The state Highway and Transportation Department picked a fine time to get into a financial bind, in the dismal train of the worst economic decline in 70 years, but then hasn’t it nearly always been in a financial bind?
Over the next decade, the agency says, it must have $19.1 billion to maintain the 15,000 miles of state highways and meet the growing traffic needs for wider and better highways and bridges, but it can expect to get only $4.1 billion from its existing tax sources.
You can dismiss that $19.1 billion estimate as pie in the sky. It’s not as desperate as that. The Highway Commission for half a century has produced bloated estimates of what it will take to maintain and build good roads and bridges. It would like to build a super highway system. We also would like to have a super public school system, a first-rate system of higher education, top-drawer health insurance and excellent corrections, but people have concluded that we can’t afford any of those things.
But the highway program is indeed in a jam, and we are not so poor that we cannot take a few steps that will keep the pace of improvements. Automobile fuel economies have made the current excise tax on motor fuels a dwindling source of revenue, and rising oil and construction prices send roadbuilding costs perpetually in the opposition direction. So the Blue Ribbon Committee on Highway Finance, which was created by the legislature in 2007, has produced a package of financing proposals, just in time to arrive dead on arrival at the 88th General Assembly.
We may be too pessimistic, but three of the committee’s four major proposals require tax increases, and a high quotient of the 135 lawmakers will arrive at the Capitol in January firmly committed to vote forever against any tax of any size for any purpose. It is a pledge that Republicans nationwide made, a key part of their strategy to take over Congress, statehouses and legislatures. It is hard to imagine a significant tax measure making it through the legislature in 2011, even if Gov. Beebe puts his magic hands on it.
If the economy picks up steam next year—there are modestly encouraging signs—perhaps something might be done later in the biennium, a special legislative session in the fall or winter that could consider road taxes in a more hospitable climate.
A couple of the committee’s ideas hold more promise than the others. One is surely dead, the transfer of a sizable part of the state’s sales taxes from the general fund to highways. The Highway Department has wanted for 40 years to reap the sales-tax revenues on vehicles and automotive supplies and services, which support the schools and other general-revenue programs. Robbing education to pay for highways is logically and politically impermissible. Beebe says it will not happen on his watch, and it shouldn’t.
The committee suggests indexing motor-fuel taxes, currently 21.5 cents a gallon for gasoline and 22.5 cents for diesel, to inflation in the construction industry. The tax would go up every year automatically as petroleum prices and other highway-building costs rose. That is constitutionally dubious—the legislature cannot delegate its taxing power to any other entity—and taxpayers will not stand for an open-ended tax. They should forget that option.
The committee recommends that the legislature refer a highway bond issue to the voters in 2012.
The bonds would be backed by a 10-year sales tax of one-half of one percent. Presumably, both the bonds and the tax would be subject to voter approval, unlike Gov. Mike Huckabee’s tax-and-bond scheme in 1998. Voters approved a big bond issue to rebuild interstate highways, but the ballot made no mention of taxes. Huckabee and the legislature had already approved the tax that would pay off the bonds.
Finally, the blue-ribbon men proposed an excise tax on gasoline and diesel at the wholesale level.
It is the best and most politically feasible idea of the package. It would be a new tax, one that was not collected in 1934, so the legislature could enact it with a simple majority, not the extraordinary majority required of most taxes. If it was an ad-valorem tax, based upon the wholesale price, it would be more elastic than the current gallonage tax and provide a source of revenue that rose with costs. It should, in fact, replace the current tax and not be a supplement.
We have one quaint idea of our own. The legislature should raise the severance tax on natural gas, which was enacted two years ago and dedicated to highways, streets and roads. The act, which was written by lawyers for gas producers, exempts most of Arkansas’ growing gas production from the 5 percent tax on the wellhead price and instead taxes it at 1.5 percent or even lower. The tax could be raised to 2.6 percent by a simple majority of the legislature. It could not be passed on to households or business consumers of gas. And it would be a substantial help to the highway program.
Over the next decade, the agency says, it must have $19.1 billion to maintain the 15,000 miles of state highways and meet the growing traffic needs for wider and better highways and bridges, but it can expect to get only $4.1 billion from its existing tax sources.
You can dismiss that $19.1 billion estimate as pie in the sky. It’s not as desperate as that. The Highway Commission for half a century has produced bloated estimates of what it will take to maintain and build good roads and bridges. It would like to build a super highway system. We also would like to have a super public school system, a first-rate system of higher education, top-drawer health insurance and excellent corrections, but people have concluded that we can’t afford any of those things.
But the highway program is indeed in a jam, and we are not so poor that we cannot take a few steps that will keep the pace of improvements. Automobile fuel economies have made the current excise tax on motor fuels a dwindling source of revenue, and rising oil and construction prices send roadbuilding costs perpetually in the opposition direction. So the Blue Ribbon Committee on Highway Finance, which was created by the legislature in 2007, has produced a package of financing proposals, just in time to arrive dead on arrival at the 88th General Assembly.
We may be too pessimistic, but three of the committee’s four major proposals require tax increases, and a high quotient of the 135 lawmakers will arrive at the Capitol in January firmly committed to vote forever against any tax of any size for any purpose. It is a pledge that Republicans nationwide made, a key part of their strategy to take over Congress, statehouses and legislatures. It is hard to imagine a significant tax measure making it through the legislature in 2011, even if Gov. Beebe puts his magic hands on it.
If the economy picks up steam next year—there are modestly encouraging signs—perhaps something might be done later in the biennium, a special legislative session in the fall or winter that could consider road taxes in a more hospitable climate.
A couple of the committee’s ideas hold more promise than the others. One is surely dead, the transfer of a sizable part of the state’s sales taxes from the general fund to highways. The Highway Department has wanted for 40 years to reap the sales-tax revenues on vehicles and automotive supplies and services, which support the schools and other general-revenue programs. Robbing education to pay for highways is logically and politically impermissible. Beebe says it will not happen on his watch, and it shouldn’t.
The committee suggests indexing motor-fuel taxes, currently 21.5 cents a gallon for gasoline and 22.5 cents for diesel, to inflation in the construction industry. The tax would go up every year automatically as petroleum prices and other highway-building costs rose. That is constitutionally dubious—the legislature cannot delegate its taxing power to any other entity—and taxpayers will not stand for an open-ended tax. They should forget that option.
The committee recommends that the legislature refer a highway bond issue to the voters in 2012.
The bonds would be backed by a 10-year sales tax of one-half of one percent. Presumably, both the bonds and the tax would be subject to voter approval, unlike Gov. Mike Huckabee’s tax-and-bond scheme in 1998. Voters approved a big bond issue to rebuild interstate highways, but the ballot made no mention of taxes. Huckabee and the legislature had already approved the tax that would pay off the bonds.
Finally, the blue-ribbon men proposed an excise tax on gasoline and diesel at the wholesale level.
It is the best and most politically feasible idea of the package. It would be a new tax, one that was not collected in 1934, so the legislature could enact it with a simple majority, not the extraordinary majority required of most taxes. If it was an ad-valorem tax, based upon the wholesale price, it would be more elastic than the current gallonage tax and provide a source of revenue that rose with costs. It should, in fact, replace the current tax and not be a supplement.
We have one quaint idea of our own. The legislature should raise the severance tax on natural gas, which was enacted two years ago and dedicated to highways, streets and roads. The act, which was written by lawyers for gas producers, exempts most of Arkansas’ growing gas production from the 5 percent tax on the wellhead price and instead taxes it at 1.5 percent or even lower. The tax could be raised to 2.6 percent by a simple majority of the legislature. It could not be passed on to households or business consumers of gas. And it would be a substantial help to the highway program.
There will have to be a more propitious moment than January 2011 for any of these ideas to fly, but we commend those to the legislature and the governor for that moment, whenever it comes.
