Daniel L Horne
Daniel L Horne
June 24, 2010Arizona is an excellent case study in the effects of the Services Economy. Maricopa County, Arizona contains 60 percent of the state´s population and for all practical purposes controls the state´s government with an iron fist—an iron fist that is full bore in support of the Services Economy and is bankrupting the state in the process.
This article begins with a brief look at several Maricopa County politicians who are extremist advocates of the Services Economy. The first is State Senator Russell Pierce, a hard-liner if ever there was one. Senator Pierce is without question the most powerful man in the Arizona State Legislature. Second, from January 2004 until last month is Maricopa County Attorney Andrew Thomas, and the third is Maricopa County Sheriff Joe Arpaio, who is probably the most widely known sheriff in the world for a number of reasons—all of the negative.
Before examining "reasons why" these three are the poster children for the criminal justice segment of the Services Economy, let me state some facts that support my supposition they are "extremists" before I the state´s collapsed financial condition.
Books have been written on the human rights violations that exist in the Maricopa County Jail where serious injury and death, not pink underwear and bad food, are the topics these groups examining Sheriff Arpaio are concerned about. People are surprised when they discover that the Maricopa County jail has held a population of 9,500 to 10,000 county residents since 2005 (after the election of County Attorney Thomas) or that the sheriff's Tent City consists of 2,000 people who survive in the open desert with little to no protection for up to two years.
If you want to learn more about County Attorney Thomas and Sheriff Arpaio, you can read my book, Accidental Felons. There you will breath-taking detail of life in what can only be accurately described the first Prisoner of War Camp on American soil since the Civil War. A place where people routinely perish from any number of avoidable causes. You can also search YouTube.com with the phrase "Daniel Horne Accidental Felons" and find numerous television interviews with me on these subjects.
These three friends Pierce, Thomas, and Arpaio lunch together and are reputed to form a Troika of sorts, so let me guide you through Arizona´s present day Failed Services Economy.
A trip to the Arizona State Legislature´s Joint Legislative Budget Committee´s (JLBC) website reveals a financial train wreck in poor fiscal management. Arizona´s economy has historically been built first on agriculture and second on tourism. Visitors coming here to vacation, see Arizona's natural wonders, and then returning home after leaving a hefty amount of money behind in the form of sales taxes has always been critical to Arizona's economy. Income taxes are a big source of revenue for Arizona governments and personal income tax forms 80 percent of the total income tax collected. As Maricopa County is where most of Arizona´s workforce is located, we can apply the assumption that is where Arizona´s core income tax revenues come from. As Maricopa County is home to Arizona´s major Airport (Sky Harbor) its major Convention Centers, its Sports Complexes, and Arizona State University, it is reasonable to assume that much of Arizona´s sales tax revenues also come from this geographic area of the state. Remembering the above three Maricopa County politicians, look at the two charts below from the JLBC.
Remember that County Attorney Andrew Thomas assumed office in January 2005, when income tax revenues reversed their direction. And, that within a year after that (known as economic lag), sales tax revenues also began a continuing trend of collapse.
Looking at the top nine items on this agricultural-tourist state´s current budget, you see a monumental growth in the state´s Medicaid (AHCCCS) budget. As a finance professional, I take a conservative 10 percent of that Medicaid budget and impute it to the Corrections budget to more accurately reflect the "true cost" of The Services Economy with such extraordinary focus on Judicial Services in the state. When I correct for "true cost", the Department of Corrections is the number two driver of government spending for the entire state, superseded only by the K-12 education budget. With opportunity like this, is it any wonder the for-profit prison industry has lobbied so heavily in Arizona? (Author's Note: While Arizona is the case study in this article, these sort of examples exist in the legal system, the medical system, the social welfare system, and other artificially grown segments of The Services Economy too.)
Recall, I am examining a case study of a state whose number one product in its GDP is Agriculture and number two is Tourism. Yet, I see nothing to reflect any effort by the state to promote agriculture, parks and recreation, or fund the state´s Department of Commerce. Nothing to show any effort to reduce crime through programs that might add to the tax base and reverse its downward trend in lost sales tax.
During the period 2004 to 2010, County Attorney Andrew Thomas´s policies eventually began incarcerating people at twice the rate they are moving to Arizona.
During that time, the media repeatedly reported Arizona as one of the fastest growing states in the United States. What I did not hear was that Arizona grew its crop of prisoners at double the rate it was growing its taxpayers.
Richare (Rick) Romley was county attorney prior to Andrew Thomas. His policies were tough and he is a staunch Conservative Republican. He retired in 2004. In 2008, Rick Romley came out of retirement in television ads to ask Arizona voters to vote for the Democratic challenger rather than the Republican incumbent, Andrew Thomas, for County Attorney because of Thomas' consistent abuse of power.
I have postulated that a Failed Services Economy in Arizona has created a collapsing government because it has cannibalized on its population to the extreme that it destroyed its tax base while increasing the size and cost of government. In 2009 the Arizona Legislature was forced to sell all tax-payer-owned assets (reverse mortgages) to private investors, becoming renters to fund the state´s general operations beginning in 2010.
Looking at the figures on the X-axis in the chart below you can see the dramatic deficits in billions of dollars that the state began running in 2006 (FY07) and the drastic flattening of tax revenues that also occurred at the same time. This chart is in dollars where as the above graphs were on a percent basis. What these three charts indicate together is that the declines in revenues on a percent basis were a leading indicator foreshadowing economic deficits to come. Here you can clearly see just how catastrophic Arizona's Failed Services Economy has affected the state.
These deficits in 2010 would be even worse were it not for the fact that the federal government bailed out Arizona in like measure to its bank bailouts. Below is a chart of a spending plan for the moneys in the 2010 budget. $776 million of the $1.1 billion dollar´s estimated to be spent in FY2010 is the federal government bailout of Medicaid and the K-12 school system. It´s a one-time fix.
So where does Arizona go from here? I have analyzed one state that bought heavily into the Failed Services Economy´s judicial sector hook, line and sinker. It has arrested and incarcerated much of its own tax base and scared those living outside the state to the point that the marketing message of a tourist Mecca has been overshadowed by the constant bleat that Arizona is a dangerous place to visit and a dangerous place to live. The smaller, less prosperous, counties in Arizona (those who produce agricultural products and offer natural tourist attractions) suffer deeper than Maricopa County. Today, their small governments are heavily lobbied by the For-Profit Prison Corporations to build yet more prison complexes as a means of creating jobs—something Arizona´s politicians desperately need.
I forecast that Arizona will begin to visibly collapse as early as the next 18 to 24 months. A truism in Finance, as well as in nature, is that collapse is a catastrophic and sudden event. It is that the timing of a collapse, not the likelihood of its occurrence, that is difficult to establish. Growth and recovery on the other hand are slow, plodding, long-term processes. An arduous climb back to prosperity does not come quickly and it requires a lot of sacrifice to get there—in the case of The Failed Services Economy, it could be generations of sacrifice.
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