A Senate committee on Wednesday advanced legislation that would raise about $95 million a year for the state Department of Transportation to use for highways.
The bill would levy a sales tax on wholesale gasoline and diesel fuel, increase registration fees on electric and hybrid vehicles and transfer at least $35 million a year in casino revenue and other state funds to the agency.
In a voice vote with Sen. Trent Garner, R-El Dorado, dissenting, the eight-member Senate Revenue and Taxation Committee recommended Senate approval of Senate Bill 336 by Terry Rice, R-Waldron. Afterward, committee Chairman Jonathan Dismang, R-Searcy, said he also voted against the measure.
Rice said he plans to ask the Senate to approve his bill today. Rice's bill has 21 co-sponsors in the 35-member Senate. It requires a majority -- 18 votes -- for approval.
"I am encouraged by the endorsement of the Senate Revenue and Tax Committee for the highway funding legislation," Gov. Asa Hutchinson said.
[RELATED: Complete Democrat-Gazette coverage of the Arkansas Legislature]
"The fact that the bill cleared the committee shows the broad-based support the plan has generated, and I look forward to hopeful passage in the full Senate," the Republican governor said in a written statement.
Rice told the committee that his bill is the first of two parts of Hutchinson's highway investment program. Hutchinson's plan would eventually raise $300 million a year more for the Transportation Department.
Garner said he opposes raising the motor fuels tax. Dismang said he was concerned about what would be the sources of other funds.
Sen. Jason Rapert, R-Conway, a committee member, said he favors the bill because the Legislature has enacted about $500 million in tax cuts since he began serving in 2011, "but I also know that I want to have good roads.
"I want to have people have an opportunity to have a good road to put into a business somewhere, for people to traverse the state and enjoy the state," he said. "Though I would love to always cut taxes, I do know if you are going to have things, you got to pay for them and I feel this is a good investment for the future of the state and a good investment for the people."
Officials for the Arkansas State Chamber of Commerce and Arkansas Trucking Association told the Senate panel they support the bill.
But several other people testified against increasing registration fees for electric and hybrid vehicles.
SB336 would increase registration fees for each electric vehicle by $200 a year and for hybrid vehicles by $100 a year to raise a projected $1.9 million in fiscal 2021 for the Department of Transportation. The fee increases would be effective Oct. 1. Base vehicle registration fees are $17, $25 and $30, depending on weight class, according to the finance department.
MOTOR-FUELS TAX
SB336 would create a new wholesale motor fuels sales tax. The wholesale tax would start at 3 cents a gallon on gasoline, already under a 21.5-cent-a-gallon excise tax, for a total 24.5 cents. The wholesale tax on diesel would start at 6 cents a gallon, on top of the 22.5-cent excise tax, for a total 28.5 cents. The increases would be effective Oct. 1.
Under the bill, the wholesale sales tax rates would be recalculated annually by the state Department of Finance and Administration by Aug. 1 each year, based on a formula using the average wholesale price of fuels for the previous calendar year.
Future increases would be limited to one-tenth of cent each year, meaning the maximum increase would be 1 cent over a 10-year period under SB336, Rice said.
The motor fuels wholesale sales tax is projected by the finance department to raise $58.9 million for the Transportation Department in fiscal 2021 -- the first full fiscal year of the new tax -- and raise $12.6 million more each for cities and counties.
CASINO REVENUE
The legislation also would guarantee at least $35 million a year for the Transportation Department from casino tax revenue, the state's restricted reserve fund or other funds designated by the governor, Rice said.
Revenue received from casino gambling tax receipts and deposited into the general revenue reserve account that exceed $31.2 million per fiscal year would be transferred to the Transportation Department on the last business day of each fiscal year.
Under its latest projection, the finance department forecasts the state will take in $31.2 million in casino revenue in fiscal 2020, which starts July 1, and that the figure will grow to $52 million in fiscal 2021, and gradually increase to $74.8 million by fiscal 2028.
The finance department projects casino tax revenue would provide $20.8 million to the Transportation Department in fiscal 2021, and the funding would eventually grow to $35 million by fiscal 2025 and ultimately $43.2 million in fiscal 2028.
Amendment 100 authorizes the Arkansas Racing Commission to enable Oaklawn Racing and Gaming in Hot Springs and Southland Gaming and Racing in West Memphis to expand from offering electronic games of skill to operating as full-fledged casinos. The amendment also authorizes casinos in Jefferson and Pope counties, with the approval of local officials. Because of local opposition, a casino in Pope County seems unlikely.
During the committee meeting, Dismang asked what other funds the governor would look at tapping to make sure the Transportation Department gets $35 million a year.
Paul Gehring, an assistant revenue commissioner for the state, said, "The bill was drafted to provide more discretion without designating funds."
Dismang said he wants a list of the funds that the governor could tap under SB311.
In a written statement, Hutchinson said, "In terms of the $35 million annual commitment, Senator Dismang's question is totally appropriate.
"The first year commitment comes on July 1, 2020. We have already set aside more than enough money in our budget to meet this obligation. It is expected that the casinos will be in operation for the 2nd year, and I expect casino tax revenue to quickly relieve the burden on general revenue," the governor said.
"The anticipated revenue from casinos is based upon 3 in operation and not 4. In terms of the 'what if' question of casino revenue being insufficient to meet this annual commitment, the answer is the same as any budget question. We have to support conservative budgets that allow ample room for unanticipated changes in the economy. I have no doubt that we will continue to manage the budget cautiously to meet our obligations," Hutchinson said.
After the meeting, Dismang said he voted against the bill "because I do have concerns with the general revenue transfer."
"I believe that the [Transportation Department] is independent, and I think providing them general revenues especially off the top is not something I am [in] favor of," he said.
Under the governor's short-term highway plan enacted by the Legislature in 2016, the state relies largely on $20 million a year from the state's treasury interest earnings and surplus general revenue to raise about $50 million a year. That money is used to match about $200 million a year in federal highway funds.
Randy Zook, president and chief executive officer for the Arkansas State Chamber of Commerce, told the Senate committee that his group supports SB336.
"We think it's a solid well-designed combination of elements that result in a reasonable approach to a very difficult problem that you all have been mulling over and working on for years, mainly the maintenance and expansion of our highways system to serve the needs of a modern up and coming economy," he said.
"There are very few things that can be more impactful in terms of improving the business climate and the business conditions in Arkansas besides this bill and adequate funding of highways," Zook said. "It's just a basic need for our economy."
"We will be enthusiastic supporters and involved in any campaign to pass the extension of the half-cent sales tax [and] two-thirds of the $300 million that comes from that source," he said.
The second part of Hutchinson's plan to eventually raise $300 million a year for the Department of Transportation is for lawmakers to refer to voters in 2020 a proposed constitutional amendment to make permanent the half-percent sales tax for highways. That tax was approved by voters in 2012 for a 10-year period, starting in 2013. That eventually would raise about $205 million a year for the state and $44 million more for cities and counties.
VEHICLE FEES
Rice said fees on electric and hybrid vehicles would increase because "these vehicles are causing wear and tire on the roads, too."
He said it's a fairness issue to him and he doesn't believe the increased fees will be a deterrent to buying those vehicles.
Glen Hooks, director of the Sierra Club's Arkansas chapter, said his group is concerned the increased fees are excessive and will discourage people from buying electric and hybrid cars in Arkansas.
"Adding a $200 annual electric car fee will make us right at the top of the nation in terms of registration fees for electric cars, so this is not some middle ground," he said. "I will submit if we are going to charge owners anything it should be a number that is based on evidence and something that is arrived at thoughtfully."
Regarding owners of electric and hybrid vehicles, civic activist Barry Haas told lawmakers, "Don't treat us as cash cows, treat us fairly." He also suggested studying the fees between legislative sessions, "so you don't kill the goose that lays the golden egg."
He said highway funding hasn't kept up with the increased cost of roads because the Legislature last passed a fuel-tax increase in 1999 and last changed registration fees in 1981.
"We are not using you as a cash cow," Garner said. "We are making it fair for the system."
A Section on 02/21/2019