The SEAGO region’s economy is significantly impacted by that of Mexico. The shared border between Cochise and Santa Cruz counties and Sonora, Mexico serves as a crossover point for millions of visitors from Mexico each year, ranging from day shoppers and workers who cross legally through the designated ports of entry at Douglas, Naco, and Nogales, to drug and illegal alien smugglers who cross illegally through the Sonoran desert.
A 2007-2008 study conducted by the UofA measured the economic impact of Mexican visitors to Arizona. The study found that Mexican visitor spending accounts for 48.6 percent of the total taxable sales in Santa Cruz County, and 5.3 percent of taxable sales in Cochise County.
In 2007-2008, Mexican visitors spent $491.3 million in Santa Cruz County, up 102.6 percent from 2001, according to the UofA study. All spending by Mexican visitors to Santa Cruz County occurred in Nogales, according to the study.
Fifty-eight percent of expenditures by Mexican visitors to Santa Cruz County occurred in retail stores, 24.6 percent occurred in grocery stores, and 6.7 percent occurred in restaurants. According to the study, the direct spending by Mexican visitors to Santa Cruz County resulted in 3,762 jobs and $75.2 million in local income.
$560 million in sales
Accounting for indirect and induced impacts, Mexican visitors were responsible for $560.4 million in sales, 4,496 jobs, and $96.6 million in income countywide. Direct expenditures in Arizona by Mexican visitors crossing through the Nogales POE in Santa Cruz County totaled $1.3 billion in the 2007-08 study.
This was up 155.1 percent from the study conducted in 2001. Each party entering the United States through the Nogales port spent an average of $173 in Arizona, according to the study. Although Mexican visitors entering through Nogales spent $1.3 billion, only $491.3 million of that was actually spent within Santa Cruz County. This indicates that Santa Cruz County captures only 38.3 percent of the spending of Mexican visitors entering through its borders.
In 2007-2008, Mexican visitors spent $186.4 million in Cochise County, up 92.6 percent from 2001, according to the UofA study. More than two-thirds of spending by Mexican visitors to Cochise County occurred in Douglas, according to the study.
Fifty-five percent of expenditures by Mexican visitors to Cochise County occurred in retail stores, 24.1 percent occurred in grocery stores, and 7.3 percent occurred in restaurants. According to the study, the direct spending by Mexican visitors to Cochise County resulted in 1,498 jobs and $28.8 million in local income.
Accounting for indirect and induced impacts, Mexican visitors were responsible for $211.8 million in sales, 1,763 jobs, and $36.5 million in income countywide. Direct expenditures statewide by Mexican visitors crossing through the Douglas POE in Cochise County totaled $466.4 million in the 2007-08 study. This was up 372.1 percent from a similar study conducted in 2001.
Douglas entrants spend $253 each
The increase was the largest of all of Arizona‘s POEs. Each party entering the United States through the Douglas port spent an average of $253 while in Arizona, according to the study. Direct expenditures in Arizona by Mexican visitors crossing through the Naco POE, also in Cochise County, totaled $98.4 million in the 2007-0808 UofA study.
This was up 219.6 percent from the study conducted in 2001. Each party entering the United States through the Naco port spent an average of $277 in Arizona, according to the study.
Although direct expenditures in Arizona reported by Mexican visitors at the Douglas and Naco ports totaled $564.8 million, only $186.4 million was spent within Cochise County.
This indicates that Cochise County captures only one-third of the spending of Mexican visitors entering through its borders. Of the $186.4 million spent in Cochise County, $123.3 million was spent in Douglas.
Impacted by exchange rate
Trends in the numbers of shoppers from Mexico and the amounts they spend are likely impacted by the exchange rate between the U.S. Dollar and the Mexican Peso. A strong peso makes U.S. goods and services less expensive for Mexican visitors, encouraging shoppers to visit the United States, while a weak peso makes U.S. goods and services more expensive.
According to a study by the Federal Reserve Bank of Dallas, cited in the 2007-2008 UofA study on the impact of Mexican shoppers on Arizona, real exchange rate have a statistically significant impact on total retail sales in all metropolitan areas in Texas, except El Paso. Strong correlations were observed in Laredo, McAllen, and Brownsville.
A study in California, cited in the UofA study, showed that a 10 percent decline in the value of the peso lowers total taxable sales by 1 percent in San Diego County and 2.2 percent in Imperial County.
In the summer of 2008, the exchange rate was just over 10 pesos to the dollar, according to the International Monetary Fund (IMF). Since then, the peso has weakened considerably, trading at over 12 pesos to the dollar in October and 13 pesos to the dollar in November 2008. The exchange rate hit 14 pesos to the dollar in January 2009 and 15 pesos to the dollar in February 2009.
Since February 2009, the peso has strengthened, trading at just over 13 pesos to the dollar in all but one month from May 2009 through January 2010, and just under 13 pesos from February through July 2010. In August 2010, the Peso weakened to just over 13 pesos to the dollar, according to the IMF.
Although the peso has generally strengthened since early 2009, it remains considerably weaker than in previous years, making U.S. goods and services more expensive to Mexican shoppers. This is likely to continue to discourage Mexican shoppers from visiting the United States.
Inflation rate in Mexico
Another factor influencing Mexican shoppers is the inflation rate in Mexico. As prices rise in Mexico, relative to prices in the United States, this encourages Mexican shopping in the United States. In 2009, consumer prices in Mexico rose 5.3 percent while declining 0.4 percent in the United States. The inflation rate in the United States has historically remained considerably lower than in Mexico.
The two largest ports of entry (POEs) in Arizona are in the SEAGO region: Nogales and Douglas. The Nogales POE is one of the busiest in the nation and, at the time of this document, was in the process of a $200 million expansion. The first phase of the expansion was completed in late 2010, and the projected completion of the entire project is scheduled for 2014.
Douglas creates port authority
In 2008, the Douglas International Port Authority, Inc. (DIPA) was incorporated making it the state’s third port authority (the other two are the Greater Nogales/Santa Cruz County Port Authority and the Greater Yuma Port Authority—the former is also located within the SEAGO region).
DIPA incorporated as a nonprofit, private organization. It comprises and is directed by area executives representative of the trade/logistics business service sector, cross-border manufacturing, and agribusiness industries, as well as community and economic development.
The primary mission of DIPA is to promote trade and commerce. High on its priority list is the expansion and further development of the Douglas Port of Entry (POE), which it views as essential to further growth and prosperity of the region on both sides of the border.
According to DIPA, increased amounts of logistical traffic to the port will expand economic activity for both U.S. and Mexico and increase the potential for more jobs and growth for their respective communities.
Expanding Douglas port of entry
A feasibility study of expansion of the Douglas POE by the U.S. General Services Administration (GSA) was completed in 2010. The current schedule calls for port design in 2012-2013 and construction of $60 million of infrastructure for 2014.
In 2010, the Arizona Department of Transportation approved $3.5 million to extend Chino Road in Douglas approximately one quarter of a mile to the south to provide connectivity to the commercial port of entry as proposed by GSA, as well as to perform a Design Concept Report (DCR) and an environmental assessment to consider the needs and alternatives to upgrade Chino Road to its ultimate configuration.
According to the 2007-2008 UofA study on the impact of Mexican shoppers, the maquiladora program established in the 1960s led to population growth in border cities on the Mexican side, thereby increasing the consumer base for retail sales on the U.S. side.
The UofA study cites other recent studies that show maquiladora employees became a significant component of cross-border shopping, particularly food and clothing. The UofA study also notes that the North American Free Trade Agreement (NAFTA), implemented in 1994, has led to the expansion of chains such as Costco, Wal-Mart, Home Depot and Office Depot in areas south of the border, diminishing the need to obtain goods sold by these chains on the U.S. side.
The study also notes, however, that U.S. retailers still have a competitive advantage attributable to a greater variety of items, more recent styles, and lower prices, but this may eventually diminish due to tighter border security, the inconvenience of border crossing, and the eventual increase in competitiveness of retailers south of the border.
Tourists heading south
In addition to visitors from Mexico, the ports in Douglas, Naco, and Nogales also serve as crossover points for more millions of U.S. visitors traveling to Mexico each year. The Janos Highway (which begins in Douglas) is the shortest paved route from the western United States to Mexico City and Guadalajara.
In early 2008, a provision of the Western Hemisphere Travel Initiative (WHTI) took effect, which required U.S. citizens returning from Mexico to show a government-issued identification card (e.g., a driver’s license) and proof of citizenship (e.g., a birth certificate).
This likely contributed to the decline in the number of U.S. citizens crossing the border. In Naco, U.S. citizen crossings were down 3.1 percent in the first 3 months of 2008; in Douglas, the decline was much steeper at 25.2 percent.
In 2008, shortly after the provisions of the WHTI took effect, U.S. Customs and Border Protection discontinued reporting the numbers of U.S. visitors to Mexico crossing back into the United States; thus, data on those crossings are no longer available.
Beginning June 1, 2009, most U.S. citizens entering the United States from Mexico must now have a passport, passport card, or other travel document approved by the U.S. Department of Homeland Security.
Other concerns
Another factor potentially contributing to a decline in border crossings of U.S. residents into Mexico is concern over violence resulting from clashes between drug cartels and Mexican government officials in some Mexican border towns. U.S. media outlets have reported various statistics on the numbers of drug and gang-related killings throughout Mexico, and most note that such killings more than doubled from 2007 to 2008 and reached an all-time high in 2009.
The violence has been much more prevalent in Mexican cities sharing borders with Texas and California (particularly Ciudad Juarez and Tijuana, respectively) than in those areas sharing a border with Arizona.
Illegal crossing, apprehensions
The shared border between Cochise and Santa Cruz counties and Mexico also generate costs. According to a 2007 UofA study, there were more than 180,000 apprehensions of illegal border crossers in Cochise and Santa Cruz counties in 2006, accounting for 45 percent of all illegal immigrant apprehensions statewide.
Approximately 100,000 of the apprehensions were made in Santa Cruz County, with the remaining 80,000 made in Cochise County. According to the study, the costs to county-level resources for investigation, detention, and prosecution associated with crimes involving illegal immigrants were $2.2 million for Santa Cruz County and $1.7 million for Cochise County.
Sheriff and detention departments bear the greatest impact, according to the study. This does not measure the total cost of law enforcement efforts associated with the problem of illegal immigration, but only that portion of the total cost directly levied on county-level resources and funded from the county’s general fund.
It also does not measure other costs, including private property damage, private property loss, and environmental degradation, nor does it measure the opportunity costs associated with the redirection of county income toward enforcement efforts.
The costs measured in the UofA study also do not consider costs to local law enforcement agencies below the county level. The police departments of the incorporated cities of Douglas, Bisbee, and Nogales, for example, incur costs responding to incidents of trespassing and other property crimes committed by illegal immigrants, as well as more serious crimes against residents.
Local agencies often first responders
Although the U.S. Border Patrol has jurisdiction over instances of illegal border crossings, county sheriff and city police departments are often the first responders to incidents involving illegal immigrants. This raises the cost to local residents for law enforcement while diminishing the level of service provided to residents. Another cost absent from the UofA study was that of private medical services provided to illegal immigrants.
A 2002 study by MGT of America indicated that uncompensated medical costs for services provided to illegal immigrants totaled $365,000 in Santa Cruz County and $1.7 million in Cochise County in 2000. Moreover, many Mexican nationals cross the border legally through what is termed “compassionate entry,” whereby ambulances transport uninsured Mexican nationals to the U.S. border where they are met by ambulances in the United States and transported to area hospitals. These uncompensated services lead to higher costs for medical services provided to local residents.
In 2010, the Arizona legislature passed the controversial Senate Bill 1070, which requires law enforcement agencies statewide to take a more active role in fighting illegal immigration, to include determining the immigration status of people they encounter in the course of law enforcement activities when there is a reasonable suspicion that the person is in the country illegally.
At the time this document was prepared, a federal court had issued an injunction delaying implementation of the most controversial provisions of the legislation.
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