies--raising taxes at the same time as demands for social services increase--could aggravate the length and depth of a recession by reducing the amount of money available to consumers, economists say.

Besides, it will be difficult to raise taxes in Arizona, even in emergencies. The Legislature, spurred by Symington, changed the law to require a two-thirds vote to approve tax increases.

Symington's true economic legacy will likely be written when the next recession hits and lawmakers must either raise taxes or further slash services.

KEEP PHOENIX NEW TIMES FREE... Since we started Phoenix New Times, it has been defined as the free, independent voice of Phoenix, and we'd like to keep it that way. With local media under siege, it's more important than ever for us to rally support behind funding our local journalism. You can help by participating in our "I Support" program, allowing us to keep offering readers access to our incisive coverage of local news, food and culture with no paywalls.
John Dougherty
Contact: John Dougherty