Arizonans' income not keeping pace with U.S.

The income of Arizonans, on average, rose less last year than anywhere else in the nation.

New figures from the U.S. Bureau of Economic Analysis show per capita income in Arizona was $32,953. That's an increase of just four-tenths of a percent.

That figure is determined by taking the total personal income of everyone in the state from all sources and dividing that by the latest Census figures.

Marshall Vest, an economist at the University of Arizona, said some of the small increase might be attributed in part to the state's rapid growth: If the number of people in the state who earn nothing increases faster than the national average - meaning children and the elderly - then it affects the calculation.

But the new figures show more is at play: The income of Arizonans, on average, is not keeping pace with the rest of the country.

In 2006, the state's per capita personal income was 87.7 percent of the national average. That put Arizona in 36th place.

By 2007 the figure slipped to 85 percent, dropping Arizona into 41st place.

And in 2008, Arizona per capita income dropped below 83 percent of the U.S. average. That pushed the state further down the ranking ladder, to 42nd.

Dan Anderson, economist for the Arizona Board of Regents, said the slide should come as no surprise, given the makeup of the state's economy. He noted, for example, that the decline in income from the construction industry in Arizona is five times as great as the national average.

"Our over-reliance on construction in the good times becomes a real detriment to the economy in the bad times," he said.

And Anderson pointed out that Arizona's decline in income from people working in retail trade is greater than any other state. Anderson said that sharp drop has been coming for a long time

"A lot of the consumption that Arizona has experienced has not been because of growth in income but because of people taking equity out of things like their homes," taking out second mortgages or lines of credit and using the proceeds to buy the things they wanted.

"That worked well for us when we had equity that was rising very quickly," Anderson continued. "But when that unraveled, it works to our detriment as well."

Gov. Jan Brewer, who reviewed the new report at the request of Capitol Media Services, agreed with the assessment of the narrow focus of Arizona's economy. But she has her own theory on the decline.

"This data, if accurate, appears to confirm my worst fears - that instead of fostering a healthy and diverse economy, our state has instead focused for many years on growing government entitlements," she said in a written response.

Vest said Arizona's per capita income, relative to the rest of the nation, peaked in the 1980s. That also happened to be a period when Arizona's mining industry, with its generally high paying jobs, was more active.

He said that, in general, the wages for the jobs that exist now in Arizona are lower than the national average.

"People are willing to accept a lower wage in order to live here," he said. "Arizona's an easy sell."

Put simply, Vest said, "we don't have to shovel snow," at least in most of the areas where most Arizonans live.

"The earth doesn't move,'' he continued. "We don't have earthquakes, we don't have hurricanes, fires, floods, mud slides, the natural disasters, tornadoes, all of that you would find in the rest of the country."

Anderson calls it the "sunshine factor." But he said the people involved with economic development have been selling more than climate to lure businesses here.

"For a long time, we have been trying to position ourselves as the low-cost provider," Anderson said, selling the idea that companies could produce their items here for less than elsewhere, whether because of less regulation or lower taxes.

"The corollary to that is you're not going to be the high value-added producer," he said.

"You're not going to be having a lot of jobs which require a lot of education, a lot of investment," Anderson said. "And now, as the economy turns around the other way, we're not seeing much in the way in those industries and those occupations contributing to our growth."

That's why Arizona's rate of income growth from those working in professional and technical services is half the national rate, he said.

While Brewer agrees with the essence of the problem, her answer includes some of the factors that may have contributed to the situation in the first place.

"The solution is to build a tax and regulatory climate that prepares our state for the long term, not just temporary reactions," the governor said. Part of her five-point plan for fixing Arizona's economy, unveiled earlier this month, includes less regulation and a more business-friendly tax code by 2012.

Brewer also wants changes in the way the budget is put together, including revisiting whether voter-mandated spending should be off-limits to legislative cuts and having a larger "rainy day" fund.

And she wants a $1 billion a year tax hike for up to three years to get the state through the coming deficits to avoid cuts deeper than $1 billion next year.

Brewer said her plan "allows employers to properly plan for a steady future in our State, with a business and educational environment that will encourage the best Arizona employers to remain and recruit excellent employers from other states and nations."

Following Arizona, the lowest year-over-year increases in per capita income came in Idaho, Nevada, Georgia, Utah and Florida.

The fastest per capita growth was in North Dakota, Alaska, Wyoming, Oklahoma and Iowa.