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Governor due list soon of road-funding options

by Noel Oman | September 25, 2015 at 2:48 a.m.

A governor's working group on highway finance soon will present Gov. Asa Hutchinson with a menu of options from which he and the Legislature can choose to increase funding for road construction in the short term.

The Governor's Working Group on Highway Finance also will formally ask Hutchinson to extend the group's deliberations beyond its December deadline so it can consider further options to increase money for road construction in the long term.

The options, in the main, include an increase in the state taxes on fuel to varying degrees, a series of revenue-neutral changes across the state budget to direct more money to highway needs and transferring the general revenue on the sales tax on new and used vehicles over several years.

Options also include indexing fuel taxes to the consumer or construction price index, increasing vehicle registration fees to the average of surrounding states as well as adjusting the traditional split accorded each state dollar for roads -- 70 percent now goes to the state with cities and counties evenly sharing the remainder.

Duncan Baird, the working group's chairman, said at a meeting of the group Thursday that providing multiple options to Hutchinson and legislators would allow them to tailor a road construction program to fit within a proposed budget that would take into account fiscal, economic and political realities.

"In the end, it will be the responsibility of the governor and the Legislature to take that mix, evaluate it and look at our other needs to make a determination of what we can do," added Larry Walther, the director of the Arkansas Department of Finance and Administration.

The preliminary recommendations, which will be fine-tuned at the group's next meeting on Oct. 8, also reflect the tension among the working group's 20 members, all of whom Hutchinson appointed.

They are a mixture of advocates for the Highway and Transportation Department, higher-education officials concerned about any transfer of general revenue, Hutchinson budget officials, including Walther and Baird, as well lawmakers who say their colleagues have no appetite to raise taxes.

The short-term goal within two years is $110 million, which highway officials say would cover the cost of the reintroduction of an overlay program. At about $200,000 per mile, they say the program provides an inexpensive way to extend the life of a road before it needs a total reconstruction, which costs about $1.5 million a mile.

Three draft packages were circulated at Thursday's meeting.

They included the Good Roads Foundation package that calls for a mix of short- and medium-term funding, including increasing the tax on gasoline and diesel fuel by 10 cents per gallon. It would raise $198 million annually, netting state highways $125 million with cities and counties each receiving $31 million.

The state tax on gasoline is 21.5 cents per gallon now. For diesel, it is 22.5 cents.

The Good Roads Foundation package also calls for transferring the proceeds from the sales tax on new and used vehicles over a period of five, seven or nine years from the state's general revenue to highway needs. As the transfer is gradually phased in, the increase in the motor-fuel tax would be phased out.

The sales tax on new and used vehicles is "perfect" because "it is directly related to the number of vehicles on the road," said Craig Douglass, who heads the foundation, which is made up of economic developers and local chambers of commerce officials interested in better highways to help foster economic development.

A reduction in personal and corporate income taxes also could be used to help offset higher fuel taxes under the proposal. It also calls for returning to the Highway and Transportation Department $4 million from state diesel fuel tax revenue now going to state general revenue.

A second package developed by Rep. Andy Davis, R-Little Rock, would return the $4 million in fuel tax revenue to the department. It also would eliminate a percentage of the half-percent state sales tax voters approved for road construction in 2012 that now goes to the state central services fund, a figure that is estimated to be between $5 million and $7 million.

Davis' package also would create a sales-tax rebate for road construction materials, which would net an additional $17 million to $20 million annually for highway needs.

Finally, he would take the $70 million the state no longer will pay for desegregation costs in the Pulaski County schools that is earmarked to pay for eliminating the remaining sales tax on groceries and use it instead for highways.

Davis is among those who doubt the Legislature would raise taxes for roads.

The third draft package, from Frank Scott Jr. of Little Rock, a member of the state Highway Commission, calls for increasing the state tax on fuel by 5 cents in each of the next three years. Scott said other states, led by Republican governors and legislators, have seen the need in recent years to raise taxes for highways.

But Rep. Dan Douglas, R-Bentonville, said that fuel taxes no longer are effective because even though more vehicles are on the road, less fuel taxes are collected because those vehicles use less fuel. He also agreed with Davis that the Legislature wouldn't raise taxes, anyway.

"It's not going to happen," he said.

Douglas said he wanted his proposal from the recent legislative session to be part of the mix of options for Hutchinson to consider. It would take a percentage of growth in the sales taxes on new and used vehicles and steer it to the Highway Department.

Some of the other proposals, he said, amount to a "shell game," that is using the highway funding issue to address other tax rates.

Robin Bowen, the chancellor of Arkansas Tech University in Russellville called state general revenue the "big elephant in the room."

"People see me as representing higher education only," she said. "But that's not true. I was a foster parent for 12 years."

Bowen said state general revenue needs to be saved for caseworkers for foster children and other social services, prisons and public schools, not just higher education.

"We have to look at some other way to come up with money for highways," she said.

Metro on 09/25/2015

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