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$958M in taxes, fees supports upkeep of Arkansas roads

by Noel Oman | February 12, 2019 at 4:30 a.m.

Arkansans pay nearly $1 billion every year in state taxes and fees that they are told will help improve or maintain 102,000 miles of state highways, county roads and city streets.

The figure amounted to $958 million in the fiscal year that ended June 30, or the equivalent of $318 for each of the state's 3,013,825 residents, according to an analysis of state revenue figures by the Arkansas Democrat-Gazette.

Residents pay whenever they fill up at the pump, register vehicles or -- since 2013, when a half-percent statewide sales tax took effect to help finance a $1.8 billion state road improvement program -- make non-grocery purchases. Voters approved the sales tax in 2012, and it is scheduled to expire in 2023.

The $318 figure, which works out to $26.50 a month -- less than half the cost of the average monthly cellphone bill for one person -- is driven in part by Arkansas' relatively small population, its relatively large road system and the $1.8 billion road improvement program.

As an illustration, Arkansas' state-maintained road system, about 16,000 miles, exceeds state-maintained systems in Illinois, New York and California, which have populations four times, six times and 13 times Arkansas' population, respectively, according to statistics maintained by the Federal Highway Administration and U.S. census data.

Gov. Asa Hutchinson on Monday announced a new highway funding initiative that he wants the Legislature to enact will raise nearly $415 million annually for state highways, county roads and city streets. The centerpiece is asking voters to make permanent the half-percent statewide sales tax. It would account for $293.7 million that the governor is asking voters to continue paying.

If the plan were enacted, then the additional road-user revenue would be from fuel taxes, including the equivalent of a 3-cent-a-gallon increase in the gasoline tax. Owners of electric and hybrid vehicles would pay higher registration fees to offset what they don't pay in gasoline taxes.

Not all of the money under current road spending goes to the Arkansas Department of Transportation. As is the case in the plan that Hutchinson announced Monday, cities and counties each split 30 cents of every dollar dedicated to Arkansas roads.

In fiscal 2018, the lion's share of the money went to the Transportation Department. It took in $626,161,721 of the fiscal 2018 total, or about 63 percent, according to an analysis of agency and state Department of Finance and Administration figures by the Arkansas Democrat-Gazette.

The department is tasked with maintaining about 16,000 miles of state and U.S. highways and interstates in Arkansas. They account for just more than 15 percent of all public roads in the state but carry 75 percent of the traffic, or 27 billion vehicle miles in 2017, according to the latest agency figures available.

The county road system totals about 50,000 miles, with city streets accounting for the balance of 102,000 miles of public thoroughfares in Arkansas.

Much of the rest of the nearly $1 billion Arkansans paid in fiscal 2018 -- about $300 million, or slightly more than 30 percent -- was used to take care of county roads and city streets, with counties and cities evenly dividing the amount. Typically, the money then is apportioned to counties and cities based on their populations.

And what of the remaining $32 million? About $20 million came off the top to help fund the state's constitutional and fiscal agencies, which is the way those entities are funded. Another $7.5 million went to a fuel storage tank fund maintained by the Arkansas Department of Environmental Quality; the Arkansas State Police received about $2.5 million; and $2 million was set aside for motor carrier education. All of these are annual disbursements.


Without any changes, in 2023, the nearly $1 billion haul is expected to fall nearly 30 percent. That is when the half-percent sales tax is scheduled to end unless the Legislature enacts the governor's highway funding plan and voters approve making the sales-tax increase permanent. The amendment to the Arkansas Constitution that voters approved in 2012 authorized the tax for 10 years. Collection began in 2013. The half-percent doesn't apply to grocery purchases.

In fiscal 2018, the tax raised $267.8 million. Most of the proceeds from the tax -- $187.5 million, or 70 percent -- was dedicated to the Transportation Department's $1.8 billion Connecting Arkansas Program, which focuses on improvements over 10 years on three dozen regionally significant projects covering 186 miles.

The work includes the proposed $631.7 million project to improve the 6.7-mile Interstate 30 corridor through downtown Little Rock and North Little Rock, which is scheduled to begin early next year and stands as the most expensive project the department has undertaken.

The money for the project includes not only sales-tax revenue but also federal money set aside for bridge replacement, as well as the state match and other monies.

The cities and counties have been splitting about $80 million a year in revenue from the sales tax.


Another initiative -- a $1.5 billion interstate repair program, funded with the help of a bond issue that voters approved in 2011 -- will soon be winding down. The bond issue is being repaid with proceeds from federal money dedicated to interstate maintenance and from 4 cents of the state's 22.5-cent-a-gallon diesel tax.

By the time the interstate repair program ends, 79 projects totaling nearly 500 miles will have been completed.

The bonds issued for that program are being paid back in large part with federal money the state receives to maintain its share of the interstate system.

Bonds also were issued in the Connecting Arkansas Program. While state highway officials have appreciated that using bonds made the money immediately available, interest costs in both programs total $338.8 million, or almost a quarter of what will be spent, and have eroded the agency's buying power.


State highway officials and others say ramped-up spending primarily from the Connecting Arkansas Program and the interstate repair program have masked a long-term funding shortage for road maintenance and construction.

Take away the half-percent sales-tax revenue, and Arkansans paid about $690.7 million in regular state taxes and fees, or the equivalent of about $229 by each Arkansas resident, in fiscal 2018. The Transportation Department ended up with $438.7 million, or 63.5 percent of the total, by one measure of the agency's calculations, with much of the rest divided evenly between cities and counties.

That total doesn't include $52 million the Legislature gathered from state budget surpluses and other non-road-user revenue sources last year to help the agency match the federal money it receives.

Federal funding available in federal fiscal 2018 tallied $543.5 million. That money is obligated by federal fiscal year, which runs from Oct. 1 to Sept. 30. It is expended over the life of the projects for which the money is obligated, which can be anywhere from one to three years or more. Of every dollar spent on a project eligible for federal aid, the federal government provides 80 cents with the state covering the balance.

A separate revenue analysis from the department showed the agency received a total of $474.1 million in state funds in state fiscal 2018, which likely included the nonhighway revenue the Legislature steered toward the department. Three-fourths of that total pays ongoing expenses for the agency, which has 3,700 employees, including about 3,000 spread over 10 maintenance districts across the state.

The expenses include $221.2 million for maintenance, $25.3 million for administration, $24 million for operations and $18 million to service the debt for the interstate maintenance program.

Another $41.7 million, which the Federal Highway Administration requires as a separate item, comprises the costs the department has that are associated with overseeing construction contracts.

"These are salaries and expenses that are not charged to a construction contract," said Randy Ort, a top department executive.

It left about $143.9 million in money available for actual construction, which is primarily used to match the federal dollars the state receives.


Regular road-user taxes and fees -- the bread-and-butter revenue on which the department relies -- haven't been raised in at least 20 years. Vehicle registration fees haven't been raised in 40 years.

Inflation, meanwhile, has eroded the spending power of the revenue those taxes and fees generate. In 1995, $10 million could pay to put down an asphalt overlay on 200 miles of highways, an interim measure to extend pavement life before total reconstruction is required. Today, that $10 million overlays 54 miles.

The main source of regular revenue is the tax on gasoline, now at 21.5 cents per gallon, which is on top of the 18.4 cents a gallon the federal government levies. The Legislature last raised the state gasoline tax in 1999. It was a 3-cent increase phased in over three years.

It raised a total of $312.9 million in fiscal 2018, according to the state Department of Finance and Administration. Cities and counties netted $85 million of that total.

The department netted $203 million after the 2012 constitutional amendment diverted a penny each of the gasoline tax to cities and counties.

Two pennies also are diverted to counties and cities from the diesel tax, which also was last raised in 1999, to 22.5 cents a gallon. The increase was phased in over two years. The federal excise tax is 22.4 cents a gallon.

The state diesel tax brought in $147.70 million in fiscal 2018 but netted the department $90.5 million in 2018, according to the Department of Finance and Administration. Of that $90.5 million, about $17 million -- the equivalent of 4 cents -- goes toward retiring the debt from the interstate repair program.

Vehicle registration fees brought in $141.2 million, according to the Transportation Department. Cities and counties each received $18.9 million, according to the finance department.

The vehicle registration fees were last raised in 1979 under then-Gov. Bill Clinton. The old fees ranged from $12 to $26, depending on vehicle weight. Act 440 of 1979 mandated fees ranging from $18 to $36.

Raising the fees was among the factors cited in Clinton losing the governorship to Frank White in 1980. The 1981 Legislature lowered the fees but not to the previous level. Under Act 63 of 1981, the new fees ranged from $17 to $30.

A Section on 02/12/2019

Print Headline: $958M in taxes, fees supports upkeep of Arkansas roads


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