Sunday, December 17, 2000, 12:00 a.m. Pacific

Ariz. targeted gas, got budget cramp

by Melissa Morrison Special to The Washington Post PHOENIX - To software executive Bob Hasulak, it seemed too good to be true: The state of Arizona would refund him an $18,000-plus tax credit on a brand-new SUV if he outfitted it with a second tank that burned cleaner fuel.

"Why wouldn't people do this?" said Hasulak, of Scottsdale. "They're paying for almost half your car."

Turns out, the deal was too good. A loophole in what was intended to be a $10 million program turned it into a $200 million debacle that, far from creating a sense of environmental goodwill in Arizona's smog-clogged capital, has backfired like the polluting cars it was supposed to clean up.

Taxpayers are fuming at the extravagant cost. Vehicle buyers are considering suing the state for reneging on the deal. The House speaker lost an election for his role. And drivers of the vehicles say their distinctive blue license plates make them targets of what writer William Least Heat Moon calls fellow travelers' "middle-digit opinion."

"The other people around town in $50,000 Excursions with a TV and leather seats and a one-gallon (alternative-fuel) tank they'll never fill up - they're the ones taking advantage of the system," said Bill McPeters, owner of a trenching company.

He invested more than $100,000 in two trucks, two fueling stations and other costs, in the expectation of recouping tens of thousands of dollars from the state.

For others, though, the program effectively subsidized the purchase of fully outfitted sport-utility vehicles, including upgrades, by offering a tax credit of 30 percent to 50 percent of the vehicle's cost. The credit was given on the condition that the vehicles had a second tank that held cleaner fuel, such as propane or condensed natural gas. But the law didn't require vehicle owners to actually use the fuel.

Cleaning the air is an important topic in Phoenix, which has some of the nation's worst smog. Its frequency of high-ozone days prompted the American Lung Association this year to give the Phoenix-Mesa area an "F" on its healthy-air report card. The term "brown cloud," in reference to the visible pollution that hangs over the area, is as familiar to residents as "dry heat" and Phoenix Suns point guard Jason Kidd.

A law that was supposed to be about less pollution has instead become about runaway costs.

In special session last week, the state House approved a plan to staunch the state's outlay, which had been estimated to reach $600 million.

The new law, which Republican Gov. Jane Hull is expected to sign, would limit the program's beneficiaries to those buyers who already had taken possession of their new automobiles or had fully financed them by Nov. 30.

That leaves about 17,000 of 22,000 applicants to foot the full cost themselves or to request refunds from their dealership. If dealerships refuse, motorists can turn to the state.

Hasulak is one such driver no longer covered under the new bill. He has asked his dealership to refund him his 10 percent down payment on a $33,000 Ford Expedition. But he's worried about getting it.

"I've got a little thing in my stomach about this," he said. The legislators "gave the dealers wiggle room."

The new law also leaves open the threat of lawsuits against the state for reneging on the earlier deal.

"We anticipate legal challenges, and we will stand prepared to defend the law successfully in court," State Attorney General Janet Napolitano said last week.

The original program's costs threatened to overwhelm the state's resources.

"This is the most significant financial crisis the state of Arizona has faced in over a decade," said state Rep. Steve May, R-Phoenix, who sponsored the new bill in the House. "Put it this way: $600 million is 10 percent of our state budget. We were potentially going to spend 10 percent of our budget on a program that has not reduced air pollution by even 1 percent."

A missing word prompted costs to balloon.

The program, launched in July, was originally intended to cap the number of vehicles whose costs would be partially reimbursed by the state at 1 percent, about 2,700 participants. The plan promised to give tax credits to buyers of new vehicles equal to the expense of adding an alternative-fuel tank, plus 30 percent of the vehicle's total cost, tank included. Hasulak's $33,000 Expedition, for example, which cost $6,500 to convert, would have garnered him $18,350 in tax credits.

But the language designating "new" vehicles was removed before the bill's passage, making 35,000 vehicles eligible. The estimated cost skyrocketed accordingly.

Newly deposed House Speaker Jeff Groscost, R-Mesa, gets the blame for changing its language. He also successfully lobbied the Environmental Protection Agency to extend Clean Air Act rules to cover late-model vehicles. Groscost lost a state Senate election in November, largely due to the scandal.

The governor has been criticized for making the cost even higher. To cushion the shock to the state budget, in late September she proposed spreading the tax rebates over five years, instead of offering a lump sum. But she allowed two weeks until the new rules took effect, prompting thousands of people to apply for the program before the deadline.

According to the Department of Commerce's preliminary database, applications jumped from 322 in the first nine days of September to at least 3,920 for the same period in October. The estimated cost to the state increased to $483 million.

Meanwhile, drivers of alternative-fuel vehicles are experiencing angry taxpayers' road wrath. Randy Jenkins of Glendale, Ariz., bought his electric car a year ago. Since September, when the alternative-fuel program's costs came to light, he has noticed an increase in drivers cutting him off or giving him angry stares.

"There's a lot of one-finger saluting going on," says Jenkins, who runs a payroll service.

Perhaps the worst result of the alt-fuel scandal is the stigma it has put on vehicles that don't pollute the air, such as Jenkins' Solectria, which he says he bought because his wife doesn't like buying gas.

"I haven't gotten a dime out of the state of Arizona for this," he says. "I paid twice the price for a car, now to have my neighbors mad at me. ... And they don't know what motivated me to buy."

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-- Martin Thompson (mthom1927@aol.com), December 17, 2000