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POLL: Plan surfaces to raise taxes for highways; proposal increases rate on gas, diesel

by Michael R. Wickline | May 8, 2016 at 5:45 a.m. | Updated May 9, 2016 at 11:44 a.m.
Sen. Jimmy Hickey, R-Texarkana

In advance of a special legislative session on highway funding set to begin May 19, four Arkansas senators say they are working on legislation that would raise the state's gas and diesel taxes to pay for improving roads.

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Photo by STEVE KEESEE / Arkansas Democrat-Gazette
State Sen. Bill Sample, R-Hot Springs

Republican Sens. Bill Sample of Hot Springs, Jimmy Hickey of Texarkana, Ronald Caldwell of Wynne and Greg Standridge of Russellville make up half of the eight-member Senate Transportation, Technology and Legislative Affairs Committee. Sample is the committee chairman.

The gas tax is 21.5 cents per gallon, and the diesel tax is 22.5 cents per gallon. The state collected $442 million in motor fuel taxes in fiscal 2015, according to the Department of Finance and Administration.

"Nobody wants to hear about a tax, [but] we ... just feel like somebody needs to step up to the plate to correct the problem," Hickey said.

Standridge added, "I'm sure all of us will take some heat."

Nearly four months ago, Republican Gov. Asa Hutchinson proposed a highway funding plan that wouldn't raise taxes.

He proposed using some state surplus funds and reallocating other funds to increase the state's match for U.S. highway dollars that will become available this fall.

Senate President Pro Tempore Jonathan Dismang, R-Searcy, said he has encouraged senators who have highway-improvement ideas to start sharing them with other senators as a way to gauge whether there's support for them.

"If we get enough sponsors, we'll run the bill," Sample said.

Lawmakers generally want to find more state money for highway matching funds, but they have different ideas on how to do it, said Rep. Andy Davis, R-Little Rock, a member of the Governor's Working Group on Highway Funding.

Sample, Hickey, Caldwell and Standridge said they generally support the first year of Hutchinson's plan, which would raise $46.9 million in fiscal 2017, mostly by taking $40 million from the state's rainy-day fund. Legislative Council approval would be required to transfer that $40 million to the Highway and Transportation Department.

The rainy-day fund is intended to be used in emergencies and to pay for the governor's priorities that can't wait until the next legislative session.

"As far as year one, that's basically the only thing we can do," Hickey said.

He said the four senators propose increasing the 21.5-cent gas tax to 26.5 cents per gallon and the 22.5-cent diesel tax to 27.5 cents a gallon to raise about $100 million more for roads in fiscal 2018. He said they haven't decided when the tax increases would go into effect.

Also, their proposal would increase both fuel taxes by another 3 cents a gallon for fiscal 2019-21 to raise another $60 million a year.

Under their proposal, the tax increases would all expire after four years, Hickey said.

Also as part of their plan, lawmakers would consider putting before voters an initiated act calling for a highway-tax increase that would replace the gas and diesel tax increases before they expire, Hickey said.

The proposal would require that 80 percent of the increased state funds be spent on maintenance for highways and roads, he said.

The Highway Department would get about $110 million more in state funds out of the approximately $160 million raised through the 8-cents-per-gallon increase in the gas tax and the 8-cents-per-gallon increase in the diesel tax, Hickey said. Cities and counties would get the other roughly $50 million a year.

The legislation would enable the state to raise about $50 million more a year in matching funds for about $200 million in additional federal highway funds, and provide $60 million a year to put toward an overlay program on roadways that don't meet federal standards, he said.

Caldwell said many people in his legislative district favor gas and diesel tax increases as "a user fee" to pay for improving roadways. That would ensure that the state's growing number of tourists would help pay for the highway improvements, he said.

Hickey said the legislation would guarantee the state a revenue stream to obtain the additional federal dollars.

Sample, who also served on the Governor's Working Group on Highway Funding, said he doesn't favor counting on surplus money for highway matching funds.

He said the four senators' proposal would address the state's short-term and intermediate needs for highways. Then, "we want to work on a long-term plan to give us a way to maintain the roads for a long time. We haven't got to that point yet," Sample said.

Also, state Rep. Joe Jett, D-Success, said he and Sample have floated the idea of partially repealing the sales tax exemption on motor fuels and indexing the tax to inflation. Doing that would require a majority vote for approval. He said that option could be considered in this special session, a future special session or next year's regular legislative session. A 5-cent per gallon tax would raise about $100 million a year, he said.

To adopt the four senators' proposal would require support of three-fourths of lawmakers, he said.

Hickey said he has asked the Bureau of Legislative Research to look into what the vote requirement would be.

Jett, chairman of the House Revenue and Taxation Committee, said he appreciates Hutchinson's leadership in developing a short-term plan for raising more money for highways.

As for the four senators' proposal, he said that "I'm open-minded enough to do anything to fix this problem."

Hutchinson proposes phasing in a reallocation of sales taxes from new and used cars, up to $25 million a year over a five-year period; reallocating $2.7 million a year from the state's diesel tax; and no longer deducting $5.4 million a year for state central services from the state's half-percent sales tax that's devoted to highways.

In January, the governor projected that his plan would raise $64.1 million in fiscal 2018, $71.1 million in fiscal 2019, $76.1 million in fiscal 2020 and $81.1 million in fiscal 2021 for highways. He estimated that $48 million a year of the increased highway funds in fiscal 2018-21 would come from devoting 25 percent of the state's General Improvement Fund, which consists largely of surplus funds.

Hutchinson said Thursday that the proposed transfer of eventually up to $25 million a year in sales tax collections on new and used vehicle sales would be offset by about $20 million a year in increased investment returns from the state treasury. Hutchinson also said that after consulting with lawmakers, he has ruled out eliminating economic development incentives as part of his highway plan.

Davis said he supports the governor's plan.

"It meets the immediate needs. I don't know that we need to [address] longer-term funding needs in a special session," he said. "We can hash out longer-term plans in the regular session" in 2017.

Noting that voters already approved a temporary 10-year half-percentage-point sales tax increase for highways in a constitutional amendment in 2012, Davis said it would be "disingenuous" for lawmakers to approve a tax increase for highways now.

Senate Republican leader Jim Hendren of Sulphur Springs, who serves on the Senate Transportation, Technology and Legislative Affairs Committee, said he doesn't think it's time to raise the tax burden on Arkansans.

Although, he said he wouldn't be opposed to raising gas taxes as long as there is a corresponding reduction in the state's sales and individual income taxes.

Sen. Jake Files, R-Fort Smith -- who sits on the Senate transportation committee -- said he appreciates the four senators' proposal. "I don't know what the appetite is in the Legislature [for gas and diesel tax increases] without some sort of tax decrease that makes it revenue-neutral, or greater than revenue-neutral."

Caldwell noted that under a law enacted three years ago, the sales tax rate on groceries will be reduced from 1.5 percent to 0.125 percent when the state stops paying $70 million a year in desegregation funds to school districts in Pulaski County. He said the state could create a tax credit program if it uses general revenue for highways.

Sens. Bryan King, R-Green Forest, and Bobby Pierce, D-Sheridan, who also serve on the transportation committee, said they aren't familiar with the four senators' fuel tax proposal.

The governor "has made it clear where he stands on tax increases for highway funding," Hutchinson spokesman J.R. Davis said.

"Arkansans are currently seeing some financial relief at the pump, and the governor has no desire to take that away," he said in a written statement.

"Furthermore, in the current climate, it's hard to believe any highway plan that includes a tax increase will attract a consensus among legislators. Any plan that does will more than likely need to be presented to the voters for approval," he said.

Asked whether the governor plans to issue a call for the special session in a way that would preclude the introduction of any legislation to increase taxes, J.R. Davis said "development of the call is still in progress."

Under Article 6 of the state constitution, legislators can consider only the matters included in the governor's proclamation announcing the special session.

However, by a two-thirds vote of both chambers, they can remain in session for up to 15 days after taking action on the matters in the proclamation.

SundayMonday on 05/08/2016

Print Headline: Plan surfaces to raise taxes for highways; Proposal adds 5¢ per gallon of gas, diesel in ’18, 8¢ in ’19


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