Extending the Border Zone to the Entire State of Arizona: Estimated Expenditures and Economic Impact Simulations, 2013‐2016

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This report was submittted to the Maricopa Association of Governments on March 12, 2015, by the Economic and Business Research Center, Eller College of Management, The University of Arizona, Tucson, Arizona 85721‐0108.

Executive Summary

• Every year, thousands of frequent, low‐risk, short‐term visitors travel from Mexico into Arizona to conduct business, visit with family and friends, or shop at local stores—spending billions of dollars.  Although these visitors have been pre‐cleared through thorough background checks for frequent travel into the U.S., their U.S.‐issued border crossing cards (BCCs) limit their travel in Arizona to 75 miles entering through Arizona’s land ports of entry—allowing visitors to travel about as far as the city of Tucson, with the exception of a 25‐mile limit for visitors entering through the San Luis port of entry (Yuma region).  
• A resolution of support to extend the border zone from its current 75‐mile zone to the entire state and to streamline the Mexican visa process at the land ports of entry is currently being supported by regional planning agencies¹ throughout Arizona, including the Maricopa Association of Governments (MAG), as well as the Intertribal Council of Arizona and the city of Nogales, Arizona.  Extending the zone for the BCC requires an administrative action by the U.S. Department of Homeland Security.
• The supporters of the proposal questioned what could happen if these legal visitors could bring their tourism dollars into all of Arizona, where they could go to shopping centers, attend Spring Training baseball games, or travel all the way up to Flagstaff or the Grand Canyon where they could spend more dollars.
• In 2015, MAG requested that the UA conduct an economic impact analysis of Mexican spending resulting from extending the border zone to the entire state of Arizona. Since the late 1970s, the University of Arizona (UA) has conducted four extensive research studies that assess direct spending by Mexican visitors and estimate their total economic impact on Arizona. The last Mexican visitors study prior to this study was conducted in 2007‐2008.
• This report outlines calculations of baseline expenditures of Mexican visitors to Arizona from 2013 to 2016 and provides “what if” scenarios of the effect of extending the border zone statewide.  The “what if” scenarios include 1) An increase in all border crossers² by three percent; 2) an increase in passenger crossers³ by three percent; and 3) increases of five percent, 10 percent, and 15 percent in the number of Mexican travelers⁴ traveling north of the existing border zone. The UA utilized IMPLAN, a nationally recognized impact analysis model to estimate the economic impacts related to these scenarios.
• The analysis used data and detailed characteristics of Mexican visitors and their spending obtained in a 2007‐2008 Mexican visitors study conducted by the UA for the Arizona Office of Tourism. The first task was to build a model based on the 2007‐08 survey to accurately estimate travel parties⁵ and expenditures, by port of entry and by destination‐county; as a result, initial 2013 estimates of expenditures, by port of entry, and by destination‐county, were made.
• It can be reasonably assumed that spending increased in proportion to increases in per capita income⁶ in Mexico; Short‐term trends were used to “project” border crossers for 2014 ‐ 2016, by port of entry by mode, based on the growth rates in passenger crossers numbers from their trough to current levels for each port of entry.
• Total 2013 border crossers to Arizona are 27.4 percent below the 2007‐08 levels.  Strong recent trends in passenger crossers, particularly through the ports of San Luis and Nogales, result in a projected average annual compounded growth rate for border crossers of almost 9 percent between 2013 and 2016.
• The total number of travel parties fell by almost 31 percent between 2007‐08 and 2013, more than the reduction in all border crossers.  This is because the number of pedestrian crossers fell dramatically, particularly in Nogales, and pedestrians have a smaller travel party size.  Therefore, the 44 percent fall in pedestrian crossers translates into a decrease in travel parties that is larger than the decrease in total border crossers. Annual spending of Mexican visitors to Arizona declined to $2.257 billion in 2013 ‐ approximately $431 million lower than the 2007‐2008 levels, due to the recession and effects of heightened travel and border security measures.  
• Based on a 9 percent projected annual increase in passenger crossers and the small assumed 1.74 percent annual increase in per party expenditures, estimated total expenditures grew 6.9 percent annually from 2013 to 2016.  The total direct and indirect jobs impact of these estimated expenditures were 23,076 in 2013, and 25,064, 27257, and 29,677 in 2014‐2016.
• The projected baseline expenditures for 2014, 2015, and 2016 were used to assess the economic impacts of the “what if” scenarios of extending the border zone statewide. 
• Extending the border zone will affect more than 1 million Mexican visitors who have been issued a BCC over the last 10 years in Nogales and Hermosillo, the two closest cities to Arizona located in the state of Sonora. This group represents a significantly large population that could positively impact Arizona’s economy. Nearly 1.5 million of the 1.7 million visa applications adjudicated at the U.S. State Department’s consulates and embassies in Mexico in fiscal year 2013 were for BCCs⁷.
• The proposed change would allow pre‐cleared Mexican visitors holding a BCC, which currently acts as a visa document, to travel beyond Tucson without having to fill out an additional paper I‐ 94 form and provide flexibility to spend their tourist dollars throughout Arizona, invigorating tourism‐sensitive economies in both rural and urban regions of the state. Analysis of border crossings during the 1999 border zone extension in Arizona from 25‐mile to 75‐mile indicates an increase of under 3.9 percent in border crossings between 1998 and 1999 (the year prior to the extension) compared to between 1999 and 2000 (the year following the change).
• The most recent border zone expansion occurred in 2013 in the state of New Mexico, which extended its border zone from 25 miles to 55 miles. Analysis of border crossings right after the extension indicates crossings (including through the El Paso port of entry) were 4.2 percent higher during the year after the border expansion than the year prior to the border expansion.
• Three “what if” scenarios were run: an increase in all border crossers by 3 percent; an increase in passenger crossers by 3 percent; and increases of 5 percent, 10 percent, and 15 percent in the number of Mexican visitors traveling to the north of the existing border zone.
• Overall this report concludes that extending the border zone to the entire state of Arizona could:
  • Generate up to $181 million in additional estimated spending and 2,179 additional jobs in 2016⁸
  • Bring the total projected spending of Mexican visitors to Arizona to nearly $3.1 billion and a total jobs impact of 31,856. These numbers are expected to move with the Mexican economy.

Notes:

1. Central Arizona Governments (CAG), Flagstaff Metropolitan Planning Organization (FMPO), Pima Association of Governments (PAG), Southeastern Arizona Governments Organization (SEAGO), Western Arizona Council of Governments (WACOG) and Yuma Metropolitan Planning Organization (YMPO).  

2.  Refers to data provided by the U.S. Customs and Border Protection of all non‐U.S. Citizens (representing Mexican citizens) crossing legally into Arizona through its southern ports of entry either by foot, in personal‐owned vehicles, in buses, train, or in small private aircrafts. The percentage of non‐U.S. Citizens to total (U.S. and non‐U.S. Citizens) border crossings is assumed unchanged since the 2008 study. Arizona’s southern ports of entry include Douglas, Lukeville, Naco, Nogales (international airport, and Mariposa and DeConcini gateways), San Luis (commercial and passenger gateways), Sasabe, and Lukeville.

3. Mexican citizens crossing legally into Arizona through its six land ports of entry in personal‐owned vehicles, and buses.

4. Mexican citizens crossing legally into Arizona through its air and land ports of entry.

5. Group of people traveling together on a trip under a single or pooled budget. Example is a family of two parents and three children.

6.  Measured as annual compounded average growth in per capita Mexican Gross Domestic Product (1.74 percent), a proxy for income growth in Mexico.

7. U.S. State Department Hearing on Border Security – 2013.

8.  Based on a scenario of a three percent increase in border crossings resulting from the positive message the extension would send, and a 15 percent increase in passenger crossings who decide to travel north of the 75‐mile border zone due to the extension.