Horizon, Host: Ted Simons

May 20, 2009


Host: Ted Simons

Arizona Economy

  |   Video
  • The Economic Club of Phoenix will hold an economic forecast luncheon Wednesday. Arizona State University Economist Dennis Hoffman, one of the speakers at the luncheon, offers his perspective.
Guests:
  • Dennis Hoffman - Economist, Arizona State University
Category: Mortgage Crisis

View Transcript
Ted Simons:
Arizona's economic forecast is gloomy with only a hint of silver lining, according to experts who spoke to today's economic outlook luncheon. The annual event is sponsored by the economic club of Phoenix and A.S.U.'s W.P. Carey School of business. A.S.U. economist Lee McPheters was one of the speakers. Experts agree the recession will end in 2009 but McPheters says positive growth will be modest and Arizona can expect job losses to continue into next year. McPheters also pointed out that Arizona has the worst labor market in the nation.

Lee McPheters:
Arizona is the weakest of all 50 states as you've heard and Phoenix is the worst of all large metropolitan areas, when you look at labor markets. Great place to live, terrible place to be looking for a job. The consumer is the key to recovery. They have to be the key to recovery because what else could possibly influence it? Not exports, not business spend, not state and local government, consumers are not to come back into the game until home prices stop falling, until the stock market stabilizes, until they see that unemployment rates have kind of peaked out, until job losses begin to get smaller and smaller. And the consumer has to have confidence to buy and believe it or not, the consumer has to kind of back off of their inclination to save their money. Savings rates up to 4.2% possibly on its way to 5%, maybe on its way to 10%. But think about this for a minute. Every 1% rise in savings pulls 100 billion out of the spending stream. Well, if you have a 5% rate of saving, that pulls 500 billion out of spending stream, which is in fact about the same amount of the injection from the stimulus plan in 2009. So savings, good for the individual, in a sense. Not so good for the economy.

Ted Simons:
Joining me now is Dennis Hoffman, Arizona state university economist who also spoke at today's event. Dennis, good to have you here, thanks for joining us.

Dennis Hoffman:
Ted, great to be here.

Ted Simons:
The panel of economists, if you could put a package around it, where's the package going? What do they see?

Dennis Hoffman:
Well, we polled a national panel and they were a bit more optimistic than we even thought they might be, but 96% of the people polled said the recession ends fourth quarter 2009.

Ted Simons:
Do you agree with that?

Dennis Hoffman:
I think that there's a very real possibility. I'm heartened by a couple of things. I knew that Wall Street had to rebound, that it's a precursor of stability in the business community, business sentiment, that kind of thing. It needs to translate into more consumer confidence which in turn bill be bolstered by the actions of the fed and massive federal stimulus action. So I think it's a very real possibility. Of course the question is, you know, how robust will this recovery be?

Ted Simons:
Indeed, and another question for us here, how do we look in comparison with the west in general, the country as a whole.

Dennis Hoffman:
Arizona right now very, very tough times in the labor market. The worst consumer psychology I've seen and this is my 30th year here, by far the worst consumer psychology. It's manifested in dismal retail sales collections, no rebound in the housing market, that kind of thing.

Ted Simons:
We just heard the idea that, you know, we need people to save but we need people to spend. How do you see that dynamic?

Dennis Hoffman:
Lee made a very good point in the clip. It's very clear in economics, you can over save. You can kind of save yourself into a very, very deep depression. If everything seizes up. Now, that doesn't mean that we solve things by people willy-nilly just spending on anything. But there needs to be a rational pace of consumption, especially from those people that have the wherewithal to consume. That's the real puzzle right now. Credit is as low as it's going to get, frankly. It's absolutely very, very attractive to those people that have great credit ratings and have secure employment. But they're still not buying.

Ted Simons:
As far as again the forecasting element of all of this. What sectors look better than most? What sectors look like they're still going to stagnate for a while?

Dennis Hoffman:
New home construction, new construction kind of thing, forget it. It's just not in the cards right now. Permits are not being pulled. It's not happening. Now. But bits and pieces of construction people need to be aware, and the key, follow the money. Where's the money right now? In federal stimulus. So if you look at the state's energy plan you're going to find that significant amounts of money are going to be invested in everything from new air conditioners on schools to insulation to energy efficiency items, then of course there's the whole renewable agenda. I think the outlook for highway construction and road construction is very, very good. Again, impetus here is stimulus dollars; got to figure out where those dollars are going initially, follow those dollars. Stay away from retail, stay away from new home construction.

Ted Simons:
As far as stimulus money, I know some money's already getting out there. Are we seeing a pickup of activity from what has already been released?

Dennis Hoffman:
Very little has actually hit the streets yet. It's all promise right now. But there are certain pockets. Arizona state university, for example, we are jammed up right now in terms of our ability to try to get grant applications out the door. That's ok because the feds are taking forever to review them. They are inundated with grant applications because there's all this money available. So we got to break through this logjam issue, but when that happens there will be significant injections of dollars. Figuratively fly a helicopter over the state or over the valley, filling it with cash, and dump it out the window. I mean, effectively that's what's going to be showing up later this year.

Ted Simons:
And yet those helicopter rides will end, and once they end are we going to be able to pick back up or are we going to be looking at the sky for more helicopters?

Dennis Hoffman:
Here's what we have, Ted. We have real pain, I don't envy any policy maker now that got all -- got very, very tough choices from the governor's office to everybody at the legislature. It is a tough challenge they face. Huge demands for public services, coupled with no money. Federal stimulus gives us an opportunity. It gives us an opportunity to bridge the gap from here to there. But we have to realize that the day of reckoning is going to come, and it's going to come in short order. So what we can do is burn through that federal stimulus money, but at the same time engage in real dialogue about what this state needs to spend to deliver whatever public services the citizenry wants, and at the same time couple that with a tax base that pays for those things. So if people want services, we hear that they want education. They want a better transportation system. They want this, they want that. It seems to me that all we have to do then is figure out what that costs and them simply say all right, if you want that, you have to pay for it. There's no magic here. There's no magic inefficiency in government that's going to be corrected and fix all of that.

Ted Simons:
We're going to talk a lot about that tomorrow on the program. Roundtable discussing ways to get the state moving and way to make it more consistent as far as revenue and as far as getting rid of the boom bust cycle.

Dennis Hoffman:
That's where the dialogue needs to take place.

Ted Simons:
Indeed. We're going to do that tomorrow night. Real quick before you go though, the idea of forecasting the economy, how difficult is that to do in this environment?

Dennis Hoffman:
It's a challenge. We had a great event at the Biltmore today, Ted, and for those of your viewers that want to see more of that, we have our knowledge at W.P. Carey site that has the record of what we talked about today. We have some clips; we have some narrative in terms of what is presented. Forecasting in this environment is really, really challenging. It's the obvious. If I could show you graphs, and viewers could see them if they go to the site. On the volatility that has taken place in terms of retail consumption, in capital gains incomes earned in the state, literally in the job losses that we have seen, it is completely totally unprecedented. We have three consecutive years of job loss in Arizona, unheard of. Historically we've only had one year in that 75 before now.

Ted Simons:
Got about 30 seconds left, you still think 2009 is the turnaround year, end of the year?

Dennis Hoffman:
End of the year, Ted. Part of the really tough part of this gets a little easier, things are so, so bad, we are going to be in a very deep bottom. At some point you can't year over year buy 40% fewer cars, because at some point you get down to virtually zero anyway. So the good news is sure, we reach a bottom. We begin to come back up. The bad news is it's a slow climb from a very, very deep bottom.

Ted Simons:
All right. Dennis thanks for joining us. We appreciate it.

Dennis Hoffman:
Thank you, Ted.

Legislative Update

  |   Video
  • Jim Small from Arizona Capitol Times reports on the latest from the state capitol.
Guests:
  • Jim Small - Arizona Capitol Times
Category: Legislature

View Transcript
Ted Simons:
Good evening, and welcome to Horizon, I'm Ted Simons. Earlier today the senate appropriations committee consider aid new plan to balance next year's budget. Joining me to talk about that and other legislative news is Arizona Capitol Times reporter Jim Small. Jim, always good to have you here, thanks for joining us.

Jim Small:
Thanks for having me, Ted.

Ted Simons:
The package, how does this compare and contrast with what moved through the house out of committee I should say in the house.

Jim Small:
Last week the house heard a budget package, and this one is basically seems like it's based off of that one. Couple of the republican leaders we spoke with said that, you know, they took that package that came out of the house, went into some negotiations between the house and senate to try to figure out where they could, you know, kind of expound on it to address some things that had changed. One of the major things that had changed was a portion of education money they were proposing some excess balances they were going to sweep to make up some money in the upcoming year's budget; they ended up doing last week as a way to solve the current year's budget problem. So they had a hole to fill there. The economy got a little worse, the numbers, the deficit number grew a little larger, and so some of the major differences include, you know, privatizing a couple of prisons, they think that they can do -- take two or three prisons, have a management company basically pay a fee up front to take over these prisons and then they'd save some money every year in the annual cost of running the prison. Another area which brings in about $200 million in the plan is to take money, the taxes that people pay to register their cars. A portion of that gets distributed to cities and counties. They want to take about $200 million of that, put it in the state general fund, and instead let cities go ahead and give them access to impact development impact fees to offset the cost.

Ted Simons:
I was going to say, that sounds curious, because the VLT isn't that specifically targeted for certain things? Can they just use that money for whatever they want?

Jim Small:
A lot of that money does get thrown into the highway user revenue fund, which is basically for transportation construction and maintenance, things like that, and a lot of the money gets also shared with cities and counties as just kind of a revenue sharing way. It's similar to the idea that the state shares its income tax income with cities and towns, and so they just basically want to take a portion of that back.

Ted Simons:
Wasn't the idea that you can replace the vehicle license taxes with impact fees but again impact fees are I thought they were supposed to be targeted?

Jim Small:
Yeah, it's a bit of a change from what the house plan had, and the house plan also went after impact fees and instead what it did was basically asked cities to pay the state back some of that income tax shared revenue, and instead they could go ahead and access these impact fees and you're right, these impact fees are very specific in law. They're targeted they have to be collected for a specific purpose to absorb growth and they have to be spent for that purpose. If they're spent for things like sewers and libraries and police and fire coverage and streets and things of that nature, so certainly taking these restrictions off would be a significant departure in policy.

Ted Simons:
You mentioned privatizing three state prisons. Is that viable? Is it doable?

Jim Small:
You know, that's still remains to be seen. The department of corrections yesterday when I called over there, they hadn't heard about the plan yet, the bills were not out yet, so they were still looking into it. You know, the state had other prisons that it operates that are privatized. Nothing quite like this, where they've taken a state run prison and turned it into a private prison. They've generally contracted to build private prisons so it's a little different.

Ted Simons:
Is this the kind of thing that has enough votes to pass the senate, because I know president Burns was saying he didn't want anything coming out of committee unless he was sure it was going to make it the whole way? Is he sure?

Jim Small:
No, he's not. They had not shopped this to all their members yet. They haven't gone around and tried to tally votes. He said yesterday that he was departing from that strategy and, you know, I think the idea's really just to get something out and get things moving and hopefully facilitate some more negotiations with governor Brewer.

Ted Simons:
Has that worked in the house? Because that was the same plan of action in the house, get something out there, talk about it, and get things going. Seems like things in the house stagnated a bit.

Jim Small:
They did, and this was kind of always what was destined to happen, you get the bill out of committee and don't see a whole lot of action taking place on the surface. But when that budget came out, I think the next day daily meetings started with governor Brewer between the speaker, the president, and the governor which to that point hadn't occurred with that kind of frequency, you know, so I don't know what's actually going to happen, what's going to come from this. But certainly the intent is to try to, you know, delineate to the governor and say look, here's where we stand, here what's we're looking at doing, we want you to weigh in on it.

Ted Simons:
The fix of the '09 budget came not long after the house decided to get things rolling too, correct?

Jim Small:
Correct. Within a week they'd gone ahead and what they'd been meeting about was about the '09 problem.

Ted Simons:
The governor I don't think I saw anything regarding raising taxes, anything along those lines. Are they still on different tracks here? I know they're meeting, but is there a sense down there that there's still a lot of disconnect going on?

Jim Small:
There definitely is. Each side seems to have dug their heels in on this particular issue and the governor today made a speech in Tucson, variation of the speech she's been giving for the past couple months and called for a tax increase for increasing revenue by a billion dollars and republicans in the legislature are still holding firm to the idea that they don't want to do that on the grounds it's going to hurt the economy and, you know, typically not a republican stance.

Ted Simons:
So with that being said and the idea both in the house and senate there's still some work to do, where do Democrats come into all this? Is there a little power broking going on there? Or still in the hinterlands.

Jim Small:
Still in the hinterlands I think. We'll see if things change next week. Tuesday they're planning on releasing a joint house and senate budget proposal they say will address the entire problem and they feel will have almost unanimous support within their own caucuses and in fact the statement that was made at a press briefing earlier this week was if they get anywhere near 12 votes in the senate and 25 in the house on the democratic budget, then they're going to have more votes than either of the republican plans have. Whether they use that to shop around and try to pull republicans on board remains to be seen. The last budget proposal they put out, they used merely a menu of options, some suggestions they hoped to kind of use to start discussions with republicans.

Ted Simons:
Last point real quickly, senate plan deferring payments to access, deferring payments to universities, deferring payments to D.E.S., weren't these the kind of things that were considered budgeting gimmicks and maneuvers in years past?

Jim Small:
They were, and in fact a couple of the items were included in the first house democratic budget proposal, as well. And they already did defender payment to the universities once last week. To solve the current year's budget problem. And, you know, that question's been raised to speaker or to speaker Adams and president Burns, and the answer that we get is something along the lines of, well, yeah, it was gimmicky back then when we had the ability to do other things. But now we don't have any other ability, and we're doing everything we can to avoid raising taxes.

Ted Simons:
All right. Jim, thank you for joining us, we appreciate it.

Jim Small:
Thanks for having me.

Maricopa County Supervisors/Attorney Feud

  |   Video
  • The latest developments in a political battle between the Maricopa County Board of Supervisors and the Maricopa County Attorney.
Guests:
  • Mark Flatten - East Valley Tribune


View Transcript
Ted Simons:
The Maricopa county board of supervisors doesn't want Andrew Thomas to be legal counsel so they set up their own legal department. Here with more, Mark Flatten, a reporter for the East Valley Tribune, covering this story. Mark, it's been quite a story too. We've had you on a few times with all the feuding going on, now we've got -- they take $6 million and what, set up their own shop?

Mark Flatten:
They actually set up their own shop back in March. But they said they were only going to fund four positions. But what they did in the vote Monday was they actually approved the county attorney's budget, then they went back in and stripped $6 million out of it. From their civil division. They're going to move $4 million to what they call their general litigation department, which is essentially if you sue the county they're the guys that are going to defend the county. Then they got a special litigation department for another 2 million which is if those guys have a conflict of interest we're going to send in these guys. This is all an outgrowth of the indictment of Don Stapley. There's so many layers to this story that it becomes hard to keep track of at some point. But when Thomas' office announced the indictment of Don Stapley back in December, almost immediately the board took action to strip the county attorney of its right to represent the county in civil cases which county attorneys by statute do in Arizona. And they've been fighting ever since, Thomas sued them, the board moved ahead with their own litigation section, they claim that Thomas has such an inherent conflict of interest they can't trust his judgment or advice. So it's just been one big roiling mess.

Ted Simons:
The basics are that the board basically saying the guy suing us is our own lawyer. We have to do something about that.

Mark Flatten:
The board has a couple of issues. But they all revolve around this conflict of interest. The board says look, this isn't retaliation for the Stapley indictment. Stapley I should say is one of the five members of the board. They insist it's not retaliation for that. They say look, we've been fighting with Thomas for years because he sues us repeatedly, he's become a nuisance, he's investigating us all now, we can't trust our lawyer and we need a lawyer we can trust. Thomas' perspective is this is pure retaliation for indicting one of their own, on a series of violations for not reporting things on his campaign finance reports. Thomas has actually sent the criminal case to the Yavapai county attorney's office for prosecution, and when he did that he said can't we all get along now. Well, the board made it pretty clear we're not going to get along now.

Ted Simons:
No kidding. So again, this new operation answers not at all to the county attorney, not one bit. Is that legal?

Mark Flatten:
That's a very good question, and something that the courts will eventually decide. Thomas still has a lawsuit pending, but as courts go this is probably going to take a long time. The new division will answer to the county manager who of course answers to the board of supervisors. The argument was the argument from the board is we can trust these people. Their interest rez representing us and we have the power to decide how litigation is handled in the county. Thomas' argument is, look, the statutes give that power to the county attorney to create sort of a check and balance, so that if the board acts illegally you've got an independently elected attorney who can challenge them, so that's going to be settled in court. Who knows which way that's going to come down? But what the board's arguing is look; we can't wait for the judge to decide this. This could be three, four, five, six months down the road.

Ted Simons:
And wasn't there also a confusion or misunderstanding I guess regarding the timing of the board of supervisors doing something like this? Because the idea Thomas' idea was they were going to wait for a court decision. The board basically saying we can't just sit around and wait.

Mark Flatten:
Well, as part of this lawsuit, Thomas' office took a deposition of sandy Wilson, the deputy county manager. And she said in that deposition, well, you know, we got a hiring freeze in the county, we're not looking to expand this debt. So that prompted Thomas to withdraw what they call a motion, I don't remember what they call it, essentially a plosion asking the judge to prevent the county from proceeding. Well, despite what Wilson said, the board went ahead and approved that anyway. And of course now Thomas is outraged saying they lied to me, sandy Wilson said look, I didn't make any commitment that we wouldn't hire him. I told him, you know, we would like some direction from the courts but we can't sit aground wait forever for the court to decide.

Ted Simons:
This was a unanimous vote, correct?

Mark Flatten:
It was.

Ted Simons:
That's relatively, not relatively, a provocative move by the board and this is after Andrew Tom was as at least making overtures of some sort of mediation, some idea of let's try to figure this out. Etc. Does this blow that kumbaya straight apart?

Mark Flatten:
I don't think there was Kumbaya. I think they were trying to one up each other on press releases, even the court motions read as press releases, Andrew Thomas has flagrantly violated rights of his clients and board of supervisors has flagrantly lied. So you see a lot of that powerful language you don't normally see in routine court documents working its way to the filing. So you get the impression mayor trying to argue this in the court of public opinion to a large degree. In terms of the 5-0 votes, the thing that's interest building this, if you buy Thomas' argument that all of this chain of events is pure retaliation for the Stapley indictment, Stapley has voted in this whole series of moves to strip the county attorney of its civil powers to represent the county. So if indeed it's retaliation, you could probably argue Stapley shouldn't be voting on it. If it's not retaliation, then I guess its ok.

Ted Simons:
Where do we go from here? Was there supposed to be a meeting today with Thomas?

Mark Flatten:
They were supposed to meet this afternoon. I don't know what came out of that meeting. I imagine not much. But it's very clear that both sides are not prepared back down and I'm not sure that either side really can back down at this point because Thomas has a fundamental question about the powers of his office. His argument is the constitutional statute is very clear that the county attorney is the civil legal representative of the county. The board's position, they can hardly back down either because they're saying we have independent authority to handle lawsuits. We don't need to go to the county attorney. So it's beyond a feud. It's a fundamental question of laws and constitutional powers and all of that.

Ted Simons:
Its fascinating stuff, and great job covering for us, mark, appreciate you being on the show. Thanks for joining us.

Mark Flatten:
Thank you.

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