Grand Canyon Inst – AZ Budget Priorities: Tax Cuts v. Productivity & Prosperity

The Grand Canyon Institute is a “centrist think tank” that provides a great service to our state by analyzing economic issues and producing independent reports.  (You can read many of these reports at this link on their website.)

Below is June 8, 2021 press release from the Grand Canyon Institute. It incudes key findings from an research paper about educational funding and attainment and related declines in state revenue and productivity. You’ll note that decline in educational attainment among Arizona residents tracks with the state’s decline in school funding and the decline in state revenue. In 1970, Arizona had 18% more college graduates than the national average; by 2018, we had 9% fewer college graduates than the national average. When I moved to Arizona in 1981, I remember reading a quote in the newspaper from then Governor Bruce Babbit. He said the state’s economy was poised for greatness because Arizona had so many college graduates. Well, decades of budget cuts took care of that!

If you scroll all the way down at the bottom of the ASU graphic you’ll find the “money quote” in tiny type: “It is highly likely that the state’s relative declines in educational attainment contribute to declines in productivity and prosperity and have increased Arizonans enrollment in public assistance programs.”

The graphic also notes that if Arizona had not continued to cut taxes each year — thus maintaining the tax base — “the state general fund would have taken in 44% more in revenue.”

As I have said many times: the state of Arizona creates its own problems with short-sighted decisions that are rooted in ideology … not in data, science, or compassion for the people.

Press Release from Grand Canyon Institute:

If increasing productivity and prosperity are the goals, then Governor Ducey and state legislators should rethink a significant and permanent tax cut.

Declining per capita state revenue due to tax cuts over the past five decades corresponds with a fall in per capita GDP and per capita earnings. Contributing to the fall in productivity and prosperity is a decline in educational attainment. Among Arizonans 25 and older, the share with at least a bachelor’s degree fell from 18% above the national average in 1970 to 9% below the national average in 2018.

These are the findings of Arizona State University economists Dennis Hoffman, Ph.D. and Tom Rex, M.B.A. in their paper, Declines Relative to the Nation in Arizona’s Government Finance, Educational Attainment, and Economic Performance, published in 2020.

“Unless substantial changes are made to the state’s support for public programs, particularly education, declines are likely to continue in Arizona relative to the nation in the educational attainment of its residents and in measures of productivity and prosperity, causing demand for public assistance to continue to rise,” the authors concluded.

While progress on a state budget reached an impasse Monday, future discussions will likely consider a tax cut in some form or another. As legislators and the governor regroup, it is worth considering the impact that steady reductions in per capita state revenues have had on education attainment, prosperity and productivity in Arizona.

Key findings from the ASU economists include:

• Arizona state government revenue has declined substantially as a share of the state’s personal income. In the mid 1960s, Arizona state and local government revenue per $1,000 of personal income was 20% above the national average; by fiscal year (FY) 2017, it was 16% below the national average.
• Cuts in education funding have tracked with the decline in per capita state revenue. In FY 2017, K-12 and higher education had a $5.4 billion funding shortfall in Arizona relative to the national average after adjusting for the cost of living.
• Educational attainment of Arizonans has declined relative to the national average along with per capita state revenue and expenditures. Among Arizonans 25 and older, the share with at least a bachelor’s degree fell from 18% above the national average in 1970 to 9% below the national average in 2018. 
• Productivity and prosperity in Arizona have decreased relative to the U.S. average. Per capita GDP and per capita earnings went from near the national average in the1970s to between 19% and 20% below average in 2018 after adjusting for living costs.
• Demand for public assistance programs has increased and will continue to do so with the relative decline in the state’s prosperity. 11.6% of Arizonans received nutrition assistance (food stamps) and 26.2% were enrolled in the state’s version of Medicaid, the public health program for those with limited incomes in FY 2019, nine years after the end of the last recession.

How Productive is Arizona Relative to the Nation?