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Arkansas senators say offsets a must for gas-tax rise

Cut to budget raises doubts by Michael R. Wickline, Brian Fanney | May 10, 2016 at 5:45 a.m.
Map showing Fuel excise taxes.

Any tax increase to increase state highway funding needs to be offset by a tax cut, but it's questionable whether the state's budget could afford such a cut, Senate leaders said Monday.

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Meanwhile, the House speaker declined to rule out a tax increase to increase state funding for highways and hedged on whether any increase needs to be tied to a corresponding tax cut to clear the House of Representatives.

Gov. Asa Hutchinson plans to call a special legislative session on highway funding to start May 19.

Asked about the prospects for legislation being drafted by four senators to increase the state's gas and diesel excise taxes, Senate President Pro Tempore Jonathan Dismang, R-Searcy, said Monday, "Number one, it would have to be offset with a reduction of a tax of some kind in order to be revenue neutral.

"However, that means it would be an impact to general revenue, and I am not just sure where we are right now if it is something the state can bear," Dismang said. "At this point, there is a quite a bit of uncertainty to do something like that, right now."

A Joint Budget Committee co-chairman, Sen. Larry Teague, D-Nashville, said he didn't think legislation to raise the gas and diesel tax "can happen now because I don't think you can raise it a tax without lowering [another tax]. I don't think you can pass it.

"I just don't think you can raise revenue in this environment, so if you raise something, you are going to [have to] lower something," he said. "I don't think we can afford to lower general revenue. I am not comfortable with the concept of lowering it."

In the fiscal session that adjourned Monday, the Legislature and Hutchinson enacted a Revenue Stabilization Act that would distribute $5.33 billion in general revenue in fiscal 2017 -- up from $5.19 billion the previous fiscal year -- with most of the increased revenue going to the state Department of Human Services and public schools. The nearly $101 million income tax cut enacted by the 2015 Legislature and Hutchinson is factored into the budget for fiscal 2017, which starts July 1.

Asked whether he has ruled out a tax increase for highways, House Speaker Jeremy Gillam, R-Judsonia, said, "I learned a long time ago -- my first term down here -- never say never, and so I'm going to be open to letting the process work itself out on this, letting the members have the chance to talk about their idea.

"When you're dealing with something as complex, as important, as our funding mechanisms here for our infrastructure, I think we need to actually have a good vigorous debate as to what the best path moving forward is," he said.

Gillam said voters in his district have been more concerned about oversight of the Arkansas Highway and Transportation Department than a potential tax increase.

In White County, repairs to U.S. 67/167 caused closures for about two years, and constituents called to see if something could be done, he said.

"[Lawmakers] say, 'No there's not really anything we can do,'" Gillam said. "[Constituents] say, 'Well, why not? There needs to be something that you can do.

"Before there's any new funding, the thing I hear more than anything else is a need for oversight and a more collaborative arrangement than what we've got now," he said. "We'll see how the members couple those things together moving forward."

Gilliam said long-term funding plans -- which he described as complementary to a proposal by Hutchinson-- could be decided during the coming special session or in future sessions.

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

The Republican governor proposed using some state surplus funds and reallocating other funds to increase the state's match for federal highway dollars that will become available this fall.

The House Revenue and Taxation Committee chairman, Rep. Joe Jett, D-Success, said Monday that he's still tinkering with a proposal that he and the Senate transportation committee chairman, Bill Sample, R-Hot Springs, floated to partially repeal the sales tax exemption on motor fuels and index the tax to inflation. The proposal would require a majority vote for approval, he said.

Jett declined to provide details about changes in the proposal -- changes aimed at boosting support for it.

Sample, who also is one of the four senators drafting legislation to raise the state's gas and diesel excise taxes, said he would "love" to provide a tax cut to offset the proposed increase.

But Sample said, "Our budget is so thin now I don't see that there can be an offset."

He said Monday that he and three other senators still are fine-tuning their draft legislation to raise the gas and diesel excise taxes. He said the proposal would impose a wholesale tax with the aim of requiring a majority vote to clear the Legislature. The three other senators working on the legislation are Ronald Caldwell, R-Wynne; Jimmy Hickey, R-Texarkana; and Greg Standridge, R-Russellville. They constitute half of the eight-member Senate Transportation, Technology and Legislative Affairs Committee.

The excise taxes were last raised in 1999. 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 state Department of Finance and Administration. Voters approved a 0.5 percent sales taxes for highways in 2012; it expires in 2022.

Sample, Hickey, Caldwell and Standridge have 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 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.

Hickey has said the four senators propose increasing the gas tax to 26.5 cents per gallon and the diesel tax to 27.5 cents a gallon to raise about $100 million more for roads in fiscal 2018. Then, for fiscal 2019-2021, their proposal would increase both fuel taxes by an additional 3 cents a gallon to raise $60 million more a year. Under their proposal, the increases would expire after four years, and lawmakers would consider putting before voters an initiated act calling for a replacement highway-tax increase.

In contrast, 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; 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; and tapping part of future state surpluses.

In January, the governor projected 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. He estimated that $48 million a year of the increased funds in fiscal 2018-21 would come from tapping 25 percent of the General Improvement Fund, which largely is surplus funds.

Hutchinson said last week 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.

Nine of the Senate's 35 members have signed the Washington, D.C.-based Americans for Tax Reform's pledge to oppose raising taxes, according to its website.

Those senators are Jane English, R-North Little Rock; Scott Flippo, R-Mountain Home; Missy Irvin, R-Mountain View; Blake Johnson, R-Corning; Jason Rapert, R-Bigelow; David Sanders, R-Little Rock; Gary Stubblefield, R-Branch; Terry Rice, R-Waldron; and Jon Woods, R-Springdale.

"While [Americans for Tax Reform] opposes any tax increase as a matter of principle, the Pledge does not require opposition to revenue neutral reform," according to Americans for Tax Reform's website.

Fourteen of the House's 100 members also signed the pledge: Bob Ballinger, R-Hindsville; Mary Bentley, R-Perryville; Charlie Collins, R-Fayetteville; Donnie Copeland, R-North Little Rock; Les Eaves, R-Searcy; Michelle Gray, R-Melbourne; Justin Harris, R-West Fork; Mike Holcomb, D-Pine Bluff; Lane Jean, R-Magnolia; David Meeks, R-Conway; Josh Miller, R-Heber Springs; Reginald Murdoch, D-Marianna; Rebecca Petty, R-Rogers; and David Wallace, R-Leachville.

Five years ago, Murdoch said he would consider all bills on the basis of their individual merits, after he acknowledged signing the pledge.

Asked whether Hutchinson has signed a pledge not to raise taxes, Hutchinson spokesman J.R. Davis said Monday, "The governor has not signed any such petition as governor nor as a candidate for governor."

A Section on 05/10/2016

Print Headline: Senators say offsets a must for gas-tax rise


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