The Arkansas Good Roads Foundation, a group that advocates for transportation investment and spending, is recommending an increase in the state’s motor fuel taxes of 10 cents per gallon to raise $125.7 million for state highway needs, and asking for a special session to accomplish it.
Craig Douglass, the foundation’s executive director, wrote in a letter to the Governor’s Working Group on Highway Funding that the 10-cent increase would be the quickest way to close a short-term funding gap facing the Arkansas Highway and Transportation Department. Because of the gap, the AHTD this year canceled its overlay program, a cost-effective way of maintaining highways compared to reconstruction.
The Working Group, appointed by Gov. Asa Hutchinson earlier this year, has decided to focus on immediate short-term needs first and focus later on mid-term needs for system preservation as well as long-term, broad-based funding. It has set a short-term funding target of $110 million.
A 10-cent increase in the fuel tax would raise $138 million total. However, only about $87.6 million would go to the Arkansas Highway Department because 36.5% of fuel tax dollars go to other needs: 13% to county roads; 13% to city streets; 3.1% to the Constitutional and Fiscal Agencies Fund, which funds legislative and executive branch salaries; 2.8% to the State Aid County Roads fund; 2.8% to the State Aid City Streets fund; and 1.8% for non-highway uses, including administration.
A 10-cent increase in the diesel tax would gross an additional $60 million, providing a net $38 million to the Highway Department for the same reason.
The recommendation mirrors one made by Douglass in a memorandum to the Working Group written Aug. 14 that also addressed mid-term and long-term needs.
Arkansas faces a road funding shortage because tax revenue has not kept up with construction and maintenance costs. The state’s 21.5 cent-per-gallon gasoline and 22.5 cent-per-gallon diesel taxes have not been raised since 2001, while federal fuel taxes have not increased since 1993. Federal funding has been uncertain because Congress cannot agree on a long-term revenue source and instead has been passing a series of short-term extensions. Meanwhile, increasingly fuel-efficient vehicles are reducing fuel consumption, and therefore the taxes that fund road maintenance.
Douglass argued in the letter that this would be a good time to raise the motor fuels tax because of declining motor fuels prices, as oil is now less than $40 per barrel. Other states – Georgia, Idaho, Iowa, Nebraska, South Dakota, Washington, Utah, Maryland, and Rhode Island – have increased fuel taxes recently. A special session would be needed to raise motor fuels taxes quickly.
Douglass wrote that recent history has shown that any fuel tax increase should be accompanied by a plan for how the money will be spent. In 2011, Arkansas voters approved an interstate bond issue, the Interstate Rehabilitation Program, and in 2012 they approved a half-cent sales tax increase, the Connecting Arkansas Program. Both programs included detailed road construction plans.
He wrote that policymakers should consider including a trade-off that would mitigate the effects of the tax increase, such as reducing the tax as other funding sources are found. One such source would be dedicating to highways the sales taxes from the sales of new and used vehicles. Those taxes currently go into the state’s general fund. The transfer would be accomplished over a five-year period.
During this year’s legislative session, Rep. Dan Douglas, R-Bentonville, sponsored a bill that would have done that. It passed the House Committee on Public Transportation, but faced opposition from other groups that rely on those general funds such as schools and human services agencies. Douglas pulled the bill when Gov. Asa Hutchinson said the bill would not fit into his balanced budget while agreeing to appoint the Working Group.