Preparing for an Arizona of 10 million people : meeting the infrastructure challenges of growth

              Preparing for an Arizona
of 10 Million People
Meeting the Infrastructure Challenges of Growth
Acknowledgments
The Arizona Investment Council and its president, Gary Yaquinto, with the support and encouragement of William Post,
CEO of Pinnacle West Capital Corporation, and other industry leaders, recognized the significance of infrastructure in
Arizona. Their interest resulted in the report Infrastructure Needs and Funding Alternatives for Arizona: 2008-2032, which
was produced by the L.William Seidman Research Institute in the W. P. Carey School of Business in May 2008. See
www.arizonaic.org for the publication.
Many people associated with the L.William Seidman Research Institute in theW. P. Carey School of Business worked on
infrastructure issues over the past year. The significant contributions and achievements of Tim James, Matthew Croucher,
Molly Castelazo,KentHill, EvaMadly,Tracy Clark, Liz Farquhar, and Angela Phillips are acknowledged gratefully. Students
Jessica Pullen and Emil Robles provided research assistance for this report.
See wpcarey.asu.edu/seid/ccpr for a background report for Preparing for an Arizona of 10 Million People: Meeting the
Infrastructure Challenges of Growth.
Experts from throughout the state also lent their expertise to this work. Their knowledge and willingness to share it
are appreciated.
Select Photography ©2008 Nick Berezenko | Arizona Falls image courtesy the City of Phoenix
Publication Design: Karen C. Heard, Chalk Design | Publication Coordination: Nicole Haas, Morrison Institute for Public Policy
Foreword byMichaelM.Crow, President, Arizona State University
DennisHoffman,Director, L.William Seidman Research Institute, Arizona State University
Tom R. Rex,Associate Director, Center for Competitiveness and Prosperity Research, Arizona State University
November 2008
Contents
FOREWORD ..............................................................................................................................4
EXECUTIVE SUMMARY...........................................................................................................5
PREPARING FOR AN ARIZONA OF 10 MILLION PEOPLE......................................................6
WHAT IS INFRASTRUCTURE?................................................................................................8
WHAT IS THE CONDITION OF THE NATION’S INFRASTRUCTURE? ...............................10
HOW DOES GROWTH RELATE TO ARIZONA’S INFRASTRUCTURE NEEDS?...................13
WHAT IS AFFECTING INFRASTRUCTURE DEVELOPMENT NOW? ..................................15
WHATWILL ARIZONA’S INFRASTRUCTURE COST?.........................................................19
©2008 by the Arizona Board of Regents for and on behalf of Arizona State University.
Preparing for an Arizona
of 10 Million People
Meeting the Infrastructure Challenges of Growth
Infrastructure for Arizona’s Future
A Foreword from Michael M. Crow
4 Preparing for an Arizona of 10 Million People
When President Teddy Roosevelt spoke from the steps of
Arizona State University’s OldMain inMarch 1911, a few days
after the dedication of the dam on the Salt River that would
bear his name, he predicted that with adequate irrigation
projects the population of the Valley could some day reach
75,000 – or maybe even 100,000. No one then could have
foreseen the demographic trends that would lead within a
century to the transformation of a region dominated by
ranching and mining into one of the fastest growing states in
the nation.With projections today suggesting the likelihood
that within the next quarter-century more than 10 million
Americans will call our state home, Arizona must confront
unprecedented challenges as it becomes larger than New Jersey,
Michigan, Illinois, and probably Pennsylvania. The future can
be considered from many perspectives. Preparing for an Arizona
of 10 Million People: Meeting the Infrastructure Challenges of
Growth examines the next 25 years from the standpoint of
infrastructure: those basic facilities and services and systems
that allow us to remain competitive as a region.
Not only is Arizona one of the fastest growing states in the
union, at its heart an emerging “megapolitan” region comprised
of multiple interdependent jurisdictions – the Sun Corridor –
will stretch from the Prescott region of Yavapai County south
to Mexico. Eight of 10 million Arizonans will call the Sun
Corridor home. This vast urban agglomeration promises to
power our innovation and foster socioeconomic gains as we
engage competition from throughout the global knowledge
economy. But our success is contingent on an optimal infra-structure,
including roads, transit, electricity, drinking water,
telecommunications, and also healthcare, public safety, and our
public schools and the three state universities.
While Arizonans enjoy matchless natural capital and an
egalitarian culture that bolsters free enterprise, we are behind
the curve in developing infrastructure commensurate with
projections for our future. Our topography has discouraged the
integrated regional planning essential for such critical issues as
land use, open space, and transportation. For example, consider
the failure thus far to construct adequate connectivity between
metropolitan Phoenix and Tucson. The dilemma is further
exacerbated by Arizona’s traditional reliance solely on market
forces rather than market and policy planning together.
The historic inadequacies of planning at scale underscore the
need to think regionally to plan and build what could become
the world’s first sustainable region. Sustainable development
means balancing economic growth and wealth generation with
enhanced natural and social capital.The achievement of sustain-ability
through innovative market-driven designs would provide
Arizonans with unparalleled quality of life and position the Sun
Corridor as a leading center for technological innovation and
economic development.
A century ago Arizona witnessed the construction of an
infrastructure project – Roosevelt Dam – that sparked the
state’s development and growth. As we approach the Arizona
centennial, the imperative for a more advanced infrastructure
will not be met with single showcase projects. The complexity
of the challenge is unprecedented and our preparations for 10
million residents, in a state that as recently as 1960 had less than
1 million, must be informed by a mindset that embraces the
needs of the present and the possibilities of tomorrow. Arizona
must begin thinking and acting like a region or even like a
republic – lowercase “r’” – and less like a cluster of combative
jurisdictions or a standard-issue American state. This report
provides the foundation for informed decisions that should
enhance the future for all Arizonans.
Michael M. Crow
President, Arizona State University
Preparing for an Arizona of 10 Million People 5
Arizona faces tremendous infrastructure needs:
• Arizona’s public sector infrastructure – particularly
the transportation system – has not kept pace with
the state’s growth over the last 15 years, resulting in
a need to “catch up.”
• Arizona’s existing public sector physical infrastructure –
especially the water infrastructure – is aging, leading to
an increasing need for renovation.
• Arizona continues to grow rapidly, creating a substantial
demand from new residents and new businesses for
public sector and private sector infrastructure.
The condition of Arizona’s infrastructure has a direct impact on
economic productivity and quality of life. As economic competi-tion
expands domestically and globally, and as the knowledge
economy evolves, the importance of a strong infrastructure
increases. Education, in particular, is of growing importance.
The federal government played a significant role in the provision
of Arizona’s infrastructure through much of the 20th century.
More recently, however, the federal government has been expending
less on infrastructure, placing more of the burden on state and
local governments in Arizona.
Most of the nation’s infrastructure currently is provided by state
and local governments. So while federal assistance can be expected
and certain types of infrastructure are planned and funded
primarily by the private sector, the key responsibility for planning
and developing Arizona’s infrastructure falls on nonfederal
public sector policymakers.
State and local government policymakers, and indeed all
Arizonans, will be deciding the future of Arizona in the next
few years. Arizona has the opportunity to expand its signif-icance
as an economic center and to promote economic growth
and prosperity. But it must be willing to invest in the state to
reach these goals.
An unwillingness to invest in infrastructure and to confront
the challenges posed by Arizona’s projected growth will lower
the quality of life of Arizonans, negatively impact the state’s
economy, limit the state’s opportunity to become one of the region’s
leading economic centers, and eventually stifle growth itself.
The costs of rehabilitating existing physical infrastructure and
providing new infrastructure to meet the demands of a growing
population are significant.With costs increasing faster than the
overall inflation rate in recent years, the provision of physical
infrastructure will be relativelymore expensive.Adding in the need
to catch up for low spending in the last 15 years, the increasing
need to repair or replace existing physical infrastructure, and
the state’s high population growth, the result is a need for infra-structure
spending greater than in the past.
While a precise projection of the cost of infrastructure needs in
Arizona cannot be made, each of several alternative methods of
projecting the gap between needs and existing revenue streams
has resulted in a figure of billions of dollars per year – over and
above existing spending.This projection is based on a broad def-inition
of infrastructure that includes operations costs as well as
physical infrastructure costs. Currently, infrastructure expenses
account for about 25% of the state’s gross domestic product.This
proportion may need to rise to around 30% over the next 25 years.
The overall gap will be shared across the private sector, the fed-eral
government, and state and local governments, with the state
and local government share approximately $11 billion per year
beyond the operations expenditures and capital outlays already
being made. Even with this additional spending, Arizona’s per
capita state and local government expenditures would barely be
above the middle of the states, up from near the bottom currently.
While the public sector needs are great, some of the expense can
be spread over a long period through the use of debt financing.
Long-term debt is the appropriate way to fund investments
in physical infrastructure that will last for decades, helping
to ease the burden on current taxpayers and matching the
long-run benefits of physical infrastructure investments to
their overall costs.
Private sector needs also are considerable. Consumers likely will
have to pay higher prices for electricity, health care, and other
privately provided services.This presents a challenge to regulated
utilities, which must receive approval for higher rates from the
Arizona Corporation Commission.
Arizona’s infrastructure challenges will require commitment and
creativity to meet the needs and potential of 10 million people
and to ensure a positive future for the state.
Executive Summary
6 Preparing for an Arizona of 10 Million People
Preparing for an Arizona
of 10 Million People
Meeting the Infrastructure Challenges of Growth
Preparing for an Arizona of 10 Million People 7
Even if Arizona were not still growing, infrastructure would be a
big issue for the state. From the youngest to the oldest, each of
Arizona’s more than 6 million residents every day in some way
uses the state’s infrastructure. Except perhaps during a traffic jam
or in the aftermath of a monsoon storm, few Arizonans ever
think in detail about what makes our communities livable and
how those services are designed and paid for. Nearly everyone
simply assumes that the systems required to support life as we
know it will work. The same is most likely true for thousands of
businesses. Many in the private sector are very knowledgeable
and concerned about infrastructure, but others know only that
they have what they need to operate.Yet, to deal with the problems
left from the past and prepare for the positive future Arizonans
have said they want, everyone is a stakeholder in infrastructure and
will play a role as voters, investors, decision makers, and planners.
The recent emphasis on sustainability and “smart growth” – plus
the realization that business as usual will not continue to deliver
a vibrant economy and high quality of life – have prompted a new
look at infrastructure. In May 2008, the L. William Seidman
Research Institute in the W. P. Carey School of Business at
Arizona State University published a landmark assessment of
the state’s infrastructure on behalf of the Arizona Investment
Council (AIC). For perhaps the first time, the study integrated
research on energy, telecommunications, water and wastewater,
and transportation needs over the next 25 years. Infrastructure
Needs and Funding Alternatives for Arizona: 2008-2032, available
at www.arizonaic.org, provides the foundation for Preparing
for an Arizona of 10 Million People: Meeting the Infrastructure
Challenges of Growth.
Presented at a statewide infrastructure conference in November
2008, Preparing for an Arizona of 10 Million People: Meeting
the Infrastructure Challenges of Growth places Arizona’s infra-structure
needs into context, identifies the conditions affecting
its development, and supplies cost projections for infrastructure
in the coming years. It expands on the report done for AIC by
considering additional types of infrastructure. A background
report is available online at wpcarey.asu.edu/seid/ccpr.
Options for funding the state’s infrastructure will be the topic
of another report.
This report is organized around the questions that policymakers,
business leaders, and residents often ask about infrastructure.
Eight categories of infrastructure are discussed in this report:
• Education
• Energy
• Health care
• Public safety
• Telecommunications
• Transportation
• Water
• Other (social and environmental services)
ARIZONA MAY REACH 10 MILLION RESIDENTS
POPULATION ESTIMATES AND PROJECTIONS IN ARIZONA AS OF JULY 1
Source: Arizona Department of Economic Security (2007 and 2032) and U.S. Department
of Commerce, Census Bureau (1980, 1990 and 2000), L. William Seidman Research Institute,
W. P. Carey School of Business, Arizona State University, May 2008.
Some observers have said that Arizona’s infrastructure is in better
shape than various other states because some of it is relatively
new. This is small consolation when the challenges, as will be
shown in this report, are daunting and will take years of building
and billions of dollars to meet. As Arizona Investment Council
President Gary Yaquinto noted: “If we don't start moving now,
we’re going to end up in a situation where growth in our economy
will stagnate and our quality of life will deteriorate.” Preparing
for an Arizona of 10Million:Meeting the Infrastructure Challenges
of Growth is intended as a “heads up” on infrastructure and a catalyst
for serious discussion of and decisions about the state’s future.
0
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8 Preparing for an Arizona of 10 Million People
Infrastructure is defined as “the basic facilities, services, and
installations needed for the functioning of a community or
society, such as transportation and communications systems,
power plants, and schools.”1While the physical infrastructure
of buildings, equipment, and land is a key aspect of the overall
infrastructure, services and physical infrastructure are inter-twined.
If expenditures for operations are inadequate, the value
and usefulness of the physical infrastructure soon decrease.
For example, public buildings have been constructed, but left
vacant for a time because of a lack of operating funds. As a
result, the facility’s purpose goes unmet.
Physical assets typically are costly to construct or purchase, but
are intended to have a long, useful life. Physical infrastructure
costs generally are financed through long-term debt. Such
expenditures are called “capital outlays.”
The quality of a community’s “facilities, services, and instal-lations”
has direct effects on residents’ lives and on economic
productivity. High quality infrastructure is necessary for
communities and states to be economically competitive with
other areas in the U.S. and around the globe.
Few infrastructure services are only the responsibility of either
the public or the private sectors. Who provides and pays for
infrastructure – businesses, nonprofit institutions, and federal,
state, and local governments – varies by community and type of
infrastructure. Because of this mixture of responsibilities, this
report includes infrastructure primarily provided by the private
sector. It is in the public interest to understand the totality of
infrastructure needs, even in those cases where the private sector
primarily is responsible for providing it.
Overall, the public sector provides approximately 55% of the
capital spending for physical infrastructure.
What is Infrastructure?
The tangible things that make places work
1 American Heritage Dictionary.
Preparing for an Arizona of 10 Million People 9
Infrastructure Type Prevalent Provider
EDUCATION The public sector provides over 75% of education infrastructure nationally, mostly by state and local governments.
Prekindergarten and child care Private with some public regulation
Kindergarten-12th grade Public with some private options
Higher education Public and private choices
Public libraries Public
ENERGY The private sector accounts for nearly 90% of the infrastructure spending nationally. State and local governments
are responsible for 80% of the remainder.
Electricity Private with public regulation
Pipelines Private
HEALTH CARE Health care is mostly a set of private facilities and services, but the public sector is the source of health insurance
for low income residents and a wide array of services to monitor and improve the public’s health.
PUBLIC SAFETY Police and fire protection and correctional systems are basic to public safety. Mostly publicly provided,
some fire protection and prisons are private.
TELECOMMUNICATIONS The private sector accounts for some 95% of infrastructure spending nationally, while the public sector
often regulates.
TRANSPORTATION The public sector accounts for 90% of infrastructure spending nationally, with more than half by state
and local governments.
Roads and transit Predominantly public
Air, rail, water and other modes Public and private mix
WATER In the public sector, 90% of spending is by state and local governments.
Drinking water Typically public, but sometimes private
Wastewater Typically public, but sometimes private
OTHER Many other types of services are provided in communities.
Mail and packages Public and private
Parks and recreation Public
Solid waste disposal Public and private; landfills may be public or private, with public permits necessary
Source: Compiled by Center for Competitiveness and Prosperity Research, L. William Seidman Research Institute, W. P. Carey School of Business, Arizona State University.
Both Public and Private Entities Provide Infrastructure
10 Preparing for an Arizona of 10 Million People
Financial journalist Joseph Lazzaro recently quoted economist
David H. Wang’s warning about infrastructure. He noted:
“Infrastructure problems have and will continue to depress
U.S. GDP growth.” In turn, consulting giant Ernst & Young
and the Urban Land Institute stated in Infrastructure 2008:
A Competitive Advantage that “the U.S. is headed toward decline
and needs to wake up to the dire state of its infrastructure.”
Other respected organizations have also sounded the alarm about
infrastructure nationally. For example, the American Society of
Civil Engineers (ASCE) assessed the condition and capacity of
the nation’s infrastructure in its 2005 Report Card for America’s
Infrastructure.This professional organization, whose members are
closely associated with designing and maintaining various types
of infrastructure, gave the nation a D. Four years earlier, the news
was only slightly better with the U.S. receiving a D+.
ASCE rated infrastructure in 15 categories, including aviation,
bridges, dams, drinking water, energy, hazardous waste, naviga-ble
waterways, parks and recreation, rail, roads, schools, security,
solid waste, transit, and wastewater. Each one was evaluated on:
• condition and performance
• capacity versus need
• funding relative to need.
Solid waste received the highest grade of C+, while drinking
water, wastewater, and navigable waterways got the lowest grade
of D-.Other types placed in between. Looking at infrastructure
as a whole, ASCE estimates that $1.6 trillion in investments
are needed over five years to bring the nation’s infrastructure to
good condition.
Washington, D.C.-based Brookings Institution came to a
similar conclusion: America’s infrastructure has not been a
national priority for many years, and there is a need for a
concerted effort to rebuild it. Among other issues, Brookings
cites global economic competitiveness as a primary reason for
why infrastructure should again be front and center. Brookings
contends that today infrastructure is approached from a project-by-
project perspective in which politics and “pork barrel”
spending are major factors in deciding what gets funded,
instead of objective criteria and reasonable standardized
schedules for development, maintenance, and replacement.
In the 2008 report Investing in Infrastructure, the Congressional
Budget Office (CBO) estimates that throughout the nation all
governments and the private sector combined invest more than
$400 billion per year in capital outlays for infrastructure. The
federal government accounts for approximately $60 billion,
primarily for highways and other transportation modes. Yet,
What is the Condition
of the Nation’s Infrastructure?
In need of repair and renewal
Preparing for an Arizona of 10 Million People 11
the CBO describes this spending as 20% less than what is
needed to maintain the existing infrastructure only in its current
condition. Further, the authors note that additional spending of
tens of billions of dollars per year on transportation alone could
be considered an economically justifiable investment.
Urban Land Institute (ULI) routinely studies infrastructure
because of its prime importance to real estate and community
development, major concerns among most of the organization’s
30,000 North American members. In Infrastructure 2007: A
Global Perspective, ULI addressed such topics as the competitive
importance of infrastructure, the 50% rise in construction and
repair costs since 1999, and the limited potential for the privati-zation
of infrastructure, such as highways. For example in the
United States, ULI estimated that only 10% of road projects are
expected to attract public-private partnerships. The few that do
turn to such financing and management arrangements may be
headline names, but the bulk of road projects and facilities are
not expected to be appropriate for public-private arrangements or
leaders will not find those choices feasible.
The negative assessment of the nation’s infrastructure is the result
of what many have said are substantially inadequate investments
over at least the last quarter century. At the same time, the
addition of nearly 3million people per year to the U.S. population
increases infrastructure demands. Thus, declining investments
and rising requirements, not to mention greater expectations
among current residents, drive the continual demand for more
and better infrastructure.
No Question: Infrastructure Spending
Has Declined Across the U.S.
Infrastructure spending relative to economic and population
growth has declined significantly in the U.S. since 1964, the first
year for which data are available. For example, capital outlays as
a percentage of total state and local government revenue exceeded
20% from 1964 through 1971. Since 1977, that share has shrunk
to less than 14% yearly and has averaged around 12% in the last
three years, which are among the lowest percentages on record.
Similarly, capital outlays per $1,000 of personal income exceeded
$30 from 1964 through 1973, but the figure has been below $25
in every year since 1978, except for 2002 and 2003 when it was
slightly above. In the last three years, the figure has been between
$24 and $25. Education and highways are the two biggest uses of
general fund capital outlays among state and local governments.
A reduction in highway spending is primarily responsible for the
overall decline, but capital outlays for education also fell before
partially recovering.
While comparable historical statistics on capital outlays made
by the federal government are not available, the Congressional
Budget Office has assembled data on federal transportation and
water infrastructure spending. (Since the federal government has
less responsibility for education, transportation is the primary use
of federal resources.) Federal capital outlays on transportation
and water have decreased drastically. In 1964, the federal capital
outlay per $1,000 of personal income exceeded $17.Asteady down-ward
trend brought this figure to approximately $0.75 in 2006.
U.S. INFRASTRUCTURE SPENDING
HAS DECLINED SINCE THE 1960S
GENERAL FUND CAPITAL OUTLAYS OF STATE AND LOCAL GOVERNMENTS NATIONALLY
Source: Calculated by the Center for Competitiveness and Prosperity Research, L. William Seidman
Research Institute, W. P. Carey School of Business, Arizona State University from U.S. Department
of Commerce, Census Bureau, State and Local Government Finances, and personal income from the
Bureau of Economic Analysis.
TRANSPORTATION INFRASTRUCTURE
SPENDING IN PARTICULAR HAS DECLINED
GENERAL FUND CAPITAL OUTLAYS OF STATE AND LOCAL GOVERNMENTS
NATIONALLY PER $1,000 OF PERSONAL INCOME
Source: Calculated by the Center for Competitiveness and Prosperity Research, L. William Seidman
Research Institute, W. P. Carey School of Business, Arizona State University from U.S. Department
of Commerce, Census Bureau, State and Local Government Finances, and personal income from the
Bureau of Economic Analysis.
0%
5%
10%
15%
20%
25%
30%
$0
$5
$10
$15
$20
$25
$30
$35
$40
‘64 ‘67 ‘70 ‘73 ‘76 ‘79 ‘82 ‘85 ‘88 ‘91 ‘94 ‘97 ‘00 ‘03 ‘06
Fiscal Year Ending
As a Percentage of Revenue (left scale) Per $1,000 of Personal Income (right scale)
$0
$2
$4
$6
$8
$10
$12
$14
$16
$18
‘64 ‘67 ‘70 ‘73 ‘76 ‘79 ‘82 ‘85 ‘88 ‘91 ‘94 ‘97 ‘00 ‘03 ‘06
Fiscal Year Ending
Education Highways Other
12 Preparing for an Arizona of 10 Million People
Follow the Zeroes: Infrastructure
Costs for the U.S. Are Huge
The costs of rehabilitating and building infrastructure to
meet the demands of a growing population are beyond
significant. The following
examples for the U.S. as a
whole illustrate the magni-tude
of the projected costs.
Education
Two estimates of the cost, beyond existing spending, to bring
elementary and secondary school facilities into good condi-tion
are cited by the ASCE.The U.S.Department of Education
in 1999 placed the need at $127 billion. The National
Education Association in 2000 put this figure at a much
higher $268 billion.
Energy
The Brattle Group, an international consulting firm, has
determined that growing demand for electric services will
require an investment of approximately $1.5 trillion over the
2010-to-2030 period. The use of advanced coal technology
with carbon capture and storage could add about $200 billion
in capital costs.
Health Care
Overall health care expenditures – for services as well as physical
infrastructure – are projected to continue to increase rapidly,
due in part to much higher inflation in health care and in
part to aging of the baby-boom generation. National health
expenditures are projected to nearly double in 10 years to more
than $4 trillion annually, according to the Centers forMedicare
and Medicaid Services.
Public Safety
America’s prison population is expected to continue to rise
rapidly during the next few years, according to the Pew Center
on the States. Over the next five years alone, the expenditures
for new prison construction are projected to be $12.5 billion.
Operations costs associated with growth in the prison population
are projected to be even greater at $15 billion.
Telecommunications
Nemertes Research, a technology analysis firm, suggests that
internet usage could outstrip network capacity in North America
within the next three-to-five years. The investment required to
bridge the gap between demand and capacity ranges from $42
billion to $55 billion in the United States, primarily to be spent
on broadband access capacity. This is in addition to the $72
billion that service providers already are planning to invest.
Transportation
The Congressional Budget Office estimated the nation’s
capital outlays on transportation infrastructure in 2004 was
$106.2 billion but that $126.5 billion needs to be spent
annually just to maintain current levels of service. Including
economically justifiable investments, the annual cost rises to
$184.8 billion per year.
Water andWastewater
The U.S. Environmental Protection Agency (EPA) in its 2003
DrinkingWater Infrastructure Needs Survey and Assessment
indicated that over the 20-year period from 2003 through 2022,
the public water system’s infrastructure needs total $276.8
billion. Wastewater infrastructure needs, according to the
EPA’s 2004 Clean Watersheds Needs Survey, total $202.5
billion from 2004 through 2023.
MILLION=1,000,000
BILLION=1,000,000,000
TRILLION=1,000,000,000,000
Preparing for an Arizona of 10 Million People 13
How Does Growth Relate to
Arizona’s Infrastructure Needs?
Closely and directly – more people mean more demands
Infrastructure exists to serve people and businesses, so it is
no surprise that growth and infrastructure are intertwined. In
fact, rapid population and business growth in Arizona is the
primary driver of the state’s infrastructure needs. Arizona’s “to
do” list and its composition would be different if the state were
not expanding so quickly. In contrast, states with stable popu-lations
are driven by the need to improve the quality of existing
infrastructure, rather than to build it from scratch.
More People Push Infrastructure Needs Up
Arizona’s population is projected to reach 10 million people
before 2030 from approximately 6.4 million now. In the 25
years between 2007 and 2032, projections show Arizona may
gain 4.2 million residents.
Until World War II, Arizona was a small, rural state. The state
added some people, but the gains were minimal. Thus, the
demands on infrastructure from growth were not particularly
significant. Due to the war effort, the federal government
built a considerable amount of infrastructure in Arizona. These
investments helped enable growth to accelerate considerably
during the late 1940s and 1950s. Expansion slowed during the
1960s, somewhat relieving the demand for infrastructure.Around
1970, however, an extended period of substantial, accelerating
population gains began in Arizona. In particular, growth surged
in the 1990s and has continued to rise in the current decade.
While growth is forecast to decline gradually, through 2030 it is
expected to remain greater than at any time in the 20th century.
Thus, the burden of providing an adequate infrastructure for new
residents and businesses will continue to be enormous. Not only
have Arizona’s population increases been accelerating, the state’s
share of the nation’s growth has been rising as well. The state’s
share of the national population gain may be peaking currently,
but through 2030 it is projected to remain higher than at any
time in the past.
POPULATION GAINS IN ARIZONA
ARE AT AN ALL-TIME HIGH
POPULATION CHANGE IN ARIZONA
Source: U.S. Census Bureau, decennial censuses (historical) and Arizona Department of Economic
Security, Research Administration (projected). (At the end of 2007, Research Administration was
transferred to the Arizona Department of Commerce.)
ARIZONA’S GAINS AS A SHARE OF THE NATIONAL
TOTAL ARE AT A HIGH POINT TOO
POPULATION CHANGE IN ARIZONA AS A PERCENTAGE OF NATIONAL POPULATION CHANGE
Source: U.S. Census Bureau (decennial censuses and national projections) and Arizona Department
of Economic Security, Research Administration (Arizona projections). (At the end of 2007, Research
Administration was transferred to the Arizona Department of Commerce.)
0
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Composition of the Population and Economy
Affects Infrastructure Needs
In addition to population and economic growth, other factors
play a role in determining the nature of infrastructure investments
in Arizona. Demographic characteristics, the structure of the
economy, the geography of growth, and land use are among the
important considerations.
Historically, Arizona’s population growth has consisted dispro-portionately
of young adults and retirees.Workforce participation
rates are highest among young adults, placing a high demand
on the transportation system. The education of the children
of this age group is a significant requirement also. In contrast,
retirees travel less and do not draw on the educational system.
However, their health care needs are much greater than those of
younger generations. The large size of the retiring baby boom
generation means that the relative number of retirees in and
moving to Arizona over the next 15-20 years may be higher than
in the past. Quality of life is especially important to retirees and
infrastructure plays an important role.
Economic characteristics also affect infrastructure requirements.
The relocation, startup, and expansion of basic industries –
those that sell to nonresidents – cause the state’s population and
economy to grow. The infrastructure needs of basic industries,
including agriculture, mining, manufacturing, and out-of-state
tourism, vary widely. In addition, the location of basic industries
is uneven across the state. In contrast, the variation in infrastruc-ture
demands across population-serving industries is narrower,
and the geographic distribution of such industries relates closely
to the location of the population.
In coming years, economic activity based on new, evolving
technologies, such as biosciences and nanotechnology, are
expected to become more important as basic industries in
Arizona. These relatively new fields tend to have specialized
infrastructure needs that will have to be accommodated to ensure
their development.
The location of growth within the state also will have a significant
impact on infrastructure needs and costs.The numeric increase in
population during the next 25 years is expected to be similar to
that of the last 27 years across most of the state.The exception is
the much greater gain projected in Pinal County (606,000 versus
236,000). In addition, new planned communities that are remote
from existing population centers have been proposed across the
state, but it is unclear how many of these actually will be built.
Growth Presents Opportunities and Challenges
Continued population growth in Arizona is a given in the near
term, potentially increasing Arizona’s significance as a center of
economic and political influence, particularly as the number of
seats in the U.S. House of Representatives increases. Growth,
however, places a heavy strain on existing public and private
infrastructure, requiring constant additions to facilities and
services. To maintain and improve Arizona’s quality of life and
economic prosperity over the next 25 years, the state will have to
build more infrastructure, especially in relation to slow-growth
states.As a result,Arizona has the opportunity to do things better
and smarter. Arizona has a chance to:
• build telecommunications infrastructure on par with
world leaders such as Japan, Korea, and France
• develop an energy infrastructure that accounts for
rising oil and natural gas prices and reduces negative
environmental impacts
• lead development of water conservation technologies
and supply strategies, anticipating even greater
competition over theWest’s limited supplies
• build an efficient, safe, advanced transportation
infrastructure to carry the state’s people and goods
where they want to go
• construct, furnish, and staff educational facilities to
meet the changing needs of students and create a
highly skilled workforce
• provide the police and fire protection resources, court
facilities, and correctional systems necessary to ensure
public safety
• support development of health care research, facilities,
and services
• provide libraries, parks, and other quality of life services
commensurate with Arizonans’ expectations
Accommodating more than 4 million additional people will not
be easy. The magnitude of new residents will complicate the
construction and provision of infrastructure necessary for the
well-being and economic prosperity of all Arizonans.However,
failure to confront the challenges posed by Arizona’s growth will
most likely lower the quality of life of all Arizonans, negatively
impact the state’s economy, and limit the state’s opportunity
to reach its potential as a leading economic center, eventually
making it unattractive to talented workers and willing investors.
14 Preparing for an Arizona of 10 Million People
Preparing for an Arizona of 10 Million People 15
Few in business or public policy today would question the
dramatic surge in global competition or the effects in Arizona
and around the world of changes in technology, science, and
learning. Very few would suggest that Arizona should, or even
could, go back to a time when being a low-cost leader was the
best pathway to economic prosperity. The world has changed,
and those days are gone forever. As a result, a cutting-edge
economy requires leading-edge infrastructure, especially in
education and telecommunications but actually in all areas, to
support innovations among the state’s best and brightest and to
keep Arizona an attractive place for the brainpower it needs.
In recent years, the costs of constructing physical infrastructure,
particularly in energy and transportation, have increased faster
than the overall inflation rate in the United States.Thus, it will be
more costly than in the past to build new physical infrastructure
and to rehabilitate existing facilities.
As Arizona’s growth expands away from metropolitan Phoenix
andTucson, this too will add to the cost of building and servicing
infrastructure.With growth during the last 15 years much greater
than ever before and expected to remain historically high, the
burden to keep up with growth is significant.Yet, even as Arizona
continues to grow rapidly, the increasing age of its early physical
infrastructure is rendering more of what is already in place in
need of repair or replacement. Thus, not only must Arizona
continue to build new infrastructure, it increasingly will need
to refurbish existing physical infrastructure as well.
State and local governments increasingly are in charge when it
comes to infrastructure. Yet, despite the state’s record growth
over the last 15 years, capital outlays and current operations
spending by state and local governments in Arizona have fallen
significantly relative to the state’s size and to the national average.
Arizona apparently has fallen behind on infrastructure, adding to
the burden going forward.
More Competition for an Innovation Economy
Increasingly, Arizona is competing against other countries in
addition to other states and urban regions. In a break with its
low-cost past,Arizona has acknowledged in recent years that the
state cannot compete on cost when competitors are located in
such countries as China and India. An evolution away from an
industrial economy to one based on science and technology also
has been occurring. A key factor to success in this innovation
economy is a talented, trained workforce. In addition to education,
telecommunications are more important than ever before.
Escalating Costs
The costs of building physical infrastructure, particularly in the
energy and transportation sectors, have increased dispropor-tionately
in recent years relative to the overall inflation rate.Many
of the costs associated with more broadly defined infrastructure
services have risen rapidly as well.Health care is the most striking
example of rapid cost increases for nonphysical infrastructure,
but other costs, such as for higher education, also have climbed
more than the overall inflation rate.
Bigger Scope and Scale
Population growth in Arizona since the early 1990s has been
considerably higher than in the past. Employment gains also are
greater than in the past. Such a rapidly growing population
and economy require extensive expansions to the existing infra-structure.
This represents an expensive endeavor not present in
areas with a more stable population.
Shifting Geography of Growth
The expected shift in growth to Pinal County and other areas
has important implications for infrastructure and will require
considerable public and private spending for infrastructure
building during the next 25 years compared to the last 25. Since
most of the state’s growth during the last 25 years was near
Phoenix and Tucson, it required only an expansion of the
infrastructure building that had begun decades ago. In contrast,
despite a growth boom that began several years ago, Pinal
County is still a largely rural county with limited infrastructure.
In addition to the many developments planned in Pinal County,
development plans have been announced for a number of new
What is Affecting Infrastructure
Development Now?
More competition, costs, and demands
with less public investment
population centers spread across Arizona, some in areas remote
from existing population. To the extent that such communities
are built, they will be more costly to serve than if the same
number of new residents and businesses moved to an existing
developed area and increased the density there.
The Need for Renovation
In older and less rapidly growing parts of the country, main-taining,
repairing, and replacing aging physical infrastructure is a
significant share of total infrastructure expenditures. In areas with
a growing population, the construction of more infrastructure
to serve the needs of new residents and businesses is a greater
share of the total expense. Until recently, much of the physical
infrastructure in Arizona was relatively new, so extensive
refurbishment expenses did not come into play.Thus, Arizona’s
substantial need for new physical infrastructure partially was
offset by little need to renovate old facilities. This situation,
however, is shifting. At the same time that the need for new
infrastructure is greater than ever before due to the magnitude of
the state’s growth, an increasing need to maintain, repair, and
replace existing physical infrastructure is accompanying the
aging of the infrastructure that was developed decades ago.
Evolving Infrastructure Responsibilities
Long before Arizona became a state in 1912, private and
public entities both helped to provide infrastructure that
would make the area a suitable place to work and live. In some
cases, infrastructure was a public endeavor from the beginning
or a public-private partnership. In other cases, private infra-structure
became public facilities. Given the scarcity of
government resources in territorial Arizona, it was inevitable
that public sector involvement would grow with statehood
and population. Also, Arizona simply followed the national
trend of overall increases in the size of government at all
levels – federal, state, and local – from the 1800s through
about 1975. Since then, however, the relative size of govern-ment
has declined and a renewed interest in the private provision
of infrastructure – for example toll roads and private prisons
– has developed.
The federal government played a major part in the construction
of the nation’s and Arizona’s physical infrastructure during
much of the 20th century. In Arizona, Roosevelt Dam provides
a singular example of infrastructure development and how it can
be a catalyst for economic growth. Overall, federal involvement
coincided with a national interest in developing the West, with
federal actions to spread new technologies, such as for water,
electricity, and telephone service, with theWorldWar II effort –
in which the federal government actively improved the nation’s
physical infrastructure – and with the development of the
interstate highway system.
During the last third of the 20th century, however, federal
expenditures for physical infrastructure declined.Thus, state and
local governments in Arizona are likely to have to cover a greater
share of the infrastructure expenses during the next 25 years than
during much of the last century.
Policymakers often ask voters to decide on infrastructure
questions.These ballot issues may take the form of propositions,
referenda, bond questions, resolutions, or ordinances, and are
used particularly by cities and towns.However, ballot measures
have appeared in state and county government elections as well,
and have been used to address a wide range of infrastructure
projects. A key example is the voter-approved sales tax measure
to fund the regional transportation plan in Maricopa County
in 1985. Another successful ballot measure in 2004 extended
the levy for another 20 years.
Public Spending Is on the Decline Relatively
Capital outlays by state and local governments in Arizona
dropped significantly over the last 15 years relative to national
norms and other fast-growing states, and also in comparison to the
state’s economic gains. Freeway and road building in particular
have fallen behind, with capital outlays for elementary and
secondary education also lagging.
The relative declines in infrastructure spending have been
matched by relative decreases in expenditures for current
operations. Thus, not only have construction and repair of
the physical infrastructure been limited, funding for the
public services associated with the physical infrastructure
has been restricted.
Capital Outlays Have Fallen Relatively in Arizona
From 1964-1990, general fund capital outlays as a proportion of
revenue in Arizona exceeded 20% in most years, and were less
than 17.5% only twice. Since 1992, though, in only one year has
the share exceeded 17.5%, and in five years it has been less than
15%, including fiscal years 2005 and 2006, the two most recent
years. Capital outlays per $1,000 of personal income have
followed a similar pattern, exceeding $40 in the 1960s and late
1980s, but being below $30 in every year but one since 1992.
Education and highways together have accounted for more
than half of all capital outlays in every fiscal year since 1964,
nationally and in Arizona. The decline in total capital outlays
in Arizona primarily has been due to decreases in highway
spending. In the 1960s, at least $19 per $1,000 of personal
income was spent each year on highways. Since then, the value
was as high only in 1990. Prior to 1993, only in 1982 and 1983
was the figure below $10, yet it has been less than $10 in every
year since 1993. Capital outlays per $1,000 of personal income
also have decreased in education. In each of the last three years,
the figure was around $8, compared to $13 or more in most of the
1960s and early 1970s. In contrast, no downtrend is apparent
in other types of capital outlays as an aggregate.
16 Preparing for an Arizona of 10 Million People
Preparing for an Arizona of 10 Million People 17
Less Capital Spending in Arizona
Compared to Other States
Arizona’s capital outlays, whether measured on a per capita basis,
per $1,000 of personal income, or as a percentage of revenues,
have been greater than the national average in most years, as
would be expected in a state with a population growth rate
consistently much higher than the U.S. average. However on
each of these measures, Arizona’s expenditures as a ratio to the
national average have been substantially less since the early
1990s than during the late 1970s and 1980s. Even during the
last 15 years of rapid growth, Arizona’s capital outlays have
declined on each of these measures.
In 2006, Arizona’s infrastructure spending per capita ranked
17th among the 50 states and was 2% higher than the national
total. Given the differences in the need for, and nature of, capital
outlays in older states with more stable populations compared
to fast-growing states, a better comparison is to a smaller set of
rapid-growth states. Arizona, Florida, Georgia, Idaho, Nevada,
North Carolina, Oregon, Texas, Utah, and Washington are the
10 highest-growth states.
Arizona ranked sixth among the 10 fastest-growing states in
2006 with per capita capital outlays 4% below the average of
the other nine states. Though 4% seems small, Arizona state
and local governments would have had to spend $218 million
more than they did to reach the per capita figure of the fastest-growing
states. The 2006 shortfall was only the latest of the
state’s annual spending deficits relative to the other growth
states.Thus, the cumulative figure over time is much larger.The
$218 million figure understates the additional spending needed
to reach the norm in that the sum of the shortfall in education
and highways exceeded $625 million. In contrast, capital outlays
in the parks and recreation category were far higher per capita
in Arizona than the nine-state norm.
On an inflation-adjusted per person basis, capital expenditures
in Arizona between 1992 and 2006 rose 26%, an average of
1.8% per year, which was less than the national total of 41% or
2.9% per year.2 The per capita increase in Arizona’s capital
outlays was less than the gain in prosperity in the state, as
measured by the inflation-adjusted increase in per capita personal
income. Thus, spending on capital outlays per $1,000 of
personal income decreased 6% between 1992 and 2006 in
Arizona (an average decline of 0.4% per year), compared to an
increase of 6% nationally (0.5% per year).
Arizona’s change in capital outlays ranked 38th among all states
based on the per capita measure and 37th on the personal income
measure. Arizona ranked seventh on both measures among the
10 fastest-growing states.Thus, regardless of the measure used or
the states compared, Arizona’s change in capital outlays between
1992 and 2006 was below average.
ARIZONA’S SPENDING FOR INFRASTRUCTURE
HAS DECLINED RELATIVE TO THE ECONOMY
GENERAL FUND CAPITAL OUTLAYS OF STATE AND LOCAL GOVERNMENTS IN ARIZONA
Note: Capital outlays and revenue were estimated for 2001 and 2003.
Source: Calculated by the Center for Competitiveness and Prosperity Research, L. William Seidman
Research Institute, W. P. Carey School of Business, Arizona State University from U.S. Department
of Commerce, Census Bureau, State and Local Government Finances, population estimates of the
Census Bureau, and personal income from the Bureau of Economic Analysis.
ARIZONA’S CAPITAL OUTLAYS HAVE FALLEN
RELATIVE TO THE NATION SINCE THE EARLY 1990S
GENERAL FUND CAPITAL OUTLAYS OF STATE AND LOCAL GOVERNMENTS IN ARIZONA
AS A RATIO OF THE NATIONAL AVERAGE
Note: Capital outlays were estimated for Arizona for 2001 and 2003.
Source: Calculated by the Center for Competitiveness and Prosperity Research, L. William Seidman
Research Institute, W. P. Carey School of Business, Arizona State University from U.S. Department
of Commerce, Census Bureau, State and Local Government Finances, population estimates of the
Census Bureau, and personal income from the Bureau of Economic Analysis.
Education Capital Outlays: Now Historically Low
Relative to the national average, capital outlays for education in
Arizona per $1,000 of personal income have been lower since
2000 than at any time since the first year of data in 1964.Despite
Arizona’s much faster population growth, Arizona’s capital
outlays for education per $1,000 of personal income in recent
years have been barely above the national average. In contrast,
during the late 1970s and 1980s, Arizona’s figure was more than
double the U.S. average.
In 2006, capital outlays for elementary and secondary educa-tion
ranked 19th in the nation on a per capita basis, with the
0%
5%
10%
15%
20%
25%
30%
35%
‘64 ‘67 ‘70 ‘73 ‘76 ‘79 ‘82 ‘85 ‘88 ‘91 ‘94 ‘97 ‘00 ‘03 ‘06
Fiscal Year Ending
As a Percentage of Revenue (left scale) Per $1,000 of Personal Income (right scale)
$0
$10
$20
$30
$40
$50
$60
2 The comparison period begins in 1992 because that was a census year in which no sampling error
is present in the state and local government finance data, and because it is immediately after the
sharp decline in capital outlays relative to the national average, as seen in the chart on this page.
The latest data are for 2006.
90%
100%
110%
120%
130%
140%
150%
160%
170%
180%
190%
200%
210%
220%
‘64 ‘67 ‘70 ‘73 ‘76 ‘79 ‘82 ‘85 ‘88 ‘91 ‘94 ‘97 ‘00 ‘03 ‘06
Fiscal Year Ending
As a Percentage of Revenue Per $1,000 of Personal Income Per Capita
per capita amount below the national average. Among the 10
fastest-growing states, Arizona ranked seventh, with per
capita spending 18% below the average of the other nine
states. In order to match the nine-state per capita norm, an
additional $249 million in infrastructure spending for elemen-tary
and secondary education would have been necessary.
Between 1992 and 2006, capital outlays for elementary and
secondary education fell in Arizona, in per capita terms and per
$1,000 of personal income. In contrast, the national average
increased substantially. Arizona ranked 44th on the change
in each measure. Among the fastest-growing states, Arizona
was seventh on each measure.
For higher education, Arizona’s capital outlays ranked 31st on
a per capita basis, 19% lower than the U.S. average. Compared
to the 10 fastest-growing states, Arizona ranked fifth per capita,
11% less than the average of the other nine states. To bring the
higher education per capita figure equal to the nine-state norm,
nearly $50 million more in capital outlays would have been
required.Arizona ranked 26th on the change in higher education
capital outlays between 1992 and 2006, both per capita and
relative to personal income. Among the fastest-growing states,
Arizona was fifth on both measures.
Capital Outlays for Highways: Also Historically Low
Since 2002, Arizona’s capital outlays for highways per $1,000 of
personal income have been the lowest on record, compared to the
U.S. average. The average Arizona figure over those years was
only equal to the national average, despite the state’s much faster
population and economic growth. In the late 1980s, Arizona’s
figure was more than double the national average.
In 2006, highway capital spending ranked 34th in the nation on
a per capita basis. Among the 10 fastest-growing states, Arizona
ranked eighth, 22% less per capita than the norm of the other
nine states. To bring the highway per capita figure equal to the
nine-state norm, $383 million more in capital outlays would have
been required.
Between 1992 and 2006, capital outlays for highways fell in
Arizona on a per capita basis, compared to a moderately large
increase nationally. A larger decrease occurred per $1,000 of
personal income, compared to no change nationally. Arizona
ranked 40th per capita and 42nd relative to personal income.
Among the fastest-growing states, Arizona was ninth per capita
and last relative to personal income.
Current Operations Spending: Lowest in the Nation in 2006
In 2006,Arizona’s per capita spending on current operations was
the lowest in the country at 21% less than the national average.
State and local government spending on current operations in
Arizona in 2006 was nearly $3 billion below the norm of the nine
fast-growing states. Like capital outlays, Arizona’s spending on
current operations declined between 1992 and 2006 relative to
personal income.Nationally, current operations spending relative
to personal income rose.
Arizona’s share of the nation’s current operations and capital
outlays expenditures should be rising at the same pace as the
state’s share of the nation’s population, all else being equal.
However, this has not occurred. Since the early 1990s, Arizona’s
share of the nation’s current operations expenditures has not
climbed as much as its population share. Similarly, the state’s
share of national capital outlays has declined from well above
to about equal to its population share, despite Arizona’s fast
population growth.
Public Sector Spending in Arizona Is Low
and Falling Relatively
Arizona ranked 48th among states in 2006 on total (current
operations plus capital outlays) per capita state and local
government general fund spending. Total spending per capita
in 2006 was 8% less than the norm of the fastest-growing
states. With a shortfall of more than $500 per person, total
spending by state and local governments in Arizona was nearly
$3.2 billion less than the nine-state norm.
Arizona ranked quite low in per capita spending in some cate-gories.
In education, the largest category, Arizona ranked 49th.
The state ranked 41st in public welfare and 39th in highways,
the next largest categories. In contrast, Arizona’s per capita
spending was in the middle of the states in many of the smaller
categories, and among the top 12 in police, fire protection,
corrections, and parks and recreation.
On a per capita basis, the change in total spending in Arizona
between 1992 and 2006 was less than the national average in
most categories. Arizona ranked last on the change in education
spending. In contrast, the change was greater than the national
average in fire protection, parks and recreation, and sewerage.
ARIZONA’S SHARE OF NATIONAL SPENDING,
RELATIVE TO ITS POPULATION SHARE, HAS
FALLEN SINCE THE EARLY 1990S
GENERAL FUND STATE AND LOCAL GOVERNMENT EXPENDITURES IN ARIZONA
AS A SHARE OF THE NATIONAL TOTAL
Note: Capital outlays and current operations were estimated for Arizona for 2001 and 2003.
Source: Calculated by the Center for Competitiveness and Prosperity Research, L. William Seidman
Research Institute, W. P. Carey School of Business, Arizona State University from U.S. Department
of Commerce, Census Bureau, State and Local Government Finances and population estimates.
18 Preparing for an Arizona of 10 Million People
0.75%
1.00%
1.25%
1.50%
1.75%
2.00%
2.25%
2.50%
2.75%
3.00%
‘64 ‘67 ‘70 ‘73 ‘76 ‘79 ‘82 ‘85 ‘88 ‘91 ‘94 ‘97 ‘00 ‘03 ‘06
Fiscal Year Ending
Capital Outlays Current Operations Population
Preparing for an Arizona of 10 Million People 19
WhatWill Arizona’s Infrastructure Cost?
Time, energy, persistence, and billions of dollars
Projecting infrastructure costs over the next 25 years is chal-lenging.
All long-term forecasts involve many assumptions and
should be considered speculative.The cost figures presented here
are illustrative of Arizona’s needs, not precise projections.
The projected population is the starting point for forecasting
all types of infrastructure costs. Additional data needed vary
by infrastructure category. In some cases, the desired facts
and figures are not available. Thus, different methodologies
were employed by category. The findings are not comparable
across categories.
Forecasts of the infrastructure needs of new residents and
businesses represent only part of the total cost. Evaluating
the adequacy of the existing infrastructure and determining
the amount of existing physical infrastructure that needs to be
repaired or replaced are equally as challenging.
Think Billions of Dollars in Additional
Infrastructure Spending Per Year
While a precise projection of the cost of infrastructure needs in
Arizona cannot be made, each of several alternative methods of
projecting the gap between needs and existing revenue streams
have resulted in a figure of billions of dollars per year – over and
above existing spending. This projection is based on a broad
definition of infrastructure that includes operations costs as well
as physical infrastructure costs.Currently, infrastructure expenses
account for about 25 percent of the state’s gross domestic product.
This proportion may need to rise to around 30 percent over the
next 25 years.
Private-sector needs are considerable.Consumers likely will have
to pay higher prices for electricity, health care, and other privately
provided services.This presents a challenge to regulated utilities,
which must receive approval for higher rates from the Arizona
Corporation Commission.
The gap between state and local government revenues and
spending needs – capital outlays and current operations – over
the next 25 years is calculated to be $288 billion, excluding
the telecommunications sector in which public sector involve-ment
is uncertain, though public costs are unlikely to amount
to more than a few billion dollars. The average deficit per year
is $11.5 billion.
To provide perspective on the magnitude of this projected
funding gap, the annual average deficit per year was divided by
the average Arizona population of 8.72 million people over the
25 years. The shortfall is $1,323 per person per year. If per
capita spending in 2006 had been $1,323 higher, Arizona’s per
capita rank among the states would have risen from 48th (18%
less than the national average) to 18th, but Arizona’s per capita
total of $7,121 still would have been barely above the national
average. For comparison, in 1992, Arizona’s per capita expen-ditures
ranked 30th at 9% less than the national average.
In reality, this $1,323 per capita increase overstates the annual
revenue shortfall in meeting the spending needs. Some of the
infrastructure spending will use long-term debt, matching the
benefits and costs of the investments over their useful life.
The $288 billion in projected, unfunded infrastructure needs in
education, public health, public safety, transportation, water, and
other public services categories is 9% of the total projected needs
to be paid by state and local governments.The federal government
will provide some of the funding.
Projected needs in other infrastructure categories come from
the Arizona Investment Council report. None of the energy gap
of $109 billion is assumed to be a public-sector responsibility.
Telecommunications needs are projected to be around $25
billion, with some public-sector involvement likely necessary.
The state and local government portion of the funding shortfall
for the water and transportation infrastructures that was projected
by the AIC report is included in the $288 billion overall shortfall.
The AIC report identified an overall $30 billion gap in water.
The AIC report projected transportation needs of between
$253 billion and $311 billion in capital outlays only. Based on
these figures, Arizona state and local governments might be
responsible for between $218 billion and $270 billion in
combined capital outlays and current operations. This range,
however, does not reflect revenues from existing, dedicated
sources of transportation funding and therefore is not incon-sistent
with the overall $288 billion projected gap in state
and local government funding.
Public Schools Face
Substantial Needs
The growth of Arizona’s population over the next 25 years
will create a significant demand for the expansion of schools,
learning, and libraries. Public education includes:
• elementary and secondary education
• higher education
• “other” education (such as schools for students
who are deaf and blind)
• public libraries.
Though one-third of all state and local government expendi-tures
in Arizona in 2006 were for education, public spending
on educational services in Arizona ranked among the lowest
in the nation on a per capita or per student basis.The state fell
further behind the norms during the last 15 years on capital
outlays and current operations. Yet, the acquisition of knowledge
and skills is one of the most important factors for attaining
economic prosperity in a knowledge-based economy.Without
a quality education infrastructure in Arizona, the standard of
living of Arizona residents may lag behind.
Education spending in Arizona likely will need to increase slightly
more than the pace of real economic growth over the next 25
years. Enrollments rising slightly faster than population
growth, pressures resulting in increasing costs such as higher
salaries for quality teachers, and catching up from the state’s
low rate of investment will add to future costs.
The cost of educational services, including capital outlays and
current operations, is projected to be $873 billion over the next 25
years in Arizona, of which at least $122 billion is projected to be
capital outlays.Nearly all of this expense will be paid by state and
local governments.
In the elementary and secondary school component, the student
population in coming years is expected to increase a bit more
quickly than the rate of overall population growth. Capital costs
are projected to be $85 billion over the next 25 years, with current
operations expenses of $449 billion.
For higher education, planners predict that university enrollment
will grow at an annual rate approximately one percentage point
faster than the rate of population growth, due in part to the
relatively large size of the generation reaching college age.
As a result, the increase in real per capita spending on higher
education is expected to exceed the rate of growth in the real per
capita economy over the next 25 years, though the differential
should narrow over time. Nearly $37 billion of capital outlays
are forecast over the next 25 years. Current operations spending
is projected to be $255 billion. Needs are smaller in the “other”
education and libraries subcomponents, at $36 billion and $11
billion, respectively.
EDUCATION COSTS COULD BE $873 BILLION
ANTICIPATED PUBLIC EDUCATION INFRASTRUCTURE COSTS IN ARIZONA
THROUGH 2032 (BILLIONS)
K-12 Higher Other Subtotal Libraries Total
Total Capital Costs $84.7 $36.7 $0.7 $122.1 $NA $NA
Total Ongoing Costs 449.3 254.8 35.2 739.3 NA NA
Total All Costs 534.0 291.5 35.9 861.4 11.2 872.5
NA: Not Available
Source: Projected by Center for Competitiveness and Prosperity Research, L. William Seidman
Research Institute, W. P. Carey School of Business, Arizona State University using State and Local
Government Finance data of the U.S. Department of Commerce, Census Bureau.
20 Preparing for an Arizona of 10 Million People
$6.2 MILLION
LIBRARY SET
TO OPEN
Arizona Republic
August 25, 2008
DISTRICT LOOKS
FOR WAYS TO
EASE CROWDING
Arizona Republic
May 27, 2008
2 TEMPE SCHOOLS
TO BE REPLACED
WITH NEW CAMPUSES
East Valley Tribune
May 23, 2008
FUNDS FALL SHORT
FOR SCHOOL REPAIRS
Arizona Republic
September 8, 2008
Preparing for an Arizona of 10 Million People 21
Higher Production
CostsWill Mean
Rising Electricity Prices
The energy infrastructure consists of:
• electricity, including generation, transmission
and distribution
• natural gas, petroleum, and other fuels, including
refineries, transmission, distribution, storage,
and pipelines.
Investments in each component will be necessary over the next
25 years to keep pace with the rapid growth in the Arizona
population. In addition, the costs of providing energy will be
higher than in the past because of increases in construction costs
well above the overall inflation rate, a sharp upswing in natural
gas prices, and a recent mandate from the Arizona Corporation
Commission for 15% of the state’s retail sales of energy produc-tion
to come from renewable energy sources by 2025. Production
costs for renewable sources, such as solar and wind generation,
are currently higher than the per unit cost of traditional sources.
Assuming no increase in existing electricity prices, the projected
funding shortfall – capital costs and current operations – in the
electricity component in Arizona is likely to be around $109
billion over the next 25 years. Given the largely private sector
nature of the electricity component, this gap will have to be
covered by increases in retail prices.
Requests to adjust retail rates are likely to come before the Arizona
Corporation Commission more frequently in coming years.
After 20 years of fairly stable prices, customers, regulators, and
politicians will need to adapt to a new environment of rising
electricity prices.
The total capital investment in electricity infrastructure required
to serve Arizona’s growing population to 2032 is projected to be
between $65 billion and $77 billion depending on the mix of gen-eration
technologies employed going forward.These projections
are conservative in that relatively low inflation in construction
costs is assumed. Expenses for operations are not included.
In the natural gas, petroleum, and other fuels component, $9
billion in capital costs are projected, but there is no immediately
obvious funding gap for pipeline or storage provision. Demand
will be met by the private sector, which historically has demon-strated
an ability to quickly meet demand with supply, adjusting
price as necessary.Thus, the $9 billion in projected capital costs,
plus any additional operations costs, are expected to be recovered
from customers through higher prices.However, this assumption
does not hold if regulated power generators and gas distributors
are not able to recover their costs sufficiently to enter into long-term
supply contracts with pipeline operators.
CAPITAL COSTS FOR ENERGY MAY BE
BETWEEN $74 BILLION AND $86.5 BILLION
PROJECTED ENERGY INFRASTRUCTURE COSTS IN ARIZONA THROUGH 2032 (BILLIONS)
Electricity by Source of
Power Generation* Natural Gas,
Petroleum,
Coal Natural Gas Nuclear and Other Fuels Total
Total Capital Costs $73.8 $65.0 $77.4 $9.0-9.1 $74.0-86.5
Generation 44.9 36.1 48.5 NAP 36.1-48.5
Refineries NAP NAP NAP 3.6 3.6
Transmission 9.6 9.6 9.6 2.8 12.4
Distribution 19.3 19.3 19.3 2.4 21.7
Storage NAP NAP NAP 0.2-0.3 0.2-0.3
NAP: Not Applicable
* In each of the three options, the cost projection assumes that 15% of the electricity is solar generated.
Source: Arizona Investment Council, Infrastructure Needs and Funding Alternatives for Arizona:
2008-2032, May 2008.
NATURAL GAS
RATES GO UP
Kingman Daily Miner
October 10, 2008
MASSIVE WIND
FARM PLANNED
Kingman Daily Miner
June 30, 2008
SRP, APS SUPPORT
RENEWABLE
ENERGY PROGRAMS
East Valley Tribune
September 4, 2007
Health Care Costs and
Demand Are Moving Up
The health care infrastructure in Arizona includes:
• private sector hospitals
• public sector hospitals
• other public health
• other private sector health care. (These services
are not addressed in this section.)
Health care is one of the fastest-growing segments of the U.S.
economy. The demand for quality health care is rising rapidly,
driven largely by higher incomes and an aging population, and
costs are inflating rapidly. Rapid changes in technology in health
care result in considerable uncertainty in planning for the future.
Health care primarily is provided by the private sector. The
Census Bureau reports governmental health care expenses in two
categories: hospitals and other health. Arizona has relatively few
public hospitals. Per capita spending of state and local govern-ments
in Arizona in 2006 was only $143, compared to the U.S.
average of $370. Arizona ranked 41st among the states. Thus,
most of the rising demand for hospital services will be met by the
private sector in Arizona.
In the other public health component, Arizona was more in line
with the rest of the nation, with per capita expenditures in 2006
of $245, slightly above the national average. Expenditures locally
and nationally have surged in recent years.
Projections of the costs of the hospital component are based on
surveys taken by the American Hospital Association and the
Arizona Hospital and Health Care Association. Arizona hospi-tals
added about 9% to the total stock of beds from 2000 to 2006
and plan to add about 20% more through 2011. Planners expect
more than $3 billion in new hospital construction from 2007
through 2011.
Projected hospital expenses, including capital outlays and current
operations, come to between $803 billion and $926 billion over
the next 25 years in Arizona.The lower figure assumes that existing
trends will continue.The higher figure anticipates that costs will
be higher due to the rapidly expanding elderly population.
With private sector hospital needs projected to be between $704
billion and $812 billion over the next 25 years in Arizona, and
public sector needs expected to reach $268 billion to $282 billion,
the total projected costs range from $972 billion to $1,094 billion.
As large as these figures may seem, though, they represent only
a portion of the total for the health care sector since they do not
include private sector expenses of providing services delivered
outside of a hospital facility or nursing care facility.
HEALTH CARE COSTS MAY COME
TO ABOUT $1 TRILLION
PROJECTED HEALTH CARE INFRASTRUCTURE COSTS* IN ARIZONA THROUGH 2032 (BILLIONS)
Private Hospitals Public Hospitals Other Total*
Low High Low High Public Low High
Total Capital Costs $42.3 $55.9 $6.0 $7.8 $0.0 $48.3 $63.7
Total Ongoing Costs 661.7 756.4 93.3 105.5 168.6 923.6 1,030.5
Total All Costs 704.0 812.3 99.3 113.3 168.6 971.9 1,094.2
* Private sector costs other than hospitals are not included.
Source: Projected by Center for Competitiveness and Prosperity Research, L. William Seidman
Research Institute, W. P. Carey School of Business, Arizona State University using State and Local
Government Finance data of the U.S. Department of Commerce, Census Bureau, and data from
the American Hospital Association and the Arizona Hospital and Health Care Association.
22 Preparing for an Arizona of 10 Million People
GILBERT
HOSPITAL
TO BEGIN
EXPANSION
IN NOVEMBER
East Valley Tribune
September 14, 2008
QUEEN CREEK
HOSPITAL IS
TAKING SHAPE
Florence News
September 10, 2008
HOSPITAL SEEKS
APPROVAL
Kingman Daily Miner
July 6, 2008
Preparing for an Arizona of 10 Million People 23
Public Safety Likely
to Remain a Key
Concern in Arizona
Public safety infrastructure in Arizona includes:
• police protection
• fire protection
• corrections
• protective inspection and regulation.
The transient nature of the state’s population adds to the
crime rate. Additional pressures come from the enforcement
of undocumented worker laws. Relying on state and local
government enforcement agencies to cope with immigration
issues undoubtedly will put cost pressures on police protection
and corrections.
The public sector takes responsibility for nearly all of the public
safety infrastructure. In some places, though, fire protection is
provided by a private sector company, and some prison inmates
are held in privately operated prisons.
Per capita spending in Arizona in 2006 was above the national
average and the norm of the fastest-growing states in police and
fire protection, and corrections. These were among the small
number of expenditure categories in which state and local
government spending in Arizona exceeded the national average
as well as the norm of the fastest-growing states. Most of the
expenditures are for current operations.
Assuming current trends continue, Arizona’s state and local
governments are projected to spend $296 billion to provide
public safety services over the next 25 years. Police protection is
projected to have the highest costs over the next 25 years, at $115
billion. The corrections total is nearly as large at $106 billion,
including $10 billion in capital outlays for new prisons. Fire
protection costs are projected to be $60 billion, with expenditures
in the inspection and regulation component only $16 billion.
PUBLIC SAFETY COSTS MAY TALLY $296 BILLION
PROJECTED PUBLIC SAFETY INFRASTRUCTURE COSTS IN ARIZONA THROUGH 2032 (BILLIONS)
Police Fire Corrections Regulation Total
Total Capital Costs $NA $NA $10.1 $NA $NA
Total Ongoing Costs NA NA 95.9 NA NA
Total All Costs 114.9 59.6 106.1 15.5 296.1
NA: Not Available
Source: Projected by Center for Competitiveness and Prosperity Research, L. William Seidman
Research Institute, W. P. Carey School of Business, Arizona State University from State and Local
Government Finance data of the U.S. Department of Commerce, Census Bureau.
SURPRISE TO
OPEN 7TH
FIREHOUSE SOON
Arizona Republic
August 28, 2008
SHERIFF’S OFFICE
UNLOCKS NEW
JAIL FACILITY
Yuma Sun
August 28, 2008
24 Preparing for an Arizona of 10 Million People
Arizona Can
Decide to Improve
Telecommunications
The private sector is the predominant provider of telecommuni-cations
services.Telecommunications companies in Arizona will
continue to experience increases in demand due to population
and business growth and to a rising share of the public using
high-speed services.
Two types of telecommunications infrastructure improvements
could be made in Arizona, each of which may require the
involvement of the public sector:
• broadband connectivity in rural areas without
current service
• fiber-to-the-home (FTTH) networks statewide
for faster service.
Access to broadband connections is widespread in Arizona,
particularly in urbanized areas.However, approximately 200,000
Arizonans (3% of the population) lack access to necessary
“middle-mile” broadband connectivity (community connection
to the cross-country fiber). Private sector providers have been
reluctant to make substantial investments in remote areas where
subscriber density is low and the cost of providing service is high.
The question of providing telecommunications access to all
residents is similar to the issue some decades ago of providing
electricity to all residents. In that case, the federal government
became involved because of the high cost of providing power to
rural residents. In order to provide broadband service to Arizonans
without such access, a similar public-private partnership may
be needed. A relatively small share of the total cost of between
$1 billion and $2.2 billion is likely to be recovered fromcustomers.
Thus, much of the cost of providing universal access may need
to be covered by the public sector.
Access to very high speed links is limited in Arizona. Average
download speed in the United States is slower than that of many
countries. A FTTH network would give Arizonans the same
speed of access as the residents of countries such as Japan, France,
and Korea currently enjoy. The upfront costs of providing a
FTTH network are considerable, resulting in a lack of interest
among private sector companies to provide this service. While
the costs eventually might be covered by subscribers, companies
lack the incentive to move from existing technologies, which
involved a substantial investment not long ago, to another
technology with such high initial costs. Thus, if internationally
competitive service is deemed to be important to Arizona’s
economic competitiveness, the public sector may need to become
involved. However, the bulk of the projected cost of $23.1
billion, including operations and capital outlays, likely will be
recovered over time from customers.
Not having a state-of-the-art telecommunications infrastructure
increasingly will be seen as a negative factor by businesses and
residents contemplating relocation.Thus, access to a high quality
telecommunications infrastructure is vitally important to the
Arizona economy.
TELECOMMUNICATIONS COSTS
PROJECTED AT $25 BILLION
PROJECTED TELECOMMUNICATIONS INFRASTRUCTURE COSTS IN ARIZONA
THROUGH 2032 (BILLIONS)
“Middle-Mile” Fiber-to-
Connectivity* the-Home** Total
Low High Low High
Total Capital Costs $0.7 $1.6 $9.1 $9.8 $10.7
Total Ongoing Costs 0.3 0.6 14.0 14.3 14.6
Total All Costs 1.0 2.2 23.1 24.1 25.3
* Middle-mile fiber connects communities to the long haul (cross-country) fiber. Costs vary depending
on whether the telecommunications line is deployed aerially (typically less expensive) or is buried.
** These costs are in addition to the “middle-mile” connectivity costs that also must be spent
to provide FTTH.
Source: Arizona Investment Council, Infrastructure Needs and Funding Alternatives for Arizona:
2008-2032, May 2008.
LAGGING WEB
ACCESS PUTS
ARIZONA KIDS
BEHIND
Arizona Republic
August 24, 2008
YUMA CUTTING
WIRES, TO BE
OFFERING
CITYWIDE WIFI
Yuma Sun
April 20, 2006
Preparing for an Arizona of 10 Million People 25
Transportation Needs
Are Considerable and
Funding Is Problematic
The transportation infrastructure in Arizona consists of:
• roads and highways
• mass transit
• railways
• aviation.
The growth in population and businesses will create a need to
expand each type of transportation infrastructure over the next
25 years. In addition, traffic congestion and the limited capital
outlays for roads and highways over the last 15 years suggest that
additional monies will be needed in the roads and highways and
transit components to bring the existing infrastructure up to
par for existing residents and businesses. Without significant
infrastructure investment, declines in performance will affect
adversely the quality of life of Arizona residents, economic
efficiency, and the state’s population and business growth rates.
Most of the projected cost – capital outlays only – of $253 billion
to $311 billion over the next 25 years likely will be borne by
the public sector, with only a portion of this expense covered by
current funding mechanisms. The state and local government
share of the cost may be between $122 billion and $151 billion.
Most of this expense will be in the roads and highways component.
The private sector dominates the rail component. All or nearly
all of the projected capital costs of close to $6 billion can be
considered to be covered by existing funding mechanisms.
While many aviation services are privately provided, the public
sector funds 86% of aviation infrastructure nationally. Thus, the
public share of the $12 billion projected capital cost may be more
than $10 billion, with the state and local government share nearly
$6 billion.
Transit needs are projected to be nearly $36 billion in capital
costs. Nationally, the public sector picks up all of the transit
infrastructure expenses, with a little more than half provided by
state and local governments.Thus, state and local governments in
Arizona are facing a transit need of perhaps $18 billion over the
next 25 years.
The projected capital cost over the next 25 years in the roads and
highways component amounts to $199 billion to $257 billion,
depending on the assumed inflation in road and highway
construction. The Arizona Department of Transportation esti-mates
that within seven years Arizona will be in a “preservation
only” mode, meaning that incoming revenues will be sufficient
only to support operations and maintenance costs. Thus, nearly
all of the projected capital cost can be assumed to be unfunded by
existing mechanisms. The public sector share may be between
$179 billion and $231 billion, with a state and local government
portion of $98 billion to $127 billion.
Since additional operations monies as well as capital outlays
will be required, total needs exceed those presented above. Total
state and local government transportation costs could amount to
between $218 billion and $270 billion over 25 years.
BETWEEN $253 BILLION AND $311 BILLIONWILL
BE NEEDED FOR TRANSPORTATION
PROJECTED TRANSPORTATION INFRASTRUCTURE COSTS IN ARIZONA
THROUGH 2032 (BILLIONS)
Roads and Mass
Highways Transit Rail Air Total
Low* High** Low* High**
Total Capital Costs $198.8 $257.0 $35.8 $5.9 $12.1 $252.6 $310.8
* Using 2.2% annual inflation for roads and highways.
** Using 4% annual inflation for roads and highways.
Source: Arizona Investment Council, Infrastructure Needs and Funding Alternatives for Arizona:
2008-2032, May 2008.
STATE PUTS HOLD
ON UP TO $171
MILLION IN
HIGHWAY PROJECTS
Tucson Citizen
September 5, 2008
RAILROAD
EXPANSION COMING
The Explorer
(Marana, Oro Valley,
Northwest Tucson)
August 20, 2008
MARICOPA CITY
LEADERS INITIATE
COMMUTER
BUS SERVICE
USA Today
September 29, 2008
PHOENIX PREPARES
TO ALIGN BUS
SERVICES WITH
NEW LIGHT RAIL
Arizona Republic
August 2, 2007
26 Preparing for an Arizona of 10 Million People
Rising Costs ofWater and
Wastewater ServicesWill
Result in Higher Prices
Arizona’s water infrastructure includes systems for:
• water supply (dams, reservoirs, canals, and wells)
• drinking water treatment and distribution (drinking
water treatment plants and pipelines)
• wastewater treatment and conveyance infrastructure
(wastewater treatment plants and sewer lines).
Providing water and wastewater services to new residents and
businesses will require supplementing the current water supply
in some parts of the state. Further, aging water delivery and treat-ment
systems will need to be renovated and replaced.
In the next 25 years, considerable spending for capital and
operations will be needed to provide water services to new
residents and to upgrade existing systems. Costs not funded
by existing mechanisms may total nearly $30 billion, with the
bulk of these unfunded costs likely to be the responsibility of
state and local governments.
Total water and wastewater costs are projected to be $109 billion
in Arizona over the next 25 years, including capital costs and
operations costs. The primary capital cost will be the basic
infrastructure to provide drinking water to current and future
residents. Augmentation costs statewide are not expected to be a
large percentage of total costs since the existing water supply in
Maricopa, Pinal, and Pima counties – where 82% of the state’s
population in 2032 is projected to live – is expected to be adequate
until after 2032. However, in Cochise, Coconino, Gila, and
Yavapai counties, because of their impending supply needs, the
funding gap will be large relative to the number of residents, and
the ability to overcome that gap may be limited.
Revenue from current funding sources is projected to total
slightly more than $79 billion, leaving a funding shortfall of
nearly $30 billion. Nationally, a high proportion of the capital
costs are covered by the public sector. More than 90% of the
public expenditures are made by state and local governments.
Therefore, it is likely that the bulk of the $30 billion gap will have
to be covered by state and local governments in Arizona, probably
by charging customers more for these services.
Thus, significant infrastructure investments will be required in
the next 25 years to provide a sustainable water supply and waste-water
services to future populations. The era of “cheap water” in
Arizona has passed: water and wastewater services are going to
become much more expensive.
$109 BILLION PROJECTEDTO BE NEEDED FORWATER
PROJECTED WATER INFRASTRUCTURE COSTS IN ARIZONA THROUGH 2032 (BILLIONS)
Water Wastewater* Total
Total Capital Costs $30.7 $14.2 $44.9
Drinking Water Infrastructure** 29.1 NAP 29.1
Coconino County Supply Augmentation*** 0.7 NAP 0.7
Cochise County Supply Augmentation*** 0.2 NAP 0.2
Yavapai County Supply Augmentation*** 0.2 NAP 0.2
Gila County Supply Augmentation*** 0.0 NAP 0.0
Dam Renovation and Replacement 0.3 NAP 0.3
SRP Well Rehabilitation and Replacement 0.2 NAP 0.2
Wastewater Infrastructure NAP 14.2 14.2
Total Ongoing Costs 42.1 22.1 64.2
Total All Costs 72.8 36.3 109.1
NAP: Not Applicable
* Wastewater capital costs include the rehabilitation and replacement of wastewater and storm
water systems to serve existing populations as well as the construction of new systems to serve
future populations.
** Drinking water infrastructure costs include the rehabilitation and replacement of drinking
water systems to serve existing populations as well as the construction of new systems to
serve future populations.
*** Supply augmentation includes projects to provide sustainable sources of water for future populations.
Source: Arizona Investment Council, Infrastructure Needs and Funding Alternatives for Arizona:
2008-2032, May 2008.
SECOND GREEN
VALLEY WATER
LINE PROPOSAL
Arizona Daily Star
August 26, 2008
WATER RESTRICTIONS,
BOND ISSUE ADDRESS
ST. JOHNS WATER
SHORTAGES
White Mountain Independent
June 27, 2008
PHOENIX TO RAISE
WATER IMPACT FEES
ON BUILDERS
Arizona Republic
March 27, 2008
COCHISE COUNTY
SUPERVISORS FIRST
IN STATE TO APPROVE
WATER ADEQUACY
ZONING REGULATION
Arizona Range News
March 26, 2008
Preparing for an Arizona of 10 Million People 27
Other Types of
Infrastructure
Also Have Needs
The preceding seven infrastructure categories account for most of
the overall infrastructure, particularly physical infrastructure.
Other public sector expenses can be grouped into:
• social services other than health care
• environment and housing
• government administration
• interest on debt
• not elsewhere classified.
Total state and local government costs in Arizona over the next
25 years in these components are projected to be $978 billion.
Only a small portion likely will be capital outlays.
Excluding health care, the public welfare subcomponent, which
accounted for 17% of the state and local government expendi-tures
in Arizona in 2006,makes up nearly all of the social services
component. Capital outlays are a very small share of the total
expenses.Most of the expenditures in the social services category
are driven by federalmandates for spending to support low-income
individuals and families. A large portion of the expenditures is
offset by support from the federal government.
The environment and housing component consists of four areas:
natural resources, parks and recreation, housing and community
development, and solid waste (trash collection and disposal).The
Census Bureau includes sewerage in this classification, but that
service is discussed with the water infrastructure. Capital outlays
are a small share of the total expenses, with most of the capital
outlays in the parks and recreation subcomponent.
The Census Bureau splits government administration into
financial, judicial and legal, public buildings, and other adminis-tration.
The judicial and legal subcomponent alternatively might
be included with the public safety infrastructure. Capital outlays
are a very small share of the total expenses in this component.
At current trends, Arizona’s state and local governments will
spend about $548 billion over the next 25 years on social services
programs. A significant amount of this expenditure will come
from funds provided to state and local governments from the
federal government.
In the environment and housing component, costs are projected
to be $206 billion, of which $26 billion would be for capital outlays.
Nearly half of the total expense, and most of the capital outlays,
is in the parks and recreation subcomponent. The remainder is
split among the other three subcomponents.
Government administration costs are projected to be $104
billion.Data are not available with which to project capital outlays.
Payments on debt, resulting largely from long-term financing
taken out to build physical infrastructure, are projected to be
$50 billion. Public services not classified elsewhere are projected
to have costs of $70 billion.
ARIZONA STATE
PARKS LOSES ITS
IMPROVEMENT
FUNDING
Arizona Republic
July 30, 2008
DISTRICT SEEKS
FUNDS FOR
SOMERTON
HOUSING
Yuma Sun
September 16, 2007
OTHER INFRASTRUCTURE COSTS PROJECTED AT $978 BILLION
PROJECTED OTHER INFRASTRUCTURE COSTS OF PUBLIC SECTOR IN ARIZONA THROUGH 2032 (BILLIONS)
ENVIRONMENT AND HOUSING SOCIAL SERVICES
Housing &
Natural Parks & Community Solid Government
Resources Recreation Development Waste Subtotal Public Welfare Other Subtotal Administration Interest Other TOTAL
Total Capital Costs $4.0 $20.5 $NA $1.8 $NA $NA $NA $NA $NA $0.0 $NA $NA
Total Ongoing Costs 37.2 81.6 NA 33.2 NA NA NA NA NA 50.0 NA NA
Total All Costs 41.2 102.2 28.0 35.1 206.4 545.0 2.5 547.5 104.2 50.0 69.8 977.9
NA: Not Available
Source: Projected by Center for Competitiveness and Prosperity Research, L. William Seidman Research Institute, W. P. Carey School of Business, Arizona State University based on State and Local Government
Finance data of the U.S. Department of Commerce, Census Bureau.
Center for Competitiveness and Prosperity Research
L. William Seidman Research Institute
W. P. Carey School of Business
Arizona State University
P.O. Box 874011, Tempe Arizona 85287-4011
Ph 480-965-5362 | Fx 480-965-5458
wpcareyseid@asu.edu | wpcarey.asu.edu/seid/ccpr