(The Center Square) — The American Legislative Exchange Council’s annual “Rich States, Poor States” report ranked Arizona second in economic performance.
The economic performance ranking is based on data from the last 10 years, Jonathan Williams, one of the study’s authors, told The Center Square. The report was released Tuesday.
Despite Arizona’s high ranking for its past performance, the state fell in the outlook for its economic future to sixth place after being ranked third from 2022 to 2024.
”States fall behind by standing still,” said Williams, ALEC president and chief economist.
Williams said Arizona “has taken its foot off the gas” as it deals with a divided government where Democratic Gov. Katie Hobbs has vetoed “pro-growth” policies sent to her desk.
”Arizona is stuck in this gridlock with the battle between the governor and the legislative branch. Many other states are moving forward at warp speed to become more competitive states,” he explained.
Williams said states in the top 10 are well-run states with great resumes in domestic migration and job creation. He added that people are going to those states because they have lower taxes, limited government and a free market approach to government, which is “one that works.”
The study’s co-author said it was a “mixed message for Arizona because it is ranked in the top 10,” which he called “very positive.” However, he added that some of Arizona’s longer-term economic trends “are worrying.”
Williams used the corporate tax rate as an example. Arizona didn’t adjust its rate, while other states cut their corporate tax rate, allowing them to move ahead of Arizona.
He said Arizona could adjust its tort system costs and sales taxes to improve its rankings. The study says the state ranks 30th and 45th, respectively, in these categories.
If Arizona were to lower these factors, it would put the state “ in the driver’s seat as a tax-cutting leader” nationwide, Williams said.
The rankings have three categories: state gross domestic product, absolute domestic migration and non-farm payroll unemployment.
State gross domestic product was “calculated by observing state GDP growth figures over 10 years from 2013 to 2023,” according to ALEC. Absolute domestic migration is determined by the number of Americans who moved to Arizona from 2014 to 2023. Non-farm payroll unemployment measures Arizona’s non-farm employment growth from 2013 to 2023.
The state’s ranking is “very competitive” because it ranks in the top five in those categories, Williams said.
He explained that other competitive states, like Nevada and Utah, surround Arizona. Nevada ranked 14th in its economic outlook rating, while Utah ranked first.
Williams said Nevada could “possibly” overtake Arizona in its rankings, but he doesn’t see Nevada catching Arizona soon.
Nevada has the “inherent advantage” of being one of nine states without a personal income tax, he said.
Like Arizona, Nevada faces a gridlocked government with a Republican governor and a Democratic-controlled legislative branch, Williams said. Arizona has a Democratic governor with a Republican-controlled Legislature.
If Nevada got a “very free market government,” it could be a top-five state quickly due to its lack of income tax and “some other positive factors in current law,” Williams said. He added that the state would need to change other variables for this to happen.
Another state, Colorado, ranked No. 17 in its future economic outlook, but No. 6 in economic performance for 2013-2023. The state’s gross domestic product grew 81.84% during that 10-year period, which puts it No. 7 among the 50 states for GDP, according to ALEC.
