Gov. Hutchinson throws cold water on most of group’s highway funding proposals

The Governor’s Working Group on Highway Funding is finalizing four funding proposals for Gov. Asa Hutchinson (R) that would increase money for highways. Hutchinson afterward said he’ll only consider proposals that don’t increase overall state revenues, which would virtually eliminate three of them.

Created by Hutchinson after this year’s legislative session, the group will present a menu of options with the goal of providing an additional $160 million in total annual revenue over the next one to three years. Traditionally, 15 cents for every dollar raised for transportation has gone to cities and 15 cents has gone to counties.

The group, led by State Budget Administrator Duncan Baird, will present its final report for reaching that short-term goal in December and hopes to continue meeting to consider long-term goals.

In a statement released by his office after the group’s meeting Thursday, Hutchinson said, “Thank you to Chairman Baird and the members of the committee for their diligent work over the last several months. I will review the recommendations as well as listen to legislators’ comments on the report, but, as I’ve said previously, any new revenue or tax increase must be offset with tax cuts in order to remain revenue neutral. It is important to fund our highways but we want to keep the hardworking Arkansan in mind when they are at the gas pump filling up their truck as they commute to work. I will communicate my recommendations for highway funding in December or early January and also determine whether the committee needs to do additional work.”

Of the four proposals, only one might be considered revenue neutral. It would increase highway user fees using an unspecified method, which would be offset by an already planned $60 million-$70 million sales tax reduction meant to coincide with the end of desegregation payments the state has been making to central Arkansas schools. It also would rebate for the Arkansas Highway and Transportation Department sales taxes paid on construction materials used for state highway construction. It also would spend revenue for roads and highways from the half-cent sales tax that is going into the state’s general revenues or is being spent for non-highway, state administrative purposes through the Central Services fund.

The other proposals are more ambitious and would not meet the governor’s requirements.

One proposal would increase the diesel tax by 5 cents per gallon, index to inflation the motor fuel tax with an annual cap of 2 cents, and transfer to highways revenues from sales tax paid on new and used vehicles. Those sales taxes now go into general revenues. After seven years, that final proposal would raise $363 million with $254 million going to the Highway Department. Also, the half-cent sales tax passed by voters in 2012, which expires after 10 years, would continue at a 3/8th-cent rate if approved by the voters.

Another proposal would increase the motor fuels tax by 15 cents per gallon over three years, raising an additional $300 million for the state, cities and counties, while adjusting existing taxes to recoup the amount lost in recent years to inflation. Taxes would be indexed for inflation moving forward. 

The proposal also would consider ways to transition from a tax system based on fuel usage to a “reportable miles traveled” system where drivers report their annual mileage when they renew their car tags. The thinking behind that change is that vehicles are becoming more fuel efficient, thereby making fuel taxes a declining revenue source that eventually must be replaced.

That proposal, said Frank Scott, a state Highway Commissioner and the original supporter of the plan, would meet the Highway Department’s needs for many years.

“I would probably be retired by the time we would need to come back” for more money, Scott, 32, explained.

The last proposal would eliminate the sales tax exemption for motor fuels, raising about $200 million, with $140 million going to the Highway Department based on the weekly price of gasoline on Oct. 26, 2015.

Speaking before Hutchinson released his statement, Baird said the proposals were being structured so the governor could pick and choose elements within them. 

Scott Bennett, AHTD director, said he was hopeful the task force’s recommendations would lead to additional funding for highways. He said the congressional conference committee writing a new federal highway bill will provide additional federal revenues for highways, but the state will need $45 million to match it. 

Congressional negotiators are hopeful of producing a compromise between long-term House and Senate funding bills by Nov. 30 in time to produce a bill for the president by Dec. 4, when the current funding mechanism expires. U.S. Rep. Rick Crawford, R-Jonesboro, sits on the conference committee.

“Congress is doing their job. Now we’re going to have to do our job in the state to make sure we use that money,” Bennett said.