Governor’s $300 million highway funding bill moves out of committee, Senate vote on Thursday

A $300 million hybrid funding measure to pay for state highway maintenance by permanently extending a half-cent sales tax and enacting new gasoline and diesel fuel taxes was pushed out of a Senate Committee on Wednesday (Feb. 20) following nearly 90 minutes of debate.

Senate Bill 336 by Sen. Terry Rice, R-Waldron, which has 22 co-sponsors from both parties, was approved by a voice vote of 5-2 before the Senate Committee on Revenue and Taxation. It is now scheduled for a floor vote in the Senate on Thursday.

After introducing SB 336 to the committee chaired by Sen. Jonathan Dismang, R-Searcy, Rice said Gov. Asa Hutchinson’s “highway investment program” had a lot of input from many people, but was not a perfect bill. He said the highway plan would not provide the full $478 million determined by Arkansas Department of Transportation officials as necessary to adequately maintain current roads and bridges and keep up with future needs.

“It is not as many dollars as a lot of people wanted and it doesn’t satisfy those who don’t want to spend any more money on highways because of the taxes we are already paying, I realize that,” said Rice. “But I believe the governor’s highway investment program is three things: It’s substantial, it’s prudent and it’s long-term. And I think those three things are needed.”

Under the complex metrics outlined by Hutchinson during a press conference last week, SB 336 would provide $300 million annually to state highways and another $110 million to 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.

According to state officials, the permanent half-cent tax extension would raise $206 million annually and would have to be approved by voters in 2020. Voters first passed the tax in 2012 to fund the Connecting Arkansas Program, which will expire in 2023. That program relied on bond issues, where officials say 28% was consumed through financing costs. If voters pass the new measure in 2020, the extension would fund roads on a “pay as you go” basis.

The governor’s plan would also 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 also 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, Rice said. While the legislature must refer the first phase of the highway funding plan to voters with a three-fourths vote, the second part of the governor’s proposal will require a simple majority vote in both the House and Senate before being enacted into law.

CASINO REVENUE QUESTIONED
After Rice laid out the details of the plan, Dismang questioned him on the potential impact the casino proposal would have on state budget coffers.

According to an explanation by Paul Gehring, DF&A assistant director of revenue, the state will dedicate at least $31.2 million annually to the state Highway Department from revenues generated by a gaming tax on three multi-million dollar casino developments at Hot Springs’ Oaklawn Park, Southland Gaming and Racing in West Memphis and another location forthcoming in Jefferson County near Pine Bluff.

Those funds, Gehring told the panel, would begin to flow into state budget coffers by July 1, 2020, and would potentially increase over time as those casino projects in Garland, Jefferson and Crittenden counties generate more income.

“As that $31.2 million dollars increases over time and as we get the Pine Bluff casino and if there is a fourth additional casino (in Pope County) added in the future, and also Oaklawn and Southland convert over to casino licenses, that dedicated (fund) is the cap that will stay on general revenue and anything over and above that will be dedicated to highways,” said Gehring, who testified on behalf of Rice.

After repeated questions from Dismang, the DFA budget analyst clarified that a $35 million cap in the governor’s proposal would continue to rise if revenues generated by the state’s fledgling casino industry were above and beyond the state’s own forecasts.

“It is not capped at $35 million going to state highways,” Gehring told Dismang. “That amount would continue to rise as additional monies are collected from the casino gaming licenses.”

In the weeks after Arkansas voters approved casino gaming in the November 2018 election, Oaklawn announced it would build a $100 million gaming and hotel complex on its Hot Springs grounds by early 2020. Southland’s owners, Delaware North, also said a $200 million hotel and convention center could be added to its casino operations in West Memphis.

In early December, the Quapaw Nation’s Downstream casino enterprise also said it would build a casino in Jefferson County before 2020. Under that scenario, Gehring told the Senate panel that DFA projects revenues from those casinos to grow to $42.4 million by 2022, of which $11.2 million would be transferred into the highway fund. The projected annual transfer to pay for highway maintenance would grow to $22.5 million by 2028, he said.

“Our projections take into account only three casinos in Arkansas,” Gehring said, casting doubt on a fourth project in Pope County that has run into local opposition.

After other questions on the funding mechanism for the $300 million highway investment proposal, the Senate panel spent the next hour hearing concerns about the smallest portion of the bill that would raise $2 million annually by imposing a registration fee on hybrid and electric cars of $100 and $200, respectively.

Sierra Club Director Glen Hooks and a long line of hybrid and electric car owners vehemently protested the registration fees on the environmental-friendly vehicles. Hooks described the proposed $100 and $200 for less than 100,000 hybrid and electric vehicles registered in Arkansas as excessive, telling the seven senators on the committee that the fee was essentially unfair and would discourage people from buying those type of cars.

“I want to note …, adding a $200 registration annual electric car fee would make us right at the top of the nation in terms of the registration fees for electric cars,” said Hooks.

STATE CHAMBER CHIEF: HIGHWAYS ARE ‘ARTERIES OF COMMERCE’
Arkansas State Chamber of Commerce President and CEO Randy Zook, and Shannon Newton, President of the Arkansas Trucking Association, both testified in support of the SB 336. Zook told the committee that it was well past time for the state to address state highway funding, calling the governor’s plan a “solid, well-designed combination of elements that has resulted in a reasonable approach to a very difficult problem.”

“We all have been mulling over and working over this for years, mainly the maintenance and expansion of our highway system to serve the needs of a modern, up-to-date economy,” said Zook, who also leads the Associated Industries of Arkansas. “There is nothing that could be more impactful to improve the business climate in Arkansas besides this bill and adequate funding of highways.”

Zook closed his testimony by calling state highways the “arteries of commerce’ in Arkansas. He said the State Chamber would fully support and back the governor’s ballot proposal to get Arkansas voters to extend the half-cents sales tax.

After the debate on SB336 came to a halt, the committee easily approved the measure. Dismang and Sen. Trent Garner, R-El Dorado, voted against the measure. Dismang said he has some discomfort with DFA’s revenue projections, while Garner said he likes most features in the bill except for the gas and diesel taxes.

Rice said after the hearing that he thought his bill will get an affirmative vote on the Senate floor.“I appreciate everybody’s testimony, and I don’t think anything new came out,” Rice told reporters after the Senate hearing. “I hope we can make more than we have on the co-signers.”