Legislative Update

May 21, 2008

Transcript:

>>Ted Simons:
Tonight on Horizon: there's still a budget stalemate at the state capitol. The latest on the state legislature from a state capitol reporter. We see it in high gas prices and at the grocery store. Inflation is back. A local economist crunches the numbers. And we'll hear about the effort by universities to get $1.4 billion from state lawmakers for building construction and maintenance. That's next on Horizon.

>>Announcer:
Horizon is made possible by contributions from the friends of eight, members of your Arizona PBS station. Thank you.

>>Ted Simons:
Hello and welcome to Horizon. I'm Ted Simons. At the state capitol this week lawmakers getting ready for a long memorial day weekend starting tomorrow here to bring us up to date on the happenings at the capitol, Arizona Capitol Times reporter Jim Small. Jim, what is going on with the budget?

>>Jim Small:
Not a whole lot officially. It's been about a week since lawmakers, a group of about 15 or 16 meeting behind closed doors to try to hash out a budget agreement just within the republican caucuses. They haven't met for a week. The division in the room was basically do we bond, do we not bond, do we borrow money to meet some of the $2 billion budget deficit. What's happening now is republican leaders in the house and senate have gone around to all of their members, spoken with them about what was discussed in those meetings, and also kind of trying to figure out where they should go from here and how they should work to address the gap in the plan. And it's unknown really what they're going to do. I talked stop house Majority Leader Tom Boone today. He said that they need to figure out -- they first need to finish talking to everybody. They were hoping to do this today. Once they do that going to sit down and the leadership team is going to discuss what the possible options are and what they think the best strategy will be.

>>Ted Simons:
So if it's not a spinning of wheels it's slow going at best.

>>Jim Small:
At best, yeah. And I mean, for the past week I think a lot of people have been under the assumption that these small group meetings have kind of reached as far as -- they reached the point as far as they're going for go. There was such a divide between the two camps, between the ‘we're not going to borrow anything' and ‘we need to borrow something' camp that it got to the point where having those meetings was becoming kind of fruitless.

>>Ted Simons:
I was surprised, the fix, no bonding in the fix. I think everyone kind of assumed that meant the '09 budget would have at least some bonding. I'm surprised that that barrier is still so strong.

>>Jim Small:
And that's I think the perspective of the people who say we're going to have to bond. Certainly democrats and the governor view the situation that way. They say we didn't go in for the bonding for the '08, for the current year, with the express intention of going after it in the upcoming year. But on the flip side of that argument, you have the fiscal conservatives who look at the current year fix and say, we didn't really do anything to address the core problem, which was government spending more than it's taking in. Only $300 million in cuts, only 200 million of that which goes from the current year into the next year. Okay. I mean if you're facing $2 billion and you've only made $200 million in cuts that's not a whole lot. They say that they put off the budget in ‘08; the fix took so long to take place they couldn't make any real cuts, that means they have to come back in '09 and make those cuts.

>>Ted Simons:
Apart from the budget and other things going on, the campus gun bill died in the senate. Didn't even get a vote. What was that all about?

>>Jim Small:
What basically what that was about a couple different stories. Senator Karen Johnson said she had the votes to put it out. She went around and talked to republican senators and was able to get the 16 votes necessary to send it to the house. Senate President Tim Bee has been telling reporters that's nice she's saying that but those votes weren't confirmed, a lot of them maybe weren't really solid yeses on the bill. And also besides that, the deadline for the house committee's hearings on the bill has long since passed. It's been a month since that happened. So there's really no point in sending it over. I think the truth is probably somewhere in the middle and it's probably actually more tied to elections coming up this fall than it is anything else. This bill has been very controversial. It's gotten a lot of headlines in the papers. A lot of people look at it and don't understand where the NRA and Senator Johnson and a lot of the pro-gun people down at the legislature are coming from with this issue. And they see it as kind of an idea that they wouldn't support. And I think you have a lot of republicans who have gone to Senator Johnson and to Senate President Bee and said we don't really want this to go on the ballot or go on the board for a vote. We don't want this to become an election issue when we go out and campaign in the fall.

>>Ted Simons:
Interesting. Speaking of guns, I think the senate okayed the idea of the loaded weapon in the car, visible or not. Again, what's this all about?

>>Jim Small:
Right. Well, this is an extension of a law that's already on the books. Right now you can have a loaded weapon in the car as long as it's in a holster in the glove box or in a map drawer in a car. If you have it on the seat where it's openly visible that's fine as well. Say you take your briefcase or put on top, coat or bag of groceries something like that, get pulled over by the police you can get arrested for having a concealed weapon in the car. The idea of the bill is to eliminate that, to say that people who aren't intending to break the law, who aren't intending to commit a crime, who just have a weapon for their own safety that it's okay for them to have a gun in the car. This is a bill that has drawn some criticism from the police unions and police departments around the state. They don't like it. They see it as a way for gang members to really be able to kind of skirt the weapons law.

>>Ted Simons:
And the governor usually sides with law enforcement when it comes to these types of gun bills. Is this headed for a veto?

>>Jim Small:
Well, I think if you look at the track record, most gun bills that have been opposed by law enforcement, pretty much all of them she's vetoed. She's sided with law enforcement and said they know better than I do. I mean, if history is any indicator that's probably what's going to happen to this one, I think. Lawmakers are trying to avert that. They have added a couple other provisions they hope will entice the governor to sign it, things that have to do with sentencing, sentencing for murderers, changing some of the laws involving sex with minors, things like that that are probably more acceptable to the governor and kind of hoping to use that as a carrot. So that way it didn't get the stick and get sent back.

>>Ted Simons:
Still everything on there and hope she includes the bill. Jim. Good stuff. Thank you for joining us. We appreciate it.

>>Jim Small:
Thank you, Ted.

>>Ted Simons:
From April of 2007 to April of this year, prices were up overall nearly four percent. That could increase even more, as we see gasoline prices going through the roof, and food prices increasing. However, housing prices are on the decline. As we continue our four-part series "Arizona's ailing economy," I'll talk to an economist about inflation, but first Mike Sauceda tells us about increasing prices at the grocery store.

>>Mike Sauceda:
You see did it when you go to the grocery store, hire food prices. US Department of agriculture says food prices were up 4% in 2007 compared to an average annual increase of 2.5% for the past 15 years. George Seitts is president of the Arizona Food Marketing Alliance, a group that represents several grocery chains in our stay. He says there's a variety of reasons for prices going up.

>>George Seitts:
For the first time in our history we are seeing a convergence of issues that we have not seen all come together at the same time. And that's energy, environment, food, agriculture, and probably water as well. Water is a part of the environment. So for the first time you've seen all of those come together at the same time.

>>Mike Sauceda:
One reason talked about for price increases is corn used for ethanol.

>>George Seitts:
I think it's been a factor. I don't think it's the only factor out there. Ill think a lot of the corn producers, Ag people have gone to ethanol production for their corn. That's certainly a market issue; it's a market-driven issue.

>>Mike Sauceda:
Another factor for higher food prices are investigators speculating on commodities.

>>George Seitts:
You look at Wall Street, trading organizations, traders out there, hedge funds out there, those are opportunities for hedge funds. Those are opportunities. There's been talk about trying to regulate them. I don't know if that's a good idea or not.

>>Mike Sauceda:
Seitts says food supplies are good.

>>George Seitts:
Supply--wise I think we're pretty well off, mike. I think on the supply side, the demand is out there, the supply is out there. You've got third world countries now, lesser developing countries that have come up, India, China, all that. So that's really driving the demand. And most people in the world want to be like the west.

>>Ted Simons:
Here now to talk about inflation is Tracy Clark, an Arizona State University economist and associate director of the ASU economic outlook center. Tracy, good to see you again. Thanks for joining us.

>>Tracy Clark:
Thanks for having me.

>>Ted Simons:
Give us some numbers here and tell us what they mean regarding inflation.

>>Tracy Clark:
Well, overall inflation is about 4% right now. Core inflation, which is everything accept food and fuels, is about 2%. So about 2% of the inflation that we're feeling right now is just in food and fuels.

>>Ted Simons:
Wow! That's a lot.

>>Tracy Clark:
That's a lot.

>>Ted Simons:
And the weaker dollar, I want to get to other aspects of inflation. But I wonder about the weaker dollar and how that plays into all of this.

>>Tracy Clark:
Well, it has had an impact. But for example, oil prices have gone up 20 bucks in the last month. And the dollar really hasn't changed against the Euro and some other currencies. So it's not really possible to say that, you know, all of our problem is the weaker dollar. Does it have a contribution? Yeah. But it's already made that.

>>Ted Simons:
Oil prices, much bigger impact. And they lag, don't they? I mean, the bad news is still a little bit further down the road, isn't it?

>>Tracy Clark:
Yeah. Oil prices right now are really an amalgam of a lot of things. Speculation, that's really the biggest component. Uncertainty over supplies and potential disruptions from Venezuela and some other places and at its base over the last few years, the rise in the demand from China and India and places like that. But if you stripped out the investor-led and some of the ‘we're afraid that supplies may be hurt', we'd probably have about $85 oil.

>>Ted Simons:
Closer to home, Arizona. What do we look like as far as inflation is concerned?

>>Tracy Clark:
There's not really much that's going to differentiate us from the nation as a whole. We may have somewhat more of a decline in housing costs, which might potentially mean that that component would be different. But we have to ship the food just about the same distance; we have to do all the other things that most other states have to do.

>>Ted Simons:
I want to go back to gas and groceries and how much inflation there is now seeping into other parts of the economy.

>>Tracy Clark:
Well, since core inflation, the nonfood and fuels is about 2%, it's a little bit over 2%. It's like 2.2, 2.3. The Federal Reserve likes to keep core inflation somewhere between 1 and 2%. So we're actually running above what they're comfortable with. And that's why they are signaling that they are not going to cut interest rates the next time.

>>Ted Simons:
I was going to say, can you read anything from the fed as far as interest? We're getting people now saying maybe it's a good idea to go ahead and raise interest rates, do something to change things around.

>>Tracy Clark:
Well, if you did raise interest rates, let's say 25 basis points, most likely that would pop the speculative part of the price increases in most of the commodities markets. And on the short-term that might be a little bit painful, but in longer term it would prevent what's happened in real estate and the stock market, which is letting that go on for a long period of time and get even more entrenched.

>>Ted Simons:
Interesting. I've often wondered about this aspect. Tell me if I'm off base. When inflation occurs, people don't necessarily think quickly about how much it costs businesses to produce things, to do things. Because inflation hits everyone, including business. How does that factor into all of this? The rising cost of doing business, inflation to the commercial sector?

>>Tracy Clark:
Right. Well, for most of the 90s, part of the 80s and on into the century, businesses had very little pricing power. If they did have an increase in the cost of business they basically had to eat it. The increase in prices from fuel and a lot of other things has been enough that businesses are getting a lot more pricing power and they are raising prices, so that's part of the reason that that core inflation is 2% -- is over 2% rather than being 1.5. And all you have to do is look at what's happening in the airline industry. They're rapidly raising prices. And in the 90s, that wouldn't have stuck. The first one to do it would lose market share and have to drop the prices back down. Now everybody's doing it because they're facing such a large increase in the cost.

>>Ted Simons:
Go back. The last time we've had inflation looking like this, how long did it last? How bad was it?

>>Tracy Clark:
Well, we've had -- you know, we had the long period in the 70s on into the 80s where we had a lot of inflation, double-digit and things like that. That's not what we're facing right now. What we're facing right now is a coming together of a lot of influences that they're exact opposite of why we had such low inflation for so long. In the 90s we had a strong dollar; we had dropping prices because we could send more and more stuff overseas to be made and then re-import it back. We had large surpluses of food and oil was at very low levels. What do we have now? Oil at very high level because of increases in demand and speculative activity. You have food that is a lot higher in cost because of the efforts to do the ethanol and also rising demand from places like China and India who want to eat better and they have the money to buy it now. So all of those things that were pushing inflation down during the 90s, not all of which were, you know, conscious decisions, are now pushing inflation up. That being said, when the economy slows down as it seems to be doing, and when the economy in Europe and some other places slows down as it seems to be doing, that will take some pressure off of inflation. So going forward, we may be looking at 2 or 3% in 2009-2010. Depending on what happens with oil. If oil stays where it is it's not going to make anymore contribution to inflation. If at one pundit said it could go to $200 a barrel, that's going to make a big contribution.

>>Ted Simons:
All right. Well, we'll leave it at that. Thanks a lot. Tracy Clark, thanks you for joining us. We appreciate it. A top Bush official was in town yesterday to talk about the economy. US Secretary of Labor Elaine Chou put a more positive spin on money marts in a speech she gave in Scottsdale to the Arizona manufacturer's council to the 2008 manufacturer of the year awards. Here's what Chou had to say about the economy.

>>Elaine Chou:
As you know, our nation's economy is currently experiencing some short-term challenges. But if history shows anything, it shows that we should have confidence that our economy can overcome temporary challenges and that the long-term prospects for our economy remain strong. I think it's encouraging that real GDP growth grew at .6% annual rate in the first quarter as there were people who were predicting it was going to be negative. And the national unemployment rate in April ticked down to 5%, which is lower than the average unemployment rate of the decade of the 1990s which was 5.7%. And the unemployment rate here in Arizona is even lower. It's 3.9% in April. More than a percentage point lower than the national rate. And that's a tribute to all the employers in this room who are doing so much to create jobs, hope, and opportunity.

>>Ted Simons:
There are many ideas for government to help the economy. We'll talk more about that tomorrow in the last of our segments in our special Arizona's ailing economy. One of those ideas comes from the state's university system. Here to talk about the $1.4 billion stimulus plan for economic and educational development is Arizona Board of Regent member Fred DuVal. Fred, good to see you.

>>Fred DuVal:
Thanks for having me.

>>Ted Simons:
Why this plan right now?

>>Fred DuVal:
Just a moment of Arizona history. If you look back there have been moments we've run into barriers for economic growth. It happened 100 years ago and we bonded to build Roosevelt Dam and the economy look off. 15 years later we needed water from the Colorado River for our cities to grow. We bonded to build a canal that enabled us to move forward. Education is the new critical component of competing in the global economy and we're up against a barrier called degree production. Arizona is not producing the level of grease, the quantity of grease that we need to fill the work force needs that we have in the state of Arizona and to compete internationally. And so what we've gone to the legislature with is a package that said this is the time to invest in long-term capital finance to keep marching forward in Arizona in investments in higher education. That will both in the short-term help us get through this economic decline and in the long-term diversify our economy by creating more skills, people doing more businesses in order so that future recessions are not as severe.

>>Ted Simons:
The board of regents have approved this. How much debate?

>>Fred DuVal:
The board of regents are very enthusiastic; the presidents are very enthusiastic about this. We have now taken this to the legislature. We've got a sales job to do walking people through it, a bit complicated, bond financing. But people understand I think intuitively that we're dealing here with state assets like roads and highways. University buildings are state assets. We have $470 million of deferred maintenance, buildings in disrepair. We're going to pay for these buildings, repair them. These are assets for our future generations. The question is there a reason to do it now? Our case is given that construction industry is so much on its back and so a part of the driver of this recession, let's get the construction industry back to work and invest in long-term brain power.

>>Ted Simons:
You mentioned taking it to lawmakers. Even sympathetic lawmakers are saying like the idea, like the concept. Where are we going to find this money?

>>Fred DuVal:
Our offer is we'll pay for it. The universities will raise the money to pay for it at the outset. We know right now the next couple of years the state can't afford an extra nickel. This is bond financing. We'll pick up the bond payment for the first couple of years and then adjust to a balance between the university contribution and state contribution. We can negotiate what that ought to be. Ultimately these are state assets the state owns. These are state responsibilities to fix these buildings.

>>Ted Simons:
Again the critics will say at a time where you're looking at $2 billion budget problem here, maybe you wait a couple years, maybe wait one year, wait for a better time to get not only this through to lawmakers but to voters to have them say now is the time for this kind of capital project.

>>Fred DuVal:
Ted, I say a couple of things. First is it's no time to wait when we're in this kind of economic doldrums. The faster we can get the construction sector back to work the faster the economy will come back. It's no time to wait when generations of kids aren't getting educated because we don't have the capacity to educate them in our system. Delay is never a good strategy in a global economy based upon knowledge. The imperative of now exists both in the short-term because of the economic stimulus this creates and in the long-term so we can offer opportunity to our graduating student so they can produce the brain power to diversify this economy so we don't go through this kind of roller coaster every eight or nine years.

>>Ted Simons:
You said we're not graduating enough college students as we should. I don't know you're talking overall population or those who actually start college and don't wind up with a degree.

>>Fred DuVal:
We graduate about 18,000 students in our system statewide in Arizona. The United States is 16th in the world in the percentage of degree production per capita. Arizona is 46th in among the 50 states. Our degree production will need to double by 2020 in order for us to hit the international competitive mark for degree production. And we're talking here of the stimulus packages. Nursing buildings so we can create more nurses, more teachers, downtown biomedical campus so we can create more doctors. These are all occupations that we need as part of not just economic growth but for our quality of life.

>>Ted Simons:
But if the universities aren't quite up to speed according to some in terms of graduating those who get into the university in the first place, how do you convince lawmakers, the general populace, investors, that this is something we should invest in?

>>Fred DuVal:
We work very hard at this. Higher education is expensive. It's too expensive. We work very hard at capping that cost. The average graduates with $18,000 of debt. We work very hard at trying to keep those pressures down, because that's driving a lot of talented kids who could be acquire a degree, become business starters, economic producers and we're losing too much talent because of the cost of higher education. We work very hard at that. But it's also at capacity. Arizona builds 21 new elementary schools every year to keep up with this phenomenal rate of growth. We are not making anywhere near that kind of investment in our higher education system to prepare for that growth that's coming our way.

>>Ted Simons:
The argument is that this program would pay for itself in terms of jobs and such?

>>Fred DuVal:
In the immediate term that's a big economic stimulus. It's a medium turn return on investment because when you invest you get huge return on investment in research domes, second stimulus. Long-term you get the benefit that every college educated degree holder makes more money in their life, expands the tax base, it differs fight our economic base so we have growth long-term.

>>Ted Simons:
If this goes through, the whole thing, when does construction start. How long does it last?

>>Fred DuVal:
That's why this is a unique situation. These are buildings which have been designed, the deferred maintenance we know exactly what needs to happen. This is lighting and air conditioning and classroom space and the whole kit and caboodle. We can be digging dirt in 60 days on a lot of those buildings. A lot of these research buildings have been designed, are ready to go. We could dig dirt very quickly. The rest of the world isn't waiting for Arizona's economy to come back. They are competing and investing every day. If we're going to compete, we can't go through the roller coaster we currently go through.

>>Ted Simons:
Real quickly the ironies there, though, that a state so dependent on construction needs to dig itself out of the hole by way of construction.

>>Fred DuVal:
It does. And let's make the investments in our brain power and knowledge so we don't go through this again.

>>Ted Simons:
All right. Fred, good to have you here.

>>Fred DuVal:
Appreciate it.

>>Ted Simons:
First on Horizon by now some of you may have received your economic stimulus check from the federal government. We'll talk about the various things government can do to try and improve the economy. That's Thursday at 7:00 on horizon. That is it for now. Thank you so much for joining us. Again we'll continue our series on the economy tomorrow. And don't forget Friday the Journalists' Roundtable here on horizon. I'm Ted Simons. Thank you so much for joining us. You have a great evening.