COLUMN ONE : Pockets of Vitality in West : Many cities in the region are among the nation's strongest local economies. Phoenix, despite years of real estate woes, is one of the healthiest.


In a city battered by years of bad news, the April Fool's hoax hit a raw nerve: Japanese businessmen had bought the Suns basketball team, went the tongue-in-cheek radio report, and they would soon haul it off to San Diego.

Stunned listeners bombarded station KMXX-FM with calls. The tale--seemingly the latest in a litany of bankruptcy, political scandal and economic travail to rock this once-booming desert metropolis--had, you might say, an aura of reality.

"Certainly, that series of events made it more believable, more credible," acknowledged Steve LaBeau, operations manager at KMXX-FM. But he added quickly of the prank: "We had a lot of fun with it, and I think the city did too."

Just as the basketball tale turned out false, so have the worst fears about Phoenix.

This sprawling Sun Belt capital, once dubbed the "Air-Conditioned Oasis," indeed has been a haven from much of the U.S. recession. Phoenix has continued to spawn jobs and attract newcomers at a time when opportunities have been declining in much of the country.

Nor is this city unique: For all the gloomy attention to a nationwide slump, the U.S. landscape features many such pockets of vitality. What's more, a large share is sprinkled throughout the West.

Phoenix, Las Vegas, Salt Lake City and Seattle are among the nation's stronger local economies, continuing to grow and beckon those in search of a better life, at a time when headlines tell of a stubborn slump. Their formulas for vitality are varied. But things like population growth, comparatively low business costs and strong local employers all play a role.

"We're in a recession and it's a national recession," observed Phillip E. Vincent, an economist at First Interstate Bancorp in Los Angeles. "But the West, clearly, has done better."

And Phoenix, surprisingly, has outpaced a lot of the West, including California, despite a real estate sector that was ravaged in the 1980s and still bears scars. A visit to this Southwest city is a reminder that each community tells its own story of good times and bad.

In March, unemployment in Arizona's Maricopa County dipped to 4.2%, while the U.S. jobless rate jumped to 6.8%. In California and much of the Northeast, unemployment rates were considerably higher. Phoenix has been adding jobs at a 2% to 3% annual clip in recent months; nationally, job rolls have been shrinking in perhaps the most painful fallout from the downturn.

Neither Arizona voters' rejection of a Dr. Martin Luther King Jr. holiday--which has cost the state millions of dollars--nor a legacy of shaky leadership and political corruption alters the picture.

"There isn't another community in the country that's done so much to inflict economic damage on itself--yet the economy is still fundamentally sound," declares Terry Goddard, an attorney who served as mayor of Phoenix from 1983 to 1990.

Cooling Off Somewhat

Certainly, the economic climate is cooler than it used to be. Most analysts predict just modest growth rates for the next few years. That's a far cry from the furious pace of the last decade, when patches of Arizona desert were transformed to golf courses and hotels as fast as a friendly banker could say, "Here's the cash."

The heady episode came to a halt in 1986, when Congress removed the tax benefit from many real estate shelters.

Builders, architects, designers, lenders and a whole subculture of service providers suffered when the bubble burst. "Most of the projects made no economic sense"--except as tax dodges, recalls Tracy L. Clark, an economist at Arizona State.

One by one, large Arizona thrifts tumbled off the cliff and into the arms of the U.S. government. Unemployment rose as thousands of building jobs were cut from the economy, sparking an exodus of hard-hat laborers to Nevada and California. The number of construction firms plunged from 400 to about 120 today, by some estimates.

While much of the nation continued to enjoy economic gains in the late 1980s, Phoenix remained in distress, along with some of its Western neighbors. Business failures here rocketed up 73% in 1988, according to Dun & Bradstreet, a financial information firm in New York. Nationally, failures declined 7% that year.

"There's not as many big cars here anymore," observes Gregory R. Blank, head of Amer-X Security, a three-year-old firm that has enjoyed a growing market for its surveillance equipment and other products. "There's not as many people wearing Rolex watches."

Nevertheless, Phoenix today has something that is lacking in many other parts of the country: economic growth, an asset shared with many of its Western neighbors.

Do these erstwhile frontier towns have some sort of secret for their success? Part of it may be timing. Houston, Denver and Phoenix all experienced real estate problems in the 1980s, the sort of crisis that more recently has gripped New York and New England. Today, such Western locales are faring better than the nation generally, while their Eastern counterparts are struggling.

"We've already been hit," maintains Richard C. Kraemer, president of UDC-Universal Development construction company in Phoenix, noting a recent uptick in permits to build new homes. "We've already been through it."

Pioneers from other places are another enduring element in the West's formula for prosperity. Migrants stir local economies with their demand for housing, checking accounts, restaurant meals and other consumer expenses--and the West continues to import loads of them. In the 1980s, Phoenix, Sacramento, San Diego and Dallas were the nation's fastest-growing, large metropolitan areas, according to the U.S. Census Bureau.

In some cases, Western cities enjoy assets of their own. Seattle, for example, is home to robust manufacturing, courtesy of Boeing Co., the huge local employer.

Las Vegas and Salt Lake City have among the strongest local economies in the nation, boosted by low costs for land and a reputation for welcoming new business. On top of all that, factories--which have been laying off workers--make up a smaller share of employment in the West than in the nation overall.

California is the giant exception because, in a sense, the Golden State no longer is as Western as its neighbors. With its massive manufacturing sector and diverse set of industries, California is more a mirror of the national economy than a reflection of the West, analysts say.

As a consequence, Los Angeles and some other areas of the state have gotten about an average dose of hard times from the slump.

"The West, with the notable exception of California, is doing better than the nation as a whole," observed Paul Getman, an economist with Regional Financial Associates in West Chester, Pa.

Not that ghosts from the past are forgotten in these parts. To this day, the grueling 1980s' real estate crash casts a dark shadow over Phoenix.

The federal government has yet to dispose of an estimated $1.9-billion worth of raw land, office buildings, shopping centers and other property seized from sinking thrifts.

Many buildings are one-third vacant or more, a costly surplus that will take several years to work out. Property foreclosures continue at high levels. Private lenders, still afraid of being burned, are wary about offering credit.

It is a dilemma for people like Roger Weare, whose company, Chukar Inc., recently got a contract to supply four custom trailers to a California utility. All he needed to move forward was a $50,000 credit line.

Local bankers were not interested. In the end, he got the money from a relative.

"They would talk to you before," Weare said of the bankers, in a lament repeated by other small entrepreneurs. "They would lend you money. Now, they won't even talk."

Embarrassments Hurt

On a less tangible level, Phoenix's mystique as a thriving Sun Belt hub, an alternative to the rust and chill of other places, has been tarnished by a catalogue of national embarrassments.

Former Gov. Evan Mecham made headlines in 1988 when he was removed from office for transgressions that included obstruction of justice and loaning state funds to his family's Pontiac dealership. Earlier this year, seven Arizona legislators were indicted in the "Az-Scam" affair, after they reportedly succumbed to bribery offers in a police sting operation.

But much of the attention and economic fallout owes to the voters' narrow rejection of a holiday to honor Dr. King, a ballot that has cost the state many millions of dollars in lost visitors' business.

The issue is sensitive here: Residents are quick to point out that many Arizona cities already observe the holiday--Phoenix city workers get the day off--that the measure carried in most urban areas and that no other state has even voted on the question.

"There's a lot of bashing of Phoenix's image because of the Martin Luther King vote," said Terry Trost, vice president and chief economist of the Phoenix Chamber of Commerce. "Whenever you're a successful community, people take shots at you."

Yet Phoenix's peculiar array of embarrassments may distract from the real economic story: For all the local problems, the national economic sluggishness that led to a U.S. recession has been little felt here.

Like other successful Western communities, the service sector has been the key. Job growth has continued, with such fields as airlines, retail, hotels, restaurants, health care and business services all gaining within the last year or two.

And expectations are for the recovery to continue, even as the recession puts a damper on neighboring areas.

Seattle, Salt Lake City and other Western locales appear to be losing a step, although their growth continues to surpass that of the nation. Led by Phoenix, Arizona may be the only major Western state that generates more new jobs this year than last year, according to the Western Blue Chip forecast of more than 50 public and private economists.

Vacancy rates in apartment and office buildings, meanwhile, are slowly declining, a trend that at least allows for fantasies of a real estate recovery--although it may be several years off.

Currently, more than 100 out-of-state companies are at least considering an expansion into the region, says Ioanna T. Morfessis, president of the Greater Phoenix Economic Council, noting that "probably 60 of them are California companies."

In addition, such employers as Bank of America and America West Airlines have moved recently to expand their presence here.

"It's amazing to me that the economy has continued to grow as fast as it has, given the varied problems," said Elliott D. Pollack, a local economist and developer.

What's the allure of Phoenix? There's the weather--the sky is rated "clear" 221 days a year, compared, say, to 169 in Los Angeles, according to the U.S. Department of Commerce. There is Arizona's traditionally low-tax government, a feature that is typical of the broader region. Similarly, there's an abundance of affordable land and housing, with adequate water supplies for the foreseeable future.

Such attractions are expected to lure more people in the future. Maricopa County's population of 2.1 million will grow at double the national average in the 1990s, the U.S. Census Bureau forecasts. And if past trends hold up, many of the newcomers will hail from Illinois, Michigan and other Northern spots, in addition to neighboring California.

"A lot of people are escaping the reality of other places and living here--just like people moved to Southern California in the 1940s for the same reason," observed Louis F. Weschler, a professor in Arizona State's school of public affairs.

A crossroads for cattlemen and farmers early in the century, Phoenix is now an endless jumble of stucco homes, sleek high rises, rolling golf courses and shopping centers. It is the 20th largest metropolitan area in the nation, according to the 1990 U.S. census.

In light of past history, some argue that Phoenix's long-term problems will arise from more growth, not the lack of it. The worry is that an expanding population and economy will put stress on the environment, public services and the traditionally relaxed pace of life.

"People here are deathly afraid of creating another Los Angeles--as they should be, I think," said Richard J. Lehmann, chairman of Valley National Bank, the largest financial institution in Arizona with $9.5 billion in assets.

Not that Lehmann or anyone else expects that to happen soon. Booming growth is unlikely to re-emerge for years if ever, at least not until the surplus of commercial real estate recedes. Still, development has left a mark on the desert climate.

The multitude of swimming pools, golf courses, irrigation systems and artificial lakes, for instance, seems to be raising the humidity, Weschler observed, no minor matter when summer temperatures routinely soar beyond 100 degrees.

Others worry about how recent patterns of job growth will affect society and its traditionally low-tax, low-service government. Many of the new jobs are modest or low-paying tasks in retail stores, restaurants and other service establishments, a type of employment driven by the robust population gains of the region.

More lucrative manufacturing jobs, the sort that are fueled by U.S. competitiveness with other countries, have shown little growth for years in Phoenix or most other parts of the United States for that matter.

The consequence could be a growing squeeze on government--and quality of life--if a core of modestly paid retail and service workers consumes more in public services than it pays back in the form of taxes. In that respect, Phoenix's latter-day success may one day turn into a cautionary tale for other fast-growing, low-tax regions in the West and Sun Belt.

One warning sign: The overall cost of public assistance programs has risen sharply of late, even as the state unemployment rate has stayed low.

"Sooner or later that's going to catch up with the area if it doesn't change," warns Tom R. Rex, research manager at Arizona State's Center for Business Research.

Such concerns add a sense of unease to a community that used to reach out to the horizon with sheer abandon. But then again, ups and downs are nothing to boom towns of the frontier.

Chris L. Johnson, a local builder, likes to call Phoenix a "Dodge City" of free enterprise, where opportunity has historically come and gone in jarring cycles. "It's boom or bust, almost a frenzy of commerce until it snaps," explains Johnson, the third generation of his family to run the firm founded 70 years ago by his grandfather, a Swedish immigrant.

Since the construction boom snapped in the late 1980s, his company, Johnson Carlier, has faced increasingly cutthroat competition for available projects.

But Johnson is not panicking. His firm recently has handled jobs for retail outlets, factories, office buildings and airlines, and he retains hopes that sales will double to $100 million by the year 2000.

Many in his industry are on the ropes and after all, the whole United States is supposed to be in a recession. But he declares in the best spirit of the West: "I like to say things have gone from absolutely fantastic to only good."


1991 nonagricultural job growth forecasts for selected Western states. Nevada: 5.2% Utah: 3.3% Arizona: 2.7% Idaho: 2.6% Washington: 2.0% Colorado: 1.7% Texas: 1.6% Oregon: 1.3% New Mexico: 1.2% California: 0.7% Source: Western Blue Chip Economic Forecast


Fastest growing large metropolitan areas, 1980-1990. Phoenix: 40.6% Sacramento: 34.7% San Diego: 34.2% Dallas: 32.6% Atlanta: 32.5% Source: U.S. Census Bureau

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