Report on raising cash for roadways due to governor soon

Gov. Asa Hutchinson will be presented next month with an array of options to raise $160 million or more annually to provide a quick boost in funding for state, county and city road maintenance and construction.

The Governor's Working Group on Highway Finance spent less than an hour Thursday afternoon at the state Capitol putting the finishing touches on its short-term recommendations. Its mission is to "create a more reliable, modern and effective system of highway funding," according to the executive order Hutchinson signed in April. The report is due to the governor by Dec. 15.

The recommendations are likely to include an increase in the state taxes on fuel to varying degrees; shifts of existing revenue from other parts of the budget to highways; and transfers of general revenue raised over several years from the sales tax on new and used vehicles.

The governor will be able to choose one or more of the roughly 20 available options, according to Duncan Baird, the working group's chairman and Hutchinson's budget director.

"The important thing about the group is that we all recognize that highway funding is an important issue," Baird told reporters after the meeting when asked if the governor would present a proposal to raise more money for roads. "We recognize every state is dealing with these issues, and I think we wanted to be engaged in looking at potential solutions.

"We're going to present the report to him, and there are any number of ways he could move forward with that."

In a statement thanking the 20 working-group members for their work, Hutchinson indicated that anything he proposed to raise money for highways would have to be offset with cuts elsewhere.

"I will review the recommendations as well as listen to legislators' comments on the report, but, as I've said previously, any new revenue or tax increase must be offset with tax cuts in order to remain revenue-neutral," the governor's statement said.

"It is important to fund our highways, but we want to keep the hardworking Arkansan in mind when they are at the gas pump filling up their truck as they commute to work."

Hutchinson said he would disclose his recommendations in December or early January, and determine whether the working group needs to have additional meetings.

The draft of the 11-page report includes various ways that the state could raise $160 million.

Traditionally, state funding for roads is shared. So, the Highway Department would get 70 percent, or about $110 million; the rest would be divvied up between city street and county road departments.

State highway officials say the $110 million would be enough to address their most critical needs, which include an estimated $45 million to match federal money for road construction projects.

The rest would be used to pay for overlay and sealing projects, and other non-federally funded projects.

The overlay program costs are about $200,000 per mile, which state highway officials say is an economical way to extend the life of a road.

Total reconstruction of a roadway costs about $1.5 million per mile.

The department's main source of income is from motor fuel taxes. Arkansas' gasoline tax at wholesale is currently 21.5 cents a gallon, and its diesel tax is 22.5 cents.

One proposal is an increase of 5 cents in the diesel fuel tax, which would generate $31.5 million annually.

Of that amount, about $22 million would go to the Arkansas Highway and Transportation Department, and the remainder would be split between city street and county road departments.

That proposal also includes indexing motor fuel taxes to inflation, but limiting it to an increase of no more than 2 cents a gallon annually. A 2-cent increase in gasoline and diesel taxes would generate $41 million annually, with $28.8 million going to state highways.

The proposal also includes phasing in a transfer of state general revenue from the sales tax on new and used cars over seven years, netting state highways $30.4 million in the first year and $254 million by the seventh year.

The working group's draft report includes language noting that this proposal would be from existing revenue and would "negatively affect the funding for other services" in the budget, including education.

Another proposal would reduce -- by one-eighth of a percentage point -- the 10-year temporary one-half percent statewide sales tax that's now devoted to highways, and permanently dedicate three-eighths of it to highways.

It would net the department $120 million annually.

Other options would obtain money for highways by cutting elsewhere in the state budget.

One proposal would raise $4 million for highways by redirecting a portion of the diesel tax that now goes to the general revenue fund.

Another would transfer to highways about $5.4 million from the temporary half-percent statewide sales tax that now goes to the constitutional and fiscal agencies fund.

Another would transfer the sales and use taxes that contractors pay on highway construction materials, which would raise an estimated $17 million a year for highways.

In 2017, the state will stop making desegregation payments to three Pulaski County school districts. Under Gov. Mike Beebe, legislation was passed to use that money to reduce the state sales tax on groceries.

One proposal would instead use that $60 million to $70 million a year for highways.

Other proposals include raising the taxes on fuel. Increasing them by 15 cents per gallon, as one example, would raise about $300 million annually for the state, city and county road agencies.

One member of the working group, Randy Zook, who heads the Arkansas State Chamber of Commerce, preferred raising fuel taxes by 5 cents immediately and phasing in another 5 cents over time, which he said was the simplest way.

"I think people are willing to say: 'I like that, I'm willing to pay a little bit more for that, not an enormous amount but a little bit,'" he said.

"Right now, the average driver goes 15,000 miles a year, with a reasonably new car, it's 750 gallons for motor fuel.

"OK, a nickel is about $37.50 a year. A dime is $75. I don't think that there's very many people who wouldn't pay somewhere in that neighborhood for better highways, where they have more predictable drive times to work, where they have more predictable drive times to school, safer school bus routes, all those good things that come with adequate, well-maintained roads."

As for whether any money raised should be offset by cuts elsewhere, Zook said, that is a "considerable political problem."

"I'm here to make sure we understand what we need, what we are roughly willing to pay for, and then it becomes a tough political issue for anybody in elective office," he said.

A Section on 11/20/2015

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