The Arizona Miracle

James K. Glassman

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About 25 years ago, I got the urge to write about charter schools. So I traveled to Arizona, where new state policies had made it much easier to launch and finance them. In 1997, Arizona was home to nearly a third of the charter schools in the nation, with about 21,000 students, or 3% of the public-school population, enrolled. Since then, those figures have ballooned to 232,000 students and 21% of enrollment — the highest proportion of charter-school students in the nation. Charters blooming in the desert made for a good story, but I lacked the wit at the time to see that something much, much bigger was afoot.

The expansion of charter schools was originally the pet project of Arizona's Republican governor Fife Symington, a New York-born patrician who had majored in Dutch painting at Harvard University. During his years of study, he had the good fortune to discover the writings of Austrian-born economist Friedrich Hayek. Hayek's work convinced Symington of the value of free markets, classical liberalism, and limited government.

When Symington entered office in 1991, he had a vision for Arizona that went beyond school choice: He wanted to enact massive tax cuts and reform the state's regulatory scheme. But he wasn't an adept politician, and during his second term, he became preoccupied with the collapse of his own real-estate empire. In 1995, he filed for personal bankruptcy, and in September 1997, a federal court convicted him on seven counts of bank fraud. (His conviction was later overturned.) Symington's three successors — two of them Republicans and one a moderate Democrat — continued some of his policies with limited success. But even then, the die had been cast.

While Symington was on trial (and I was off interviewing charter-school principals), the 33-year-old son of an Ohio police officer was building a chain of ice-cream parlors in Tempe, Arizona. The company's CEO, whose name was Doug Ducey, had graduated from St. John's Jesuit High School in Toledo in 1982, piled his belongings into an old Datsun, and driven across the country to attend Arizona State University. He never looked back.

Cold Stone Creamery — which sold ice cream that was particularly rich in butterfat, enhanced with extra bits like bananas and M&Ms, and mixed together with drama on a frozen granite slab — would go on to become extraordinarily popular across the country. Before selling the franchise in 2007, Ducey managed to expand it to some 1,440 stores. At loose ends about what to do next, he consulted Arizona senator Jon Kyl, who asked him if his preference was to legislate or to lead. Ducey didn't hesitate in choosing the latter.

In 2010, he ran for Arizona state treasurer and won. Four years later, he was elected governor. He was elected once again in 2018.

Since Arizona's governor is limited to eight years in office, Ducey's second term — which ends in January — will be his last. This makes it an opportune time to consider Ducey's legacy, to examine his strengths and weaknesses, and to see just what a difference a state's chief executive can make.

GOVERNING PRIORITIES

When Ducey leaves office, writes Max Eden of the American Enterprise Institute, a major part of his legacy will include "cementing his state's position as the nation's leader in school choice." Indeed, since entering office, Ducey accomplished what Symington had only dreamt of — and a great deal more.

This past January, Ducey told the state legislature, "[l]et's think big and find more ways to get kids into the school of their parents' choice. Send me the bills, and I'll sign them." In July, he did just that. The Empowerment Scholarship Account program — the most expansive school-choice program in America — is a pure choice-based system that provides $6,500 per student to any family that prefers an alternative to public schools. The funds can be used to send students not only to traditional private schools, but to the sorts of "pods" or "micro-schools" that sprang up during the Covid-19 pandemic to fill the gap between home schooling and traditional education. At the same time, the legislature increased the state's K-12 budget by $1 billion.

Ducey views school choice as a way to increase the options available to families and to imbue the state education system's near monopoly with the discipline of competition. He also sees it as a means of boosting Arizona's economy by improving its workforce and attracting new residents and businesses to the state.

Another means of boosting the economy, from Ducey's perspective, is cutting taxes. When he entered office, he announced that he wanted the state's personal income tax rate, which stood at 4.5%, to be "as close to zero as possible." He started by indexing brackets to inflation, then chipped away at the rate with dozens of specific reductions. Finally, last year, he signed into law the largest tax cut in the state's history, which will achieve a flat tax of 2.5% within three years.

On regulatory policy, Ducey took a two-pronged approach. First, he put a halt to new rulemakings and eliminated old regulations, from restrictions on microbreweries to obstacles to apartment-sharing businesses. "My aim," said Ducey, quoting his personal hero Barry Goldwater, "is not to pass laws, but to repeal them." In total, he axed or modified more than 3,000 regulations.

Second, Ducey established frameworks to encourage new workers and businesses to move to the state. In 2019, he signed the first universal occupational-licensing law in the nation: Arizona now automatically recognizes occupational licenses issued by any other state. He also eliminated initial licensing fees for applicants from families making less than 200% of the federal poverty level. Meanwhile, his light regulatory touch on autonomous-vehicle testing has drawn dozens of companies to the state, prompting the New York Times to dub Arizona the place "where self-driving cars go to learn."

When he took office, Ducey faced a $1 billion deficit. By tightening the state's budget, he managed to close the gap considerably. In 2016, Arizona's general fund was liable for $3.9 billion in debt through 2031. Today, that obligation has been reduced to $603 million. The governor's office projects budget surpluses totaling $4 billion over the next three years.

AN ECONOMIC MAGNET

These policies — school choice, tax cuts, regulatory reform, and fiscal prudence — have had clear results. In the 15th edition of "Rich States, Poor States," the annual analysis of state competitiveness by economists Arthur Laffer, Stephen Moore, and Jonathan Williams, Arizona ranked first in economic performance, with GDP rising 49% and non-farm employment growing 20% over the past 10 years. Phoenix has been the number one metropolitan area for net domestic migration for three years in a row, while Arizona has tripled the number of jobs paying $100,000 a year or more since 2015 — the third-fastest growth rate among the states. And he accomplished all of this in a land-locked state, half of which is covered by desert, with a population that is 40% Hispanic, black, or Native American.

Arizona has also become a magnet for high-technology manufacturing companies, many of them leaving California. When Ducey became governor, the Arizona Commerce Authority (ACA) had fewer than a half-dozen "mega projects" — new businesses or expansions representing at least 1,000 jobs or $500 million — in the pipeline. Now, the ACA tells me there are 57 such projects, representing 73,000 projected jobs and $100 billion in capital investment.

Among the new and expanding businesses are electric-vehicle makers like Nikola and Lucid, along with microchip manufacturers like Taiwan Semiconductor Manufacturing Company (TSMC), which is set to open a $12 billion plant in the state in 2024. (Thanks to two new Intel plants in addition to the TSMC plant, Arizona is now fourth in the nation for semiconductor employment.) In April, battery-storage manufacturer KORE Power bought a 214-acre site in Maricopa County for building a 2-million-square-foot lithium-ion facility that will hire 3,000 advanced technology workers. When Boeing needed to hire hundreds of technicians for electrical wiring, the company contacted the ACA, which worked with Mesa Community College to launch a boot camp. Students who graduated from the program were given the opportunity to interview with Boeing; 200 were ultimately offered jobs.

According to an annual survey of 700 CEOs by Chief Executive magazine, Arizona now ranks fourth among the best states for business, moving up six spots in a single year. The labor consultancy EMSI rated Phoenix first in talent attraction for the second year in a row. As education and job training in the state have improved, Arizona's poverty rate has dropped from 18.2% to 14.1% — the fifth-fastest decline among the states. This accomplishment is all the more remarkable given that 29% of Arizona residents are either immigrants or the children of at least one immigrant parent.

Despite the state's overall economic improvement, many Arizonans are still struggling. According to a data series compiled by the Missouri Economic Research and Information Center, Arizona has the 16th-highest cost of living among the states and the District of Columbia. The main culprit is housing costs, which are above those of such states as Virginia, Colorado, and Florida. Between 2010 and 2018, the median rent in the Phoenix area rose more than twice as fast as the median income, and the metropolitan area's rent increase of 30% in 2021 was one of the highest in the nation. Another rise of 20% is projected this year.

The state has received federal housing support from the pandemic stimulus packages and appropriated $60 million for its own housing trust fund. But the money doesn't seem to be making a dent in the problem, which is rooted in NIMBY-ism — communities resisting the construction of new rental housing in their backyards. Some 30 apartment developments were stalled or deferred across metropolitan Phoenix last year, according to the Arizona Republic, which cited "local opposition, zoning battles and political backlash" as major driving factors. Race may be a factor as well: Ninety-five percent of the state's extremely low-income renters are non-white. Tom Simplot, director of the state's Department of Housing, estimates that 270,000 new housing units are needed to address the demand. And yet, as he wrote in a July op-ed, "mayors and council members keep saying 'no' to new rental housing developments." According to a survey by the National Low Income Housing Coalition, Arizona ranks among the five states where the affordable-housing shortage is the worst.

Another cause of the problem may simply be a supply-demand mismatch that's the result of the state growing so quickly. "There's really intense competition for everything, regardless of price point," said Liza Kurtz, a research analyst at Arizona State University, in an interview with the Arizona Republic. "Because vacancy rates are historically low for the state in general but particularly for Maricopa County [Phoenix], landlords can afford to be very choosy."

A July study by Common Sense Institute Arizona also points out that homebuilders in the state were badly burned by the real-estate collapse in 2008 and have skimped on new construction ever since. Home prices have jumped 40% in just the last two years, compared with 25% nationally. "Three hundred more people will move to the Valley today alone," reports Arizona's Chamber Business News. "Currently, Arizona is on pace to welcome more than 100,000 individuals [this year] at a time where few houses are for sale and rental occupancy is 98%." For his part, Ducey believes the state has done all it can on housing: It's up to local governments now.

Another challenge is water. Like the rest of the Southwest, Arizona is suffering from a multi-decade drought, said to be the worst in 1,200 years. The Colorado River system — the source of 36% of the state's water use — is drying up. Since the beginning of 2022, Arizona has been in a Tier 1 shortage condition, which means it has to leave about a fifth of its annual allocation of water in Lake Mead as a contingency against deteriorating conditions. Making matters worse, Arizona is junior relative to nearby states in its rights to shared water sources.

The news is not all bad, however. As Ducey notes, Arizona uses less water today than it did in 1957, in part because the state's farmlands — which require enormous amounts of water for crops — urbanized as Arizona's population increased by a factor of seven. Conservation efforts and technological innovation have helped as well.

During his last term in office, Ducey led state lawmakers in passing two major water bills — the first since Bruce Babbitt was governor in the 1980s. The bill he signed in May 2021 helps protect the quality and cleanliness of Arizona's surface water, while the one signed in July appropriates $1 billion to import water into Arizona, reuse current resources, institute conservation measures like drip technology for farms, and secure a de-salinization deal with Mexico. But again, as with housing, there is only so much government can do in this regard. Coping with water shortages is a function of both public and private investment; for Ducey and like-minded governors, the only real solution is a booming economy that attracts top employers and generates additional tax revenue.

AN ACTIVE EXECUTIVE

While there is no way to measure such things, I would venture to say that Ducey is the most successful governor in the United States today. When I asked him for the source of his ideas, he told me his family was apolitical, and that when he arrived at Arizona State University, he didn't consider himself a Republican or a Democrat. One day in the mid-1980s, he was watching Ronald Reagan on a black-and-white television in his dorm. "Do you like that guy?" a friend asked him. "I don't know," Ducey replied, "but I like everything he says." The friend handed him an issue of National Review and a paperback copy of Atlas Shrugged. In those early days, Ducey says he was also deeply influenced by Milton Friedman's PBS series, "Free to Choose."

After graduating from college, Ducey took a job at Procter & Gamble, where he gained valuable management skills and experience. "I started my career in 1986 in the propulsion of the Reagan economy," he tells me, "and I came to believe that lower taxes, light regulation, and fiscal responsibility make good government." When he worked at Procter & Gamble, he spent hours on the road listening to Rush Limbaugh in the years when Limbaugh was a vivid articulator of free-market values.

Ducey left Procter & Gamble in 1993, then scored his Cold Stone success and became Arizona's treasurer. In 2014, he survived a six-way Republican primary for governor. He went on to win the election with 53% of the vote.

Ducey recalls a story from those earlier years of being on a flight from Washington to Phoenix while reading Paul Johnson's Modern Times — a history of the period from the 1920s to the 1990s with a determinedly conservative slant. His seatmate asked what he liked about the book, and Ducey said he agreed with Johnson's criticism of ever-expanding governments. As it turned out, the man sitting next to him was a fellow at the Claremont Institute. "He asked me what I did for a living," says Ducey. "I said I was governor of Arizona. The guy said, 'You're kidding me! A governor reading Paul Johnson. There's hope for us yet!'"

One of Ducey's first big tests as governor came when he learned that his director of weights and measures was planning a sting targeting Uber and Lyft drivers before the 2015 Super Bowl in Phoenix with the aim of shutting down the ride-sharing companies for lack of commercial licenses. (The director denied he had attempted such an operation.) "That guy was immediately terminated," said Ducey — a move that echoed Reagan's firing of air-traffic controllers in 1981. "That changed everything."

Next, he turned his sights on cutting the state's $1 billion deficit amid a sluggish economy. Ducey told me that at both Procter & Gamble and Cold Stone, he went through several downturns, and whenever he looked back on those experiences, he always wished he had "dug deeper" and "acted faster." He decided to apply this wisdom to Arizona's budget.

Those Ducey told of his plans were skeptical. "People said, 'oh sure, you're going to cut the budget,'" he recalled. There is no balanced-budget requirement in Arizona, but Ducey did it anyway. "I had legislators in my office crying, saying, 'Governor, I can't vote for your budget....' I told them to just blame me. Things will be better next year, and we'll be able to invest in things we want to." His strategy ultimately paid off.

On the revenue side of the ledger, Ducey set the stage for diversifying the state's economy. During the 2008-2009 recession, Arizona was devastated by its heavy focus on a single industry: housing construction. The state was the epicenter of the real-estate collapse, with home prices in Phoenix falling 56% on average. To win over companies in other industries, Ducey understood that reducing taxes and building a stronger workforce were critical. States like Texas, he pointed out, "were winning every competition," thanks in large part to their lack of state income tax. "But I thought we had a better place to live and a better quality of life and I would be a better salesperson." Again, his instincts proved correct.

On the high-visibility social issues of the day, Ducey is a down-the-line conservative. He opposes abortion. He signed legislation that prevents "irreversible gender reassignment surgery" on minors before the age of 18. His education reform includes requirements that Arizona students start each day with a moment of silence and demonstrate greater competency in civics. He signed a bill preventing the state from suing gun manufacturers. He's a strong opponent of illegal immigration, but he also advocates expansive legal immigration — especially for technology jobs and farm workers in places like Yuma, the source of 90% of America's winter lettuce. His recent budget would spend $544 million on physical barriers and local prosecution of border-related crimes. And despite opposition from the U.S. Justice Department, he signed a bill this past March requiring voters to provide proof of citizenship. According to USA Today, the law could become a model for other states.

Like conservatives of old, Ducey is also a strict constitutionalist. He earned the enmity of Donald Trump after a video recording caught him refusing the president's call while signing papers certifying Joe Biden's victory in the 2020 election. Trump responded with an incredulous tweet ("What is going on with @dougducey? Republicans will long remember!") and scoffed at reports of attempts to persuade Ducey to run for Senate. Of course, as Ducey told Senator Kyl all those years ago, he has no interest in becoming a legislator — he likes to run things.

Biden's victory in 2020 was only the second by a Democratic presidential candidate in the state since 1952 (the other was Bill Clinton's reelection in 1996). Otherwise, the state has a long tradition of right-leaning, frontier-minded libertarianism. This propensity is reflected not only in Barry Goldwater's 30 years in the Senate, but in the huge majorities that went for Reagan in both of his races, as well as the individuals — like Jon Kyl, John McCain, and Jeff Flake — that Arizonans have sent to the U.S. Senate in recent decades.

Donald Trump singlehandedly disrupted that tradition. He is partly to blame for the victories of moderate Democrats Kyrsten Sinema and Mark Kelly, who performed well among independent suburban voters in 2018 and 2020. Their wins marked the first time since 1953 that a Republican has not represented Arizona in the Senate. Democrats have been gaining in the state legislature as well: The Republican lead is down to 31-29 in the House and 16-14 in the Senate — the narrowest margin in nearly a quarter-century.

Trump's appeal to Arizona Republicans, however, has been strong — stronger than Ducey's own, judging by recent evidence. In the August gubernatorial primary, Kari Lake, a former news anchor endorsed by Trump, beat lawyer and former state board of regents member Karrin Taylor Robson, whom Ducey had backed. Robson, who lost by five percentage points, was supported by Jan Brewer and Fife Symington — former Republican governors in Arizona — as well as former vice president Mike Pence. Trump-endorsed candidates also won primary races for secretary of state, attorney general, and U.S. senator. In a New York Times magazine article about shifting Arizona politics, Robert Draper quoted a Republican political consultant as saying, "[t]he fact that so much energy is being spent RINO-slaying and not beating Democrats is not a healthy place for our party to be in the long run."

Unenthusiastic about Trump during the 2016 election, Ducey nevertheless worked closely with the administration, most notably John Kelly and Kirstjen Nielsen at the Department of Homeland Security. He lauded Trump and his team for their stance on border issues, and was also a fan of Trump's tax reform. He was probably more supportive of the USMCA — the revised version of NAFTA — than any other governor.

Ducey's success as governor and his backing of Trump policies did not translate into command of his own party at the ballot box, however. His certification of the 2020 election results is almost certainly to blame. Yet during his two terms, Ducey worked well with both Republicans and Democrats in a closely divided legislature, and in the end, he accomplished nearly everything he set out to achieve from the outset: tax cuts, school choice, water bills, maxing out the state's Rainy Day Fund, and paying down its debt. His main regret was not passing a red-flag law that would have allowed judges to temporarily take guns away from people deemed a danger to themselves or others.

Ducey's legislative achievements are, at least in part, testimony to his skill as a salesman. He comes across as a polite Midwesterner who uses tame language but also knows how to persuade. He won't take the bait when the media try to get him to bash political opponents. He doesn't sound like a talk-show host. He has a quiet, friendly single-mindedness about him.

And he loves to sell. When I interviewed him, he became particularly animated when discussing how he persuaded businesses to come to Arizona. "I showed up to these meetings, Jim. I sat with the CEOs. When a decision-maker came to town, I would be the one who would visit with them." He would ask them questions like, "[w]hat other places are you looking at? Texas, Tennessee, Florida? How'd your meeting go with Greg Abbott? Oh, you never got to meet Greg Abbott." Before the end of the meeting, he says he would take out his business card and write his personal cell-phone number on the back and say, "you can call me. There are no special favors, but there's opportunity for all, and we would love to have you in Arizona."

GOVERNORS HAVE TO GOVERN

At a time when the nation is beset by horrors in Washington, Ducey and a handful of other Republican governors — including Charlie Baker in Massachusetts, Ron DeSantis in Florida, Chris Sununu in New Hampshire, and Pete Ricketts in Nebraska — have been putting in place policies that advance human freedom and prosperity while enhancing opportunities for low-income families and making sensible public investments. Outside their own states, none of their work attracts much attention. But it should.

Ducey, who co-chairs the Republican Governors Association (RGA), is part of an informal group of governors and ex-governors trying to maintain free-market principles, limited government, and fiscal discipline far from the madding Washington and Mar-a-Lago crowds. He praises governors like Glenn Youngkin in Virginia, where Republicans hold only one house in the state legislature, and Phil Scott, who is "standing in the breach" in "Bernie Sanders's Vermont" with both houses under Democratic control.

Under Ducey's watch, Arizona has become a kind of policy mecca for the states. One political strategist told me that if a controversial issue comes up at an RGA conference, someone inevitably asks, "what's Arizona doing?" Ricketts has championed tax relief and regulatory reform in Nebraska. So has Baker — who, unlike Ducey and Ricketts, has had to cope with a Democratic state legislature.

The consequences of good government are evident. "Americans vote with their feet," says Ducey. "Ronald Reagan said that had the Pilgrims landed on the west coast, they would have never bothered to settle the rest of the country, and yet now there's an exodus from California. Look at states like Arizona and Texas, Florida, Tennessee, places like Nebraska. Look at what Mitch Daniels did in Indiana." Indeed, eight of the top 10 states for net domestic migration today are led by Republican governors.

"There is a focus on electing a new king every four years and expecting everything is going to happen from Washington, D.C.," says Ducey. But that's not the reality. "When you go out to the states, you are responsible for the budget and for education and the rest. And when you look at those governors that apply conservative principles with an energetic posture, they can make a huge difference in their state."

It may be fashionable nowadays to express a certain fatalism about our politics — to insist that we are too polarized for politics to work, or that the culture war makes real governance impossible. The example of Arizona over these past eight years stands as a living refutation of such pessimism.

JAMES K. GLASSMAN was formerly a senior fellow at the American Enterprise Institute and Under Secretary of State for Public Diplomacy and Public Affairs. Prior to that, he was editor of Roll Call, president of the Atlantic Monthly, and publisher of the New Republic.


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