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After housing bust, hard times in Arizona

State and local governments tighten belts as tax revenues fall, a ripple effect of the housing slump.

By Faye BowersCorrespondent of The Christian Science Monitor / February 25, 2008

Tax base: Arizona municipalities rely more on sales taxes, including those from malls like this one in Tucson, than do most US cities. A drop in consumer spending, tied to falling home values, has put government coffers in dire straits.

Mamta Popat/Arizona Daily Star/AP/File



Phoenix city officials are considering eliminating some 500 jobs, closing public pools for an additional two months each year, and reducing the hours of city museums and community centers to combat a $67.1 million projected shortfall in revenues this year.

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In Tucson, Ariz., officials are reducing employee travel, equipment purchases, and hiring to deal with forecasts that they the city will take in $12 million less than anticipated this year.

Mesa, Ariz., has asked its departments, the biggest of which is public safety, to cut expenditures by 5 percent to meet a projected $15 million to $16 million shortfall.

Gov. Janet Napolitano (D) announced a hiring freeze across the state's executive agencies on Feb. 21 to help meet an estimated budget shortfall of $1.15 billion this year. The state legislature is considering other belt-tightening measures, as well.

The state of Arizona and all its cities and towns are confronting huge revenue shortages this year, mainly because sales-tax revenues are far below projected levels. In fact, Arizona has the dubious distinction – along with California, Nevada, and Florida – of leading the country in the current economic slide.

"Those four states are where the housing bubble was the biggest, where investors and speculators had a significant presence," says Marshall Vest, an economist at the University of Arizona's Eller College of Management in Tucson. "Those states saw a higher use of subprime mortgages. These are the states that have been in recession for several months already."

Consumers in Arizona, Dr. Vest says, lived beyond their means for the past seven years. It was easy for them to tap the equity in their houses and to get very low interest rates on credit cards. So when the housing bubble burst, housing prices declined, along with the equity homeowners enjoyed, and banks began to tighten up on credit. That meant people had much less money to spend.