Forget Indian gaming. The real high-stakes betting action is going on over at the capitol.
Legislators are planning to spend $830 million (at last count) for research labs at Arizona's three public universities. According to the plan's boosters, taxpayers have nothing to lose and everything to gain.
Arizona State University president Michael Crow claims, "The state can expect an 11-1 return on investment." As collateral, Crow is tossing in his reputation. "We are risking our reputations," he says. "We have to win once we are given the means to compete."
Oddly enough, Crow and the other university boosters don't explain why that 11-1 return hasn't already been snapped up by private investors - or by the universities themselves. After all, the universities have two strong sources of revenue to hazard in such an "investment."
First, as every student knows, the universities have recently increased tuitions.
Second, there is the universities' portion of the Proposition 301 sales tax revenue, which the Arizona Board of Regents administers through the Technology and Research Initiative Fund.
The regents estimate that additional annual revenues from Prop 301 for fiscal years 2002-06 will range from $45 to $55 million.
Over 20 years, the universities' 12-percent share is projected to be $1.1 billion.
At the same time, Arizona is facing a $500 million deficit.
To finance this plan, the state will have to borrow money and put the payment burden on future taxpayers. As it stands now, the plan will give $180 million to Arizona State University, $180 million to the University of Arizona, and $80 million to Northern Arizona University to construct research facilities - for a total start-up cost of $440 million.
From 2004 through 2005, the funds will come from tax revenue generated by construction. From 2006 through 2007, the funds will come from the universities and the governor's office.
Beginning in 2008, the funds for the university labs will come from the general fund at a rate of $35 million every year for 24 more years.
In their frenzy to get bettors to the table, boosters of the plan have forgotten to ask an important question. Does public investment in higher education really drive economic growth after all?
A forthcoming Goldwater Institute study by John Locke Foundation higher education policy analyst Jon Sanders finds that there is at best only a weak and inconsistent correlation between state funding of higher education and economic growth.
For example, two of the ten fastest-growing states from 1981 to 2000, New York and Rhode Island, experienced real decreases in higher-education appropriations per capita, while three of the ten slowest-growing states, Mississippi, New Mexico, and North Dakota, were among the top ten in terms of growth in real higher-education spending.
In fact, from 1991 to 2000, none of the top 10 states in greatest higher-education appropriations were among the top 10 in economic growth.
Likewise, from 1991 to 2000, Arizona was 46th among the 50 states in real higher-education appropriations per capita, yet it was the 16th fastest-growing state in terms of gross state product.
Supporters of the spending proposal regularly cite Silicon Valley as an example of government higher-education spending driving economic growth. But Silicon Valley is largely the product of private investment, and Stanford University is a private university.
Though well-intentioned, supporters cling to the misguided belief that government economic planning is a sure bet. Not so, according to research spanning the past 40 years.
A recent survey of internationally-owned businesses showed that government investment policies are the least important factor businesses consider when moving to a state. A state's tax burden ranked much higher.
Research from the National Bureau of Economic Research shows that high taxes reduce in-migration and deter private investment.
In independent studies, Paul Cashing of the International Monetary Fund and Martin Feldstein of Harvard University both found that private investment is twice as effective as public investment.
Rather than betting on high-tech initiatives with taxpayer dollars, the Legislature should make Arizona's economic climate attractive to all forms of business - leaving investment decisions to individual investors.
After all, if the return will really be so good, there will be plenty of takers.
