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Just Try to Stop the Freeway Speculators and Get Laughed Out of the Legislature

Want to know why the freeway system is running out of money? Want to know why you're likely to be asked to vote for another tax hike to complete the 230-mile system voters approved in 1985? Well, read this and weep: The right-of-way for the entire system--just the land on which the freeways will be built--was estimated to cost $802 million in 1985. Today's estimate? More than $2 billion. Why? "Land speculators are not a minor part of that increase," notes Bob Helmendollar, deputy chief of the right-of-way section for the Arizona Department of Transportation (ADOT).

Guess it shouldn't surprise anyone. While Helmendollar cringes at the cost hikes, he notes it's just "the American way--everyone is looking for a way to make money, and if you can buy cheap land where freeways are going, that's the place to make money. It's a natural thing for developers to go where freeways are."

But Helmendollar doesn't think it's the "American way" that taxpayers are getting hurt in the process, that their money is being used to buy land for a freeway so cheap farmland can become valuable freeway-frontage property. "If a cotton field becomes a shopping center after the freeway is built, that land has gone up in value from fifty cents a square foot to $10 a square foot--that's a gift to that landowner," he says. "But we still have to pay for the right-of-way. Hey, if we create the value, we shouldn't also have to pay for it." As fair as that sounds--and as politically popular, considering the quickly vanishing freeway funds--Helmendollar has been unsuccessful for the last two years in getting the Arizona State Legislature to agree. What he wants for Arizona is a new appraisal system that is already being used by the federal government and seventeen states: Subtract the cost of the right-of-way from the increased value of the remaining land. It's called the "before-and-after rule" of appraising and could save the state millions.

Presently, Arizona law says land is to be appraised at its current market value--ignoring any benefits to remaining land once the freeway goes in. That's supposed to protect the state: It obviously would be ludicrous for the state to pay for freeway land as though the road already existed. But when speculators sweep in and buy farmland in the path of the freeway, their purchase price becomes the current market value--the higher price the state must now pay for right-of-way. So from the state's standpoint, taxpayers are getting it coming and going and are financing the land speculation: They'll reimburse the new landowner for the strip needed for a freeway and get none of the gravy from the grossly increased land values left behind.

Helmendollar doesn't think it's revolutionary to stop the gravy train, but he remembers being laughed out of one meeting of businessmen to whom he tried to sell the idea.

Attorney Jay Dushoff, the admitted "point man" on killing the legislation both years, says he thinks the idea is a "simple-minded approach" that is "patently unfair."

"These people say, `Look at this unfairness,' but you can't take a system that is already skewed in favor of the state and cherry-pick to change one thing," Dushoff contends. "I'll give up fighting the before-and-after rule if they say there are no exceptions. But they don't want to give up anything. Existing law is a patchwork of exceptions. If you rip up Central Avenue for months and business is hurt, that businessman doesn't get a dime in compensation. If you change a two-way street to a one-way and there are damages to businesses, they get paid nothing." If the state wanted to play fair, Dushoff argues, it would agree also to compensate property owners for those losses, which, after all, are created by the state's using taxpayer money.

Helmendollar thinks Dushoff is "blowing smoke" and trying to cloud the issue. The state's proposal has nothing to do with urban land, but only applies to rural land and only if the freeway strip takes just a part of a single landowner's property. Besides, he adds, the examples Dushoff gives are "true throughout the United States--there's never been compensation [for urban business losses] because those changes fall under the police powers of public safety and welfare." But, he adds, seventeen other states and the feds have decided that before-and-after values are fair when you talk about freeway right-of-way.

He gives an example to show why he thinks the new system is needed, stressing "this example isn't a fairy tale, this really happens": The state wants forty acres of a 160-acre piece of farmland that has a current market value of $6.4 million ($40,000 an acre). Under existing law, the state must pay $40,000 for every acre it wants, so the right-of-way would cost taxpayers $1.6 million. But obviously, the remaining 120 acres aren't going to stay in agriculture. Say the state puts a freeway interchange on this land, providing an obvious spot for new commercial and industrial development, which increases its value to as much as $348,000 an acre. That lucky landowner, under this example, has seen his remaining property increase in value by $21 million. Plus, he gets his $1.6 million in right-of-way compensation. Under the before-and-after rule, his windfall would be considered enough and he would get no compensation for the right-of-way.

"The theory of `just compensation' infers that a property owner is entitled to be `made whole' when his property is taken for a public project," Helmendollar notes. But look at that example and explain how that property owner has been hurt, he adds. "The state and taxpayers could save a lot of money if we used the before-and-after rule, and nobody's going to be hurt."

Dushoff counters that there are "zillions of years of laws" on the books in Arizona to say the before-and-after rule isn't fair, and besides, "There's a visceral reaction that says the state should pay me for land that's physically taken from me." Why, he asks, should the owner of the freeway land bear the entire burden of the state's taking, while nearby land also is rising in value and those landowners get a free ride?

Dushoff's arguments are compelling enough that even the sponsor of the bill, Tucson Republican Jack Jewett, hasn't bothered to call it up for a hearing in the House Transportation Committee he chairs. "When the idea was first presented to me, it seemed logical--that's why I introduced it in the first place," Jewett says. "But Dushoff made me see it's not as easy as I originally thought. "I don't dispute that some speculators are getting wealthy. And certainly the great frustration for ADOT and us all is that right-of-way costs are running wild over all. But when you boil it down to individual parcels, there are some fairness questions--how do you determine what the rest of the property is worth and when does the landowner get [that] money?"

Jewett says there's no hope for the bill this year: "It needed a lot of work and we didn't have the time this session to get into it." And he doesn't think it will do any good for ADOT simply to ask again next year. "It would not be passed as introduced," Jewett says. "I would hope ADOT would continue to work on some alternatives to that bill."

Dushoff says he thought ADOT would have gotten that message in 1988 when it first tried its idea on an unresponsive legislature. "I was the point guard in getting it killed in 1988, and I said then what I'm saying now. But did ADOT come in this year with a broader bill? No. It basically came in with the same thing."

Dushoff insists land speculators aren't as common as the state says. "The state is taking the Reader's Digest approach--they're taking the exception as if it's the rule," he contends.

Helmendollar, who oversees right-of-way purchases for the freeways, flatly says it isn't the exception, although he can't put a dollar amount on what speculators are costing the public. (He adds that there are other reasons the freeway fund doesn't have enough money: Some freeway stretches have been upgraded and are more expensive, inflation has pushed up the cost, and the downturn in the economy has meant less sales-tax revenue. The 1985 vote approved a half-cent raise in sales taxes for twenty years to finance freeways.) Based on other states' experiences, Helmendollar estimates the before-and-after appraisal system would save the state from 20 to 40 percent on right-of-way costs, or from $55 million to $80 million. "That's not enough to make up for the shortfall [in freeway money], but we're looking for everything that could help," he says. Just those savings on right-of-way, he notes, would be enough to build from five to eight more miles of freeways.

It's obvious that the state is steadily marching toward asking voters to raise their own taxes yet again to collect more freeway money. What worries ADOT officials is that the public might not pony up another tax hike, knowing that speculators are a significant beneficiary and the legislature refuses to do anything to stop it.

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Jana Bommersbach