AZAGC and all the members of the transportation community remain united in ensuring transportation revenue is used appropriately. Revenue that is necessary to fund new and maintain the aging infrastructure in Arizona.

The Five-Year Program is updated every year and serves as a blueprint that details where, when and how regional, state and federal funding will be spent for projects over the next five years to improve our state’s transportation infrastructure. However, some tough decisions are ahead. For the 2014-2018 Five-Year Program (which is still a tentative program right now), ADOT has determined that $350 million must be cut due to stagnant revenue from the gas and vehicle license taxes and from decreased federal funding.

As a result, the next Five-Year Program reflects a major focus on preserving our existing state highway system while moving some programmed projects forward. Other programmed projects in the Five-Year Program will need to be delayed to future years due to significantly less funding. Preserving our system means protecting our investment of $18.4 billion; this is the value of the state highway system through monies spent on expansion, modernization and preservation projects.

Over the next five years, there will be less focus on expansion of the system statewide. This is the first Five-Year Program that will reflect this dramatic change for the agency. This issue will be present in 2013, but will become much more pronounced by 2016, when $250 million will be cut from the program, and in 2017, when an additional $100 million will be cut from the program. As ADOT moves toward a preservation-based system, there are three scenarios that are being considered for implementation. All three scenarios are available for public comment:

Scenario A – Focus on Preservation: This scenario focuses the most investment on keeping the existing highway system in good repair with the least investment in programmed major projects in greater Arizona. There would be 81 preservation projects from 2014 to 2016, 39 bridge projects, one major project and 690 miles of pavement projects. An average of $184 million per year in preservation from 2014 through 2018 would be allocated. Arizona’s interstate system is projected to fall below current standards for pavement quality in 2031 with this scenario.

Scenario B – Focus on Programmed Major Projects: This scenario focuses the most investment on major projects that are programmed in greater Arizona with the lowest investment in keeping existing highways in good repair through preservation. There would be nine major projects from 2014 to 2017. From 2014 to 2016, there would be 25 bridge projects and 458 miles of pavement projects. An average of $142 million per year in preservation from 2014 to 2018 would be allocated. Arizona’s interstate system is projected to fall below current standards for pavement quality in 2017 with this scenario.

Scenario C – Combination of Preservation and Major Projects: This scenario focuses on some investment in major projects that are programmed in greater Arizona with less investment in keeping existing highways in good repair. There would be four major projects from 2014 to 2017, 39 bridge projects from 2014 to 2018 and 524 miles of pavement projects. An average of $149 million per year in preservation from 2014 to 2018 would be allocated. Arizona’s interstate system is projected to fall below current standards for pavement quality in 2021 with this scenario.

The public comment period is now underway.  ADOT has provided the following options to submit your comments and feedback:

• Email: FiveYearProgram@azdot.gov
• Online comment form
• Telephone: 855.712.8530
• Print and mail the comment form: ADOT 5 Year Program, 1655 West Jackson, MD 126F, Phoenix, AZ 85007

The State Transportation Board will consider all public comments received by May 17. Public hearings will be conducted on March 8 in Phoenix, April 12 in Tucson and May 10 in Flagstaff to allow for additional community input. The State Transportation Board is expected to adopt the 2014-2018 Five-Year Program at its June 14 meeting in Pinetop-Lakeside.

Currently prime contractors do not pay a tax at the point of sale. Tax is paid based on the cost of the project where a portion is assumed to be taxable. Generally speaking, Arizona does not tax services or labor. Thirty-five percent of a construction project is not taxed and is assumed to be labor while the other portion, 65%, is assumed to be materials.

Repealing the prime contracting TPT for a tax on materials at the point of sale could inadvertently create winners and losers in the industry.

1. The local, county and state tax for sand and gravel operations in Arizona range from 6.85% to 12.1%.  Depending on the location of these operations, some companies could be in jeopardy of losing significant business based on their location alone.

2. Contractors that are vertically integrated may not be required to pay tax on materials while others will.  This is a significant change in public policy that will create winners and losers in the construction industry.  This illustration shows the potential bid advantage, completely due to a change in tax policy, a vertically integrated contractor has over one that is dependent on retail purchases.  Depending on the amount of product internally produced and used on a project, a vertically integrated contractor could have as much as a 4.5% bid advantage over one that depends on retail purchases.  The bid advantage varies based on the amount of product internally produced and used on the project.

3. Depending on the project-type, the state could lose revenue. In this analysis, it is clear that large freeway projects, which are labor intensive, would pay significantly less in taxes than those such as asphaltic concrete overlays which are material intensive.  For large freeway projects the state could see a 68% decrease in taxes while a project with high material increases tax revenue by 11%.  AZAGC is concerned that a reduction in general fund revenue will lead to additional pressure to transfer revenue from the Highway User Revenue Fund (HURF).  A fund that has consistently been utilized to balance the budget in good and bad economic times.

Finally, in this Fiscal Note, the Joint Legislative Budget Committee (JLBC) states:

“Depending on the assumptions, the potential state General Fund impact varies widely during the first full year of implementation in FY 2016.  Under Estimate A, the bill would generate a net gain of $19 million in General Fund revenue.  In contrast, there would be a General Fund revenue reduction of $(137) million in that same year under Estimate B.”

AZAGC supports a more simplified approach to tax policy in Arizona, but we want to ensure new policies do not have unintended consequences for the state, counties, cities and the construction industry.  We are also supportive of positioning Arizona to take advantage of the Marketplace Fairness Act which would allow states to tax internet sales and could pass out of the U.S. Congress this year.  However, according to this memo to Representative Kavanagh from Legislative Council, repealing the prime contracting classification may not be necessary to achieve the state’s goal on implementing the act.

Washington, D.C. -U.S. Congressman Paul A. Gosar (R – AZ introduced The Public Lands Renewable Energy Development Act (H.R. 596) legislation that streamlines permitting for renewable energy projects on public lands. Joe Heck (R-NV), Jared Polis (D-CO) and Mike Thompson (D-CA) joined Gosar as the primary proponents of the bill.

“Arizona can be a model for energy-driven economic recovery in this country, but bureaucratic red tape has gotten in the way. This bill is a part of a comprehensive energy policy that gets the government out of the way, grows our energy sector and spurs job creation,” said Congressman Gosar.

“Renewable energy development on public lands will create jobs and move us closer to energy security, but permits must be processed more efficiently so projects can actually get started,” Rep. Joe Heck said. “This bill will streamline the approval process so states like Nevada, where more than 80% of the state is owned by the federal government, can reap the benefits of renewable projects. If we truly want to pursue an “all of the above” national energy strategy, we must develop all energy sources on all possible lands: publically-held lands offer some of the best renewable energy development opportunities. I’m pleased to join this bipartisan group of lawmakers in introducing the Public Lands Renewable Energy Development Act and look forward to working to see it passed.”

“This legislation will ensure that Colorado is at the center of the coming renewable energy boom,” said Congressman Polis. “We know we must grow our economy by producing cheaper, renewable energy and this bill will help the West lead the way.”

“Many of California’s public lands are perfect for responsible renewable energy development, but bureaucracy too often prevents us from capitalizing on this economic engine,” said Thompson.  “This bill helps fix that. It will streamline responsible renewable energy projects on public lands, reduce our dependency on foreign oil and put Californians back to work. That’s good for our economy, environment and national security.” 

The legislation also provides local governments increased revenue and certainty by establishing a more predictable and direct royalty system from energy production that will support wildlife conservation, hunting, fishing and other recreational opportunities on federal land. 

The Public Lands and Renewable Energy Development Act has broad bipartisan support throughout the west.  At introduction, the bill had fifteen original cosponsors from seven different western states: Mike Thompson (D-CA), Joe Heck (R-NV),  Jared Polis (D-CO), Jeff Denham (R-CA) Mike Coffman (R-CO), Peter DeFazio (D-OR), Michael Simpson (R-ID),  Jim Costa (D-CA), Scott Tipton (R-CO), Ann Kirkpatrick (D-AZ), David Schweikert (R-AZ), Ben Ray Lujan (D-NM), Mark Amodei (R-NV), and Diane DeGette (D-CO).