costs delay freeways
Tax debate looms on how to fund building materials' $121 mil spike
The Arizona Republic
Feb. 13, 2006 12:00 AM
A spike in construction prices has poked a
$121 million hole in the regional freeway plan's budget, causing a handful of
projects to be deferred for a year and setting local politicians to work on a
"Plan B" in case costs keep climbing.
Nobody is sure how long soaring material costs will last or whether deeper cuts
in the new regional transportation plan will be needed. But that prospect is
fueling discussion of using new taxes to cover the higher costs without delays
in the 20-year program.
"We're hoping that the situation will stabilize, and we're even crossing
our fingers that we might see some relief with costs going down," Arizona
Department of Transportation spokesman Doug Nintzel said. "But it's
difficult to predict."
The latest news comes as some Valley
communities are lobbying state lawmakers and Maricopa County for help speeding
up freeway widening projects to deal with growth-fueled traffic congestion.
Valley mayors are being careful not to overstate the severity of the problem at
this point, because they don't want to panic voters who approved a half-cent
transportation sales-tax extension just 15 months ago.
"It always raises alarms," said Glendale Mayor Elaine Scruggs,
chairwoman of the Maricopa Association of Governments transportation policy
"The tax just started being collected, and already there are
Several factors led to the first-year
budget shortfall. Hurricane Katrina and the Valley's construction boom created
shortages in crucial construction commodities, such as cement. When volatile
fuel prices and a shortage of contractors were added to the mix, it was a recipe
for disaster. Fewer companies are bidding for freeway projects, and their bids
are much higher than forecast in the plan.
According to MAG, $500 million worth of freeway work was budgeted in fiscal
2006, based on anticipated sales-tax revenue. Projects bid so far this year have
come in at $401 million, $91 million higher than expected. To finish everything
that originally was planned would cost an estimated $621 million, $121 million
more than budgeted.
While there is a possibility that the gap can be closed slightly if
transportation-tax collections come in higher than expected, MAG and ADOT
planners realized as they were updating the 2006 spending plan that price spikes
could cut into their construction agenda, said Eric Anderson, MAG's
"We've spread the fiscal '06 pain out a little bit," Anderson said.
"There may be other cost changes coming down the road. What we're trying to
do is not overreact to current costs."
Still, that news is likely to attract an "I-told-you-so" chorus from
critics of Proposition 400, the ballot measure that extended the countywide
transportation tax. Opponents complained during the 2004 campaign that there was
not enough money in the plan dedicated to freeways.
"Right now, that plan is like a submarine with screen doors," said
East Valley political activist Dave Thompson, who financed the campaign against
Proposition 400. "It's headed down at a 65-degree angle."
The plan's overseers are not as
pessimistic. They "guesstimate" that price spikes will last a year or
two. They chose not to start a number of 2006 projects until fiscal 2007 and to
delay one 2007 project by a year. If revenues continue at or above current
levels and construction prices stabilize, they expect to catch up to the plan's
original schedule by 2010.
The choice of what to defer was guided by the order of projects in the plan and
the readiness of this year's projects to start on time. Whenever possible, the
funding order of the projects must be preserved to protect the priorities
established by Proposition 400.
Last month, ADOT suggested waiting until 2007 to repave Interstate 10 in the
West Valley with rubberized asphalt, and to wait a year to make drainage
improvements on Interstate 17 in north Phoenix. Delaying those projects saved
Several larger projects that were facing technical delays also were bumped by a
year. For example, more than $10 million was to be spent this year to start
designing and buying rights of way for new feeder and collector lanes to
alleviate the bottleneck on Interstate 10 between 40th Street and Baseline Road.
Because environmental and design concept studies aren't ready, its start was
pushed to next year.
Big-ticket items that were put off include a $26.8 million bypass around
downtown Wickenburg, and a $23 million traffic interchange at 64th Street and
Loop 101. The Wickenburg work is awaiting coordination with the county Flood
Control District, while the Loop 101 interchange design is still being reviewed.
Similar right-of-way or design issues allowed two other projects to be pushed
back, and a third was eliminated when it was decided the work was not needed.
Finally, $5 million that was to be spent on design work for South Mountain
Freeway was moved from 2007 to 2008, since the route of that freeway is far from
being settled. Some or all of $30 million allotted South Mountain Freeway work
in 2008 also could be moved off by a year.
The question now is what to do if bids on
next year's projects keep exceeding budgeted estimates by 20 to 50 percent. The
plan is spending "tens of millions" of dollars in contingency funds to
make this year's budget balance, Anderson said. That means less money for future
"There are still not enough funds to go around," said East Valley
Partnership President Roc Arnett, chairman of the Citizens' Transportation
Oversight Committee. "There needs to be a statewide discussion about this.
Transportation is a major economic generator."
Ideas being floated by some mayors and state lawmakers include:
• Changing the method of bidding freeway projects to reduce bid
• Increasing the state gas tax or linking it to an inflation index for
• Pressing Arizona's congressional delegation and federal highway
administrators to increase federal funds in the next few years for Valley
interstate and federal highways.
• Creating special taxation districts that could enact local sales taxes
to speed up freeway projects.
• Holding a statewide summit that includes Gov. Janet Napolitano to
brainstorm ways to increase road spending and speed up projects in areas with
the most growth.
None of those ideas is easy to put in
motion, least of all new taxes. A two-thirds vote of the Legislature is needed
to raise taxes, a tall order for a body dominated by fiscal conservatives. But
MAG Chairman and Mesa Mayor Keno Hawker said there is a sensible argument for
raising the gas tax.
"I think Arizona will prosper and be more competitive if we can improve the
transportation system," he said.
Rep. Gary Pierce, R-Mesa, who is exploring options with other lawmakers and
municipal leaders, said new funding is critical because delays in freeway
improvements are "crippling us. There was no way we could do it with just a
half-cent (county) sales tax."
But Pierce also predicted it would take two or three years to reach consensus.
That leaves time for opponents to organize, and nobody knows how taxpayers would
"My general sense is, a majority would be angry and feel that they'd been
very misled," Scruggs said. "It would be a very hard sell."
Thompson, who led opposition to Proposition 400, agreed. He wants the state to
dedicate part of this year's $1 billion budget surplus to the problem, and he
supports shifting funds into freeway work from MAG's light-rail, bus and local
road construction programs. He also wants larger reserves to cover future
"The idea of a tax increase is bad," Thompson said. "Before they
do that, they need to stop wasting the money they have."
A note of optimism is the fact that, unlike in the last
20-year freeway program, the new program's budget and project schedule must be
updated every year. Adjustments assure that there are no financial surprises
many years into the construction plan.
"We're already on top of the issue," Anderson said.
That does not, however, ensure that there will be enough money to pay for every
project in the plan. Ongoing cost overruns would force some projects to drop off
the tail end of the plan. How that plays out depends on national economic
factors such as the future prices of construction commodities and on the ability
of state and local officials to find a backup plan if construction prices stay
There was good economic news last month when U.S. and Mexican officials
negotiated lower tariffs that should improve the local supply of Mexican cement.
There is cautious optimism that prices also will settle down after Katrina
reparations wind up.
If the Valley keeps growing at a record pace, transportation sales-tax revenues
also could go higher than expected, giving the plan financial breathing room.
But nobody knows what prices will be in two years.
"These things are not in the control of the cities and the state,"
Scottsdale Mayor Mary Manross said. "We're dealing with it as best we can .
. . trying to keep as many projects on target and on time as possible."
Hawker warned of the need for a fallback plan soon: "You can only take a
$100 million hit so many times."
Reach the reporter at firstname.lastname@example.org
or (602) 444-8629.