ARIZONA POLICY CHOICES, 2001

FIVE SHOES WAITING TO DROP ON ARIZONA'S FUTURE

*PLEASE NOTE - Since this is a TEXT only document,Maps and some Figures are not included*

Morrison Institute for Public Policy
Arizona State University
College of Public Programs
School of Public Affairs

October, 2001

Morrison Institute for Public Policy is pleased to present its fourth annual Arizona Policy
Choices volume. The purpose of Arizona Policy Choices (APC) is to provide objective, in-depth
analysis of and recommendations on critical public policy issues. Since the series' inception, Morrison
Institute has developed the APC volumes by engaging university scholars, Arizona policy leaders and
national experts in the policy issue under consideration.

Previous issues of Arizona Policy Choices include:
° Balancing Acts: Tax Cuts and Public Policy in Arizona
° Growth in Arizona: The Machine in the Garden
° The New Economy: A Guide for Arizona

But APC is much more than a report. It is designed to stimulate debate, inform decision making and
be a reference for the future. An integral part of the APC project is engagement of citizens and
public policy leaders in discussions of the topic and the policy choices associated with it.

APC has garnered respect in Arizona and across the country because the volumes have presented creative
thinking on leading-edge topics. Morrison Institute continues that tradition this year with Five Shoes
Waiting to Drop on Arizona's Future. The research, analysis and recommendations presented in the
following pages offer a new approach to five issues of vital importance to Arizona. I invite you to study
the issues here and to use this publication as a basis of discussion with others.

Rob Melnick, Ph. D., Director, Morrison Institute for Public Policy
School of Public Affairs / College of Public Programs / Arizona State University

APC Research Team
Mary Jo Waits, APC Project Director, Associate Director, Morrison Institute for Public Policy
Mark Muro
Senior Research Analyst Morrison Institute for Public Policy
Tina Valdecanas
Senior Research Analyst Morrison Institute for Public Policy
Christina Kinnear
Graduate Assistant Morrison Institute for Public Policy

With Assistance From:
Rebecca Gau, Patrick Hays, Karen Leland, Nielle McCammon, Rob Melnick, Cherylene Schick and Alice Willey,
Morrison Institute for Public Policy
William Fulton, Solimar Research Group | Tom Rex, ASU Center for Business Research | Karen Heard, Chalk Design
Nancy Welch, The Insight Group

Cover Illustration by Brian Fairrington

This document is copyrighted ©2001 by the Arizona Board of Regents for and on behalf of Arizona State University and its Morrison Institute for Public Policy.

Okay, so what's next?
Will the flaws in Arizona's outmoded tax system gradually render the state unable to pay for the public
services required for economic growth?

Will the "next new thing" in technology mean Arizona will lose its competitive edge in microelectronic
manufacturing?

Will poor educational opportunities for Arizona's Latino youths hold them back - and hold the state's
economy back as well?

In fast-moving times like these, everybody wants to know: What's next? What's the next wave of social
and economic change out there? As the NASDAQ sags and uncertainty grows, leaders especially want
to know how to ride the next wave rather than be tipped upside down by it.

And today, such nimbleness matters even more. Foresight is everything now. To paraphrase the editors
of Fast Company magazine: The only sustainable form of leadership is "thought leadership," which
perceives new dynamics quicker and makes smarter adjustments faster than the competition.

In that spirit of anticipation, Morrison Institute for Public Policy presents Five Shoes Waiting to Drop
on Arizona's Future - its fourth Arizona Policy Choices report. Like its predecessors, Five Shoes is an
attempt to help public policy makers deal with the present by anticipating the future.

What do we mean by "shoes waiting to drop?"
We mean the trends that are already well under way - but that we can't quite see yet. We mean trends
that could overwhelm us if we don't spot them now and aggressively use our knowledge to plot a
positive course for the future.

There are always plenty of shoes waiting to drop on our society. But the five we deal with here are the
most fundamental ones - those that could make or break Arizona's success in the future. They are:

° A Talent Shake Up
° Latino Education Dilemma
° A Fuzzy Economic Identity
° Lost Stewardship
° The Revenue Sieve

All of these challenges require us to marshal the skills and the creativity of Arizona's most important
resource, its diverse and energetic population. For in the end, Arizona's future depends on gathering
the best efforts of all kinds of people and making sure they have the abilities and opportunities they
need to create a prosperous, healthy society.

To do that, we have to face the challenges head-on. Too often we say: "If only someone had warned
us we would have acted." Well, with these pages, five definite alarms endeavor to motivate constructive
action before it is too late.

So look out, Arizona! Shoes are waiting to drop. Let's not get stepped on.

Five Shoes Waiting to Drop on Arizona's Future, Executive Summary:

What do we mean by "shoes waiting to drop?"

We mean the trends that are already well under way - but
that we can't quite see yet. These trends could
overwhelm us if we don't spot them now and aggressively
use our knowledge to plot our course for the future.

Talent Shake Up
We think we're good at attracting brain power. But we're not as good as we
think we are. And we may start losing it - in both the public and private sectors
- if we don't work harder to land and keep tomorrow's footloose talent.

Talented Prospective Workers Have Reservations About Locating in Arizona Because of...
Poor Performing Public Schools - 52%
Lack of Workforce Training Programs - 27%
Image of Sprawling Communities - 15%
Not Considered a "Cool" Place - 14%
Lack of Cultural Diversity - 14%
Not a Top-Tier Technology Hot Spot - 10%
Lack of Environmental Amenities - 2%

Brain power is everything for states in the new economy, and frequently it is provided
by "yuppie baby boomers," well-educated young professionals and highly skilled
immigrants. Unfortunately, the baby boom is aging, and uncertainties surround
Arizona's near-term ability to attract and retain the best and brightest from that
and other discriminating, highly mobile groups. Arizona risks losing out in the
worldwide scramble for skilled workers to improve its standing in the knowledge
economy.

The bottom line: Arizona must boost its
quality of life to boost its ability to keep
and attract the world's best talent.

Latino Education Dilemma
Latino youth are upwardly mobile already. But they need better education
for Arizona to take full advantage of the possibilities this exploding
population offers.

Latinos born in Arizona make up much of their immigrant parents' educational deficits.

Still, only half of all Arizona Latinos obtain a high school diploma. This suggests
the opportunity and challenge of educating the state's Latinos, who now represent
roughly half of the under-18 population in Phoenix and Tucson. With effective
education, the Latino young could become a potent new source of talent in the state.
Without it their skills deficits will exacerbate Arizona's coming shortages of skilled labor.

The bottom line: Arizona's future economic
and social well-being depends heavily
on erasing the educational deficits of the
state's young Hispanic residents.

A Fuzzy Economic Identity
Arizona is growing high-tech jobs.
But we haven't yet met the challenge of ensuring that we can excel in the
new economy over the long term.

Name three things Arizona says it wants to be great in. That is hard to do because
Arizona does not approach its economic future with a singleness of purpose. Many
of its leaders want to compete with California, Texas and Colorado as centers
of the knowledge economy. But just as many others are content to keep on promoting
Arizona as a perpetual construction machine or a retirement haven. This split
personality is a stumbling block. Going forward, Arizona will lead - or not - depending
on its desire and discipline to be distinctive and great in "new economy" ways.

Arizona has ridden the "electronics wave" of the emerging new economy pretty well.
But to catch the next wave, the state must overcome its narrow base of high-tech
factories, its low-wage legacy and lack of intellectual facilities and talent working on
"the next big thing." In Arizona, we "make" but we don't "think" and thinking is where
future economic growth is likely to occur.

Arizonans Hope Arizona Will Be a Technology Leader in the Future
Technology 39%
Tourism 20%
Agriculture 13%
Manufacturing 8%
Real Estate 6%
Financial Services 5%

But They Think Arizona Will Be Known for Tourism and Real Estate
Tourism 38%
Real Estate 27%
Technology 19%
Manufacturing 6%
Agriculture 4%
Financial Services 2%

Lost Stewardship
Leadership has become a spectator sport in Arizona.

Less than a quarter of Arizonans think state business and elected leaders care
about Arizona's future.

Citizens' Perceptions of Arizona's Political Leaders
Political Leaders with a Narrow View 33%
Weak Political Leaders 20%
Political Leaders Who Care Deeply About My Future 16%
Visionary Political Leaders 11%
Single-Issue Political Leaders 10%

Citizens' Perceptions of Arizona's Business Leaders
Business Leaders with a Narrow View 28%
Business Leaders Who Care Deeply About My Future 22%
Visionary Business Leaders 16%
Single-Issue Business Leaders 11%
Weak Business Leaders 9%

Whether Arizona evades the threats discussed in this report or overcomes them
depends in large part on the extent to which Arizonans act as leaders. Many appear to be
standing on the sidelines and waiting for others to make things happen. At the same
time, tackling the future with a traditional leadership style - focused only on single
issues, set ideology, political survival and self interest - won't help Arizona excel in
the early part of the twenty-first century. For Arizona to succeed, its leaders must
view themselves as stewards of Arizona as a place. In the final analysis, a location
remains only as precious and essential as its leaders and inhabitants believe it to be. So
we have a clear leadership search: Who has enough intelligence, imagination, cooperation,
and commitment to make the best use of the opportunities and challenges before
the state and its regions?

The Revenue Sieve
Arizona's tax system is old and full
of leaks.

Too many exemptions and too narrow a tax base hamper Arizona's ability to raise
revenues efficiently.

The proliferation of sales and income tax
credits in the last decade is one case in point.

Meanwhile, fundamental economic, technological
and demographic trends are
further eroding the effectiveness of an
outmoded tax system. Most notably, the
state's continuing shift to a service economy,
the rise of e-commerce and the simultaneous
aging and Latinization of Arizona
all threaten to slow the growth of state
and local tax collections even as service
needs increase.

The challenge is clear: Ensuring the
integrity of the system requires fundamental
reform of a leak-filled structure that has
grown too reliant on sales taxes.

------------------------------------

A Talent Shake Up

We think we're good at attracting
brain power. But we're not as
good as we think we are. And we
may start losing it - in both the public
and private sectors - if we don't work
harder to land and keep tomorrow's
footloose talent.

In today's "knowledge economy," what matters is the intellectual capacity of
the workforce. Places succeed when they can mobilize their homegrown talent
- and attract new brain power - to dream up the ideas, devise the processes,
and execute the business plans that point the way to success.

Since talent is mobile, however, a high-stakes competition has broken out among
places to attract - and keep - three prominent demographic groups with the
knowledge and skills required for a successful economy: aging baby boomers,
young knowledge professionals and highly educated immigrants.

Unfortunately, Arizona is not positioned well to attract and keep the
knowledge workers it needs. Most of the state's immigrants tend toward
lower skill levels. Meanwhile, Arizona suffers from an image problem among
the cutting-edge young knowledge workers who increasingly make regional
economies go. These professionals tell researchers Arizona lacks the urban
fabric, "coolness" and public schools they want. Finally, it's unclear whether,
in the twenty-first century, Arizona can continue to attract the one well-educated
group with which it has a track record: retirees. Baby boomers begin
turning 55 this year, and there's no guarantee that they will embrace Arizona's
traditional resort-style retirement communities as their predecessors have.

Simply put: Arizona does not yet have what it takes to win in the scramble
for key talent.

To fill the gaps, Arizona must boost its quality of life. Since the best workers
can choose where to live, Arizona must move beyond its traditional "niches" by
building distinctive world-class communities with world-class amenities. To
do this, policy makers must understand precisely what the most discriminating
talent groups really want, and then deliver it with an authentic Arizona twist -
whether it be vibrant new streetscapes and good schools or more options for
continued employment later in life.

Source: Morrison Institute for Public Policy, 2001

FIGURE 1
Employers Say Talented Prospective Workers Have
Reservations About Locating in Arizona Because of....

Poor performing public schools: 52%
Lack of workforce training programs: 27%
Image of sprawling communities: 15%
Not considered a "cool" place: 14%
Lack of cultural diversity: 14%
Not a top-tier technology hot spot: 10%
Lack of environmental amenities: 2%
Source: Morrison Institute for Public Policy, 2001

"The future of most
cities depends on
their being desirable
places for consumers
to live. As consumers
become richer and
firms become mobile,
location choices are
based as much on
their advantages for
workers as on their
advantages for firms."

Edward Glaeser
Harvard University

Increasingly Arizona's success will depend on how it reaches out to the best and the
brightest in three demographic groups:

° Yuppie baby boomers, who, at the peak of their productivity, may be anticipating
an "active retirement" with perhaps a different career, a new business or a
return to school

° Young knowledge workers, who, in their 20s and 30s, want to do cutting-edge
work in exciting places

° Highly skilled immigrants, who are choosing places with inclusive communities,
fast-growing economies and numerous options

These constituencies loom large because talent matters so much now. In this knowledge
economy, regions prosper by dint of their intellectual capabilities - their people. The
places that can claim the hearts and minds of the people who dream up fresh ideas and
devise new processes will prevail over those that cannot or do not. As Harvard economist
Edward Glaeser writes: "Skilled communities rise - unskilled communities fall."

Talent, however, is increasingly mobile, so a high-stakes scramble for it is in full swing.
Well-educated, creative people - whether they are foreign-born, 50-something or 20-
something - move around a lot. Such people's activities are rooted in a global economic
system characterized by rapid migrations of capital and people; their cosmopolitan
sensibilities and many employment options make them peripatetic pickers and choosers
among locations.

Of course, all of Arizona's talent is valuable in today's environment. Still, attracting
additional brains and hands is crucial because Arizona's homegrown talent pool is
not deep or broad enough for new economy success. Morrison Institute's recent statewide
survey of Arizona employers confirmed the importance and challenge of attracting talent.
More than half (52%) of the firms who recruit workers out of state rated poor
schools, as well as other perceived quality of life deficits, as "major barriers" to attracting
quality employees.

Baby Boomers: Will They Work or Play, Come or Stay Away?

The baby boom generation begins to turn 55 this year. Since one in four Arizonans is a
boomer, the 55 milestone presages a potential "brain drain" in Arizona workplaces. As
the best-educated, best-off generation in American history, baby boomers anchor
Arizona's workforce and provide the bulk of its talent. Especially critical are the best-educated
professional boomers. They may no longer be as youthful as they were when
their status prompted the term "yuppies," but they are still the most valuable workers.
Regions and communities that retain and attract the mobile, "demographically advantaged"
segments of the baby boom will tap into a large pool of workers, entrepreneurs
and civic participants. Regions that lack them, conversely, could struggle.

Arizona and the Baby Boom Generation

Two trends raise questions about Arizona's standing with the baby boom generation:

1. In-state boomers' aging and retirement could create shortages of skilled workers.

The inevitable aging of the state's resident boomers prompts concern because more
and more of Arizona's most experienced workers are hitting retirement age. Between
now and 2030 the proportion and real size of the over-60 population will grow from 17
percent of the population (about 900,000 people) to 27 percent (about 2.7 million)
according to Arizona Department of Economic Security projections.

Predictions abound about baby boomers' preferences for the future, but no one really
knows whether boomers will continue the current trend toward earlier retirement or
stay in the workforce longer. What is certain is that those who are aged 39 to 55 today
account for about 1.5 million of Arizona's 2.7 million working-age residents, or 56
percent of them. Seniority alone implies that this half of the state's workforce comprises
the core of managers, supervisors and lead workers. But now, these critical producers
are entering the traditional downshifting years. In just 10 years, 500,000 Arizonans
will turn 60. In the next 20 years Arizona businesses and organizations will face
replacing hundreds of thousands of employees at the top of their games from the smaller
"baby bust" that followed the boom.

Already, Arizona employers are watching their workforces grow older as they struggle
with the worker scarcities created by the 1990s economic boom. In health care, the
average age of the registered nurses now hovers at 48. In education, a third of Phoenix
Union High School District employees are 50 or older. Among governments, 65 percent
of Pima County's employees, 70 percent of the city of Phoenix's and 61 percent of state
workers are over 40. Big private-sector employers are not much younger. Half of
Raytheon Missile Systems' employees are 45 or older. At APS boomers make up 70
percent of the workforce; half the workers there are 45.

Staffing will only get harder. For a while "late wave" boomers will move up to fill
more senior positions. In 20 years, though, the challenge will toughen. Then, the smaller
size of the younger cohorts now early in their work lives hints at a shortage of experienced
workers. Arizona's population is projected to increase by 57 percent by 2025,
but the pool from which the state draws its top employees, those aged 45 to 54, will
increase a comparatively modest 36 percent

FIGURE 3
In 20 Years, Young Workers Will Be Few in Comparison
to Older Employees and Retirees

Age Groups / Percent Growth 2001-2025

5-24: 43%
25-44: 33%
45-54: 36%
60+: 127%
All: 57%
Source: Arizona Department of Economic Security

(see Figure 3). Thus, a substantially bigger Arizona economy could include proportionally
fewer veteran workers to run it.

2. The changing tastes of out-of-state "empty nesters" and high-end retirees
could leave Arizona out of the game of attracting them.

The second issue that raises concerns about Arizona's ability to attract and retain the
most desirable cohorts of aging boomers involves the increasing sophistication of
those groups. The reality is that the most desirable boomers may choose to go elsewhere
just when Arizona needs them most.

Arizona has profited from the wealth and spending of the 15,000 to 20,000 retirees it
attracts from other states each year. To be sure, accommodating these migrants has
demanded a lot of Arizona. But their arrival has brought an influx of financially secure,
active and educated new citizens to the state. Only Florida has welcomed more of this
"advantaged" segment than has Arizona.

Yet now the process of attracting talented retirees and well-heeled migrants may be
changing. Migrants represent a new talent source for states, for one thing. At the same
time, "yuppie" seniors appear to be different from their predecessors. Better-educated
and increasingly affluent (see Figure 4), aging boomers are also healthier, choosier
and less group-oriented in comparison to previous generations. Amenities, aesthetics
and the environment count for a lot with them, since economic security is not an
issue. Boomers are sophisticated consumers of "place" and appear ill disposed to spend
their twenty "new" years of added lifespan according to old patterns.

Given that, fewer boomers may settle for Arizona's traditional menu of retirement
options (see Table 3). Some retirees, even now, are being turned off by the congestion,
pollution and loss of open space affecting Arizona's retirement communities. Others
might avoid metro Phoenix's worsening "heat island," which has increased summer
nighttime low temperatures by 10 degrees F in the last 30 years. Other boomers may
spurn senior-only settings altogether. Demographers William Frey and Ross
DeVol of the Milken Institute foresee diminished demand for mass-market, age-segregated
retirement communities like Sun City. Frey and DeVol, along with other experts, suspect
some empty nesters will be looking for more centrally located multi-age developments in
high-amenity communities, perhaps so they can easily continue working. In all this, local
amenities and quality of life will be critical selection factors. Restaurants and theaters,
architectural and landscape aesthetics and efficient transportation are key draws for
these discerning consumers.

A final draw will be opportunities for self-improvement and engagement. Quintessentially
the "education generation" and fond of work, boomers seem certain to seek
places that facilitate lifelong learning and ongoing employment. Regions that cater to
these passions will garner vital new stores of human capital.

Arizona Lags in Young Talent for a New Economy

Highly educated young professional, technical
and creative workers are also critical.
Unfortunately, Arizona now has fewer of the

FIGURE 4
Boomers are More Educated and Professional Than Their Parents
and Have Had Different Life Experiences

Sources: Milken Institute, U. S. Census Bureau

prized, young knowledge workers than it should have, and the state lags behind on the
assets, amenities and reputation that might attract them. The problem is twofold:
Arizona ranks only moderately well on measures of current workforce skill, and it
fares poorly on the sort of factors that young knowledge workers say affect their
location decisions.

In terms of present talent levels, Arizona cannot claim to have the critical mass of
knowledge workers that numerous commentators deem critical to economic success.
Granted, the state scores rather well on several measures of human competency. For
example, Arizona ranked 12th among the 50 states on the Progressive Policy Institute's
most recent measure of overall workforce education. This ranking, however, stems
from the educational achievement of adults (25-65 years old), many of whom have
moved to Arizona, rather than from young homegrown talent ages 20-24.

Indicators of Talent Problems
As Table 2 shows, Arizona ranks 37th among the 50 states on the percentage of the population
with a bachelor's degree. Just 22.5 percent of Arizona's over-25 population boasted a
bachelor's degree or more in 2000 - an average education level. More disturbing, however, is
the fact that Arizona's standing deteriorated from 20th among the states in 1991 to 37th
in 2000. Nor does a tighter focus on high tech improve the picture. Civilian scientists
and engineers make up just .35 percent of the state's workforce, compared to a national
incidence of .43 percent, according to the Progressive Policy Institute. Similarly,
Arizona's per capita employment in high-tech, knowledge-intensive industrial sectors
ranks slightly below the national average. Arizona has 50 workers per 1,000 residents
working in knowledge-intensive sectors, compared to 207 in top-ranked Washington,
D. C. and 64 in Colorado.

But those numbers refer to who is here now. What may matter more to Arizona (or to
any of the state's regions) is the ability to add to the present talent base by attracting
well-educated 20-somethings and 30-somethings from other parts of the country.

TABLE 2
Arizona's Ranking Among the 50 States Dropped from 20th
in 1991 to 37th in 2000 for Residents with a Bachelor's Degree
Estimated Percent of Population Over 25 Years of Age Attaining
a Bachelor's Degree or More By State: 1991 & 2000

Sources: State Science & Technology Institute, www.census.gov

Experts associate economic success with clusters of these frequently unattached
young workers with the latest and greatest skills. At the same time, these valuable workers
move far more frequently than less-educated individuals, and they often pick locations as
much as, or more than, they choose jobs. Such mobility and adventurousness imply
that these young itinerants could be recruited.

Arizona, however, faces problems on this front.
New economy observers Richard Florida, Terry Nichols Clark and Doug Henton have
documented the preferences of these vanguard workers (see Table 4). Henton says the
young itinerants gravitate to "vital centers" that provide opportunities to get together,
vibrant street scenes and quick access to urban greenspace. Clark believes they flock
to cities that are "entertainment machines" full of such things as parks, bohemian arts
scenes, and dense neighborhoods filled with exotic cuisine and nightclubs. Richard
Florida tallies interest in diversity; subways or light rail; places to see "visibly active
young people;" and casual gathering places. Morrison Institute's recent survey of metropolitan
Phoenix residents revealed similar currents. Respondents under age 30 were more
likely than older ones to support promoting the state for its "great quality of life," its
"smart people" and its arts scene. Such views highlight what appeals to the young
here and elsewhere.

Arizona May Not Have What Young Workers Want

Yet other research suggests that Arizona does not yet offer what many of the nation's
smart young workers say they want. The institute's employer survey showed that a
third to a half of Arizona companies that recruit workers from out of state thought
that recruits did not perceive Arizona as a "cool," vibrant place for young professionals.
Fourteen percent of companies thought this a major barrier to attracting the types of
workers they want and need.

Richard Florida has cross-referenced various cities' densities of knowledge workers with
their amenity rankings in Money Magazine

TABLE 3
Advantaged Boomers Define the Good Life Ages 39 - 55
Defining Experiences: The Sixties and Watergate
Common Ideas: Achievement, quality, individuality, meaning
Outlook: Youthful, cosmopolitan
Ethic: Striving, seeking, adventuring
Habitat: Outlying planned communities, plus In-town established neighborhoods
In-fill developments in areas of interest
Small-scale, highly urban developments
Residence: Customized diversity Single-family luxury homes on the fringe
"Convenient" suburban
Townhouses, condos (implies density)
Amenities: Sun, dry climate, proximity to ocean, Good schools if kids still at home
Performing arts
Open space/ natural environment
Efficient transportation
Lifestyle: Enlightened consumption
Entertainment options
Recreation: Walking, hiking, biking, working out
Later Years: "Now I can do what I really want." Self-improvement,
Different work and volunteer experiences,
"Back to school at 60 - start a business at 70"
Computer rooms, health spas, classrooms

Sources: Rocking the Ages: The Yankelovich Report on Generational Marketing; Meyers Real Estate
Information Inc.; Age Power; "The Consumer City;" "The City as Entertainment Machine"

TABLE 4
Young Knowledge Workers Redefine the Good Life Ages 20s and 30s
Defining Ideas: Pluralism, tolerance, the Web
Outlooks: Precocious, entrepreneurial
Ethics: Adaptability, pragmatic
Habitats: Urban centers
University areas
Cyber-districts
Revitalizing neighborhoods
Residences: "Industrial" loft spaces
Eccentric urban apartments
Convenient condos
Rehabbed housing
Amenities: Compact density
Meeting places
Light rail or subways
Vibrant night life
Environmental quality
Lifestyle: Exotic consumption, Alternative entertainment
Independent theater and film
Recreation: Roller-blading, mountain biking

Sources: Rocking the Ages: The Yankelovich Report on Generational Marketing; "Competing in the Age of
Talent;" "Linking the New Economy to the Livable Community;" "The City as Entertainment Machine"

and POV Magazine. While not focused solely on those under 30, the analysis captures the
sort of distinctions younger cohorts make so sharply. In general high technology success
correlates with high amenity value in this analysis. Without exception Phoenix ranks
low on measures of "overall environmental quality," "overall amenities," "arts and culture"
and "coolness."

The upshot: The region's low amenity ratings represent a critical human resources problem.
Arizona does not yet have what it takes to win in the scramble for young professionals
- a scramble that is growing urgent.

Immigrants: Potential Sources of Skills and Strength

Arizona, finally, is fortunate to be a gateway state for new residents from other countries.
Numerous studies associate economic strength with the readiness to "harness
diversity," welcome newcomers and turn their energy and ideas into innovations and
wealth. One expert goes so far as to correlate high-tech industry with the percentage of a
region's population that is foreign born.

The issue for Arizona, though, is that while foreign-born residents bring benefits,
the state's newcomers come with a wide array of educational experiences. Arizona's
current immigrant population tilts to the low end of the education spectrum.
Specifically, the vast majority of Arizona's foreign-born immigrants arrive from Mexico,
where they commonly receive no more than nine years of education. Approximately four
percent of Mexican newcomers possess advanced university degrees. By contrast,
large flows of Asian and Indian immigrants, with far higher rates of college attendance
and with approximately 20 percent having advanced degrees, give a potent talent edge
to California.

The Immigrant Advantage
Witness the human capital advantage enjoyed by Silicon Valley, thanks to its highly
educated, highly entrepreneurial immigrants. Nearly a quarter of the population
there is foreign-born; and almost one-third of Silicon Valley's scientists and engineers
hail from foreign countries. Even more strikingly, roughly a quarter of new Silicon
Valley businesses started since 1980 have been started by someone who was born in
China or India. The figure increased to more than 30 percent between 1995 and 1999.

Such immigrant-driven entrepreneurship highlights a potential boon from Arizona's
growing diversity, but also underscores continuing deficits. Census 2000 shows Arizona's
Hispanic population surged 88 percent since 1990, and that its Asian population grew by
67 percent. Nevertheless, Arizona's mix of people and skills remains less than optimal.
Latino education levels are comparatively low while fewer than 100,000 Asians (2%
of the population) reside in the state. For now, at least, California still dominates the
contest for high-skill immigrants among Western states.

And So the Shoe Could Drop
The implication is clear. If it is unable to prevail in the race to woo footloose talent as
the boomers retire, Arizona could see its recent new economy progress stall. Put it
this way: Arizona's second-tier ability to augment its workforce with skilled immigrants,
experienced boomers and young creative types throws into question the
quantity and quality of its talent base. In terms of quantity, the purely numerical
difficulty of replacing the state's retiring boomers from among the ranks of the
smaller baby bust alone foretells problems. Absent the recruitment of new talent from
elsewhere, shortages of skilled labor seem likely. But the quality of the state's workforce
also hangs in the balance, since every community's prospects turn in part on luring the
world's best-educated, most creative and mobile people. By that formula, Denver,
Seattle, and Portland will continue to rise and greater Phoenix and Tucson could falter.

Cause for Optimism
But those are the fears. For all this Arizona seems well enough positioned that if it
moved with dispatch it could still help itself in the talent race. In this regard, the state's
recent population growth across all age and racial groups points to general strengths in
attracting each of the future's three desirable groups.

In general terms, Arizona is growing quickly and that brings talent. According to Census
2000, Arizona added 1.5 million new residents in the last decade, more than all but four
states. Likewise, five of the nation's fifteen fastest growing cities with populations more
than 100,000 are in Arizona. By contrast, other states and their cities are increasing
slowly, or shrinking. That places Arizona emphatically among the states that are gaining
raw human capital.

Indeed, Arizona offers several of the attributes that Edward Glaeser's analyses for the
Brookings Institution associate with fast growth (though it lacks high percentages of
highly educated residents). Most notably, Arizona lies in the warm, dry West; its
economy provides easy access to services and work; and it attracts many immigrants.
These are important strengths in the search for human capital.

But as Arizona looks to the next phase of the scramble for talent stubborn uncertainties
intrude. Arizona clearly lacks the compact, walkable, heavily "amenitized" urban centers
that increasingly appeal to highly educated residents. Arizona also faces a serious environmental
hurdle in selling itself to choosy migrants as the heat island effect makes
notoriously hot Phoenix hotter. Yet even here, Arizona possesses important edges in
the talent battles. Arizona's Sun Belt setting and proximity to California, for example,
remain powerful assets. Meanwhile, most of the state's deficits can be fixed relatively
easily. Policy makers retain substantial power to boost the state's appeal to desirable
groups by creating more vibrant, people-friendly urban scenes. Leaders can address
the state's education lags, and work to keep its older populations engaged. Should they
do so, decision makers may well find that Arizona's current demography is not destiny.

Policies to Win in the Scramble for Talent

Turning the scramble for talent into a human resource bonanza depends on providing
attractive places for all people to call home.

To succeed at this, Arizona must:
Put ambitious, Arizona-style quality of life upgrades near the center of state and
regional economic development efforts.

Policy makers should notice that several themes run through the expressed preferences
of the three major talent cohorts. Cities seem to draw all of the groups. Good
schools attract knowledge workers with young families just as much as they do
upwardly mobile Latino career people. Interest in people-friendly streetscapes,
inclusiveness and gathering places seems to cut across the categories. Opportunities for
lifelong learning and retraining will also appeal widely to all three constituencies of
strivers.

Research also suggests the convergence of boomers' and young professionals' preferences
on other quality-of-place agendas, though data is thin on immigrants. Both
groups are full of "doers" who appreciate numerous venues for active recreation
throughout the city and region, including bike paths, nature preserves and mountain-bike
trails. Similarly, culture and the environment appear to be critical. Environmental,
open space and smart growth initiatives impress both well-educated groups, as do
performing arts venues. Conveniently, such agendas popular with highly-educated
potential Arizonans enjoy broad popular support within the state as well.

With these trends in mind, very different choices for economic policy emerge. A
decade ago, cities and states studied what individual companies wanted and competed
for them with "private goods," or customized tax breaks and other incentives to lower costs.
Now with a knowledge and service-centered economy, the new choice is to compete for
talent groups with "public goods" - amenities such as clean air, interesting public
spaces and good schools.

Understanding the desires for amenities is, of course, far more complex than deciding on
tax breaks. Nevertheless, Seattle, Portland, Austin and Chicago and other cities are
engaged in amenity strategies that appear to be paying off.

Seattle, Portland and Austin have become centers for the development of information
technology in part because of their lifestyle amenities. Both cities have set the pace in
implementing smart growth strategies, and in their recent dramatic growth. Both have
aggressively included cultural initiatives in their public agendas. Seattle, home to
Microsoft, has been a site of cultural as well as technological innovations, especially in
youth culture. Austin, with its country music, also fostered rich connections between
its youth culture and its technology sector.

Chicago, which recently took Boeing's headquarters from Seattle, appears to be
concentrating on lifestyle also. Chicago's main industry today, according to University
of Chicago economist Terry Clark, is entertainment, defined as including tourism,
conventions, restaurants, hotels, and related amenities. Conscious of this new role for the
city, Mayor Richard Daley has focused on enhancing the many aspects of a distinctive
urban lifestyle from architecture to schools and parks. For example, he proudly claims
to have planted more trees than any other mayor in history, around one million, as
part of a commitment to the environment and city aesthetics. He also asked the
Legislature for authority to take over the Chicago Public Schools and the Parks
District. Both moves were part of Daley's agenda "to do all those things which make a
city a livable and pleasant place."

Daley is one of several big-city mayors who in the past decade focused on public
amenities, including education, as central to urban economic development. Others
include Richard Riordan in Los Angeles, Rudolph Guiliani in New York, Ed Rendell
in Philadelphia and Stephen Goldsmith in Indianapolis.

Prepare for the talent crunch. Arizona policy makers need to develop a
nuanced understanding of the age and migration trends that are rapidly altering the
size and character of labor markets, and begin improving Arizona's public and private institutions'
standing in the talent competition.

Businesses and agencies concerned with the economy, for example, should look closely
at the labor supply implications of the boomers' aging. They may find organizations
face greater staffing challenges than they thought. Governments should be
even more urgent about replenishing a dwindling talent pool. Paul Light of the
Brookings Institution warns that government's problem in competing for talent is
twofold. "First, its hiring system for recruiting talent, top to bottom, falls short at almost
every task it undertakes. It is slow in hiring, useless in firing out of touch with actual
performance rewards, penurious in training...
Second, government appears less and less able to provide the kind of work that
today's labor market expects. There is no question, for example, that young Americans
are more highly attached to work than previous generations or that the most talented
among them can demand more from their employers." Light also writes that "if governments
do not want to be the employer of last resort, they must become the recruiters
of first approach. They can derive little comfort from having hundreds of names on
their application lists if those names come from the bottom quarter of classes or are
drawn to government for the security."

Ease the coming skills crunch by keeping boomers engaged through initiatives to
promote "productive aging," "rehiring" and retraining.

A final way to increase Arizona's talent stock is to ensure that fewer of its mainstay workers
disengage from productivity. Arizona should therefore make itself a national leader in
developing a new vision of "productive aging" aimed at engaging older citizens
in meaningful work, lifelong learning and volunteerism.

In the workplace, Arizona businesses and governments must become far more adept at
attracting, retraining and retaining top-flight older workers. Instead of nudging
older workers toward retirement, employers should be retooling their workplaces to provide
the flexible schedules, phased retirements and skill updates that will help keep aging
boomers in the workforce.

In like fashion, Arizona must become an education mecca where "lifelong learning"
extends richly into the later years. This too will unleash local talent and attract
migrating boomers.

More and more older Arizonans may also want to give back to society in the next two
decades. Their energies could flood Arizona neighborhoods, schools, parks and community
organizations with desperately needed human resources. In light of that, Arizona
institutions mus