Unexpected road bill threatens governor’s budget plans
By Roy Ockert Jr.
Feb. 24, 2015
Gov. Asa Hutchinson’s carefully crafted budget for fiscal 2016 is already in some difficulty. That’s hardly unexpected since it was built largely on stilts.
By that I mean the budget, to accommodate an income tax cut, depends heavily on using most of a projected surplus of $215 million and tapping reserve funds for continuing expenses. Both practices require prosperity down the road.
One thing the governor didn’t count on, though, was a highway program such as that offered by Rep. Dan Douglas, R-Bentonville, in the form of House Bill 1346. It would shift almost $2.8 billion over 10 years from general revenue to highway construction, which would play havoc with all future budgets.
Using general revenues for highway construction has traditionally been a no-no in Arkansas state government. User fees, most notably fuel taxes, have been the preferred method of financing road-building and maintenance. But that source is failing to meet demands because of more efficient vehicles.
Worse, the inability of Congress to produce a new highway bill leaves the Federal Highway Trust Fund, a critical source of state funding, in doubt. The fund will again run out of money before summer, leaving many state projects on the shelf.
Arkansas certainly is not the only state in this pickle. An Associated Press survey, released over the weekend, shows that the total amount of money available to states from the Federal Highway Trust Fund declined by 3.5 percent in the five years ending with 2013. And the crisis really came to a head in 2014, when Arkansas had to postpone eight projects totaling some $58 million and cancel a $50 million overlay program.
Many states are looking for other answers. We Americans love our vehicles, and our vehicles require smooth, uncrowded highways. Building highways seems to be one of the few things government does that we’re willing to pay for these days.
The problem is that raising taxes, even user taxes like those on gasoline and diesel, is considered politically risky, and re-election takes priority over governing responsibly. President Barack Obama has proposed a 6-year $478 billion program to finance highway, bridge and transit improvements, funding it with higher federal fuel taxes and a tax on the foreign profits many U.S. companies have amassed by doing business overseas.
Of course, anything Obama proposes will have a tough time getting through the Republican majority Congress. It might be better for road-building if he would advocate letting them return to gravel.
Nevertheless, at least five states (Maryland, Massachusetts, New Hampshire, Pennsylvania and Wyoming) have passed fuel tax increases in the past two years, and others are looking at new general-revenue sources for roads.
Virginia took a creative approach with landmark legislation in 2013. Fuel taxes are normally applied per gallon, which becomes a problem as drivers, for whatever reason, buy fewer gallons. So Virginia scrapped its 17.5-cent-per-gallon tax, untouched since 1987, in favor of a percentage-based wholesale tax on motor fuels. The cost is passed along at the pump much like a sales tax.
Who could have expected gas prices to drop? The Newport News Daily Press recently reported that state collections on the new tax are about 25 percent below what had been expected because of lower prices at the pump. That, combined with a declining federal contribution, has put a damper on Virginia’s plans for a vigorous new highway program.
Arkansas legislators wouldn’t dream of increasing the fuel tax, much less restructuring it. Instead, HB 1346 would just take money away from other programs, probably higher education and human services. Nothing in the bill specifies that, but public education is constitutionally protected from budget cuts, and prisons are politically shielded, especially since Gov. Hutchinson has proposed increased funding, albeit by using reserve funds.
Dr. Charles Welch, president of the Arkansas State University system, told his Board of Trustees Friday that HB 1346 would be “catastrophic” for higher education because it would require a reallocation of general revenues. Higher education leaders already expect flat state funding for at least the next two years.
HB 1346 gained the approval of the House Public Transportation Committee on Thursday, and it could go to the full House this week. However, Douglas postponed further action after encountering opposition from the governor. A spokesman for Hutchinson said “he cannot support a bill that undermines the current balanced budget and doesn’t provide a consensus on a solution to the funding gap.”
The bill has strong support from the state Highway and Transportation Department and other legislators. It would claim for the department a portion of the sales tax proceeds from the purchase of new cars and trucks and some other road-user items such as tires.
The highway department’s share would come only from an increase in those proceeds over the previous year, an estimated $34.8 million the first year and growing each year to $548 million by 2025. Supporters say that would preserve the existing tax base, but, remember, Hutchinson’s budget is built in part from anticipated surpluses.
To offset the criticism, the bill also proposes to shift about $53 million in severance tax revenue from highways to community colleges and workforce training.
A better way to finance a road program requires the courage and vision to find new money rather than raiding general revenues.
Roy Ockert is editor emeritus of The Jonesboro Sun. He may be reached by e-mail at royo@suddenlink.net.