Economists tell Arizona lawmakers recovery still underway
PHOENIX (AP) — Economists who advise the Arizona Legislature said Thursday they believe the state’s financial outlook will continue to brighten at a moderate pace despite pressure from national and world markets that have dropped in recent weeks.
The report by members of the Finance Advisory Committee gave a bit of calming news to lawmakers who tend to look on the gloomy side of state revenue forecasts. It came a day after a report from the Legislature’s budget analysts showed a sharp drop in corporate tax payments, which is believed to be the first sign that a phased-in cut in corporate taxes is starting to weigh on Arizona’s treasury.
The lower revenues have long been projected but were thought to have been delayed as corporations filed for extensions.
Recent swings in the stock market, a collapse in oil prices and fears of a recession weighed on lawmakers who are expecting a $625 million surplus by the time the next budget year ends in June 2017.
But the calming tone of private and university economists who advise the Legislature should help.
“If you liked ’15 you’ll probably like ’16, there’s just a little more drama, as we’ve already seen,” said Elliott Pollack, a Scottsdale economist on the panel who pointed to imbalances in the economy. “I personally don’t think there’s anything strong enough yet to cause a recession. Recessions don’t just occur — they occur because there are things wrong with the economy. And there don’t appear to be enough things wrong to push us into recession right now.”
Pollack said the strong dollar, high inventories, economic issues in China and home financing issues will moderate growth this year. And he doesn’t see boom years like in recent decades because population growth and new home construction that drive the state’s economy haven’t showed up.
“Essentially, I don’t think this recovery is over. It’s possible that it’s close to the end, but I don’t think so,” Pollack said. “But the world has changed. Economic growth should continue, real estate should continue to recover, but no boom in this cycle until population increases a lot and housing makes a more meaningful economy.”
Other economists on the panel generally concurred with Pollack’s assessment. However, University of Arizona professor George Hammond said job cuts at southern Arizona copper miners will weigh on what is already tepid job growth in Tucson that’s averaging just 2,000 positions a year.
The drop in corporate tax collections is being offset by growth in income and sales taxes, but it has limited the increase in total tax collections to about 3 percent between July 1 and Dec. 31 from the prior year. A typical Arizona economic recovery sees much greater growth in tax revenue.
Former Gov. Jan Brewer championed a nearly 30 percent cut in corporate taxes and other tax cuts in 2011 that began phasing in in 2014. The state will forego an estimated $538 million annually by 2018.
There’s no appetite among Republicans who control the Legislature to reverse those cuts, despite pressure to restore major spending cuts to schools, universities, social service agencies and other area following the Great Recession.
“Honestly, I think that would be the worst thing to do in this economy,” said Rep. Justin Olson, R-Mesa. “What we need to do is entice our economy to grow, continue to reduce the burden that government is putting on our economy so we can put Arizonans back to work. When the economy’s showing signs of teetering toward recession would be the worst time to give signals that the government is going to demand more from the private sector.”