The Pew Charitable Trusts

PHOENIX -- Arizona lawmakers have gutted the state's disastrous alternative-fuel vehicle program, ending a costly debacle that outraged taxpayers, sparked a criminal investigation and brought down one of the state's most powerful politicians.

On Thursday, Dec. 14, Gov. Jane Hull signed a bill into law that will shrink what was a potentially devastating $600 million budget liability to a more manageable $200 million. Still, that is more than $190 million more than the state wanted to spend on the program, which gave Arizonans generous incentives to buy vehicles converted to run on propane or compressed natural gas.

The rollback bill passed only narrowly after several Republicans (including a few who bought alternative fuel vehicles themselves) were cajoled into changing their votes. The same legislature had passed the incentives only seven months before.

"I think this was a reasonable bill and I think it contains the problem," said Hull, who called a special session in mid-November to try and pass a fix before the end of the year. "I thank the four or five people who changed their votes for realizing that we cannot afford a $600 million hole in the budget."It's not hard to see why consumers and auto dealers went bonkers for the alternative fuel incentives, but few in power saw the rush coming. Pitched both as a clean air program and a step toward weaning the country off foreign oil, Arizona offered a lump-sum rebate of up to 40 percent off the final price of sport utility vehicles and pickup trucks converted to use alternate fuels, while exempting buyers from sales taxes, vehicle license taxes and emissions tests.

Worse, beneficiaries of the program were not required to use alternative fuel in their bi-fuel vehicles, and many disconnected the systems right after purchase.

House Speaker Jeff Groscost, a conservative Republican from Mesa, was the architect of the program and all the less-popular alternative fuel programs that preceded it since 1993. He earned tens of thousands of dollars in 1998 consulting out of state for natural gas companies.

Last April, he engineered passage of the program on the last day of a protracted legislative session by amending the language, written with direct input from alternative fuel entrepreneurs, onto a bill that had already gone through committee hearings.

The massive omnibus bill also contained other clean air provisions favored by Democrats and moderate Republicans, earning it votes that might not otherwise had materialized.

State budget experts, believing that the new program would mirror other unsuccessful attempts to wean drivers from gasoline, projected a cost of only about $3 million.Unbeknownst to the governor and most lawmakers, Groscost and Nathan Learner, the owner of one of the fuel conversion businesses that would profit from the new law, had been lobbying the Environmental Protection Agency to allow 2000 and 2001 model vehicles to be converted.

That exponentially increased the number of vehicles that could be converted under the program.

Warnings that the program was out of control finally sounded in September. Not long after that, the Arizona Republic revealed that Groscost was in debt to Learner for several alternative fuel vehicle purchases, two of which had been written off as part of Learner's 1998 bankruptcy and another provided at a discount with no payment due until January.

The Attorney General launched a criminal investigation into the program, but has yet to release any results. Still, the implication and voter outrage over the potential cost combined to destroy Groscost's political career. Groscost was resoundingly defeated by a Democrat in his bid for a state Senate seat despite a 2-1 Republican advantage.

Hull, who paid little attention to Groscost's bill before signing it, compounded the fiasco with a series of missteps that have sunk her popularity to all-time lows. Instead of shutting off the program when she discovered the potential damage to the budget, Hull gave would-be buyers a two-week deadline before taking action. The resulting rush to take advantage of it more than doubled the potential cost.

The fiasco would easily qualify as one of the worst chapters in Arizona's political history if only there weren't so many other contenders for that dubious honor. Former Gov. Evan Mecham was impeached in the late 1980s over improper campaign loans. In the early 1990s, in a scandal dubbed Azscam, several state lawmakers were videotaped taking bribes from an undercover informant posing as a gambling lobbyist.

More recently, Former Gov. Fife Symington was convicted of real estate fraud and resigned. And, unfortunately, the mess is far from over. Aggrieved buyers of alt-fuel vehicles, cut off from their expected tax breaks, are already rounding up lawyers for lawsuits.