Bill would shift funding to roads to offset tax loss

A bill that would shift some general revenue totaling nearly $2.8 billion over 10 years to road construction for the first time as a way to offset falling fuel-tax revenue won a recommendation Thursday from the House Public Transportation Committee.

To help offset objections that doomed similar legislation in the same committee two years ago, House Bill 1346 by Dan Douglas, R-Bentonville, also would shift revenue from the severance tax on natural gas -- an estimated $53 million next year -- to community colleges and workforce training. Most of that money now goes to highways.

"It's just not a highway bill, but an economic development bill," Douglas said at a meeting packed with bill supporters and opponents Thursday morning. "This will help make Arkansas better."

The bill comes at a time when Arkansas and other states are struggling to find funding as fuel-tax receipts decline because of more efficient vehicles and uncertain federal funding.

In a voice vote, state Rep. Prissy Hickerson, R-Texarkana, the committee chairman and a former Arkansas Highway Commission member, ruled the ayes had it. The bill now goes to the House floor next week.

Under the bill, a portion of the money from the sale of new cars and trucks and some road-user items would gradually be shifted from the state general budget to the Arkansas Highway and Transportation Department, which now relies chiefly on state and federal fuel taxes.

The shift would apply only to the portion of money that is over and above what came in the previous year and thus, proponents say, preserve not only the base general revenue being collected but still allow general revenue growth to be available to other agencies and providers.

In the first year, about $34.8 million would be collected from state general revenue and set aside for road construction, according to a Department of Finance and Administration fiscal review of the bill. The traditional split of highway money would be used with 70 percent going to the department and the remainder divided evenly between city and county road departments. The slice roads would get by 2025 would grow to an estimated $548.4 million.

Critics said the cost of the bill is too high for programs devoted to social services aimed at helping the state's most vulnerable populations. The money that would be diverted to highways is money that otherwise would be available to providing those services.

"To say that taking $2.8 billion out of state general revenue and transferring it over the next 10 years with $548 million in fiscal year 2025 alone -- that it's not going to have an impact on the rest of the budget -- I think strains credibility by any standard of the imagination," said Rich Huddleston, executive director of the nonprofit Arkansas Advocates for Children and Families.

The bill also will be a test for Gov. Asa Hutchinson's budget, which doesn't account for the bill's impact. His top budget official, Larry Walther, said if the Highway Department was going to use general revenue, it should get in line with all other agencies who have made their case for the money in the annual budget hearings.

Hutchinson's spokesman later confirmed the governor opposes the bill. Former Gov. Mike Beebe was instrumental in bottling up the other bill in committee two years.

"While the governor recognizes the need for improvements in the highway funding formula, he cannot support a bill that undermines the current balanced budget and doesn't provide a consensus on a solution to the funding gap," J.R. Davis, Hutchinson's spokesman, said in an email.

Douglas and Scott Bennett, director of the Highway Department, framed the bill as the final piece of a series of legislative moves to boost highway spending. They are designed to help offset challenges that highway officials in Arkansas as well as around the nation are struggling with.

The challenges include declining revenue from the Highway Department's traditional source of money -- fuel taxes -- thanks to more fuel-efficient vehicles, which can travel farther on less fuel than older models. Other factors include rising construction costs and a growing gap between the amount of money available and the maintenance and new project needs, a gap state highway officials now peg at $16 billion over the next 10 years.

Federal transportation spending also has sputtered. The Federal Highway Trust Fund has more spending authority than it has money available. With the trust fund projected to run out of money again before summer, Congress has been unable so far to agree on a permanent fix.

Because of this, the department already has postponed awarding contracts on eight projects totaling an estimated $58 million and canceled its $50 million annual overlay program. The overlay program is an interim maintenance measure designed to extend the life of highways to put off more costly repairs.

The Legislature has helped highways in recent years. In 2008, it passed an increase in the severance tax on natural gas and earmarked 95 percent of the proceeds to road construction, which state highway officials use for road needs in the Fayetteville Shale, where natural gas production-generated traffic has damaged highways.

Legislative actions led to successful elections in 2011 for renewal of a bond program to help finance a $1.2 billion program aimed at repairing interstates and in 2012 passage of a half-percent increase in the statewide sales tax to fund a $1.8 billion highway construction program aimed at easing congestion, building more four-lanes and other projects of regional significance. The tax is in place for 10 years.

But Bennett, the Highway Department's top executive, told committee members the latter two initiatives were stop-gap measures and targeted less than 4 percent of the state's road system, or about 630 miles.

Douglas' bill is a permanent fix, he said in responding to a question from state Rep. Charles Blake, D-North Little Rock.

"It's set up as a long-term solution," Bennett said. "If this passes, there's nothing else we're looking at."

He only held out the possibility that the department would look at restructuring or replacing the fuel tax in the future.

Bennett also said that 34 other states already use general revenue for highways.

A Beebe appointee to the Arkansas Highway Commission, Frank Scott Jr. of Little Rock, testified in favor of the bill. When Beebe appointed him more than a year ago, Scott opposed the original bill considered two years ago.

"I was starkly against it," he said after the meeting. "This is a totally different bill. This bill gives money back to two-year colleges, which is near and dear to me. It helps hard-working Arkansans.

"It shows we're trying to compromise with higher education. It shows we're trying to protect educational excellence and adequacy. We've got to have a conversation. We just can't keep kicking the can down the road."

A Section on 02/20/2015

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