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Local economist: Recovery could take years

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Posted: Tuesday, October 13, 2009 11:00 pm

For an economist, Lee McPheters was refreshingly blunt last week when he announced: “We’re hoping that by 2013 we’ll be back to where we were in 2007.”

And the tanking economy, which has resulted in an estimated 312,000 lost jobs since the peak of employment in December 2007, has had a direct impact on the state’s massive budget woes, said McPheters, an Arizona State University economist and Ahwatukee Foothills resident.

The grim news was presented to The Greater Phoenix Economic Council Oct. 1 as it looked back over the past 25 years.

And while the numbers are grim, McPheters pointed out that when the economy has recovered from past recessions, Arizona has usually been at the front of the pack for job growth.

But that won’t help the state’s budget crisis now or next year.

With 80 percent of the state’s income from either individual income taxes or sales taxes, and jobs drying up combined with spending by consumers down, the state coffers are well below expectations, even after lawmakers tried to cut spending.

According to the Joint Legislative Budget Committee, the longest and deepest recession in postwar Arizona history has shrunk state revenues, while increasing the demand for health and welfare services, adding to what now looks like a $1.5 billion deficit in this year’s budget.

In August Arizona’s general fund spent $572.5 million, but only brought in $523.9 million.

McPheters pointed out that federal stimulus funding has helped a little this year to cut the deficit, but that four years from now, if spending and revenues continue as they have been, the budget gap could grow to more than $4 billion.

“I don’t know what the answer is,” said McPheters, other than to reduce services dramatically or increase taxes.

Lawmakers are also unsure what to do. Gov. Jan Brewer has insisted that a sales tax hike is critical to help stem the red ink and preserve services, but a few GOP lawmakers have managed to nix that idea, setting up an impasse between the two branches of government that may not get resolved until next year.

While most of the news is grim, McPheters and the Joint Legislative Budget Committee did point out there are some signs of recovery, or at least a slowing of the recession’s decent.

Home sales are slowly increasing and people continue to move to Arizona, even in the midst of the recession. And the Valley’s economic base of aerospace, electronics, telecommunications and business and customer service, places Phoenix in a good spot to take advantage of the rebounding economy as other parts of the country also begin to recover.

McPheters said that Phoenix has made some inroads in preparing for the next big economic wave that could help bring outside money to the Valley.

“What the next big industry ought to be is health care,” McPheters said, adding that with world-class facilities like the Mayo Clinic, genetics research, a medical school and other heath care facilities in the Valley, Arizona could benefit in the coming years. But some of the economic growth will depend on what happens in Washington in the coming months.


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