Governor proposes $300 million highway funding plan (UPDATED)

Gov. Asa Hutchinson and legislative leaders revealed a highway plan Monday (Feb. 11) that would provide $300 million annually to state highways and another $110 million to cities and counties, primarily by permanently extending a half-cent sales tax and also by enacting gasoline and diesel taxes.

The tax extension, which would raise $206 million annually, would have to be approved by voters in 2020. Voters passed the tax in 2012 to fund the Connecting Arkansas Program, which will expire in 2023. Legislators must refer the extension to voters.

That program relied on bond issues where 28% was consumed through financing costs. If passed, the extension would fund roads on a “pay as you go” basis.

The plan would raise another $58 million per year by enacting a wholesale gas tax that would be the equivalent of 3 cents per gallon, and it would do the same on diesel fuel that would be the equivalent of 6 cents per gallon. That tax could increase by a maximum of one-tenth of one cent per year.

It would raise a minimum of $35 million from new casino tax revenues, restricted reserve funds and other general revenue sources. Voters passed a constitutional amendment in November allowing four casinos to operate in Arkansas.

Finally, it would raise almost $2 million by imposing additional fees on users of hybrid and electric vehicles.

Those taxes could be passed with a simple majority vote in the Legislature.

The program also would provide $110 million annually for cities and counties. It would do this by continuing the traditional split of roughly 70% for state highways, 15% for cities and 15% for counties.

In a press conference, Hutchinson called this the “largest single highway plan in our history.” It would allow the state to maintain its interstates, improve the most-traveled roads, and replace every structurally deficient bridge.

Hutchinson said it is the “top dollar amount that in my judgment the people of Arkansas can afford.” He said it would provide the right balance between limiting tax increases and meeting highway needs.

The bill is in draft form and hopefully will be filed this week, Hutchinson said. But first, legislators must pass the governor’s income tax plan that would reduce the top rate from 6.9% to 5.9%. That tax cut has passed the Senate but faced problems in the House with some lawmakers who wanted to see the highway plan first.

Hutchinson said that even with the tax increases included in the plan, Arkansans will still see a net tax decrease because of the governor’s previous tax cuts and a reduction in the grocery tax.

Speaker of the House Matthew Shepherd, R-El Dorado, said he believed legislators will support the plan.

“I think we’re very confident,” he said. “Obviously we wouldn’t put a plan out there if we thought it had no chance of success.”

Shannon Newton, Arkansas Trucking Association president, said her organization supports the plan, explaining that “Arkansas highways are the workplace for our industry.”

Joe Quinn, Arkansas Good Roads Foundation executive director, praised the plan, calling it “meaningful.” He related that on Friday, he had bought his daughter a new tire and repaired a tire rim damaged by a pothole.

Asked if he had a wish list for how the money might be spent, Hutchinson said, “I will not get into that today.” However, he said members of the public will want to know what the half-cent sales tax will fund before they vote on it.

Hutchinson said highways have risen to the forefront this session. Legislators have been telling him that constituents are asking about the plan.

“I’ve never seen the public in a greater mood for a highway plan – actually demanding of the legislators, don’t come home without a highway plan,” he said.

He said he was confident that the commitment to use $35 million from new casino revenues and other general revenues would not jeopardize funding for schools and other needs.

Rep. Megan Godfrey, D-Springdale, a member of the House Public Transportation Committee, said Democrats are largely supportive.

“Overall, we like a lot of it,” she said. “We’re really excited to see the investment in infrastructure and know it’s been a long time coming. … I think our biggest question mark is around that general revenue piece, just ensuring that those $35 million that were projected really are going to come in from the casinos and that we aren’t negatively impacting some of those critical services and programs that people all across our state need.”

Arkansas Department of Transportation Director Scott Bennett said he is confident the plan will pass the Legislature and that the voters will pass the tax extension. He pointed out that voters approved the Connecting Arkansas Program in 2012 after approving the Interstate Rehabilitation Program the year before.

“The 3 cent per gallon equivalent in gas tax, you’re talking maybe twenty or so dollars a year, but again, it’s going to save wear and tear on their tires; it’s going to save wear and tear on their vehicle; it’s going to improve fuel efficiency; it’s going to improve safety,” he said.

Bennett said the “vast majority of the money will be spent on taking care of what we have.” The program would fund the state’s primary highway network and address needs on lesser-used routes. It would allow the department to replace every weight-restricted and every structurally deficient bridge over 10 years. However, with the next logical section of I-49 costing $700 million to complete, any improvements to that roadway would have to be phased in.

ARDOT officials have said the state has a $4.8 billion funding shortfall over the next 10 years, which was confirmed by a state legislative audit that found the state needed to invest an additional $478 million in highways. The highway plan proposed Monday would cover part but not all of that shortfall. Bennett sounded satisfied.

“It doesn’t solve the problem, but it goes a long way into helping lessen the problem. A long way,” he said.

Asked if ARDOT would return seeking more money, Bennett said, “I won’t. … If the half-cent sales tax passes in 2020, I won’t be back.”

DEMOCRATS COUNTER TAX CUTS
There has been some Republican reluctance to endorse Hutchinson’s $97 million tax cut plan in the legislature, partly due to the lack of a highway proposal. Democrats mostly oppose the tax cut plan, although three Democratic Senators voted for passage of it last week in that chamber.

On Monday, as a counter message to the Governor’s highway proposal and an alternative to his tax cut plan, House Democrats rolled out an Earned Income Tax Credit (EITC) measure that would create a 10% tax credit for lower-wage earners.

House Minority Leader Rep. Charles Blake, D-Little Rock, freshman Rep. Tippi McCullough, D-Little Rock, and members of the Democratic caucus unveiled the proposal. The plan would eliminate the governor’s proposed tax cut for the top 1% of Arkansans, a move they claim would cost $73 million, and create the 10% Earned Income Tax Credit.

“Arkansans want tax relief. Arkansans were promised tax relief. I know we all want a tax plan that makes sense for our economy and provides help for our working families. The current plan being championed by our Governor fails on both counts. A tax plan that will stimulate real growth in the Arkansas economy needs to be focused on providing tax relief to our working class,” Blake said.

McCullough added, “History tells us time and time again that the most effective form of tax relief occurs when we put more money in the hands of the people who will spend it and put back into our economy. My values and my faith tell me that we should always try to do the most good, for the most people. I believe this legislation passes both of those tests. It will benefit 300,000 working families.”

Democrats hold 24 seats in the 100-member House.

Editor’s note: This story has been updated to include comments from ARDOT Director Scott Bennett and Rep. Megan Godfrey, D-Springdale.