Working Group on Highways sends proposals to governor
By Roy Ockert Jr.
Nov. 3, 2015
The Governor’s Working Group on Highway Funding has issued its preliminary recommendations, and it’s safe to say that the 20-member task force didn’t find any magic solution for more highway revenue.
In fact, Speaker of the House Jeremy Gillam, R-Judsonia, and Senate President Jonathan Dismang, R-Beebe, later indicated in a television interview with Talk Business & Politics that they will insist any legislative package for highway funding be revenue neutral. That means no new taxes without reducing some other revenue source(s) or shifting some current spending from other areas to highways.
Gillam suggested that one possibility is to redirect state desegregation funding of almost $70 million annually to highways. Two years ago then-Gov. Mike Beebe planned to use that money to eliminate the last of the sales tax on groceries (except for a one-eighth of 1 percent conservation tax). But that no longer seems to be a priority for the current Legislature.
Historically, Arkansas has financed its highway system through user fees — especially taxes on gasoline and diesel fuel — but that approach isn’t working any more.
Gov. Asa Hutchinson appointed the Working Group in May, urging its members to “think creatively but realistically about possible funding solutions.”
The group includes Jonesboro Mayor Harold Perrin, Highway Commissioner Alec Farmer of Jonesboro and Dr. Robin Bowen, president of Arkansas Tech University.
The Working Group determined that funding the short-term needs of the state Highway and Transportation Department would require $110 million over the next one to three years. Since cities and counties get 30 percent of highway funds, that means a total target of about $160 million.
Scott Bennett, executive director of AHTD, has said the state needs $200 million to $300 million annually for an overlay program. He also told the Working Group that he did not see how an increase in motor fuel taxes alone would raise enough money.
Here is a quick summary of the five alternatives submitted to the governor:
1. Increase the motor fuel tax by 10 cents per gallon, but meanwhile phase in a transfer of road-user revenue from the sales and use tax on new and used vehicles. As that is being done, the motor fuel tax would be phased out. This proposal has several other possible provisions, including a reduction in personal and corporate income taxes. But it would amount to taking money away from other state programs, probably including higher education and human services since other major areas are protected.
2. This “revenue-neutral” proposal would redirect $4 million in diesel tax from general revenue back to the highway fund, capture about $5-6 million annually from the one-half cent highway sales tax, provide a rebate on sales and use taxes collected on highway materials and raise the diesel fuel tax by 10 cents, to be offset by an income tax reduction. That also means taking money away from other state agencies.
3. Index the existing gasoline and diesel taxes to inflation, thus raising those taxes by 15 cents a gallon over three years. The Working Group also suggests that the state consider transitioning to a “Reportable Miles Traveled” funding strategy, which would affect the price of vehicle tag renewal. This is a strict user fee strategy, which means it’s probably dead on arrival.
4. Eliminate the sales tax exemption on gasoline and diesel fuel. That would probably be the best long-term fix, but it’s not likely to be popular. The state’s gasoline tax at the wholesale level is 21.5 cents a gallon now, and its diesel tax is 22.5 cents. The sales tax would be applied on top of that.
5. Increase the diesel fuel tax by five cents per gallon, which would raise only about $30 million a year. Therefore, to get to the $160 million goal, it would have to be combined with something else.
The Working Group also recommended that the state take a new look at several recommendations of a previous task force, the Arkansas Blue Ribbon Committee on Highway Finance. Its work was completed in 2010 and its recommendations placed on a shelf somewhere.
Unless enough legislators face reality, the latest task force report will probably end up on a shelf, too. The second proposal came from Rep. Andy Davis, R-Little Rock, who contends that legislators will not support a tax increase. That may be true, but both of the first two proposals would create funding problems among other state programs, and higher education always takes the first hit.
Minutes of the Working Group’s Sept. 3 meeting indicated some support for the other three proposals, but Davis argued that the governor had told the group to consider political realities. He said that the Legislature would not consider any new revenue until it is confident the “couch has been turned upside-down, and shaken out every penny.”
That’s certainly a creative way to fund highways.
The full committee report, along with all sorts of documentation can be found at http://governor.arkansas.gov/governors-working-group-on-highway-funding. The Working Group will next meet at 1:30 p.m. Nov. 19, and the meeting will be streamed live on the Arkansas House of Representatives Web site.
Roy Ockert is editor emeritus of The Jonesboro Sun. He may be reached by e-mail at royo@suddenlink.net.