Panel Cautions Against Economic Quick-Fixes

Posted on June 07, 2002 | Type: In the News
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PHOENIX - Arizona lawmakers should not hike taxes or throw money at quick-fix solutions to stimulate economic growth because the state's sputtering economy is just traveling in a normal cycle, a panel of economic experts said Thursday.

"The state, we feel, is doing well," economist Robert Franciosi said in a presentation at the Goldwater Institute, a Phoenix public policy think tank. Still, "advocates of a greater government role have proposed a grab bag of policies to deal with the state's real and imagined economic woes."

Those policies include subsidizing businesses, increasing taxpayer support of the state's universities, using public money to lure firms that planners consider desirable and attracting "new economy" workers by creating urban amenities such as mass transit and revitalized downtown areas, he said.

And raising taxes to make up for future budgetary shortfalls will squelch business growth, the panel agreed.

Instead, government agencies need to trim spending and restructure tax policies, said panelist Carol Springer, state treasurer.

The state is groping for magic bullet remedies to jumpstart the slowed local economy, institute officials said, using as an example the current drive to raise $100 million to land the International Genomics Consortium, a group of researchers dedicated to biomedical research that advocates hope will stimulate the state's biotech industry.

"These plans look like an attempt to socialize the economy," said Goldwater Institute Executive Director Darcy Olsen. "It's central planning under the guise of economic development."

For every dollar in taxes raised, 20 additional cents in economic benefit evaporates, said Franciosi in the policy paper, "Assessing Arizona's Economy: Boom or Bust?" released by the institute. "This means that any public program will have to earn a return of 20 percent just to break even."

"When evaluating an economic development program, policy makers have to ask if it can earn a return of this magnitude, and if so, why the private capital markets have not snapped up the opportunity," the paper said.

Swift Transportation Co. Inc., Dial Corp., Phelps Dodge Corp. and The University of Phoenix and others are "state stars," said Franciosi, director of urban growth and economic development studies at the institute. "It is unfair to ask them to pay higher taxes to lure in the latest high-tech fad."

"If you own a business with workers who sweat, drink beer and drive trucks, why should you have to pay taxes to support businesses whose workers drink triple frappuccinos?" he asked.

The state's economic slowdown since Sept. 11 - in such industries as tourism, business services, aerospace and semi-conductor manufacturing - is transitory, said economist Elliott Pollack, president of Elliott D. Pollack & Co., a Scottsdale economic and real estate consulting firm.

Noting that manufacturing wages lead other sectors in the state at $48,575 a year, Pollack said the state needs to diversify its manufacturing base using the genomics consortium as a possible roadmap for the biotech industry.

"In 10 years, we will know whether the International Genomics Consortium made a difference," he said.

The relative smallness of the state's manufacturing sector and its comparatively small rate of job growth over the past decade are of some concern, Franciosi said in his paper.

But government should stay away from the business of subsidizing to attract more of an educated workforce and let the free market work, panelists said.

Arizona is not suffering from a "brain drought," Franciosi said. He noted that the state is ahead of the national growth rate of residents with college and advanced degrees, but also is ahead in the growth rate of residents who have not finished high school.

"It has yet to be determined if this is because of the school system, our labor market or proximity to Mexico," he said. "Until more about the phenomena is known, government policies run the risk of spending large amounts of money and missing the problem entirely."

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