The Great Pickup Stick-Up.

• Author: Paige, Sean
• Position: Arizona goes nearly bankrupt on an alternative-fuel vehicle program

Alternative fuel follies

When a friend phoned last year to say that the state of Arizona was about to buy him a brand new pickup truck loaded with all the luxury options, I took it with a grain of salt. I've known the government to do some stupid things, but buying new trucks for my successful banker friends just wasn't one of them.

Or so I thought.

But Arizona, in what may go down in stupid government lore as the Great Pickup Stick-Up, did in fact buy my friend a truck, or at least most of a truck, by offering rebates and tax breaks that slashed its $35,000 price tag by more than half. And it did the same for thousands of other Arizonans, turning what was supposed to be a modest $3 million initiative to encourage the use of alternative-fuel vehicles (AFVs) into a half-billion-dollar boondoggle that nearly bankrupted the state and earned it national belly laughs.

Before being shut down in mid-December, a mere seven months after becoming law, Arizona's AFV program had become what Republican Gov. Jane Hull called a "cancer" on the state's budget, costing its primary political champion his career and leading to at least one criminal probe. Bolstered along the way was the state's reputation as a petri dish for political chicanery.

The program backfired for many reasons: It was poorly conceived, it lacked safeguards against abuse, and the governor and her staff ignored early warnings that it was being exploited, as Arizonans rushed to game the system.

Compounding those structural and systemic shortcomings was the initiative's undeniable taint of cronyism. Its main political sponsor--former State House Speaker Jeff Groscost, who purchased two new trucks of his own through the program--reportedly was a close associate of a top provider of alternative-fuel conversion kits, gave alt-fuel interests a direct hand in writing the legislation, and had once earned tens of thousands of dollars consulting for the program's potential beneficiaries in the natural gas industry.

The incentives and subsidy levels were generous to a fault, with little understanding of their fiscal implications until too late. The state offered participants like my banker friend a lump-sum rebate of up to 40 percent of the price of a vehicle, which, when combined with federal and state tax breaks and a waiver of license plate and emission-testing fees, could easily slash a new truck's cost by as much as half. Yet another incentive that has rankled some Arizonans is allowing participants to use High Occupancy Vehicle lanes, even if they rode alone.

As word of the subsidies spread, Arizonans were quick to take full advantage. Car dealers reportedly jacked up prices on popular truck models as demand rose; participants added on expensive accessories, knowing taxpayers were paying for them; the cost of conversion kits jumped 30 percent; and regional corporations seized the opportunity to purchase fleets of work trucks or rental cars at half the usual cost.

Yet no guarantees existed to ensure that participants actually used alternative fuels. They needed only to pledge to burn 100 gallons of propane or condensed natural gas annually (which, in my friend's case, amounted to only two and a half refills of the 40 gallon propane tank mounted in the bed of his pickup). And even that was done on the honor system. News accounts indicate that many Arizonans disconnected their alternative-fuel systems immediately after having them installed, with little fear of penalties.

Because large, gas-gulping pickup trucks were the most logical candidates for conversion, they naturally became the vehicles most frequently used in the program. So in the end, thanks to loopholes and perverse incentives, an initiative meant to reduce air pollution and fuel consumption probably increased both.

In addition to missing clear signs that the program was out of control, Gov. Hull and her staff were criticized for not freezing the program immediately after the debacle became news, thus allowing a last-minute rush that heaped even more potential liabilities on the taxpayers. Meanwhile, with her popularity sinking, Hull turned on her erstwhile ally Groscost, accusing him of "betrayal" and suggesting he resign. She needn't have bothered: Groscost went down to a resounding defeat in November, thanks to the scandal.

In mid-December, the Arizona legislature met in an emergency session and narrowly passed a plan to halt the hemorrhage by shutting out 10,000 to 15,000 would-be participants. That may have saved the state $400 million. "This is one [bill signing] that's not a celebration of victory, but the beginning of an ending to a process that should never have happened," Gov. Hull said, bringing Arizona's alternative fuel program to an inglorious end.

But that too will probably come with a price. Some of the angry shutouts have filed a class action lawsuit demanding that Arizona abide by the original bargain, in spite of Hull's plea that participants voluntarily withdraw their claims against the program "for the good of the state."

Arizona isn't alone. Governments great and small have been relentlessly pushing alternative-fuel and low-emissions vehicle programs on a reluctant public, trying to bring new technologies and new markets into being through sheer political willpower. Typically, there's far too little appreciation for the technical challenges and costs involved. California is likely...