A bill that would raise an additional $240 million annually for road construction was aimed at beginning the discussion on a long-term solution for highway funding, its sponsor said Monday.
State Rep. Dan Douglas, R-Bentonville, called House Bill 1260 a "hybrid" of two separate bills he filed in past legislative sessions.
"It's called compromise, a word we never use down here," he said in an interview. The bill was filed Monday, the start of the third week of the regular legislative session, and assigned to the House Revenue and Taxation Committee.
GENERAL REVENUE
One element would transfer state general revenue to road construction. Regular road construction accounts use state non-general revenue generated largely from motor fuel taxes and vehicle registration fees, which raises about $438 million annually for state highways.
HB1260 would cap the revenue transfer at $120 million annually. A bill Douglas filed in 2015 contained no cap.
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The latest version of the bill wouldn't begin to transfer general revenue until sales and use tax collections hit $2.5 billion annually and then only gradually, in increments of $30 million more a year over four years until the cap was reached.
In the fiscal year that ended June 30, 2018, the state collected $2.337 billion in sales and use taxes, according to the Arkansas Department of Finance and Administration. In the fiscal year ending June 30, the state is projected to collect $2.487 billion, the department said.
WHOLESALE TAX
The other element of the bill would add a 3.5 percent sales tax on the wholesale price of fuel, which would be the equivalent of adding 5 cents or 6 cents to a gallon of fuel and raise another $120 million a year, according to Douglas.
In 2017, Douglas' version of the bill would have added a 6.5 percent sales tax on the wholesale price of fuel.
Under HB1260, 70 percent of the revenue raised, or $168 million, would go to the Arkansas Department of Transportation under the state's traditional formula of distributing funds for road building. The remaining $82 million would be split evenly between cities and counties, also a tradition.
"I'm putting something out here," Douglas said. "We're going to get the conversation started. We're not going to wait until the end of the session to talk highways. We're going to talk it now and get something done for highways."
GOVERNOR SAYS NO
But the bill is a non-starter for Gov. Asa Hutchinson, who wants to have some kind of highway funding plan developed this year but he opposes revenue transfers for highways. The governor has said he prefers any proposal to be referred to a popular vote.
"While I appreciate Rep. Douglas' focus on finding a long term highway funding plan, I cannot support it," Hutchinson said through a spokesman. "Pulling additional money from general revenue is not the answer.
"We are already devoting $50 million a year from state revenue to the Highway Department. Doing more will only create new problems elsewhere and will negatively impact education, prisons, public safety, and more."
The governor was referring to a 2016 initiative the Legislature enacted in a special session that directed some general revenue surpluses and other transfers to the Transportation Department, which has used it to match increased federal funding.
MORE CONCERNS
At least one Democratic lawmaker expressed the same concerns with Douglas' bill as the Republican governor.
"General revenue goes to schools, goes to important health priorities, and we have not traditionally diverted general revenue to highways in our state, for good reason I believe," said state Rep. Andrew Collins, D-Little Rock. "So, I'll be looking for a solution that does not tap into general revenue. In its current form this bill does tap into general revenue and would not be acceptable to me."
Transferring a limited amount of general revenue now leaves open the possibility of transferring more in the future, he said.
"You say that there's only going to be a little general revenue off the top now, but next session, once the door has been opened, it's very possible that some future Legislature could go back in for more," Collins said.
He is open to adding a sales tax on the wholesale price of fuel.
"I think in concept [highway funding is] going to have to include some sort of tax obviously on fuel," Collins said. "I think we're anticipating that's going to be a part of the final result.
LACKING CONSENSUS
House Speaker Matthew Shepherd, R-El Dorado, said he hasn't read Douglas' bill, but he was open to at least taking a look at revenue transfers as a way to address highway funding. "I'm generally more reluctant" to look at new revenue sources such as revenue transfers, he said.
"But, as I've also said, I think everything has to be on the table," Shepherd added. "I think in order for us to really find solutions, we have to go through the exercise of looking at each proposal on its own merits.
"I think one of the challenges we've had in the past is sometimes we've taken things off the table and we've kind of limited our options and then at the end of the day there's limited opportunity to do something that puts that issue to bed for the foreseeable future."
Shepherd said the Legislature is lacking consensus for now.
"Ultimately we would like to find consensus where everybody can rally around one bill," he said. "We're not to that point yet. So, until we get to that point, I would expect that there's going to be differing ideas and competing ideas that are going to be out there."
The Transportation Department has been pushing for new revenue for several years now to augment its regular highway maintenance and road construction program, which is based mainly on the motor fuels taxes, vehicle registration fees and a portion of the proceeds of the natural gas several tax.
In fiscal 2019, which ends June 30, the department projects it will have received $509 million from those sources. Of that, $355.7 million will be used to fund its operations, leaving $153.3 million for construction, according to its latest State Transportation Improvement Plan.
The department is scheduled to receive another $501.7 million from its share of federal transportation money.
The agency has two separate initiatives totaling more than $3 billion over 10 years.
One is the $1.5 billion Interstate Rehabilitation Program, the result of a 2011 popular vote that authorized the agency to issue up to $575 million in bonds, the proceeds of which are combined with federal and state transportation money to improve 500 miles of interstates.
The other is the $1.8 billion Connecting Arkansas Program, which targets regionally significant projects totaling about 200 miles. It is funded in part by an a half-percent increase in the statewide sales tax voters approved in 2012. It is in place for 10 years and expires in 2023.
When those programs end, the department will have its regular state-federal highway program, which is devoted more and more to maintaining what the agency can on the state's 16,000-mile highway system and leaving little for capital projects.
Department officials say fuel taxes remain flat because even though more miles are traveled, vehicles are more fuel efficient.
Construction inflation has eroded its spending power. In 1995, $10 million could pay to "overlay" 200 miles of highways, which extends the life of the pavement before total reconstruction is required. Today, that $10 million overlays 54 miles.
A Section on 01/29/2019