The frightening rhetoric of the state's politicians - which runs opposite to available crime data - may contribute to the slide.
The Rancho de la Osa Guest Ranch in Sasabe, Ariz., has a storied past: Built more than 300 years ago by missionary Father Eusebio Kino, it's been attacked by Pancho Villa and visited by LBJ.
Its proximity to the Mexican border used to be a selling point for guests, according to current owners Veronica and Richard Schultz. Now, they tell CBS Affiliate KPHO, it's been bringing cancellations.
"We've definitely lost guests," Richard Schultz told KPHO investigative reporter Morgan Lowe. "We've had guests call us, we've had friends call us from all over the country and say, 'Hey, are you safe?'"
And they're not alone. Between the economy and boycotts related to Arizona's tough new immigration law SB 1070, tourism is hurting.
According to the state's Tourism Board, visitors' spending in Arizona, at $16.6 billion, fell 10.2% in 2009, compared to $18.5 billion the year before.
There were 35.3 million visitors to the state in 2009, 2.1 million fewer than in 2008.
The office blamed the situation on the condition of the national economy, airlines cutting their capacity, and the H1N1 virus, as well as negative perceptions by business meeting and convention planners to host their events there.
Judging by what's being broadcast in the run-up to this year's elections, state politicians and candidates for office are not helping matters.
During this election cycle, Arizona politicians appear to be touting how dangerous the state is, with Gov. Jan Brewer's voice being one of the loudest.
"Terrorists can come across [the border]," Gov. Brewer said on Fox News, triggering "kidnappings and extortions and the beheadings."
In April Brewer told Fox's Greta Van Susteran that as a result of illegal immigrants and terrorists, Arizonans are facing "automobile accidents, extortion, drugs, the spillover with the drug cartel - we're facing all of this."
And in a campaign ad attacking the federal government's response to border security, Brewer pointed to a sign posted in the Arizona desert reading, "Danger: Public Warning - Travel Not Recommended," and asked, "Does this look safe to you?"
Lowe reports that Brewer has made several statements to the national media whose validity KPHO could not confirm, such as her allegation that most illegal immigrants in Arizona "are under the direction and control of organized drug cartels, and they are bringing drugs in."
The U.S. Border Patrol said that statement is false.
Brewer also said law enforcement officials have found decapitated bodies in the desert. Calls by KPHO to Arizona's border county medical examiners revealed that statement to be untrue.
Brewer isn't the only one touting a rise in crime.
"Out-of-control," Pinal County's elected Sheriff Paul Babeu described the climate of crime in Arizona to Fox News. "This violence has increased."
What kinds of violence? "Drug and human smuggling, home invasions, murder," Republican Sen. John McCain said, appearing with Babeu in a campaign video on border security.
In an interview with National Review Online, GOP Senate candidate J.D. Hayworth called violence in Arizona "staggering," and said that "Most people along the border are armed.
"In one particularly brutal instance, rival gangs of human smugglers had a rolling shoot-out along Interstate 10 in southern Arizona. Parents don't let their children play in the yard unless they are with them … and armed. Dogs are routinely poisoned.
"I could go on and on," he said.
Yet a look at available crime data shows violent crime in Arizona has actually been dropping over the last several years.
According to the FBI's Uniform Crime Report, the violent crime rate across Arizona has dropped every year since 2004 - down by 7.4% in 2007-2008.
The murder rate in Phoenix has dropped 50% since 2003.
Even illegal border crossings are half of what they were in 2004, dropping 49%.
The U.S. Attorney for Arizona Dennis Burke, told KPHO, "If you're not into drug trafficking and you're not into human smuggling, you're going to be safe. This is a safe place to live."
But that message is not getting out, causing concern in the state capital.
"If you're hearing about beheadings and you're hearing about things so drastic occurring, would you want to bring your family and friends here to Arizona?" State Senator Leah Landrum Taylor told KPHO's Lowe.
Taylor said a drop in tourism dollars from all of the bad publicity could drastically impact the state's already-ailing budget.
"I'm not going to comment on that any further in regards to that," Brewer replied. "But I will tell you it is the responsibility of the governor to speak to the public and tell them what is happening in Arizona. We've got a terrible problem with drug cartels."
"According to all of the information we have, Arizona is safer today than it's been in years," Lowe said. "How come you're not getting that message out?"
Brewer would not answer, but her office submitted a statement to KPHO saying, "The focus here is crime. Governor Brewer sees Arizona as a wonderful place to live, work and visit with the state's warm welcoming people, year-round sunshine, business-ready environment, rich history, and culture. Statements don't harm Arizona, but crime certainly does. Governor Brewer is concerned that the lack of a secure international border is a serious problem, and if allowed to continue, will hurt Arizona's quality of life.
"There is no question that the federal government's abject failure to secure our national border has had severe economic impacts to our state. This is not just a Governor Brewer claim. In fact, when she was Governor, Janet Napolitano frequently made comments about the hundreds of millions of dollars the federal government owed our state due to their failures."