Friday, July 09, 2010

TOP STORY > >Road panel: It’s going to take money

Leader senior staff writer

The Blue Ribbon Highway Committee reported its progress July 1 to the state General Assembly, deferring recommendations until December. Many expect the committee to recommend either a temporary sales-tax increase or transfer transportation-related sales tax revenues from the state’s general fund to its highway fund, or both, but no one wants to discuss tax increases in an election year.

The committee did detail the scope of the problem and 18 possible options to help raise money to address the problem—stagnant revenues for highway maintenance and construction but dramatically increasing needs and cost.

The state Highway and Trans-portation Department has identified about $23 billion in needs over the next decade, but only about $4.1 billion in anticipated revenues.

The current formula of adequate public-roadway funding in Arkansas has been relatively successful because vehicle miles traveled has continually increased, motor fuel has been relatively inexpensive, fuel efficiency has not dramatically improved and highway revenues have kept close to the highway-construction cost index.

But those have changed in the 21st Century, changes likely to be permanent, so highway maintenance and construction will not be sustainable, according to the report.

Fuel-tax revenues are based on the number of gallons, not cost. So higher fuel efficiency and higher fuel costs hold down the number of gallons pumped and thus the amount of revenues derived from fuel taxes.

Meanwhile, the cost of highway construction has escalated.

That means less money generated at a time when a dollar builds or fixes less highway.

General revenues in Arkansas have escalated over time, but the number of gallons sold and thus the amount of tax revenue generated for the highway trust fund has remained flat while the construction-cost index roughly doubled between 2004 and 2008.

“The task of the committee was to formulate an adequate road-funding program,” says state Sen. John Paul Capps, D-Searcy.

“That’s all we’re charged with. Someone else will have to take it from there.”

“We’re going to really be in trouble in this state if we continue … without raising money,” Capps said. “Money is dwindling, costs are increasing dramatically. You’ve got to get some elasticity—to develop a system of funding where you won’t have to go to the people every two years (for) two more cents on the gas tax.

“We’re going to get the figures on all the options, including a report in late summer on how they allocate the damage that trucks do,” he said. “The next committee meeting will be probably in 45 days. The report will be ready by December 1. (The legislators) should have 30 to 45 days before the session begins.”

The committee will recommend a restructured funding mechanism, according to Capps, but “The legislature and the governor will have to run with it.”

Capps said the state was in an economic bind and that he doesn’t like to raise taxes, but “It’s about the only way in Arkansas to get some money. It’s not fair, but it’s the only place to get a sizable amount of money.”

Two leading recommendations are proposals by highway commissioner Madison Murphy, who is a member of the blue-ribbon Committee.

One of his proposals would raise the state sales tax by 1/2 cent per dollar, tied to a bond issue so the state could get some money quick and start building what it needs over the next five or six years, before construction costs rise too much.

That proposal would include a sunset clause, discontinuing the tax after a set period of time—perhaps 10 years.

The halfpenny sales tax increase, which could be written to expire at the end of 10 years, could generate about $157 million a year to state highways, with another $33.6 million a year split between counties and cities.

That would be mostly for new construction, Capps suggested, “And we’re still $200 million a year short to stay even on our maintenance.”

Murphy also suggested shifting revenues from taxes on transportation-related sales from general to highway funds. 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.

The commission has identified four objectives:

To protect from further erosion the existing tax base of highway, road, street and bridge funding.

To restore construction and maintenance purchasing power

To preserve, maintain and enhance the safety of existing state and local systems and

To add new capacity to state and local systems.

There is no debate that the existing funding system is incapable of providing the necessary revenues to maintain and create an “effective transportation infrastructure going forward,” according to the report.

What is subject to debate is the question of which of the 18-option “menu of possibilities” identified could sustain in coming decades “equitable and adequate funding.”

The committee and its two subcommittees have studied and will continue to study the effects of those options before making their recommendation.

Those options include, but are not limited to, raising vehicle license and registration fees, indexing motor-fuel excise taxes to construction costs; reviewing GARVEE bonds, authorizing a five-, 10- or 15-year bonding authority, changing user fees to reflect the amount of highway-related costs attributable to different types of vehicles.

Issue highway-construction bonds to be retired by a time-limited half-cent general sales tax.

Levy a new excise tax on wholesale price of motor fuels, phased in over time.

Removal of current sales tax exemption on motor fuels.

Levy special sales tax on top of existing sales tax on new and used vehicles, with new revenues dedicated to the highway fund.

Transfer from general revenues to highway funds the existing road-user-related sales taxes—new and used vehicles, auto repair parts and services, tires and batteries—phased in over as long as a decade.

Vehicle miles traveled based on fuel economy.

Regional taxing authorities and local-option revenues.

Review laws relative to legislative referrals of financing to the general electorate by methods including an initiated act.

While general revenues in Arkansas have risen from $500 million in 1976 to nearly $6 billion in 2009, highway revenues during the same 33-year period barely increased from roughly $100 million to about $300 million.

In 1977, a $10 million overlay program resurfaced 400 miles of highway, but by 1991, only 167 miles and last year only 47 miles. That means each dollar last year resurfaced only 12 percent the number of miles a dollar resurfaced in 1977.

By the same token, in 1977, $100 million widening program improved 143 miles, but only 37 miles in 1991 and 13 miles last year.

“…It became obvious that over 70 percent of the financing methodology was systemically flawed,” according to the report.

Fuel consumption, fuel-tax revenue and total highway revenues decreased from 2008 to 2009 and if nothing changes, the decline is likely to be exacerbated by federally mandated fuel-efficiency standards, which require an average consumption in passenger cars of 35 miles per gallon by 2016.

In rural states like Arkansas, in which long distances must be driven by much of the population for work, shopping and commerce, there are relatively few taxpayers among whom to spread the burden, and they are really pinched.

In Arkansas, the state system includes 16,433 miles of highways—the 12th largest state system in the U.S. with 66,811 miles of county roads—10th most in the U.S., but carrying only 9 percent of the state’s traffic.

So a population ranked 32nd in the nation must pay for the upkeep of highway and roadway systems averaging the 11th largest in the nation.