Horizon, Host: Ted Simons

June 28, 2006


Host: Cary Pfeffer

GA$: A HORIZON Miniseries


  • Part three of four. How can the supply of fuel be better moved across our state? And will we ever run out of oil to produce the fuel products we consume? Stan Barnes of Copper State Consulting joins HORIZON for a discussion.
Guests:
  • Phil Gordon - Phoenix Mayor Phil Gordon
Category: Energy

View Transcript
Cary Pfeffer:
Tonight on "Horizon" …Arizona has a budget set for fiscal year 2007. But will the new tax cuts in the budget affect how cities and towns across the state provide public service? We'll talk with Mayor Phil Gordon and an expert from the Arizona League of Cities and Towns about what they call a serious municipal issue.

Cary Pfeffer:
And we continue our "Horizon" series -- an in depth look at gasoline. Tonight we ask the question -- will the pump run dry? We'll talk with an expert about this and more. That's next on "Horizon."

Announcer:
"Horizon" is made possible by contributions from the friends of 8, members of your Arizona PBS station. Thank you.

Cary Pfeffer:
Good evening, welcome to Horizon. I'm Cary Pfeffer, filling in tonight for Michael Grant. Last week, Governor Janet Napolitano and the legislature agreed on a budget for the next fiscal year. In it, both sides agreed on a $370 million income tax and property tax cut. Municipal leaders in the state have feared the budget would include a steep tax cut plan. Saying such tax cuts would, at best, force many cities to curb their public services -- and at the very worst, dramatically reduce their emergency services. Mayors, local police and firefighters from all over Arizona met with the leaders, rallied at the capitol, and wrote letters asking the Governor to reduce their proposed tax cut plan. But now that the plan has been agreed upon, how do the new tax cuts affect the cities of Arizona? Joining us tonight to talk about the effects to his city is Phoenix Mayor Phil Gordon. Also here with us is the executive director of the League of Arizona Cities and Towns, Ken Strobeck. Thank you both very much for being here.

Phil Gordon:
Thank you.

Cary Pfeffer:
We begin with you, Mayor. We heard the predictions, some of them quite dire. Now that you know what the numbers are or at least have a better feel are for those numbers, how would you assess it at this point?

Mayor Phil Gordon:
I tell you, I'm extremely disappointed. The cities and the city of Phoenix myself never objected to tax cuts and relief. We all are taxpayers and we all enjoy it. At a time when there is such a large budget, over a billion and a half dollars, the entire city of Phoenix budget to have a reduction in the future state shared revenues that are the cities moneys to pay for services, public safety and police and fire, parks, didn't make sense, number one, and dramatically affects Phoenix's ability to hire new police officers and firefighters in the future.

Cary Pfeffer:
And we will talk with Ken about the nuts and bolts. Explain why what happened at the legislature might have affects on the police officer that might be patrolling the neighborhood.

Ken Strobeck:
There was a contract entered into with the people of Arizona and the cities and state legislature whereby a certain portion of the sales tax throughout the cities and towns throughout the state would go to the state and 15\% would come back on a pro rata basis for the cities and towns to use for general revenue services. Police, fire, parks programs, operational. In turn, the cities and all the people agreed that the cities wouldn't have the ability to tax corporations or individuals because nobody wanted different rates in all the different cities throughout the city and give up the right to tax certain services and goods. So that was an agreement. That was actually a contract. That contract held through Governor Symington and Governor hall and Governor Napolitano. And then at a time when there was a budget surplus, the legislature then cut, in Phoenix's case $20 million a year, beginning in about three years out of that future revenue. $20 million equates to about in Phoenix's case 211 police officers that were part of our public safety program. In the past, Cary, city of Phoenix over the last five years has cut about $118 million out of its general revenue out of 60 percent of its budget. Parks, programs, senior programs, all the other programs except fire and police. We have been not cutting police and fire, we have been reducing other services. Can't reduce the other services because they are quality of life services that people want. Parks, programs and senior libraries. And now we are being asked to forego $20 million a year after about three years of revenue that would go to hire police or fire. It doesn't make sense when public safety is our number one priority.

Cary Pfeffer:
And, Ken, we hear what the picture is for the city of Phoenix. Tell us a little bit about what you are hearing from other cities and towns that you deal with?

Ken Strobeck:
It is really very similar in the other 89 cities across the state. State shared revenue, as the Mayor said, is a critical part of the general fund budget. Makes up about 30-40\% of the typical city's general fund that pays for police and fire and those kinds of basic services that people want and consider essential. And so when you talk about making a 10\% cut in a fund that is that important and provides that kind of a critical service, it really does have a significant impact on how you can predict what you are going to be able to do. And cities and towns plan on a five to ten year Horizon what they will do and they adopt business plans to get them there. And when you see that in three years there is going to be this drop off a cliff in terms of what revenue is going to be, it is difficult to say we will hire and staff up now but in two years you will be laid off. It causes a lot of concern all across the state.

Cary Pfeffer:
But we can also hear lawmakers say we are enjoying a great economy in the state of Arizona and these kinds of things can be worked out. What do you say when you hear those kinds of the comments?

Ken Strobeck:
The only thing that people can say with certainty about the economy is it is cyclical. We are at a high apex on the turn in economic activity and so cutting the taxes now looks like it doesn't do any harm, but next time when we go down to the bottom of the cycle as we were three or four years ago, we will be in a worse situation at that point because the rate has been cut permanently and that means we will never be able to recover that kind of revenue again. What we have done is instead of doing a temporary tax cut or a rebate or something that didn't institutionalize this cut we are digging ourselves a much bigger hole in the future.

Mayor Phil Gordon:
Cary, if I could point out when the economy turned down the cities came forward and reduced their percentage from the 15 to 14.8 because the state was in dire straits. Now, we are talking about a time when the economy is going up where there was a surplus and again, none of us would object to even a permanent tax cut as long as the cities were held permanently harmless and that is what happened in the past at times when Governor Symington cut the income tax.

Ken Strobeck:
It was up to 15.8 at one point.

Mayor Phil Gordon:
To be sure that the base stayed the same. There was a way to give tax relief and there was a way to hold the cities harmless so that we could then hire additional, again, personnel. And again, the state is growing. The city -- we just read in the paper today all the new people that are coming. We have to add more police officers at a time when the federal government is cutting back on funding for their responsibility to protect us from international terrorists, okay, and local governments have had to pick that up. Now, to have the state cut us back also is just wrong.

Cary Pfeffer:
Knowing what those numbers will be or at least having a better feel for what the numbers ultimately will be, are there actions being taken now in the city of Phoenix to make the adjustments or figure out how you sort of even this all out?

Mayor Phil Gordon:
I tell you personally I intend to ask the city of Phoenix to back legislation next year to get this corrected, and I suspect a lot of the other cities will do so also. And we should ask everyone listening to please help us explain that this was a contract. A contract that was voted on by the people in the state of Arizona that was unilaterally changed and we need to get that fix.

Cary Pfeffer:
And Ken, what comes to mind for me in talking about cities in financial difficulty. Obviously, mesa comes to mind immediately because they already were in that position after the decision by voters.

Ken Strobeck:
They are laying off 140 people. They are in very serious shape, and that kind of situation could be played out in other communities as well. As the Mayor said this was a contract and an agreement and has been in statute for all this time. Part of the frustration that the cities and towns has is that the legislature which has such big control over a big portion of our budget makes this decision behind closed doors unilaterally without including us at the table and being part of the solution. And I believe that we could offer alternatives, as the Mayor already offered, that would get the tax cuts that legislative leaders want but do it without harming the cities and towns.

Cary Pfeffer:
And you are acting as the voice for the cities and towns across the state. What sort of strategy do you now have? The Mayor alluded to go back next session. What realistically can you ask or demand of the lawmakers?

Ken Strobeck:
You can always ask and make the case. You have to build it on facts and show what the situation is at the local level. And as the population increases, the state reaps the benefit of increased income taxes, but at the same time at the local level we have to have staffing ratios of police and fire stations. So additional population is not just gravy for us, it requires additional expenditures to serve that population.

Cary Pfeffer:
Mayor Gordon, talk about as we wrap up here, couldn't you pick up the telephone and call your friend Governor Napolitano and have this all worked out. People think that that is possible. Obviously you will try to apply whatever pressure you can.

Mayor Phil Gordon:
We are. In fairness to the legislative process and ultimately the budget that involved everyone, the three branches -- or the two branches of government. The cities were given appropriations for one year, assuming it holds, from now to take care of one year of that cut. So there was an acknowledgement that we were getting harmed and hopefully we can build on that collectively with the legislature and make a stronger and better case next year that you can't go year to year on appropriations and expect to hire personnel to say, you know, as Ken pointed out, you know, we will hire you year to year.

Cary Pfeffer:
And as a last point, just for clarification for people who are watching, there are no plans as far as the immediate future is concerned for there to be -- for there to be cuts and that sort of thing, in other words?

Mayor Phil Gordon:
Right, this contract actually allowed for a two-year delay back in 1972 before cities would receive the portion that they earned this year. So two years from now is when the cuts would come in.

Cary Pfeffer:
Right. Mayor Gordon thanks for being here. Ken Strobeck, appreciate your time, and we will continue to follow that story. Appreciate it.

Cary Pfeffer:
More than 40 million vehicle miles are driven in Arizona a year. That's equivalent to 80 trips to the moon and back. Needless to say, we use a lot of gasoline in Arizona. We continue our series on gasoline with a look at the supply to our state. Some fuel industry experts say gasoline resources coming into Arizona are bottlenecked. But there are a couple of plans in the works that could potentially solve that problem. We will talk more about Arizona's fuel resources in a moment. First, Merry Lucero tells us about the projects geared towards our future gas supply.

Merry Lucero:
Most Arizonans drive thousands of miles a year. That plus the number of cars on the road in our state every year is constantly on the rise. We are approaching 3 billion gallons of gasoline sold in Arizona annually. So where do we get our gas?

Mike Owens:
California. We pull a lot of fuel from California and so does Las Vegas. California is getting to the point are where they don't know how much longer they can supply us. They are having concerns over there themselves. I think Katrina brought this home when the refineries and everything in Houston were disrupted and Louisiana and Alabama.

Merry Lucero:
Many of California's fuel is brought by ship around the panama canal but Arizona based pacific Texas corporation is working on plans for a pipeline heading west from a major source area, Texas.

Mike Owens:
But there are many, many more refineries in Texas and Oklahoma and the Louisiana area that if you had a pipeline system that could then bring more fuel from Texas into Arizona, we could make up the difference because again when California hurts we hurt. Or when Texas hurts, then we really hurt because what we do get from Texas is again limited because we have only one pipeline that comes from El Paso to Phoenix and it is a small capacity system.

Merry Lucero:
That is the Kinder Morgan pipeline which, you may recall, broke in the summer of 2003. Gas lines were horrendous. A pipeline, says Owens, will help alleviate that mess in the future.

Mike Owens:
The old adage that you only need one or two is a fallacy. If you broke down and you don't have a backup, you see what happens. It is a supported mechanism for the state.

Merry Lucero:
Constructing the pipeline will be the easy part. Owens is still seeking regulatory approval.

Mike Owens:
Takes almost three to four years of paperwork because you have environmental and safety and controls and security aspects to protect the land owners and areas of the country you are going through.

Merry Lucero:
The pipeline is one potential solution to the out-of-state supply bottleneck problem. Another approach, creating more supply right in Arizona.

Glenn McGinnis:
This region in the country is the shortest on refining capacity and it is the largest growth rate region, pad five, what we call pad five, which is California, Nevada and Arizona. Again, driven by population growth. There is a significant increase in demand here every year.

Merry Lucero:
Arizona clean fuels Yuma is proposing a 150-barrel a day refinery near Yuma, Arizona.

Glenn McGinnis:
Our facility is by far the cleanest refinery ever proposed in the world. The emissions would be less than half of the best refinery in the world today. We have incorporated all of the latest technology for prevention of emissions and for control of the emissions. That was something that we negotiated with the DEQ and the EPA. The technology exists today to have a clean oil refinery.

Merry Lucero:
The refinery proposes using a local area water supply and crude oil from Mexico. Permitting and financing for the project is still underway. In the meantime, many wonder whether alternative fuels should be the better focus for our future fuel supply.

Glenn McGinnis:
There is a significant push in -- you know and I personally believe it is the right thing to do to move into renewables and other sources of energy. We are far too reliant on foreign crude oil for our supplies. When you look at the demand in this country for petroleum products, renewables will be a long time replacing the significant volume supplied by crude oil. If you accept that premise, a new refinery with the environmental performance of ours will go a long way to replace existing capacity that is aging very quickly.

Cary Pfeffer:
Joining me now to talk more about Arizona's gas supply-- Stan Barnes, president of Copper State Consulting, which represents Arizona clean fuels Yuma. Which we were just hearing about there.

Stan Barnes:
Yes, yes.

Cary Pfeffer:
I have to tell you, I was gassing up my vehicle just yesterday and feeling great about the idea that it was only two eighty something or other a gallon. Realistically, we are probably not going to look at a time where gas prices are what they were a couple of years ago it seems.

Stan Barnes:
I'm told by all experts every time we start to project gas prices that you are silly if you do. It was just a very few years ago, what, four years ago that it was below a dollar.

Cary Pfeffer:
Right.

Stan Barnes:
And the run-up to three dollars and above has been a shock for all of us as consumers. I am doing what you are doing. I fill up and see it at $2.80 and say hey, I'm doing all right. Helps me remember that when I was pumping gas in my father's gas station in queen creek, Arizona in the '60s and gas was priced the way it was then if you were to run it all up in the name of inflation and all that we are still doing okay. It is not a fun message to see things go up in price. But in the big scheme of things the price of fuel at the pump today is not out of line with where it has been in the past. That is something to keep in mind when we deal with this problem.

Cary Pfeffer:
Let's do it this way and look at where we are now sort of playing off of the videotape report from Merry right there and get an assessment of where we are now and people ask you that because they know you work in that area what are you able to tell them.

Stan Barnes:
Right.

Cary Pfeffer:
What are you able to tell them?

Stan Barnes:
I'm glad that we had the Kinder Morgan break of a few years ago.

Cary Pfeffer:
Which sounds funny, but there is a reason.

Stan Barnes:
We have a new educated voting electorate in Arizona who understands that we are vulnerable because we don't produce our own fuel here and we are fully dependent on importing refined gasoline mostly by pipe but some by truck. 70 of it from California. 30 percent roughly from Texas. The numbers change but we are vulnerable because we don't produce our own. That is one reason the refinery in Yuma County is a great idea. But even the refinery in Yuma County is only going to produce so much. We are always going to be dependent on some sort of importing of gasoline and the more we have for kind of a belt and suspenders approach the better we will feel as consumers and I think the better pricing is going to be for us in the name of supply and demand. Gasoline is not that hard to figure out when it comes to the pricing of it all. There is a great big demand for it and it does shrink. The minute prices get high, people watch. There are whole brands of gasoline that play on the two, three cent difference with the driver that shops around. It is a really fun topic for economists to watch the give and take of the price and what it affects. We are vulnerable and we are doing something about the vulnerability both with the refinery and with the new pipelines and that is a good thing.

Cary Pfeffer:
I want to talk about the possibility of the new refinery in Yuma in just a second but we are also greatly dependent because so many of our gas comes from California on what happens in Long Beach and what happens within the system there.

Stan Barnes:
Yes.

Cary Pfeffer:
And what is the latest there because we know about strong environmental demands that are made in California and that sort of thing. It doesn't seem like that picture is going to change very much.

Stan Barnes:
No, I don't think you will see a new refinery built in California.

Cary Pfeffer:
No.

Stan Barnes:
And for that matter has been dang difficult to get the one in Yuma County up. There hasn't been a new refinery since 1976. While the supply system is highly critical to Arizona because that has to be intact and is vulnerable to all kinds of natural things not to mention economic things, it is the refining capacity. We have refineries maxed out. They run 24 hours a day, 7 days a week, 365 days a year. And when they stop and clean up for while, you see the reflection at the pump. We are importing refined product and this is a new phenomenon. Refined in Indonesia and tanked in as gasoline. That is not a long-term good position to be in. As we talk about the global vulnerability of the United States to overseas oil, you can bring it down to Arizona and you and I at the pump if we want plentiful gasoline because it is priced light we have to keep leaning on infrastructure to be developed and new product to be supplied here. That is a difficult political item to achieve in today's modern world, but I believe it will be because of the demand.

Cary Pfeffer:
So we are not going to necessarily get any relief from the California side of the equation. Let's look at where does the Yuma refinery stand as far as sort of give us the latest picture on that.

Stan Barnes:
Appreciate the chance. It has the land. It has an air permit. It has an agreement with Mexico that it is okay to build a pipeline through northern Mexico and it has got the kind of money and political support to take it forward. So everything is a green light go. Having said that, it takes 8 years or so to go from scratch to refining fuel. There is at least a couple of years of engineering work. This is a giant project. It is about a $2 billion construction project. Highly complicated. It is something that we are going to have to wait for. But, indeed, those years will go by quickly in the name of supply and demand and before you know it, it will be running and we will be glad it is there and we will have a different economic equation for Arizona. A positive one, I might add.

Cary Pfeffer:
And given that 8 year time frame, what does that mean as far as that particular project is a concern can you tell me that 8 years from now it will be there and working? That is what people would like to hear.

Stan Barnes:
I can tell you that it will be interesting to see or to know that the product produced 8 years from now will -- will be about what the growth will have been in that time.

Cary Pfeffer:
We'll still be standing still.

Stan Barnes:
Right. People are moving to Arizona. They are driving their cars. And we need more product. And the new refinery will just barely keep up with demand, which is an interesting phenomenon to think about no refinery for a moment and then to wonder where that refined product is going come from. That is a new equation and it is not necessarily a positive one because that means more imports and more costs.

Cary Pfeffer:
We saw headlines that the president, Vicente Fox, said that there was agreement from Mexico.

Stan Barnes:
I took the guy to a breakfast of juevos rancheros the other day. I wish it was that simple. He did say on the record what we knew to be true that Pemex, the state owned oil company, will sell to a willing buyer and especially a neighbor to the north. It doesn't make contracts that far ahead. It hasn't made one yet, but that is not the issue for the refinery. The oil supply, whether it be from Mexico or Canada or anybody else, will be there. It is a market issue as much as anything.

Cary Pfeffer:
We will obviously cover this topic again with as much concern as people have about gas tanks and prices that they pay. Stan Barnes from Copper State Consulting, appreciate your insight. Thanks very much.

Stan Barnes:
You bet.

Cary Pfeffer:
If you would like a transcript of tonight's show or would like to see what future topics will be on the program, log on to the website at azpbs.org, and click on "Horizon." now, a look at what's on "Horizon" tomorrow.

Announcer:
In the past century our cars have undergone major changes but the fuel we pump into them has remained the same. There have been efforts to come up with alternatives. Find out more about gas alternatives as we wrap up the four-part gas series Thursday at 7:00 on "Horizon." and after Horizon, please stay tuned for "Horizonte" as we take a look at the Arizona Mexico Commission Conference which was held here in Arizona. That's tomorrow at 7:30.

Cary Pfeffer:
I'm Cary Pfeffer. Thank you very much for tuning in to "Horizon." we hope that you have a great evening and we'll see you tomorrow night.

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