Economists offer contrasting views of AZ future

The rivalry between Arizona State University and the University of Arizona is now playing out at the state Capitol. On one side, UA's economist projects the state's finances will be crippled for years.

Republican budget leaders in the Legislature are using that forecast to justify cutting hundreds of millions of dollars from state agencies.

On the other, ASU's economist sees the economic struggles easing next year. Gov. Janet Napolitano, a Democrat, is trumpeting those figures to protect spending on health care and education.

In the middle are Marshall Vest and Dennis Hoffman, analysts who've spent nearly 30 years crunching numbers for Arizona's leaders.

They are unwilling political combatants. But their work is fueling a battle over how to erase billion-dollar deficits.

"I can tell you that Dr. Hoffman and I have one goal in mind," Vest said, "and that's to be as accurate and to give the best information that we possibly can. What happens in the political process is beyond our control."

Vest is an economics professor at UA's Eller College of Management and has provided state lawmakers his analysis since the early 1980s.

Hoffman holds the same post at ASU's W.P. Carey School of Business. He began working for the governor's office when Bruce Babbitt ran the state.

Babbitt's advisers hired ASU's economist because they suspected the Joint Legislative Budget Committee, the lawmakers' fiscal analysts, wasn't providing all its economic data, Hoffman said.

The university economists often produce similar findings.

But not this fiscal year.

Vest forecasts that the state will collect $190 million less in taxes than Hoffman's calculations suggest. Richard Stavneak, the legislative budget committee's director, has said he doesn't understand why the forecasts are so far apart.

"That's a little more than a rounding error," Vest said.

Nearly all state services hang in the balance.

Vest's and Hoffman's forecasts this year help the respective politicians they serve make their cases. But politics never influence the analysis, they insist.

"We're in the forecasting business so we take pride in being correct," Hoffman said. "Sometimes Marshall's estimates are closer than mine; sometimes mine are closer than his. And we compete over that."

Hoffman and Vest said they have a warm, professional, and competitive relationship.

"We know each other. We get along," Hoffman said. "But we never get on the phone" to discuss their forecasts.

Their contracts forbid them from exchanging information about their analysis.

The Legislature looks to the economists' work to safely navigate the state's volatile tax system.

That is particularly true now. Arizona relies heavily on sales taxes, which are difficult to predict and decrease quickly when the economy weakens.

Also, much of the state's fiscal well-being is tied to its indefatigable population growth and the construction and real estate industries it supports. The number of homes being purchased has plummeted, dragging down home prices, too.

"Alarm bells are going off everywhere," Vest told lawmakers at a budget hearing this week.

When homeowners know their houses are losing value, they spend less on everything else, Stavneak said.

Hoffman and Vest appear to differ on only one key point. Vest argues the housing crisis will weaken the state's economy further. Hoffman said the economy is as bad as he's seen, which makes it unlikely the situation will get worse.

That is, Hoffman added, so long as the nation doesn't suffer some geopolitical crisis, like a terror attack, or fall into a prolonged recession due to stock market losses.

"And Wall Street seems to be doing that, by the way," he said, laughing.

The economists said no one challenges their independence, including the politicians who approve their contracts.

Both are careful to avoid statements that could be construed as political. However, they do criticize Arizona's budgeting process.

Hoffman argues it is wrong to make spending decisions based on only the direst forecasts, as some legislative leaders regularly do.

Vest said the tax system is so unstable that it struggles with billion-dollar deficits at least once a decade.

"We go through this horrendous cycle every five, six, seven years," he said.