Arizona Refinery

Gas prices are at record highs. A proposed Arizona refinery might bring some relief.

Transcript:

Feliciano Vera:
Tonight on "Horizon": No kids in the back of pickups. That's a bill lawmakers have been trying to pass for 10 years. We'll talk to the sponsor of the bill. Arizona's housing market continues its blistering pace. Two economists will talk about the hot housing market. And gas prices are at record highs. A proposed Arizona refinery might bring some relief. That's next on "Horizon".

>> "Horizon" is made possible by the friends of Channel 8, members who provide financial support to this Arizona PBS station. Thank you.

>> Feliciano Vera:
Good evening and welcome to "Horizon". I'm Feliciano Vera, in for Michael Grant. Before we get to our main topics tonight, let's get to some stories from today's news. It looks like efforts by the Clean Elections Commission to get a state lawmaker to vacate his office for going over campaign spending funds may be heading to court. The commission and Representative David Burnell Smith deadlocked in informal settlement talks today. The commission would not back down on its demand that Burnell Smith step down for allegedly violating clean election campaign spending limits. Smith has until April 24th to file an appeal or the commission will go to court to enforce its order. The so-called junk food ban bill appears to be headed to the governor. High schools were still excluded from the ban, which would prohibit junk food from being sold at schools. The bill was approved by the Senate today. For a decade now, state lawmakers have been trying to pass a ban on kids riding in the back of pickups. This year, representative Jerry Weiers has taken has taken up the cause. Yesterday, the house overwhelmingly approved the bill, and the Senate was scheduled to debate it today. Here now to tell us about his bill is Representative Weiers. Debate scheduled in the Senate, what's the status?

>> Jerry Weiers:
Thank you for having me here today. The bill was set to go to the committee of the whole. It got held. They retained it on the calendar. The problem I'm having with this particular bill is my seatmate, Senator Blendue, doesn't like the bill. So what he in effect is doing is having it retained on the calendar because he knows if it goes to floor vote it will pass.

>> Feliciano Vera:
Why opposition from the senator?

>> Jerry Weiers:
Good question. The rural people have some concerns early on and we negotiated some things that we, neither one of us liked a lot but we could both live with. Trying to understand the concerns and my concerns keeping children alive.

>> Feliciano Vera:
Assuming that Senator Blendue lets this get to the floor for a vote, is there any reason you think it would not pass.

>> Jerry Weiers:
I'm certain it would pass, it passed the house over 75%.

>> Feliciano Vera: What would be penalties for folks that violate the law?

>> Jerry Weiers:
Because there's no specific fear of fine, I guess would be the proper way to say it, in fact the highest it could go would be up to $250. Probably wouldn't be 250, but it could be if a judge so deemed necessary.

>> Feliciano Vera:
There are 31 states throughout the country that have passed bans on kids riding in the back of pickup trucks. How has that this been looked at as a problem?

>> Jerry Weiers:
If one kid dies, if one child dies, then it's a problem. It's not a matter if they're going to die or going to be harmed, we know it's going to happen. Common sense tells you if you have a child in the back of a truck and they slam into something, the body becomes a human dart. Bodies aren't designed to meet asphalt very well. My concern, besides the safety of the children, you know, if this child gets thrown out and say they do die, now they become a corpse. If you pick this dead corpse up and put it in the back of a truck, how often do you have to tie this dead corpse in the back of the truck to take it to the morgue? Why are our dead children more important than our live children?

>> Feliciano Vera:
You're kidding -- and that would have to be secured and under our current laws a child riding in the back of a pickup truck doesn't have to have a seat belt.

>> Jerry Weiers:
That's right.

>> Feliciano Vera:
Any idea how the governor would treat the bill if it gets up to the 9th floor?

>> Jerry Weiers:
I think she like most understands the severity. I know that children are near and dear to her heart, and I cannot believe she would veto this.

>> Feliciano Vera:
Representative Weiers, thank you for coming in.
I appreciate it. If you've been trying to buy a house lately, you know how difficult that can be. Sometimes, homes are on the market for just hours before they are snatched up at more than the asking price. We'll talk to two local experts about our hot housing market, but first, Mike Sauceda tells us how the market is affecting one builder in particular.

>> Mike Sauceda:
Trish and her friends check out her future home. It's under construction, in Sentara, a subdivision in Goodyear.

>> Trisha Verela:
I am very excited. It's nice to see the foundation and now the walls are coming up.

>> Mike Sauceda:
She and her husband sold their home in southern California for $400,000 and bought this for 189,000. Her husband will commute from Goodyear to Mesa, but it's a shorter commute than the one he had in California.

>> Trisha Verela:
About a 45 minute drive. When we lived in California, he was driving to San Diego so that was about a two hour commute to and from.

>> Mike Sauceda:
They are one of over 38,000 people who bought a new house in the valley last year. The Arizona Real Estate Center at Arizona State University says over 88,000 housing permits were issued in Arizona last year. That demand has affected prices. Prices for new homes jumped 19% in 2004, the median price of a new home at over $211,000 in Maricopa County at the end of last year. The median price of a resale home jumped to $203,000 in March, climbing almost 7% that money. Interest rates have remained stable so far at 5.5%. For Standard Pacific, the builder of Sentara and 15 subdivisions in southern Arizona, the hot housing market means lots of sales.

>> Pat Maroney:
Last year, we did about 1600 homes, this year we'll deliver close to 1900 homes.

>> Mike Sauceda:
The company is based in Irvine, California and sells an average of 10,000 homes a year in 27 markets. The strong housing market has its challenges for home builders.

>> Pat Maroney:
It's challenging, a lot of trade stress, the subcontractors are under pressure. While our business is strong, there are some challenges that we face. Costs are going up, material costs have increased dramatically over the last 12 months. Cities are overwhelmed and more restricted than ever. While the market is strong, there are a lot of constraints in the market.

>> Mike Sauceda:
Investors are driving some of the housing market in Arizona and has prompted builders like Standard Pacific to crack down on selling to investors because they think it's better for communities to have the buyer live in the house.

>> Pat Maroney:
We don't sell to investors, we do everything we can to prevent that. We have investor addendum's that are signed by potential buyers. We lean the house which is subordinate only to a primary mortgage. There's a $50,000 penalty to the lean if they try to sell their house within 18 months or rent their house, they could be subject to a $50,000 fee.

>> Mike Sauceda:
He says his company is focused on first-time home buyers and high prices are affecting affordability.

>> Pat Maroney:
We're primarily a first time buyer builder. About 50% of our business is first time buyers. We deliver about 1800 homes a year in this market. Affordability is a big issue for us. Costs have gone up, impact fees are rising, land costs have gone up and the ability to deliver an affordable product to our buyers is becoming a bigger challenge.

>> Mike Sauceda:
Eventually, Arizona's housing market will slow down, but not just yet.

>> Feliciano Vera:
Here now to talk about the housing market is Jay Butler, director of the Arizona state university east Arizona real estate center. Also joining me is Elliott Pollack of Elliott D. Pollack and Company, a real estate and economic consulting firm. Elliott, you predict a 10% slow-down in the market, 15% next year?

>> Elliott Pollack:
Two things about that, the first three months of this year I have been dead wrong. The market is stronger than last year and last year was the strongest ever. A 10% decline on the number of permits would still be an incredibly strong year. So the market isn't going away. Until supply catches up with demand, you're likely to have a strong market. That probably won't be this year or even not next.

>> Feliciano Vera:
Jay, what's your prediction for housing permits?

>> Jay Butler:
The first quarter of last year was relatively weak. So it's looking good. The real question is whether this market is going to continue or slow down is going to come in the second quarter for the resale market and begin to see new home permits more in the second quarter, too. I think it's a question of how much you believe this market is you driven by investors and what is their future and are they concerned about let's take their money and run or are they in it more the long haul. I think the market is going to slow, that we're going see signs of slowing this year. Again, I don't think it's a crucial slowdown as we pace ourselves.

>> Feliciano Vera:
If investors start pulling out of the market, how did you that set the pace for the balance of the year?

>> Elliott Pollack:
Let me start by giving you some background. Housing prices are rising throughout the world and the coast of this country, Paris and London, housing prices are going through the roof. Housing prices here are likely to slow rather than decline because have you a base level of demand, I think, of 38, 40,000 units a year. It's a base of demand that will keep things from falling through the floor. Right now, there's at least 15,000 units a year that I can't account for, part is investors, some is second home market, part is people together but living separately. When that slows and investors don't see the appreciation they see now, then it's going to be messy. But only for a little while.

>> Feliciano Vera:
Interest rates are down. What if they go up? Does that, coupled with rising housing prices, impact the market?

>> Jay Butler:
It begins to affect sort of the lower group first. The real key to the housing market is the buying the ticket to enter the housing game. And so in California that's a $250,000 condominium. Here it may be a $120,000 home in one of the outlying communities. The higher home prices have driven up without the interest rates going up, the monthly payment is up almost 400 bucks. That's a lot of money for a lot of people in an economy where income is relatively stable.

>> Feliciano Vera:
In the background piece, affordability was mentioned as becoming a pretty big concern with the rise of housing prices. To what extent is that a concern across the county, the state and the nation?

>> Elliott Pollack:
Well, clearly if you get large appreciation and then you start to have increase in interest rates, it is more difficult, as Jay said, for people at the lower end to get in. It's going to take creative financing, which we haven't really seen since the '80s, on the part of builders and mortgage companies to get these people in a house. You had large appreciation in California during high interest rates in the '80s through the creative financing. Hopefully, that will prevent the market from hitting the wall.

>> Feliciano Vera:
We're seeing a lot of California people flush with cash from sales moving to the valley. Are they having an impact on our prices?

>> Elliott Pollack:
There's a lot of investors, there are boatloads of investors that come here all the time looking for houses. They have been priced out in Las Vegas, priced out in California, they go to Phoenix, next maybe Tucson or Albuquerque and trying to time it. It is unusual for a place like Phoenix where there are usually not supply constraints to have this type of appreciation. Whether there is limited supply relative to demand because builders were caught basically flat-footed or it's a feedback situation, a first group and get some appreciation and talk about it at a cocktail party and a second group comes in and a third group comes in, I don't know, but it's an unusual situation and not likely to last in my opinion.

>> Feliciano Vera:
Builders are beginning to put restrictions in their sales contracts and CCRs intended to keep out investors. Will they be successful in keeping out or minimizing penetration of investors in this market?

>> Jay Butler:
That's a big unknown. We have had talks of antispeculation clauses, homeowners associations trying to restrict it, probably one of the things that will be tested in court can we restrict your right to sell your home or even to rent it out. I think it's going to be an interesting test case. I suspect that it stopped a lot of amateurs, others who figure out a way to do it. And it may have moved a lot of the people out of the new home market into the resale market and also because new home prices are outside the profile of what the typical investor looks for. The investor and the affordability issue is a key one. Right now it's difficult for the home prices we have for the typical working individual in here to have, buy a home. Condominiums are becoming more important. Other parts of the state, manufactured housing has become an important element of the housing market and we may see more of that here.

>> Feliciano Vera:
In the valley, is it the case that people are chasing affordability to the periphery? Is that what we're seeing in terms of geographic distribution of prices?

>> Elliott Pollack:
You have to break it down to new homes and existing homes. New homes clearly the periphery is where the pricing is, Coolidge, Florence, Buckeye, parts of Buckeye, because parts are very expensive. A new home at an affordable price, you have to go out to the periphery. Affordable housing, existing housing is a different story that's where the demand is. There's a lot more competition for those homes right now and it's very unusual and driving prices up to a level that I don't think we have seen before. Quite frankly, I don't think it will last.

>> Feliciano Vera:
It seems when you chase affordability out, you end up paying for that in the gas.

>> Elliott Pollack:
the new housing that is affordable housing has always been on the periphery. A house that is $200,000 in Gilbert might be considerably less than in west Coolidge or Buckeye.

>> Jay Butler:
As Phoenix developed over time, we drove commercial to the outskirts. We are way behind with commercial catching up. Jobs are still a long distance away. It's going to take a while for that to catch up. In place, people are spending $2.50 a gallon to do it.

>> Feliciano Vera:
Let's make some predictions, interest rates up, housing prices going to go down? What are we looking at in the crystal ball over the next quarter?

>> Elliott Pollack:
The rest of this year I think you'll see housing prices continue to go up. I am surprised long term interest rates haven't gone up more.

>> Jay Butler:
I think long-term rates will go up. I think home prices are going to stabilize in the third or fourth quarter. On the resale market, I think we're going to have a hard time getting over the 220.

>> Feliciano Vera:
Consequences of the slow-down in the housing market for the valley's economy?

>> Elliott Pollack:
It's not a disaster, this isn't California where you can have huge fluctuations in prices. My opinion, price when it occurs and whether it occurs, I can't tell you, but it will occur. You'll see housing prices flatten out. If they decline it will be small, but it will be a big change in expectations and investors might be unpleasantly surprised. This is not going to be a disaster in my opinion.

>> Jay Butler:
I don't think it will either. It wasn't a disaster in the late '80s or '90s. I think again, the question is how we get out of the situation. If we back out of it slowly and the market operates in a rational sense we're not going to see tremendous things happening.

>> Elliott Pollack:
the issues are good for people coming into town looking for a house.

>> Feliciano Vera:
Thank you so much. Housing prices have gone up, but gas prices are increasing even faster. However, there may be some relief for Arizona motorists some time in the future. A refinery proposed for Yuma received its air quality permit today. We'll talk to a representative of the refinery. But first, here's a look at how much gas prices have gone up.

>> Mike Sauceda:
Probably music and not gas prices making this person dance. In Arizona, the average price is 2.37 a gallon, up 54 cents from the start of the year, 30 cents from one month ago. The national average is 2.25 a gallon. Prices vary across the state. Phoenix, 2.36. East Valley, 2.35, Scottsdale and Fountain Hills have the highest average prices, $2.41. Tucson, 2.30 a gallon, in Flagstaff and Yuma gas prices are 2.38. Those high prices continue even though the price of oil has dropped to below $50 a barrel. AAA says Arizonans can pay less when Kinder Morgan completes its expansion of a pipe allowing more gas to be brought in from El Paso. Today it was announced a proposed refinery got its air permit. AAA says the construction of the refinery is expected to provide price relief at the pump.

>> Feliciano Vera:
With me now to talk about the latest on the Arizona clean fuels proposed Yuma refinery is Ian Calkins. Ian is a public affairs associate with Copper State Consulting, which is representing Arizona clean fuels, an Arizona-based company. Ian, is this a silver bullet? Are you going to help us decrease gas prices?

>> Ian Calkins:
In the short term, we're not going to have any impact on the price at the pump. We're several years away from operations but in the long term we'll have a positive impact on prices at the pump. There is no denying that the more supply you have and the more sources, that it bodes well for consumers.

>> Feliciano Vera:
Explain the action at the Arizona Department of Environmental Quality. How complex, complicated was it to get permitted and get to this stage today?

>> Ian Calkins:
It's a monumental action with the Arizona Department of Environmental Quality did today. In fact, it's simply unprecedented here in Arizona and most of the country. What happened today is the company that we represent, Arizona Clean Fuels, received a class 1 title 5 air permit. It's per the federal clean air act and it allows them to operate the refinery and comply with the federal clean air act. It's a monumental process, that began in 1999 when we first submitted the application to the department. Since that time, it's been a very tedious process of trying to show compliance with all the various stringent laws and regulations that surround air emissions here in Arizona. Today we finally received that permit. It's been a long time coming, but the good news is that we're able to show that as the project is planned that we are in full compliance with the federal clean air act.

>> Feliciano Vera:
Why is it that there hasn't been a refinery permitted in the last 30 years?

>> Ian Calkins:
A number of reasons. It's very difficult to comply with all the various laws and regulations that go into building an oil refinery in this country. Regulations are extremely stringent. Secondly, it's public opposition generally that has prevented construction of new oil refineries in the United States. Many existing refineries have had problems in that regard and it's been difficult in public sentiment. We believe the public sentiment is behind this project. You might recall in summer of 2003, that metropolitan Phoenix experienced a difficult gasoline crisis when one of the pipelines that comes into the state ruptured and caused a shortage. I think up to that point we didn't have the public support but suddenly the public woke up and realized the state is in a precarious situation in terms of the gasoline supply. We are supplied with two pipelines, one from California or one from Texas. If any one or both goes, we're in a lot of trouble because we only have so many days of reserve supply.

>> Feliciano Vera:
Going back to clean air act issues and compliance, what does that do in terms of your operation? Does this make it a cleaner plant than refineries that have been built in the past?

>> Ian Calkins:
Yes. In fact, we are approximately half as clean as even the cleanest existing oil refinery that exists in the United States today. We're about 1/20 emissions of any other refinery that exists in the United States. The regulations are so stringent today, in order to build this refinery, we are building the cleanest refinery that will exist in the United States. That's how difficult it is to do.

>> Feliciano Vera:
Thank you so much, good luck on the venture.

>> Feliciano Vera:
You can visit our website at www.az.pbs.org. Once you get to our home page, click on the word "Horizon" to see transcripts or information about upcoming shows.

>> Larry Lemmons:
Governor Napolitano vetoes a bill that would have given pharmacists the right to refuse performing some services based on moral or religious grounds. And the so-called Junk Food Bill is close to landing on the governor's desk that would stop sales of soft drinks and candy at elementary and middle schools. Join us for the journalists roundtable at 7 on Horizon.

>> Feliciano Vera:
I'm Feliciano Vera, in tonight for Michael Grant. Thank you, have a good evening.