Slow recovery anticipated for border economy

It is anticipated that improvements to the local economy will be slow to come, spurred by mega-infrastructure projects but stymied by a weak Mexican financial system and discouragingly long lines at the border.

The City of Nogales continued to miss sales-tax revenue targets in August. This is the principal source of revenue for the city’s general fund that pays for most municipal services.

In 2008-09, sales-tax revenues trailed an average of $153,333 per month compared to budget. Overall for the 12 months of FY 08-09, revenues were down $1.9 million, or 16.4 percent. Of the budgeted $11.79 million, local retail businesses collected $9.85 million in sales taxes through June 30, the end of the fiscal year.

So far in July and August of this fiscal year, despite a lower revenue target, sales-tax collections were off $117,490 or 7 percent from budget. Revenues trailed by $184,026 when compared to actual collections during the same two months in FY 2009-08,

“Those figures reflect what is happening” with a struggling Mexican economy and delays at the ports of entry, said Morley Avenue businessman Greg Kory of Kory Merchantile Corp. “It doesn’t look good. I don’t know what is going to happen.

“Even though we continue to hear good things about the national economy; the stock market is improving and the ‘recession is over,’ we don’t look at those things here on the border. We look at things like the wait times to cross the border and the Mexican economy.”

Kory’s specifically targets higher-end Mexican shoppers. “My business is very specialized; luxury items such as evening gowns and costume jewelry. People are weighing between these types of products and essentials such as food and fuel. They just are not buying.”

With his business’ gross sales down 25 percent, Kory has cut back his workforce during the last 12 months by about 10 persons to 45 employees.

“That is my No. 1 concern right now. It is tough meeting payroll,” he said, adding that “it will take at least another year” for the economy to significantly improve on the border.

But unemployment saw some improvement. The jobless rate in August was 13.2 percent in Santa Cruz County, a drop from 14 percent in July, according to the Arizona Department of Commerce.

Dean Davis, a construction project manager and president of the Rio Rico Chamber of Commerce, said some members have “indicated an increase in activity” recently, and said he expects more people to get back to work “when produce warehouses start coming online within the next 30 days or so.”

But while there are some positive signs, “To get to a point where people are bringing employees back in, I think we’re a long way off,” he said.

Nogales City Manager Jaime Fontes is optimistic about the long-term outlook. He said economists agree that the national and state employment picture will lag in recovering between one year and 1.5 years, but other negative recession indicators have “flat-lined.”

At the municipal level, he said, “We budgeted very conservatively �- and can count on long-term sustainability” in providing public service to residents and businesses.

He is upbeat about the $213 million expansion project at the Mariposa Port of Entry and correlating businesses such as loading and unloading facilities, fuel supply and other support for international trade.

Even during construction, the port will be re-configured to allow an increase of both commercial and private traffic, he noted. “After the 40 months when the port is built and processing 3,000 trucks a day we will begin to see a big difference in potential economic and job growth.”

He noted increased inquiries at the city regarding property on the west side of town near the port. “It is no secret we are planning to put a large water tank in the area to prepare for that growth.”

In fact, for 2009-10 Nogales budgeted, “our own small stimulus package,” of $6 million, Fontes said, for a variety of infrastructure projects, including leveraging other funding sources to build two pedestrian and two vehicular bridges downtown, along with paving and sidewalk projects.

A more significant project will run upwards of $100 million to replace the International Outfall Interceptor (IOI), a pipe that carries 14 million gallons of sewage from Mexico to the Nogales International Wastewater Treatment Plant in Rio Rico.

“I have been assured that this is the No. 1 project for the International Boundary and Water Commission,” Fontes said. “This message was conveyed by Commissioner (Bill) Ruth during a recent session here of the Good Neighbor Environmental Board, which advises the president on environmental issues. So the message will go directly to President Obama.”

Fontes said other shorter-term measures include working with the Greater Nogales Santa Cruz County Port Authority and U.S. Customs and Border Protection to increase staffing levels at the border to process crossers more rapidly.

“I’ve seen several studies,” Fontes said. “But the commonality among them is that 70 percent of all people in line to cross the border are coming over to shop.”

Those are the people Kory and other Nogales merchants are anxious to greet in greater numbers to improve their bottom line and increase employment opportunities.

(Christine Rogel of the Cronkite News Service contributed to this report.)