Highway funding plans develop, but legislative leaders say time running out

At least three legislative proposals are being floated for a highways-focused special session planned for May 19, but on Tuesday the speaker of the House and Senate President pro tempore said it’s doubtful a consensus can be developed on any of them before the session begins.

Gov. Asa Hutchinson has announced a plan that will raise about $50 million a year in order to make the state eligible for $200 million in federal funds as part of the federal Fixing America’s Surface Transportation Act.

Next year, Hutchinson will ask lawmakers to transfer $40 million in rainy day funds out of general revenues to the Arkansas Highway and Transportation Department. Also, money from sales taxes collected from purchases of new and used vehicles would be transferred to highways. That money will be offset by $20 million in improved investment returns generated in the state treasury, Hutchinson said. Those improved returns also will add $12 million for highway funding in fiscal year 2018 and $5 million in fiscal year 2019. On an ongoing basis, highways would be funded in part by unallocated surplus funds and a portion of general revenues raised from new and used car sales taxes.

Any other proposal will have to fit into the governor’s call, which can be tailored very narrowly, although legislators can consider other legislation with a two-thirds vote. J.R. Davis, Hutchinson’s spokesperson, said Tuesday the call is still being developed.

Speaker Jeremy Gillam, R-Judsonia, said he doubts any long-term plan will have time to develop consensus support before next week, leaving only Hutchinson’s plan for now. The $50 million must be passed quickly in order for the state to qualify for the matching funds in fiscal year 2017. Longer-term plans can be considered in the months leading up to next year’s legislative session, Gillam said.

“Right now, I think logistically speaking, we’re not to where we need to be at in a consensus format on a long-term plan,” he said. “The governor’s going to have to make a call, probably by the end of the week on what’s going to be on the call sheet for next week. If not the end of this week, he’s probably going to have to do it the first part of next week.”

Senate President Pro Tempore Jonathan Dismang, R-Searcy, agreed that time is running out “on anything that falls outside of what the governor’s plan is.”

“The governor’s plan is a short-term plan. He’s been very open about that,” he said. “There’s going to have to be some long-term work done. … (The other plans have) not been vetted, and it would be very difficult to bring those up and I think get to the support needed.”

Gillam said for some members, any increase in funding must be offset at least dollar for dollar by a decrease in funding elsewhere, a term often referred to as “revenue neutral.” Not everyone adopts that strict a standard, however, Gillam said.

In one proposal, Sens. Ronald Caldwell, R-Wynne; Jimmy Hickey, R-Texarkana; Bill Sample, R-Hot Springs; and Greg Standridge, R-Russellville, would follow the governor’s plan for this next fiscal year and then raise the fuel tax by five cents a gallon in 2018, followed by another three cents a gallon for the next three years, for a total of eight cents. Caldwell said the senators’ proposed tax would raise about $162 million a year, with cities and counties each receiving 15%.

Federal funds and the state dollars used to match them would have to be dedicated to roads that meet federal standards. The senators’ plan would leave about $60 million a year that could be applied to secondary roads.

However, the senators were told by Bureau of Legislative Research attorneys Tuesday morning that a three-fourths majority vote will be required. Caldwell said Tuesday afternoon that the senators had not yet met but wanted to get feedback before deciding how to proceed.

Caldwell said using general revenues is a bad way to fund highways because the money comes from working Arkansans, not out-of-state truckers, tourists or people making their income off illegal activity. In effect, working class Arkansans are subsidizing highways for those people, he said.

“Would it be revenue neutral the day we do it?” Caldwell said of his group’s plan. “Probably not, but is it something we can work toward and make it revenue neutral? I think that’s a game plan that everybody has.”

Rep. Andy Davis, R-Little Rock, meanwhile, is proposing a more modest plan meant to address shorter-term needs. Like the senators, his plan would mirror Hutchinson’s in fiscal year 2017. In fiscal year 2018, Davis proposes a $25 million income tax cut and a four-cent diesel tax increase, which would raise about $25 million and still require $20 million in one-time money to qualify for the federal match. In fiscal year 2019, he proposes another $25 million income tax cut and another $25 million diesel tax increase, permanently raising the $50 million the state would need for the match.

“It’s revenue neutral, and I think with a few tweaks, we can make it a net decrease,” he said.

Davis said the funding could come out of the state’s surplus rather than from spending cuts. The state has averaged a $48 million annual surplus in recent years. This year’s budget doesn’t anticipate one, but Davis said he expects one to exist.

“I’ve been here for three budget cycles, and we’ve had enough surplus every time to do this,” he said.

Davis emphasized that his plan covers only short-term needs. A more permanent plan, particularly one that maintains state-level highways, needs to come during next year’s regular session.

“I haven’t seen a proposal that we could pass right now. … We have to remember that fuel taxes are the source of our declining revenue stream, so I don’t think that our long-term solution rests on fuel taxes. There’s got to be something else,” he said.

Rep. Joe Jett, D-Success, is floating a plan that would raise the fuel tax by a nickel and then index it to the annual increasing cost of highway construction. The nickel increase would capture about $100 million, which would undergo the traditional 70-15-15 split between the state, cities and counties. At the same time, Jett is looking at tax cuts to offset the increase, including an earned income tax credit.

“With the mood of the chamber, everybody’s just adamant on this thing’s got to be revenue neutral to be able to pass it,” he said.

Jett said he supports the governor’s short-term plan for next year. However, he expressed concern that the state’s future revenue stream won’t leave enough money for highways.

Speaking to reporters Monday, Gillam did not rule out a future tax increase or limit solutions to those that are revenue neutral. He said his constituents have expressed more concerns with legislators’ lack of constitutional oversight over the Highway Commission than a tax increase because of problems with two major projects in the Searcy area.

“I learned a long time ago, my first term down here, to never say never,” he said, “and so I’m going to be open to letting the process work itself out on this, letting the members have their chance to talk about their ideas. … It’s not my option A is to raise taxes on the citizens, but I’m going to be open-minded enough to at least hear the members out, see why they feel like their ideas are viable, and kind of we’ll go from there.”

Rep. Michael John Gray, D-Augusta, the House Democrats’ minority leader, said Monday that his caucus is generally opposed to using general revenues to pay for highways.

“We’ve got to find some revenue, whether it be a brand-new source, or whether it’s removing the exemptions or other sources, absolutely,” he said. “I really think that the leadership of the governor’s important in this to help direct that conversation. … I understand the urgency of why the governor wants to do this one-time fix. However, we’d like to see it coupled with a long-term plan, so we’re going to have some discussion about that this week.”