Highway working group presents four funding proposals to governor

A highway funding working group presented four proposals for increasing money for highways to the governor by its Tuesday deadline, but only one of those proposals might meet his requirement that it result in no new state revenues or taxes.

The Governor’s Working Group on Highway Funding, appointed through an executive order by Gov. Asa Hutchinson, has been meeting since June and decided to focus on developing a strategy that would provide the Arkansas Highway and Transportation Department with $110 million in annual revenue over the next one to three years, based on a needs assessment provided by the department.

Raising $110 million for the department requires a total of about $160 million in new road dollars because of the traditional 70-15-15 split between the state, cities and counties and because 3.2% off the top is dedicated to the Constitutional Officers and State Central Services funds.

A $110 million influx would provide the Highway Department the $50 million it needs to match federal dollars provided through the recently enacted Fixing America’s Surface Transportation Act, while providing $60 million for other projects.

Hutchinson’s office said the governor will review the short-term recommendations and announce his decision by mid-January. In November as the proposals were taking shape, Hutchinson said in a statement, “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.”

Highways primarily are funded by motor fuels taxes, which have not been increased since 2001 in Arkansas and since 1993 at the federal level and were not indexed to inflation at either level. At the same time, vehicles have become more fuel efficient, meaning drivers are paying less in fuel taxes to drive the same mileage. Meanwhile, road construction costs have increased.

Proposal #1 in the 14-page report would index motor fuels taxes to inflation, with increases limited to 2 cents per gallon per year. A 2-cent increase in the gasoline tax would raise a total of $28.5 million annually, while a 2-cent diesel tax increase would raise $12.6 million annually. Of that $41.1 million in additional revenue, $27.9 million would go to the Highway Department. The proposal also would increase the diesel fuel tax by 5 cents per gallon, raising $31.5 million total and $21.4 million for the Highway Department. That idea has the support of the Arkansas Trucking Association.

The proposal also would phase in a transfer of revenue from new and used vehicle sales taxes from general revenues to the highway fund. By 2024, that figure would raise $363 million total and $242.4 million for the Highway Department. Finally, the proposal would reduce the 10-year, half-cent sales tax for roads approved by voters in 2012 to 3/8ths of a cent starting in 2023 and make it permanent.

Proposal #2 is the only one of the four proposals that might be considered revenue-neutral. The major part of that proposal would include a user fee increase that would be offset by a planned sales tax reduction planned for 2017. That reduction is planned to occur as a result of the resolution of the school desegregation case that has required the state to make payments to the Little Rock, North Little Rock and Pulaski County school districts. The tax cut is estimated to be between $60 and $70 million.

Meanwhile, the proposal would raise an estimated $20 million by allowing the Highway Department to request a rebate of sales taxes collected on highway materials. It would raise $2.7 million for the Highway Department by redirecting the part of the diesel tax currently going to general revenue, and it would raise $5.4 million by rebating to highways the portion of the half-cent sales tax passed by voters in 2012 that is going to the Constitutional Officers and State Central Services funds.

Proposal #3 would raise $1.1 billion over three years. It would increase motor fuels taxes by 8 cents per gallon immediately, raising a total of $160 million, with $112 million going to highways. The proposal also would increase gasoline and diesel taxes 5 cents a year for the next three years, raising $308.4 million total by year three, or $209 million for the Highway Department. It also would index motor fuels taxes to inflation moving forward. The proposal also would consider implementing a reportable miles traveled funding model where drivers would report their annual mileage when they renew their car tags and pay a fee.

Proposal #4 would eliminate the sales tax exemption for motor fuels taxes and collect a per-gallon tax at the wholesale level. At the weekly price of gasoline on Oct. 26, 2015, the tax would gross $200 million, with $140 million of that going to the Highway Department. If fuel prices change, so would the amount of taxes raised.

The working group set aside the Highway Department’s longer-term needs and said in the report it will work on those if directed by Hutchinson.

The Highway Department said it needs $250 million in new dollars annually over the next three to five years, counting the $110 million provided for short-term needs. That amount would enable the department to implement an enhanced maintenance program for existing highways and fund a $125 million resurfacing program. The Highway Department would be able to overlay and rehabilitate half of the highway system every 15-20 years.

The Highway Department said it needs $400 million in new revenue in six to nine years, counting the $250 million. That amount would, among other efforts, enable the department to undertake an economic development improvement program.

Ten years in the future, the Highway Department would like $1.68 billion in new revenue annually for 10 years, which would enable the completion of I-49 along the state’s western border and I-69 through south Arkansas, and also result in no major capacity or congestion issues anywhere in Arkansas.