Arkansas Governor Asa Hutchinson is proposing that the state for the first time ever dip into general revenue funds to pay for state highways. The Republican governor announced the “no new taxes” proposal on Tuesday for a $750 million, 10-year highway budget that redirects general revenue and surplus funds.
At a press conference the governor said he felt “pretty good” about using general revenue for roads.
“That’s a barn door that is not sacrosanct. It is a right thing to do as illustrated by the needs of other states. I think it’s a reason actually for a closer bond, or relationship, or transparency between the legislature and the highway commission,” said Hutchinson.
But in the first year the plan leans almost exclusively on one-time funds. The $46.9 million FY17 is funded by $20 million in surplus funds and $20 million in the governor’s rainy day fund. The governor’s budget chief Duncan Baird told reporters that’s about half of both the rainy day and surplus fund.
The loss of $40 million in one-time funds after FY17 may be surpassed in FY18 with $48 million from the General Improvement Fund (carved out of surplus funds) allocated instead to the highway department.
Hutchinson is specifically calling for up to 25 percent of GIF funding to be allocated. The governor’s office said that averaged out to $48 million a year over the last decade.
The governor credited Democratic State Representative Joe Jett, hailing from the state’s northeastern most reaches in Clay County, with putting together the GIF proposal.
While Rep. Jett, a chair of the House Revenue and Tax Committee, helped put that provision together he still has reservations that it might overly politicize highway department plans.
“If you start dipping into general revenue you want to have some type of control over the money spent,” Jett said after the press conference.
“It’s going to cause the highway commissioners a lot of heartburn,” Jett said. “In my private discussions with folks and the Speaker and leadership [I said] that legislators have heartburn about it, if they put money out of general revenue they want to have some type of say how the money’s spent. We’re talking about individual projects. I don’t know if legislators want to get that far down in the weeds or not. I guess that’s for the body to decide down the road. I could actually see that type of scenario playing out.”
In FY17 the highway department will only draw $1.5 million from general revenue by redirecting a sales tax on vehicles. But the vehicles tax phases in to $25 million by 2021. Through the fifth year of the plan $69.5 million would have been siphoned from general revenue.
In year two, FY18 $2.7 million from the diesel tax will move from general revenue to highway funding. The general revenue loss totals $10.8 million by the fifth year (the furthest projected by the governor).
The governor characterizes the diesel and vehicle taxes as user-related taxes that make sense being directed to roadways.
The Central Services budget will also take a $27 million cut from FY17 to FY18 losing out on $5.4 million a year.
Hutchinson contends that the transfer of funds to the highway department won’t lead to a decrease in services but instead will largely be generated through finding “efficiencies” that could include “a reduction in spending or other budget offsets.”
I asked Hutchinson for some specifics but he declined saying it could cost him leverage.
“I’ve presented some on the table. That’s a matter of negotiation. I’ve got my ideas on that. What I’ve presented here is not pie in the sky,” said Hutchinson. “I have a very specific way in which can be accomplished in addition to general efficiencies. But this is a matter of negotiating with the legislature as to how to achieve those efficiencies and those savings. I don’t want to lock myself into a non-bargaining position.”
The governor emphasized with chart in tow (something he’s fond of doing) that Arkansas is alone among its neighbors in opting out general revenue for highway funding. The approach consumes 64.8 percent of Oklahoma’s budget according to the governor’s office presentation.
The plan costs $46.9 million in FY17 but grows to $81.1 million in FY 21. The governor said additional state matching funds, around $50 million annually, are needed to tap into $2 billion of federal money over 10 years. This plan provides that but is far less than the governor’s working group on highway funding recommended last December.
The body of highway commissioners, legislators, and others recommended $110 million annually for three years and $140 million in subsequent years funded in part by new user-based, fuel taxes.
Speaking to reporters Arkansas Highway and Transportation Department Director Scott Bennett said it is a “short term fix” that guarantees the state can meet match rates for federal funds but may re-align priorities.
“We’re going to spend a lot more money on system preservation type work,” said Bennett. “It’s a move toward making sure we take care of what we have before we focus more and more on building and expanding roads.”
The governor said the highway funding proposal is likely to come in a special session separate from one being considered this spring covering Medicaid. Hutchinson previously expressed support for both to be addressed on one special session. The fiscal session is scheduled for April.