Tuesday, June 22, 2010

TOP STORY>>Road panel looks to funding

Leader senior staff writer

Desperately needed money to fix and build state highways could come in the form of a half-cent sales-tax increase or from diverting existing sales-tax revenues on cars, trucks and auto parts from the state’s general fund to its highway fund.
Or from both.

Those are the recommendations of state highway commissioner Madison Murphy, who is one of 21 members of the General Assembly’s Blue Ribbon Committee on Highway Finance, but so far, at least, they have not been adopted as the committee’s recommendations.

Murphy said his recommendations are just that—his, and not those of the state Highway Commission or the Blue Ribbon Committee.

The committee met last Wednesday and is scheduled to meet today in advance of its original July 1 deadline for recommendations.

Sen. John Paul Capps, D-Searcy, the committee chairman, says it’s still collecting information and would make an interim report to the General Assembly July 1, but he doesn’t expect to make final recommendations until December.

That could be due to election-year political realities. If the committee recommended a 10-year, half-penny, sales-tax increase July 1, every candidate running for the General Assembly in November could expect to be asked how he or she would vote on the increase. That would create a difficult environment in which to pass a new tax.

It’s axiomatic in Arkansas that you don’t get elected by promising to raise taxes. And as for the transfer of transportation tax revenues from the general fund to a highway fund, Gov. Mike Beebe is on the record as opposing it.

Here’s the problem:

The state Highway and Trans-portation Department projects its needs over the next decade at $23 billion, with anticipated revenues of only $4.1 billion. That means the department expects to have about one of every six dollars it needs.

Highway Department Director Dan Flowers has said the state needs an additional $200 million a year just to maintain current conditions.

The two main sources of highway revenue in Arkansas are the per-gallon tax on motor fuel and money sent to the state from the Federal Highway Trust Fund. As fuel prices rise, the number of gallons—and thus the tax revenues—decrease.

Revenues are static or diminishing, even as the need increases, according to Metroplan executive director Jim McKenzie. He is chairman of the committee’s new revenue subcommittee.

McKenzie said Arkansans need to realize no one, including the federal government, is going to rescue the state’s highways.

Arkansans will have to pay for new roads and maintenance or there would be no new roads and the existing roads and highways would continue to deteriorate.

Capps said this week that costs are going up “unbelievably” to build and maintain highways.

While it’s far from certain that the committee will recommend the half-penny sales-tax increase, which could be written to expire at the end of 10 years, it is projected that such a tax would generate about $157 million a year to state highways, with another $33.6 million a year split between counties and cities.

That’s part one of commissioner Murphy’s recommendation.

Part two would gradually transfer existing sales taxes on new and used vehicles, batteries, auto parts and other transportation-related sales to the state’s highway fund. It would be phased in over 10 years, increasing from 10 percent of the total the first year until it reached 100 percent of those tax revenues in the 10th year.

That would reduce the impact on the state general fund and allow for natural growth to offset the absolute loss to the general fund, according to Capps.

Over the course of the 10-year phase-in, the highway fund would receive about $2 billion, and by the end of the 10th year, when the new sales tax expired, the highways would be receiving $300 million a year in additional revenue from the transportation-related taxes.

If a new half-penny tax were approved, the General Assembly would want to use those revenues to pay off a much larger bond issue so the state could embark quickly on a building and maintenance program. It won’t be able to undertake very ambitious projects.

While the General Assembly could increase the sales tax, it would require voters to approve bond sales to pay for the construction. McKenzie said the tax could be structured to take effect only if and when the bond-issue is approved.

As for transferring revenues from the general fund to a dedicated highway fund, the General Assembly could do that too, but it might need sufficient votes to override a veto from the governor.