Clean car program too costly for Arizona

PHOENIX -- It seemed like a good idea in a state where the capital city's skyline is almost always obscured by a brown cloud of pollution.

The state would sweeten existing incentives to encourage residents to buy vehicles that use so-called clean fuels, such as natural gas, propane or electricity, and help clean the air.

But the program proved too popular: So many residents rushed to take advantage of the tax breaks offered by the state that the program's costs have spiraled nearly out of control.

Figures released Wednesday show the program will cost at least $420 million, about 7 percent of the $6 billion annual state budget. When approved by Gov. Jane Hull, the program was expected to cost $3 million to $10 million.

"This amount of money could have built 50 new schools," Hull said. "It is a cancer that is eating away at every portion of the state budget."

The governor summoned state legislators to a special session beginning Friday, hoping to put the brakes on the program, at least for a year.

An estimated 20,000 applications have been filed so far for the program's tax credits and grants, which allow people buying alternative-fuel vehicles or converting conventional vehicles to get a car at a drastically reduced price.

A typical deal: Buy a $24,000 vehicle and pay $6,000 or so to convert it to run on alternative fuels, then get tax breaks worth $18,250 on your next income tax return.

Critics say the program is too generous and riddled with loopholes.

Vehicles that run on both gasoline and propane or natural gas are eligible for the subsidies, but there is no requirement that alternative fuel must be used or even that the vehicle remain in Arizona.

There is no minimum size for the alternative fuel tank, and some dealers have installed some as small as 3 gallons. Luxury items such as leather seats and CD players are included when the state's purchase-price subsidy is calculated.

The program already was on the books but was seldom used until the Legislature approved the sweeping changes in April to make it more attractive.

Megan Allgaier, who works for a telecommunications company, bought a Honda Civic in August that runs exclusively on natural gas. She expects to save about $12,000.

"I really was the targeted customer because I was adding to the pollution," said Allgaier, who commutes 45 miles round-trip to Phoenix from her home in Gilbert.

Legislators, she said, "are the only ones to blame for the overspending of the budget for this program. If they had written the bill smartly in the first place, like it was just for dedicated vehicles, we wouldn't be dealing with this problem."

Legislative budget analysts said they failed to realize the changes would dramatically boost interest. The changes included allowing taxpayers to get lump-sum refunds instead of having to gradually draw down the credit on succeeding years' tax returns.

Now members of the Legislature are willing, even anxious, to go along with Hull's requested moratorium. They note the tax refunds will drain millions from other state programs.

The program's chief legislative supporter, House Speaker Jeff Groscost, believes the program should be reined in but not scrapped. He said lawmakers should retroactively require that motorists with subsidized vehicles actually use alternative fuels.

Hull already moved to reduce the one-year budget hit by ordering that the tax credits be paid out over five years instead of in a lump sum.

But that action itself contributed to the problem because Hull announced it two weeks in advance. The announcement prompted thousands of people to pour into dealerships and conversions shops before the Oct. 11 deadline to claim the lump-sum payment.