blue ribbon committee on highway finance report

Transcription

A
RE
N
A
’S COMPAN
R
IO
DE
TO THE
BLUE RIBBON
COMMITTEE ON
HIGHWAY FINANCE
REPORT
by Jim McKenzie
A
READER’S
COMPANION
TO THE
BLUE RIBBON
COMMITTEE
ON HIGHWAY
FINANCE
REPORT
by Jim McKenzie
February, 2011
Contents
The Purpose of the Reader’s Companion .......................................................1
About the Author ........................................................................................1
Chapter 1
How Did We Do?...................................................................................3
Chapter 2
Who Are Those Guys?
Members of the Blue Ribbon Committee................................................5
Chapter 3
A Little Mood Music
Things You Should Know Before You Read the Blue Ribbon Report ........8
Chapter 4
From Dirt Roads to Freeways
The Modern Era — The First Fifty Years .................................................13
Chapter 5
The Future Ain’t What It Used to Be
The Next Fifty Years..............................................................................15
Chapter 6
Ready, Fire, Aim
How Can You Tell It’s “Adequate” Without a Target?..............................18
Chapter 7
The Recommendations
From a Different Angle...
With Extras.........................................................................................23
Chapter 8
Let’s Do the Math
Addition, Subtraction and the Impact on Arkansans..............................29
Chapter 9
How to Think About All of This
Big Picture, Small Steps, Long-Term......................................................35
AppendixA
Recommendations of the
Blue Ribbon Committee on Highway Finance ......................................39
AppendixB
Case Studies ......................................................................................52
AppendixC
County Turnback Factors.......................................................................55
AppendixD
City Turnback Factors............................................................................57
A R e a d e r ’s C o m p a n i o n
To the Blue R i bbon C ommi t t e e on Hi g hw ay F ina n c e Re po r t
Purpose of
The Readers Companion
The Reader’s Companion is meant for the elected officials in central
Arkansas. It is written to provide important insights into the work of the
Blue Ribbon Committee on Highway Finance in order to allow the reader
to more fully understand and appreciate the full deliberations of the
Committee.
This work is written solely from the vantage point of the author and does
not necessarily reflect the opinion of the Blue Ribbon Committee or any
other of its members.
About the Author
Jim McKenzie is the Executive Director of Metroplan, the council of
governments in central Arkansas and the designated metropolitan
planning organization for the Little Rock/North Little Rock/Conway
metropolitan area. He has served in that position since 1988.
During that time he has served as vice president and chair of the
policy committee for the national Association of MPOs, served on
the Eno Transportation Foundation’s Board of Advisors, has spoken
before conferences of the Transportation Research Board and the
Institute of Transportation Engineers, and been invited to give
testimony to the National Surface Transportation Policy and Revenue
Study Commission.
Mr. McKenzie was appointed to the Blue Ribbon Committee by
Arkansas Speaker of the House, Rep. Robbie Wills. While on the
Blue Ribbon Committee, Mr. McKenzie chaired the New Revenue Subcommittee and was
co-chair of the Working Group that made the final recommendations to the full Committee.
To the B lue Ri bbon C om m i ttee on High way F inance Re po r t
Chapter 1
How Did We Do?
The Enabling Legislation
The Blue Ribbon Committee on Highway Finance was created
by Act 374 of 2009, the full text of which can be found in the
Appendix of the Blue Ribbon Committee’s Final Report. For the
purposes of this paper, we want to emphasize the key parts of the legislative charge to the
Committee:
SECTION 2
(1) …[Determine] adequate financing of the present and future needs of the state
highways, county roads and city streets within the state;
(2) Define an equitable and adequate system to properly finance improvements to the
systems of state highways, county roads and city streets within the state;
How did the Committee do in fulfilling its charge?
Although the Committee worked diligently, the limited time and information available made
it impossible to completely fulfill the legislative charge. In most cases where information was
lacking, future study was recommended.
A Subjective Report Card of the Committee’s Work
State Highways
Determine Funding Adequacy Define Adequate
Financing System
Define Path
Forward
Partially
Partially
Yes
County Roads
No
Partially
No
City Streets
No
Partially
No
It should be noted that compared to similar efforts in other states, the work of the Arkansas
Blue Ribbon Committee on Highway Finance was completed in half the time and was
seriously under-resourced. Nevertheless, the work forms a solid foundation for future study.
The section that follows explains the “grades” on this subjective report card:
State Highways
Of all the road systems, the needs of state highways are best documented, but information
on license fees and heavy truck damage were not complete enough to draw firm conclusions
without further study. It is clear that we have built and promised more state highways than will
ever be adequately supported, hence the conclusion that funding adequacy was only partially
2
3
addressed (see Chapter 6 for more detail) and the recommendation to study the reduction
of the state system to its strategic core. In the end, when one does the math, adopting all of
the funding recommendations is not enough for the current and promised state system. See
Chapter 7, Doing the Math.
County Roads and City Streets
No comprehensive and accurate information exists on the roadway needs for Arkansas cities
and counties. It is a virtual black hole. Therefore, it was impossible to reasonably determine
the current and future needs of our local governments quantitatively.
Funding for cities and counties was partially addressed by recommending (1) the traditional
70/15/15 split for all new revenues, (2) a constitutional amendment allowing more than 3 mills
to be levied for the county road fund, (3) establishing a minimum local tax effort by cities and
counties, and (4) indexing the County Aid 1¢ and establishing a new City Aid program with 1¢
levied and indexed to the Arkansas Highway Construction Cost Index 3-year trailing average.
The path forward for cities and counties would involve determining to some uniform and
professional standard what their needs truly were. Unfortunately, a recommendation to that
effect was rejected by the full Blue Ribbon Committee (see Unadopted Recommendation
p.27).
Like public schools, city and county roads represent a massive public investment, are some
of our most ubiquitous public capital assets, are in a state of ill repair, lack uniform standards
and accountability, and represent a massive and routinely ignored unfunded liability on the
public accounts. Also like public schools, good roads are critical to the
economic success of the state, and to get them in good shape will require
some state oversight, significant investment and years of committed effort.
Unlike public schools, however, there is not a Lakeview case lurking
around the curve that will force action.
If the General Assembly really wants answers to the questions posed in the
charge to the Blue Ribbon Committee, it will have to determine to make that
investment on its own.
Chapter 2
WHO ARE THESE GUYS?
Members of the Blue Ribbon Committee
On Highway Finance
The Blue Ribbon Committee consisted initially of
nineteen members:
Six Legislative members designated in the Act
• Sen. Gilbert Baker – Conway (Co-Chair of Joint Budget)
• Rep. Bruce Maloch – Magnolia (Co-chair of Joint Budget)
• Sen. Paul Miller – Melbourne (Chair of Senate Revenue and Tax)
• Rep. John Lowery – El Dorado (Chair of House Revenue and Tax)
• Sen. John Paul Capps – Searcy (Chair of Senate Transportation)
• Rep. Bill Sample – Hot Springs (Chair of House Transportation)
One representative from the Association of Arkansas Counties
• Judge Wes Fowler – Madison County
One representative from the Arkansas Municipal League
• Mayor Tab Townsell - Conway
One member of the Highway Commission
• Madison Murphy – El Dorado
Two members appointed by Governor Beebe
• David Malone – Fayetteville – Attorney
• Allen Maxwell – Monticello – State Representative
Two from the general public appointed by Senate Pres. Pro Tem Bob Johnson
• Bill Lynch – Heber Springs – Banker
• Charles Dain – Conway – Accountant
Two from the general public appointed by Speaker of the House Robbie Wills
• Mark Lamberth – Batesville – Contractor
• Jim McKenzie – Little Rock – Metroplan Executive Director
Two from the general public appointed by Senate Transportation Committee Chair
John Paul Capps
• Wayne Hartsfield – Searcy – Banker
• Mike Wilson – Jacksonville – Attorney
4
5
Two from the general public appointed by House Transportation Committee Chair Bill
Sample
• Mark McBryde – Little Rock - Investments
• Bill Fletcher – Hot Springs – Consulting Engineer
Senator John Paul Capps was elected chairman and Representative Allen Maxwell was elected
co-chairman. Sadly, Mr. Wayne Hartsfield passed away not long after the Committee started its
work and was not replaced.
After several meetings for general background testimony, Senator Capps established two subcommittees – the Revenue Transfer Subcommittee chaired by Rep. John Lowery and the New
Revenue Subcommittee chaired by Jim McKenzie. Most of the work
of the Committee was done in the two Subcommittees.
The charge was to
define an adequate
A close look at the membership of the Blue Ribbon Committee
financing system for
reveals two things: first, the group is not geographically
current and future
representative of the entire state and, two, several key interest groups
needs for state
did not have a seat at the table. Since the group was to focus on
finances and not highway projects, the geographic issue was not
highways, county
considered critical. The fact that key interest groups were missing
roads and city streets.
from the conversation, however, was considered a serious oversight.
set of recommendations as objectively as possible, recognizing that the next step was for the
Legislature and the political process to act on all, some, or none of them.
The Final Report – Some Clarifications
The inclusion of a map of the Four Lane Grid System in Chapter 1 Highway Needs – Historic
Information gives some who read it the impression that the Blue Ribbon Committee identified
that network to “facilitate the movement of people and goods and economic development
among all areas of the state.” That is not the case. As stated earlier, the Blue Ribbon
Committee on Highway Finance did not consider nor endorse any specific highway project or
network.
Chapter 3 Link Between Transportation Investments and the Economy was added to the Final
Report after the Blue Ribbon Committee finished its deliberations and was not presented to,
nor approved by the Committee. Had the material been presented to the full Committee, there
is no reason to think it would not have been approved, but it was not.
To remedy that situation, Chairman Capps appointed a Transportation
Stakeholders Task Force whose members sat in on and participated
fully in all of the deliberations of the Blue Ribbon Committee. The members of the Task Force
are listed below:
• Al Heringer IV – Jonesboro, representing oil marketers
• Greg Carman – Ft. Smith, representing the trucking industry
• Steve Williams – North Little Rock, representing national transportation research
initiatives
• Paul Benham – Little Rock, representing the rail/intermodal industry
• Dennis Teague – Sheridan, representing automobile dealers/manufacturers
• Johnnie Bolin – Crossett, representing the Arkansas Good Roads/Transportation Council
Rules of the Road
From the very beginning of its deliberations, there was temptation within the Committee to
design a new state highway program and to politically handicap our recommendations based
on what members thought could be passed by the next Legislature.
However, the charge of the legislation was narrow and specific. The charge was to define
an adequate financing system for current and future needs. For the most part, under the
adept leadership of Chairman Capps, the Committee attempted to do just that -- develop a
6
7
Chapter 3
A LITTLE MOOD MUSIC
Things You Should Know Before
You Read the Blue RibbonReport
This chapter contains a potpourri of information on laws, agreements,
philosophical constructs and basic facts that are useful to the reader in
understanding some of the constraints within which the Blue Ribbon
Committee worked and some of the conceptual deliberations that framed
the recommendations.
1. Arkansas Constitution: Amendment 19
Familiarity with Amendment 19 to the Arkansas Constitution and the consequences that follow
from its limitations is necessary to understand how the system of
financing our roads and highways evolved.
Familiarity with
Amendment 19 to the
Amendment 19 was referred to the people by the 1934 General
Arkansas Constitution
Assembly and adopted in 1935. In short, it provides that any
and the consequences
property, excise, privilege or personal tax increase (in other words,
that follow from its
all the state taxes that existed in 1934) must be referred to the
limitations is necessary
people or, in the case of an emergency, passed by three quarters
to understand how the
of the members of each house of the General Assembly. To pass a
motor fuels excise tax requires an affirmative vote of 75 of the 100
system of financing our
members of the House and 27 of the 35 members of the Senate.
roads and highways
evolved.
The consequence of this requirement is that any general highway
improvement program must show a “line on the map” (highway
project) in 75 districts in order to garner enough votes for passage.
The last general highway program was the 1991 Highway Improvement Program (HIP),
originally proposed as a ten-year program, that was passed as a fifteen year program in order
to add enough projects to get the needed support in both houses. Generally, the 1991 HIP is
viewed as a relative failure because the fifteen-year timeframe allowed cost inflation to reduce
the program too much and frustrated the public in the long delay in getting promised projects
delivered. Some promised projects from that program still have not been started.
By contrast the 1999 Interstate Reconstruction Program, a phased tax increase over three years,
combined with GARVEE (Grant Anticipation Revenue Vehicles) bonds and a strict five-year
construction window, was widely viewed as a success and a model for future programs.
2. The 70/15/15 Split
The 70/15/15 split is the Holy Grail of passing a transportation program in the Arkansas
8
The 70/15/15 split is the
Holy Grail of passing a
transportation program
in the Arkansas General
Assembly.
General Assembly. It was first instituted into law by Act 182 of
1957, allocating 70% of most non-federal highway revenue to
AHTD, 15% to the cities of the state and 15% to the counties.
Over the years, the state has occasionally
tried to push highway programs
without the split, but without
15%
success.
Two things are important to know about the 70/15/15 split.
First, the percentages are calculated after 3% of the gross
revenue is deducted for the Constitutional and Fiscal Agencies
Fund. The second is that the 15% for cities and the 15% for
counties is the result of a political deal. It is not based on any
assessment of infrastructure needs whatsoever.
15%
70%
As a result of this Faustian bargain, cities and counties have linked their fate to the ability of
the Highway Department to get a road tax/program passed. But they have likewise limited
themselves in terms of addressing their own needs.
3. Our Common Wealth
In this context the term commonwealth has to do with the
public’s capital assets that we own in common, literally, our
common wealth. Roadways are the most ubiquitous capital
asset that Arkansans own together, over 100,000 miles of
them. We have built these assets up over the decades, adding
to them and improving them with each generation. We have
bought them with our tax dollars, but before that, built them
with the sweat of our brows.
“I’m 94 years old. I remember when I was a boy
in Ashley County, every able-bodied man in the
county had to give four days to the county road
crew. But if you brought a team [of horses or mules],
you only had to give two days.“
— Member of the Founder’s Lions Club, Little Rock, 2010
My grandfather told me similar stories of Yell County, and I
suspect the practice was common around the state.
If our state is to continue to progress and to build our
common wealth, we have a stewardship responsibility to pass
these public capital assets on to our children in better shape
than when we got them.
Roadways are the most
ubiquitous capital asset that
Arkansans own together,
over 100,000 miles of them.
Four U.S. States are officially
called “Commonwealth” in
their state constitutions.
Can you Name Them?
Commonwealth of Virginia
Commonwealth of Massachusetts
Commonwealth of Pennsylvania
Commonwealth of Kentucky
Commonwealth is a traditional
English term for a political
community founded for the
common good.
4. User Fee System (US) vs. General Tax System (EU)
There are two general models for financing transportation improvements – user fees or general
9
e•qui•ta•ble
adjective.
1. characterized by
equity or fairness;
just and right; fair;
reasonable
revenues. User fees are generally considered motor fuel taxes, tolls,
vehicle license and registration fees, or weight distance taxes and are
related to the amount the payer uses the road system. At least since the
establishment of the Highway Trust Fund in 1956, the United States has
predominantly, but not exclusively, followed the user fee model.
The countries of the European Union have generally viewed gas taxes as
another form of general revenue. European gas taxes are so much higher
than in the U.S. because they fund not only the highway system, but
Europe’s enviable public transit system and other government services as well.
Arkansas has a history of being a pure user fee state, at least at the state level. Motor fuel taxes,
license and registration fees and certain specialty fees are dedicated to roadways. Some of
those fees are shared with local governments, as we will discuss later. Some states divert road
user fees to fund other state government services, such as the State Police or in the case of
Texas, education. Arkansas has not done that.
The situation is different regarding city and county roadways. Local governments use property
taxes and some local option sales tax revenue to subsidize roadway
investments. Most new local roadways are built by land developers
Direct user fees are
and then turned over to the city or county for public maintenance.
considered the most
equitable or fair way
Direct user fees are considered the most equitable or fair way of
of financing roadway
financing roadway improvements. Yet only a fraction of our 100,000
miles of public roads actually generate enough traffic to pay for their
improvements.
routine maintenance at current tax rates (on state highways, about
2200 trips per day).
As this roadway chart illustrates, roadways vary between two primary purposes – mobility
(carrying large numbers of vehicles from one point to another) and providing access to
property. The more a roadway does the former, the less it
can safely do the latter. For those low volume roadways the
primary purpose of which is to provide access to property
and thereby add value to that property, the property tax is an
equitable funding source.
5. IFTA
The International Fuel Tax Agreement is an agreement
between the fifty states and the Canadian provinces. It
governs the distribution of diesel tax revenue among
the participants based on the miles driven in each state
reconciled against the tax collected in each state. It does
place some restrictions on how diesel fuel can be taxed.
Because retail sales tax is collected at the pump as a percent
of the purchase price, it runs afoul of IFTA, which specifies
that fuel taxes must be applied on a per gallon basis.
10
6. Streamlined Sales Tax Agreement
The Streamlined Sales Tax Agreement (SSTA) currently has 20 states as full members, 5
states as associate members and several other states as participating members. Arkansas
is a full signatory. It seeks to streamline and make uniform how sales taxes are collected,
with the intent of successfully petitioning the Congress to allow state and local sales taxes
to be collected on internet sales. The impact of the SSTA on the Blue Ribbon Committee
deliberations is primarily that if the sales tax exemption on the sale of fuel were removed, the
resulting tax could not be phased in, but rather the full state and local sales tax rates must be
applied all at once.
7. Miles of Road – The Known and the Unknown
Arkansas has over 100,032 miles of public roads owned and maintained by the Arkansas State
Highway and Transportation Department, 75 counties and hundreds of cities and towns in the
state. Here are the numbers:
The Knowns
Vehicle Miles
Miles
Traveled (millions)
State Highways
• Primary Highway Network
• Secondary Highway Network
16,443 (16%)
7,719
8,724
68.2m (77%)
89%
11%
12th Largest State Highway Network in the Nation
County Roads
• County Aid Road System
68,811 (69%)
8.0m (9%)
9,339 out 15,000 miles authorized
10th Largest County Road system in the Nation
City Streets
14,778 (15%)
12.7m (14%)
Current Roadway Conditions
State Highway Conditions Without New Revenue
1999
2006
Good
21%
Poor
63%
Fair
16%
2016
Poor
14%
Poor
37%
Fair
14%
Good
72%
Good
52%
Fair
11%
11
Chapter 4
The Great Unknown -- County Roads and City Streets
There is virtually no
Maintaining the existing extensive local road network is by far the
credible data on the
largest element of determining the present and future needs of the
roadway conditions
city and county systems. And yet, there is virtually no credible
on local streets.
data on the roadway conditions on local streets. There is plenty of
anecdotal evidence that it is pretty bad out there, but nothing with
the same level of professional assessment AHTD uses for the state routes.
FROM DIRT ROADS TO
FREEWAYS
The Modern Era –
The First 50 Years
The modern era in highways dates to 1956 with the passage of the Interstate Highway Act and
the establishment of the Highway Trust Fund by the U.S. Congress. The great post-war roadbuilding boom began in earnest.
Let’s look at how that era of growth affected Arkansas.
State Population
Miles of State Highway
Interstate Miles
Annual Vehicle Miles Traveled US Gas Tax
AR Gas Tax
1955
2010
% Change
1,909,511
2,926,229
+53%
10,033
0
16,428
655
+64%
5.8 Billion
32.5 Billion
+460%
2¢/gal
6.5¢/gal
18.4¢/gal
21.5¢/gal
During this time, the state’s population increased 53%, state highway mileage increased 64%
(including 655 miles of new interstate highway), and vehicle miles traveled increased an
amazing 460%. Meanwhile, the combined state and federal gas tax has decreased 40% in
constant dollars. If it had been routinely adjusted for inflation over the years, the state gas tax
alone would be 52¢ per gallon today.
The Closest Thing to Free Money We’ll Ever See
The explosive growth of Vehicle Miles Traveled (VMT) after World
War II generated increasingly larger amounts of revenue for each
1¢ of existing federal or state motor fuels tax. VMT growth was
fueled by the movement of families to suburbia, and the movement
of women into the workforce. At the same time, the increasing
household wealth of American families resulted in over one
registered motor vehicle for every licensed driver in the country. This
automatic revenue growth without the necessity of a tax increase is
the closest thing to free money Americans will ever see.
12
This automatic
revenue growth
without the necessity
of a tax increase is the
closest thing to free
money Americans will
ever see.
13
CHAPTER 5
The 3 Pillars
The first 50 years of the modern highway era were built on three
pillars (below). And because our transport system was based on these
pillars, our entire post-war urban form was built on them as well.
1. Petroleum will always be plentiful and cheap, resulting in
cheap gasoline and diesel prices.
THE FUTURE AIN’T WHAT IT
USED TO BE
The Next Fifty Years
2. Annual average vehicle miles traveled will always increase.
3. Average fleet fuel efficiency will never increase substantially.
From 1950 forward, with one brief exception during the oil shocks of
the 1970s, these pillars of our transportation system and our economy have been constant.
Federal Partnership
Another key element supporting the modern era of road building has been a strong federal
partnership with the states in funding the national highway system. The Interstate Highway
Act ushered in an era where the feds paid 90% of the cost to build and maintain the interstate
highway system, less for other federal aid roadways, and did so through a series of focused
six-year highway bills until 1991 when the Interstate System was declared complete.
The passage of the Intermodal Surface Transportation Efficiency Act of 1991 was the first postinterstate federal transportation bill. Except for interstate maintenance, federal match ratios
were standardized at 80/20, and the clear federal role began to blur. The last federal fuel tax
increase was 4.3¢ per gallon passed in 1993 by President Clinton for deficit reduction, but the
revenue was returned to the Highway Trust Fund by 1997. That tax increase passed by one
vote in the House of Representatives and one vote in the U.S. Senate.
“ You can never plan the future by the past”
— Edmund Burke
The Pillars Broken
Starting in about 2005, each of the three pillars on which the United States built our
transportation system, our economy and our urban regions was shattered. The destruction
of the pillars was not temporary as it was in the 1970’s. It is permanent, and it is changing
everything.
1. Petroleum will never be cheap again.
On the supply side, U.S. oil production peaked in 1970. Many
observers believe that global oil production peaked in 2006.
On the demand side, the over 1 billion people in China and
over 1 billion people in India who had been living in rural
poverty, walking, biking or driving ox carts are now moving
into cities, gaining wealth and buying cars. Inelastic supply and
growing demand equal rising prices.
“The oil boom is over and will
not return. All of us must get
used to a different lifestyle.”
-- King Abdullah of
Saudi Arabia, 2007
This is not to say that the world is running out of oil. It is just that most of the reserves that are
cheap and safe to recover have been found already. The oil that is left requires extracting from
tar sands, expensive deep water drilling or is in otherwise hostile and remote environments
in hostile and remote countries. In other words, it is increasingly costly to recover and refine.
Either way, the industrial world arrives at the same place – much higher costs for driving and
for moving freight around the globe.
2. Annual average vehicle miles traveled has flattened and won’t grow faster than the population ever again.
VMT began to flatten nationally in the early part of the 21st century. It actually decreased
recently in the wake of the Great Recession. It is the end of the free ride. As a country, we
have more registered vehicles than licensed drivers, and we cannot drive more than one car
at once. The entry of women into the workforce has peaked. The flight to ever more distant
suburbs has leveled off. VMT will grow in the future only as population grows. The free money
machine has run dry.
14
15
Figure 1a. U.S. Vehicle Miles Traveled, Annualized, December 1956–September 2008
Faltering Feds
Figure 1a. U.S. Vehicle Miles Traveled, Annualized, December 1956–September 2008
3,500
VMT (Billions)
3,000
2,500
2,000
1,500
1,000
07
20
01
04
20
20
98
19
95
19
92
19
89
19
86
19
83
19
80
19
77
19
74
19
71
19
19
68
65
19
62
19
19
59
500
56
SAFETEA-LU also established
the National Surface
Transportation Study and Revenue
Commission to recommend
refocused federal priorities and to determine the revenue needed
to fund them. The Blue Ribbon Committee had access to the
Commission’s report to study. The Commission, in addition to
program recommendations, suggested
a 40¢ per gallon increase in the
Since the last federal fuel
federal motor fuels tax be phased in
tax increase in 1993, the
over a period of years. Neither the Administration nor the last
purchasing power of the
Congress proposed raising the federal fuel tax at all.
tax has decreased 35%.
What happens next with Uncle Sam? The most likely scenario
is that the Congress will pass a new federal highway bill using
only existing federal fuel tax revenue. That bill will either (a) more narrowly focus the federal
program on the national highway system and a few key ports of entry, or (b) continue the
existing program structure at lower funding levels. It will almost certainly trumpet toll roads
and public/private partnerships as the preferred solution to funding shortfalls.
The National Surface
Transportation
Study and Revenue
Commission suggested
a 40¢ per gallon
increase in the federal
motor fuels tax . . .
Annualized VMT
19
To add insult to injury, our traditional partner in funding
infrastructure improvements is faltering badly. Each transportation
bill since ISTEA in 1991 has taken longer to reauthorize, had more
earmarks added to it, and wandered further from a clear federal
purpose. The last bill, SAFETEA-LU spent down the surpluses in
the Highway Trust Fund, intentionally emptying it. SAFETEALU expired September 30, 2009. Money coming into the
Trust Fund is approximately 20% less than what SAFETEALU authorized.
Source: 1956–1982: Highway Statistics, Table VM-201; 1983–September, 2008: Traffic Volume Trends
Source: 1956–1982: Highway Statistics, Table VM-201; 1983–September, 2008: Traffic Volume Trends
2000
the growth
VMT per capita
began to
plateau. Moreover,
after 2005
capita
rate 3. Average
fleetrate
fuelinefficiency
will increase
substantially
and constantly
inthe
theper
face
of rising
actually
began
to
slide.
The
per
capita
rate
has
continued
to
drop
for
over
three
straight
years,
to fuel prices, in order to reduce national dependence on foreign oil, and to reduce green
the
point where
the September
2008
VMT persector.
capita rate (9,564 miles) is now less than what it
house
gas emissions
from the
transport
was a decade ago (9,603 miles). What this means is that amid the total growth in VMT over this ten
year
average American
still driving
the same distances
perAverage
year as they
The period,
federal the
government
adoptedis new
CAFÉ standards
(Corporate
Fleetwere
Fuelin 1998.
Efficiency) inthese
2009years
and of
2010
thatand
(1) decrease
raised thedid
new
duty
fleet average
35.5
mpg byAs
Interestingly,
plateau
notlight
always
coincide
with gas to
price
increases.
2016
and
(2)
included
medium
and
heavy-duty
trucks
for
the
first
time.
The
EPA
and
US2005,
Figure 1b shows, inflationary-adjusted gas prices remained relatively stable between 2000 and
Department
of Energy
have just
released
a preliminary
finding
proposing
increasing
CAFÉ is
followed
by a period
of volatility
after
2006. Thus,
only the most
recent
drop in per
capita driving
standards
to
between
47
and
62
mpg
by
2025.
In
plug-in
hybrid
mode,
the
just
released
coupled with gas price spikes.
Chevy Volt is rated at over 60 mpg (93 mpg equivalent in all-electric mode). The new Nissan
Leaf does
use gasoline
all. indicate a significant decline in national driving, one of the
While
thesenot
national
changes at
clearly
An outside possibility, is the formal devolution of the bulk of the federal program to the states
by repealing most of the federal fuel tax to make room for increased state taxes. Even if de
jure devolution does not come to pass, de facto devolution has been in place for quite some
time. As federal funding continues to decrease as a proportion of needs, the responsibility for
making up the difference will increasingly devolve onto state and local governments.
primary stories regarding national vMt is how much it diverges across the country depending on the
unit of analysis. The next four findings divide these numbers by road type, vehicle category, state, and
metropolitan area, thereby helping to uncover the intricacies within our national driving patterns.
16
17
CHAPTER 6
LEVEL 2 Maintain Existing Relative Road Conditions on the State Primary and Secondary Highway Systems
Ready, Fire, Aim
AHTD’s initial request to the Blue Ribbon Committee was for an additional $200 million per
year in new revenue in order to maintain the existing highway system in the same relative state
of repair as it is currently and to address a comparable number of miles for congestion relief.
Some roads
would age and
get a
bit worse
others
would
improved
the overall
and
be but
percentage
of
roadways
in
each
category
(Good,
Fair,
Poor)
would
remain
as
it
is today and
levels of
congestion would not
been
adjusted
maintain
worsen.
The
$200
million
has
to
its
purchasing
power
as
well.
Maintain Current Condition (millions)
How can you tell if it’s
“adequate” without a target?
The enabling legislation clearly requires the Committee to determine
what an adequate amount of resources is to meet the current and future
needs of state highways, city streets and county roads. Consequently,
a reasonably firm revenue target must be established against which to
measure revenues.
As mentioned in Chapter 3, state highway needs are the only documented needs of the three
systems. Consequently, the revenue targets below were generated for state highways. Since the
money is to be shared with cities and counties as recommended, 30% has been added to the
state highway target to reflect the dollars that would actually need to be raised.
All of these estimates of new revenue needs are made independent of the presumed source. If
the federal government passes a new highway bill with a substantial increase in funding, then
Arkansas will have to raise less money. (See Faltering Feds in Chapter 5).
REVENUE TARGETS
LEVEL 1 Maintain Existing Purchasing Power in Face of Low VMT Growth, Increasing Fleet Fuel Efficiency and Increasing Construction Costs
To maintain the purchasing power of existing highway revenue, income will have to grow to
compensate for higher fleet fuel efficiency and for projected construction cost increases.
Maintain Purchasing Power (millions)
18
LEVEL 3 Meet 100% of State Highway System Preservation and Congestion Relief Needs
The 2009 State Highway Needs Assessment places these figures at $10.8 billion
for System Preservation and $3.7 billion for Congestion Relief over the next ten
years. When known state and federal revenues are subtracted, that
leaves a combined total of $10.4 billion, or $1.04 billion a year, in
new revenue “needs.”
This is where we launch off into fantasy a bit. The $10.8 billion of projected
needs for System Preservation assumes that every mile of state primary and
secondary highway is brought into a state of good repair and is brought up to current
highway design standards.
The fantasy in that assumption
is that no government in
the world has 100% of its
roadways in a state of good
repair. In fact, it is not a
fiscally responsible way to
manage long-term infrastructure
investments. At any point in
time, some portion of roadways
will be in state of Good repair
and some, by virtue of use and
age, will be rated Fair or Poor.
At some point in the pavement’s
life cycle, its condition will
begin to deteriorate rapidly
19
"
! "
! The key to fiscally responsible management of the asset is to intervene just before it reaches
the point of rapid deterioration and return the pavement to a state of good repair. In that
way, you get the maximum return on the original pavement, but you save the more costly
reconstruction that will be needed if the pavement is left to deteriorate further.
The trick is how to come up with a reasonable estimate for the purposes of developing a
needs target. For the purposes of this document, the following method was used to arrive at an
“informed guesstimate”.
Highway officials confirmed that a reasonable estimate for a well, but not perfectly, maintained
state system over the next ten years would be approximately $5.8 billion. About 60% of the
$200 million a year from Level 2 would be invested in System Preservation, so that amount is
subtracted from Level 3 needs. Finally, the estimated construction inflation was applied to the
remainder.
#!
System
Preservation (millions)
!-
,*++ ,*+, ,*+- ,*+. ,*+/ ,*+0 ,*+1 ,*+2 ,*+3 ,*,*
"
! ',2+ '-+3 '-.+ '-.3 '-/+ '-/0 '-0- '-03 '-10 '-2,
"
#!
! '.+. '.03 '/*, '/+. '/+2 '/,/ '/,. '/.- '//- '/0!-
,*++ ,*+, ,*+- ,*+. ,*+/ ,*+0 ,*+1 ,*+2 ,*+3 ,*,*
#!
"
Next,
the congestion relief needs are based on demonstrated congestion on existing highways
!-
,*+,
,*+,*+.
,*+/
,*+0
,*+3
,*,*
!
',2+
'-+3
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– approximately
$227,*++
million
per year.
Forty
per cent
of the
$200,*+1
million,*+2
in Level
2 funding
"
"
was
going to go to Congestion
Relief,
so this,*+.
amount
was subtracted
the Level
!-
,*++ ,*+,
,*+,*+/
,*+0 ,*+1from,*+2
,*+33 needs.
,*,*
',2+
'-+3
'-.+
'-.3
'-/+
'-/0
'-0-
'-03
'-10
!
'.+.
'.03
'/*,
'/+.
'/+2
'/,/
'/,.
'/.'//'/0And,
as with the other needs, estimated construction cost increases over the decade are '-2,
"
"
factored
! in.
'+.1 '+01 '+12 '+2, '+2. '+20 '+3* '+3- '+30 ',**
!
'.+. '.03 '/*, '/+. '/+2 '/,/ '/,. '/.- '//- '/0
"
Congestion
Relief (millions)
! ',+0 ',.0 ',0- ',03 ',1+ ',1/ ',13 ',2. ',23 ',3/
!-
,*++ ,*+, ,*+- ,*+. ,*+/ ,*+0 ,*+1 ,*+2 ,*+3 ,*,*
"
!-4
,*++ ,*+, ,*+- ,*+. ,*+/ ,*+0 ,*+1 ,*+2 ,*+3 ,*,*
!-
!
,*++
'+.1 ,*+,
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'+30 ,*,*
',**
"
"
"
! '.,2 '.20 '/+3 '/-+ '/-/ '/., '//- '/0, '/1, '/2,
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!
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"
! '0-* '1+/ '10/ '12- '123 '2** '2+- '231 '2., '2/2
! ,*++
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!-4
Total
System Preservation and Congestion Relief (millions)
"
"#% #
!-4
!
,*++
'.,2 ,*+,
'.20 ,*+'/+3 ,*+.
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'/-/ ,*+0
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"
!.
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"
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"
!
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! ',12 '-+/ '--1 '-./ '-.2 '-/- '-/3 '-0/ '-1, '-12
! '0-* '1+/ '10/ '12- '123 '2** '2+- '231 '2., '2/2
"
"#% #
! '.*3 '.0. '.3+ '/*2 '/+, '/+3 '/,2 '/12 '/.1 '//1
!.
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"#% #
"
!. ,*++
!
',12 ,*+,
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"
"
',12 '.0.
'-+/ '.3+
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! '.*3
"
To !
the Blue
R i bbon C ommi
t t e e on '.0.
Hi g hw ay'.3+
F ina n c e'/*2
Re po r t '/+, '/+3 '/,2 '/12 '/.1 '//1
'.*3
20
',2+ '-+3 '-.+ '-.3 '-/+ '-/0 '-0- '-03 '-10 '-2,
'.+.
'.03
'/*,
'/+.
'/+2
'/,/
'/,.
'/.-
'//-
'/0-
LEVEL
4 New Capacity – Four Lane Grid System, Regional Connectors and Economic !-Development
Corridors
,*++
,*+, ,*+- ,*+. ,*+/ ,*+0 ,*+1 ,*+2 ,*+3 ,*,*
"
AHTD
has
estimated that
the '+01
2009 cost
of these
would '+3*
be $10.4
billion.
If ',**
!
'+.1
'+12
'+2,elements
'+2. '+20
'+3-
'+30
constructed
over
a
ten-year
period
that
would
be
$1.04
billion
per
year,
in
new
revenue,
"
without
It is ',03
more probable
that these
!construction
cost
',+0adjustments.
',.0 ',0-
',1+ ',1/
',13improvements
',2. ',23would
',3/be
constructed over a 30-year period. Consequently, the first 10 years of that 30-year period are
shown
in the target charts
!-4
,*++ below.
,*+, ,*+- ,*+. ,*+/ ,*+0 ,*+1 ,*+2 ,*+3 ,*,*
"
Since
millions
of dollars
were'.20
spent '/+3
under Level
for new
capacity
congestion,
!
'.,2
'/-+ 3B'/-/
'/.,
'//-to relieve
'/0, '/1,
'/2,we
will
"
subtract that amount from Level 4 needs and adjust the remainder for construction cost
inflation.
! '0-* '1+/ '10/ '12- '123 '2** '2+- '231 '2., '2/2
"#%
#
New
Capacity — Four
Lane Grid System (1st 10 of 30 years, millions)
!.
"
! "
! ,*++
,*+,
,*+-
,*+.
,*+/
,*+0
,*+1
,*+2
,*+3
,*,*
',12 '-+/ '--1 '-./ '-.2 '-/- '-/3 '-0/ '-1, '-12
'.*3 '.0. '.3+ '/*2 '/+, '/+3 '/,2 '/12 '/.1 '//1
The table below shows the revenue needed to fund each level of service, indexed to cover
projected construction cost inflation.
Total
Revenue
Needed (millions)
*$ !
+ , "
, - "
&.12 &//1 &0*. &0,* &0,0 &0-0 &0/) &00- &010 &1)+
&+2. &,,- &,.0 &,// &,.1 &,0- &,1) &,10 &,2- &-)*
&-*- &-/1 &.)+ &.*- &.*1 &.+. &.,- &.-, &.., &./,
&+*/ &+-/ &+/, &+/2 &+0* &+0. &+02 &+1- &+12 &+2.
&-)2 &-/- &-2* &.)1 &.*+ &.*2 &.+1 &.,1 &.-0 &..0
*This chart includes existing AHTD state revenue for Level 1.
The graph below shows how much total revenue needs to be raised to meet each of the
revenue target levels discussed above, assuming the 70/15/15 split. It clearly illustrates the
powerful effect that construction cost inflation will have on highway needs if purchasing
power is to be maintained.
21
CHAPTER 7
The
Recommendations
From a Different Angle…
With Extras…
The Recommendations of the Final Report of the Blue Ribbon
Committee on Highway Finance are arranged in four functional categories:
Revenue Proposals
Other Recommended Legislation
Recommended Studies
Other Recommendations
That is a useful arrangement, but it obscures some of the reasoning the Committee used in
coming to its conclusions. The recommendations are rearranged below, grouping those
directed at the state system and those directed at city and county roads. The recommendations
as listed below are not worded as they were passed by the Committee, but are boiled down to
the nub of what the author (not necessarily the Committee) thinks they really mean. The full
text of the recommendations are found in Appendix B with some useful comments.
State Highway Recommendations
The Blue Ribbon Committee did not prioritize its recommendations, but they are listed here in
what the author believes is a logical sequence.
1. Call a GARVEE Bond election as soon as possible
This is a no-brainer. The authority already exists. It requires no new taxes, and it allows
the Highway Department to finish the work it started on rebuilding Arkansas interstates
but did not get to finish. Unfortunately, as soon as possible is when the existing
GARVEE bonds are paid off in 2014.
2. Index Motor Fuel Excise Taxes
This proposal would let the fuel tax automatically rise with construction cost inflation.
The maximum increase per gallon is capped at 2¢ a year. This proposal will not make
the roads better but should keep the pothole we are in from getting deeper.
3. Increase License Fees to the Regional Average
22
The actual recommendation calls for a study to determine how to simplify the license
fee structure, treat all vehicles equally and raise the fees gradually to the regional
23
average. But since registration and license fees make up 20% of Highway Department
revenue and are extremely low, they should be increased simply to maintain the status
quo. Goes with #2 above.
that will be shared with cities and counties. Second, the tax sunsets when the bonds
are paid off (maybe before ten years), and, finally, because it is a referral to the people,
as in “Hey, I didn’t vote to raise your taxes, you did”, it is an easier vote for members of
the General Assembly to cast.
4. Adjust Heavy Duty Truck Taxes to Reflect the Damage Done to Roadways
8. Reduce the State Highway System to Its Strategic Core
Although truckers say they pay their fair share, highway officials say they do not come
close to paying their way. Absent common agreement on the right way to calculate
the damage done by heavy trucks, the recommendation is to use a new federal cost
allocation study when it becomes available. The principle is that all road users should
pay their fair share.
5. Phase-in a New Excise Tax on the Wholesale Motor Fuel Price Instead of Repealing the Sales Tax Exemption on Motor Fuels
Everybody thought that the low hanging fruit would be to repeal the sales tax
exemption on motor fuels. But there are lots of very serious problems with that option.
The alternative is to use the existing, very efficient tax system to collect a new excise
tax on the wholesale price of motor fuels. It can be phased in, it is not limited to the
general sales tax rate, it is elastic and it can generate a lot of revenue.
6. Transfer the Sales Tax Revenue from New and Used Vehicles, Tires Batteries, and Auto Parts and Services from the General Fund to the Highway Fund.
Many people like this recommendation because the transfer can provide big money
without a new tax. Everybody, that is, except higher education, prisons, Medicaid
recipients and the Governor. The Committee tried to protect the general fund agencies
by setting a high trigger for sales tax collections before starting the transfer and to pace
the transfer over a ten-year period to allow natural growth in the general fund to more
than cover the amount transferred.
A Couple of Alternatives:
Some folks are just philosophically opposed to using general revenue (even the part
generated by highway users) for highways. Although the Committee did not discuss
it, there are two alternatives to this proposal that will raise about the same amount of
money.
A. Raise the current motor fuel excise tax 2¢ per year for ten years and index it
thereafter for the construction cost inflation.
B. Phase-in the new excise tax on the wholesale price at twice the rate recommended
(2% per year for six years instead of 1%).
7. Refer a Ten-Year Sun-setting ½¢ Statewide General Sales Tax and Bond Issue (to Fund a Five Year Construction Program) to the Public
At the first public hearing, Dan Flowers (Director of the Arkansas State Highway and
Transportation Department) said, “The state highway system is too big.” He later added,
“Too big for the resources we are given to operate it.” Some would also add, “And it
always will be.”
Long-term, the state highway system needs to be reduced to its strategic core. Excess
mileage should be returned to the cities and the counties with adequate new revenue
to maintain them, and sub-state regional capacity should simultaneously be developed
to help the state shoulder this financing burden. See Recommendation #9.
The formal recommendation is to conduct a study to identify which existing and
proposed state routes serve a strategic purpose of connecting Arkansas market areas
with each other and the global economy. For those low volume rural routes and urban
arterials that do not meet that purpose, the study should calculate what it would take to
raise those routes to a state of good repair and to properly maintain them over time.
9. Build Sub-state Regional Partners to Shoulder Some of the Burden
Multi-county, sub-state market areas are more likely to support tax increases for roads
if all of the funds raised stay in the region. Two formal committee recommendations
address this objective. The first is to provide increased financial capacity to the existing
Regional Mobility Authority Act, including allowing multi-county taxing capacity,
which would require a constitutional amendment. The second is to conduct a study
to determine if the approach the State of Georgia took in creating twelve multi-county
special taxing districts with ten-year sales tax authority might be appropriate for
Arkansas to consider.
10. Be Aggressive in Planning the Transition to a VMT tax
VMT stands for Vehicle Miles Traveled and a VMT tax is a direct user fee based on
the number of miles a vehicle travels in a year versus the number of gallons of fuel
consumed. It will eventually replace fuel taxes as the United States moves to an
electric and hybrid/electric fleet. There are no national standards for a VMT tax and
the U.S. Department of Transportation is not working on any. However, a consortium
of states, including major market states such as Texas and California, are working on
their own standards. Arkansas should participate in that group rather than waiting for
national leadership in this environment.
This recommendation is appealing in a number of ways. First, it raises a lot of money
24
25
with no accountability. At the very least, minimum reporting standards should be
established to document how and where that money is being spent.
11. Use Tolls Anywhere You Can
The prevailing wisdom is that, except for I-30 and I-40, almost no roads in Arkansas
would generate the volume required to make tolls feasible. It is not currently legal
to toll an existing interstate, but it is possible to toll new capacity added to existing
freeways. In urban areas in particular, widening major freeways could be done with
managed toll lanes that could utilize time of day pricing to help regulate congestion.
City/County Recommendations
Since city and county needs cannot be determined, most of the Committee recommendations
were aimed at gaining incremental improvements, establishing some accountability, and
beginning the collection of reliable information on needs.
1. Create a City Aid Program Comparable to the Existing County Aid Program Funded With a 1¢ cent Increase in the Motor Fuels Excise Tax and Index Both the City Aid and County Aid Taxes to the Construction Cost Index.
State taxes are not really divided 70/15/15 because of the existence of the 1¢ County
Aid Program. A similar City Aid program funded by Revenue Sharing was discontinued
when its funding disappeared. The balance needs to be restored by passing a 1¢ motor
fuel tax for a City Aid program and indexing both City and County Aid pennies to the
Construction Cost Index three year trailing average.
The Recommendation Not Adopted – Statewide Pavement Analysis
Both the New Revenue Subcommittee and the Work Group that compiled the final list of
recommendations proposed it, but the full Blue Ribbon Committee did not approve of the
recommendation to require a statewide pavement analysis of city streets and county roads in
order to establish a baseline estimate of their needs using common standards equal to those
used by the Highway Department. The New Revenue Subcommittee/Work Group proposal
reads:
Proposal:
The General Assembly should commission a professional pavement assessment
of all public roads in Arkansas owned and maintained by cities and counties for
the purpose of establishing a factual baseline for system preservation needs for
local governments.
The initial study should be conducted by private consultants as expeditiously
as possible, ideally within a two year period. It is estimated that such an effort
would cost $8-10 million over that period. Thereafter, every five
years, each local government in the state should conduct
a professional and comprehensive condition assessment of
all of its roadways and bridges according to standards set
by the Arkansas State Highway and Transportation Department in
consultation with the Arkansas Municipal League and the Arkansas
Association of Counties.
An analysis of the initial assessment should
be prepared that clearly spells
out the system preservation needs for
each local government jurisdiction in
the state. Subsequent assessments can be
phased over a three to five year cycle. The results
should be reported to the citizens of each jurisdiction and to the General
Assembly. They can be conducted by properly trained local government staff,
consultants or by AHTD under contract (noting that the Department would
require additional staff to do so). Training programs at the Arkansas Municipal
League and the Arkansas Association of Counties should be established to
train local public works officials in the productive use of asset management
information in order to reduce the long-term cost to the public.
2. Allow Counties to Raise the Road Tax Beyond 3 Mills With a Public Vote
Schools and public libraries can raise property taxes without limit if approved by
a public vote. Local roads should have the same taxing authority. A constitutional
amendment is required that will allow the county quorum court to levy up to 3 mills of
county road tax by majority vote and to refer an unlimited amount of additional county
road tax to the public.
3. Require Minimum Local Tax Effort By Counties For Increased State Turnback
Thirty-three (33) counties levy their full 3 mills in county road tax, and forty (40) levy
over 2.4 mills. Nineteen (19) counties levy a local sales tax dedicated to roads in lieu
of the full county road tax; eighteen (18) levy a sales tax in addition to a high road
millage. But ten (10) counties levy a road tax below 2.5 mills and have not dedicated
sales tax in lieu. The Committee felt that, like with public schools, a minimum local
tax effort with either the county road tax or a dedicated sales tax should be required
before counties and the cities therein can receive an increase in state turnback over
2010 levels.
4. Require Reporting on State Road Turnback Expenditures.
The State of Arkansas turns over 30% of motor fuel taxes to its cities and counties
26
4. Pavement Condition Assessment of Local Roadways Study
Rationale:
Unlike the state highway system, there is no reliable and comprehensive data
on the needs of cities and counties for either the preservation of their existing
27
Chapter 8
roadway systems or the demands for new capacity. Without a measure of need,
it is impossible to define an “adequate” financing system.
The fact is that no one knows for sure because there is no requirement that
cities and counties routinely assess the condition of their roadways based on
accepted professional standards, and it is not general practice among local
governments in Arkansas. In far too many instances, local governments are
driven to a maintenance policy of “maintain on failure, fix the worst first and
wait until next year for the rest”. This is the most expensive way to deal with the
public’s capital assets.
The proposal was not adopted because of concern for the cost of the study, the wide range of
road surfaces on county roads, and the limited staff capacity at the local level to do anything
with the information.
An Alternative Proposal
As an alternative to a full scale, statewide pavement analysis, a representative subset of 10-15
cities and 10-15 counties should be chosen for a demonstration project. The size, topography
and population of the demo jurisdictions should be varied – urban to rural, flat to hilly,
growing to stagnant—so that the results of the demonstration project can be extrapolated to
the rest of the state. While not as good as a complete inventory, it still is a measured, credible
way to establish a realistic estimate of the true needs of cities and counties.
Let’s Do the Math
Addition, Subtraction and the
Impact on Arkansans
The Final Report of the Blue Ribbon Committee indicated the expected
revenue from each of the proposed Revenue Recommendations but did not
add them together nor did it compare them to a Needs Target. This chapter
of the Reader’s Companion corrects that oversight and will attempt to show how the increased
levels of motor fuel tax would impact typical Arkansas drivers over the next decade.
The table below shows the gross new revenue generated by the Blue Ribbon Committee
Revenue Proposals.
!
""
""
"
%
!"
"
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"
)
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11-
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22, *).+
Note: The Transfer of auto related general sales tax dollars from the general fund to the Highway Fund
is projected to begin in 2014 and would not be complete until 2024 even though this chart stops at 2020.
Everything Is Not Enough
Although it is tempting to treat the recommendations as a buffet
(pick the chicken, skip the roast beef), the fact is that if all were
adopted they would not be adequate to fund the needs of state
roads without significant changes to the system, and they would
provide even less for cities and counties.
As the chart on the following page clearly indicates when we
compare the total revenues recommended with the revenue
targets established in Chapter 6, everything is not enough.
28
Although it is tempting to
treat the recommendations
as a buffet . . ., the fact is
that if all were adopted
they would not be
adequate to fund the needs
of state roads without
significant changes to the
system . . .
29
The Breakdown
The following tables show how much new money each suggested revenue source would
provide to the Arkansas State Highway and Transportation Department, cities and counties.
Allocation factors for city and county turnback are found in Appendices C and D.
AHTD
New Revenue by Source (millions)
!
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30
31
Impact on Average Arkansans
The Blue Ribbon Committee did not conduct any study of the impact of its recommendations
on the average Arkansas family or small business. The table below shows how much the price
of gasoline would go up if all of the Blue Ribbon revenue proposals were adopted and phased
in as suggested. To calculate the impact of raising existing excise taxes in lieu of transferring
sales tax revenue on highway related items, simply add 2¢ per year to the total for each year.
Case Study 2. BILL FARMER
Bill lives in rural Arkansas where he runs a small cattle operation on the
weekend, but he works for the state government in Little Rock for his day job.
He drives a Ford F-150 pick-up truck the 60 miles to work and back each day.
He puts 20,000 miles a year on the truck and uses 1,333 gallons of gasoline a
year. In year 5, Bill trades in the old truck for a new F-150 that gets 18 miles
per gallon. Bill’s fuel savings with the new truck is substantial and he ends the
decade with an operating cost savings of $4288. New fuel taxes eat into that,
but he still nets $1188 to the good for the entire decade.
Case Study 3. MARY STEWARD
Mary is a single mom who has a full-time job as a kindergarten assistant and
moonlights part-time as a waitress in West Memphis. She drives a used 1992
Buick Regal that gets 16 miles to the gallon, and only drives 10,000 miles per
year. The increasing gas prices really put a pinch on her budget in years 1, 2
and 3, and the gas taxes cost her an additional $93 in those years. By year
4, her old Buick gives up the ghost, and she is able to get a good deal on Joe
White’s used 2006 Taurus (21 mpg). Joe’s car was priced to sell because there
is a glut of mid-mileage used cars on the market as folks sell for new high
mileage models. The new (old) car reduces Mary’s fuel usage to 429 gallons a
year. Her net savings for the decade is less because she drives fewer miles, but
is still $2146.
Case Study 4. BOB HUMMER
Bob is a bond trader who made it big in packaging sub-prime loans before
the crash. He and his wife drive Chevy Suburbans so they have plenty of
room to haul their daughters’ soccer team around. Bob thinks of himself as a
responsible citizen but is not about to give up the sense of safety the big cars
provide his family, besides he can afford the gas prices. Bob drives his 2007
rig 15,000 miles a year, and, at 15 miles per gallon, it uses 1067 gallons of gas
a year. In year 3, Joe trades his 2007 for a new Suburban that gets 18 miles a
gallon. Again in year 6, Bob trades for a new Suburban that, because of drive
train improvements and a little weight loss, now gets 20 MPG. In year 9, both
Bob’s daughters have left for college, and in a fit of mid-life rebellion, he buys a
Mazda MX sports car that gets 35 miles per gallon.
Over the decade Bob pays $1482 in new fuel taxes. With the gradual
operating improvements of his new Suburbans and the last year operating cost
savings with the Mazda, he wound up the decade with net savings of $2357
after the increase in new fuel taxes are deducted. If the savings are calculated
from his 2007 Suburban, they would be even greater ($4969).
Additional
Cents Per Gallon Fuel Tax (millions)
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Before the reader is tempted to break out the tar and feathers, case studies developed by
Metroplan indicate that if all of the Revenue Proposals are adopted and phased-in over the
coming decade as shown above, the impact of the increased taxes will be more than offset by
even quite small increases in fuel efficiency from a new car or truck bought during the decade.
See the detailed analysis for each case study in Appendix B.
Case Study 1. JOE WHITE
Joe White is the average Arkansan. Joe is a white-collar worker living in Cabot
and working in Little Rock. He drives a 2006 Ford Taurus that gets 21 miles
per gallon. His daily commute is about 45 minutes each way, and he drives
15,000 miles per year, consuming 714 gallons of gas. In years 1 through 3, Joe
paid a total of $118 in new gas taxes. In year four, Joe traded for a new Toyota
Camry that gets 34 miles per gallon. Although, he still drives 15,000 miles per
year, he only uses 441 gallons of fuel a year. Because he uses substantially less
fuel and because gas prices continue to rise, in years 4-10 Joe saves a total of
$6092 in operating costs, but pays a total of $889 in new gas taxes for a net
savings of $5204.
32
33
Chapter 9
Conclusion
For the driver of any vehicle who buys a new car at least once a decade that gets at least 2-5
miles per gallon better mileage than the old car, the savings in gasoline purchases will more
than offset the increase in all of the proposed Blue Ribbon motor fuel tax increases. The more
miles driven, the more dollars are saved. The higher the fuel efficiency differential, the bigger
the savings will be. And the higher gasoline and diesel prices are above the projections used in
these case studies, the greater the net savings. However, the longer one waits into the decade
to traqde, the less savings will be idealized. State incentives to trade for more fuel efficient
vehicles would greatly benefit the average Arkansan.
And because of the investments in highway maintenance, new roadway capacity to reduce
congestion and improved highway safety made possible by these new fuel taxes, Joe, Bill,
Mary and Bob will enjoy more mobility and a better economic environment.
How to Think About All of This
Big Picture, Small Steps, Long-Term
The System Is Broken and It Needs to Be Fixed
The important message to take from the Final Report of the Blue Ribbon Committee
on Highway Finance is that the method of financing our transportation infrastructure is
fundamentally broken, and it needs to be fixed. This is not a temporary problem. It is a
systemic failure in slow motion.
Motor fuel taxes are inelastic in a time of highly volatile construction costs. Motor fuel taxes
are a slowly disappearing resource in a time of rapidly increasing fuel efficiency. And the
75% requirement to raise motor fuel taxes must be overcome or worked around if a workable
solution is to be found.
“The men the American people
Finally, and this may be the most difficult, the public will have
admire most extravagantly are
to start paying the real costs of maintaining too many miles of
the most daring liars; the men
public roadway unaided by the historic rise in vehicle miles
they detest most violently are
traveled. The public has literally gotten something for nothing
those who try to tell them the
for fifty years and cannot have it anymore. And it is dangerous
truth”
to tell them that. Nevertheless, it is a new reality that the
public must be brought to understand.
– H.L. Menken
Phase in the Fixes
Nearly all of the revenue recommendations made by the Blue Ribbon Committee are
constructed to allow them to be phased-in to reduce the sticker shock for the public and
to allow small businesses time to adapt to the changes. The Committee recognized that the
system cannot be fixed all at once, but that it is critical that the General Assembly start fixing it
as soon as possible.
Take the Long View
If all of the recommendations are adopted and phased-in over the next decade, by 2020
Arkansas will have in place a robust and equitable system for financing its state highways.
The roadways of the state are an economic asset that has been built up patiently since
Arkansas was admitted to the Union. It should be our goal to leave it our children and our
grandchildren in better shape than our fathers left it to us. Under our current financing system,
we will not be able to do that.
34
35
This Old House
B.C. McKenzie, my grandfather, was a home builder in Dardanelle, one of the two county
seats of Yell County. So in seeking a way to organize this whole mess in a way that makes
sense, it is not surprising that a home building analogy comes to mind.
Any house must start with a strong foundation. The foundation of our roadway financing
system is our existing motor fuel excise tax base. The first thing that ought to be done
is to protect that foundation from further erosion. The way the Blue Ribbon Committee
recommended to do that is to (1) index the existing motor fuels taxes to the Arkansas Highway
Construction Cost Index three-year trailing average, and (2) to raise vehicle license and
registration fees to the regional average after appropriate study.
Time to build the first floor. Even if the purchasing power of the existing tax base is protected,
an additional $200 million per year will be needed to maintain the status quo in our state
highway system. That means roughly the same number of miles in a state of Good, Fair
and Poor repair and roughly the same number of miles of new capacity to relieve existing
congestion as are being provided now. The Blue Ribbon Committee recommended levying
a new 6% excise tax on the wholesale value of motor fuels (phased in at 1% per year) and to
adjust heavy truck taxes to equitably compensate for the actual damage big rigs are doing to
our roads.
The second floor is still dealing with our existing road system, but with significant
improvements in raising the level of maintenance on all state routes, improving safety on
rural roads and relieving congestion on urban roadways. The Blue Ribbon Committee
recommended transferring the general sales tax revenue from the sale of new and used cars,
tires, batteries and auto related services from the General Fund to the Highway Fund. A
roughly equal amount of revenue could be raised by increasing the existing motor fuels excise
taxes 2¢ per year for ten years or by adding an additional 1% per year for the six years the new
excise tax on the wholesale price of motor fuels levied to build the first floor.
Finally, it’s time to put on the roof – adding new capacity not otherwise warranted by existing
traffic. Mainly this will cover much of the Highway Commission’s designated Four-Lane Grid
System and Economic Development Corridors. The Blue Ribbon Committee recommended
a non-user fee revenue source here – a bond program funded with a ½¢ state sales tax that
would sunset at the end of ten years or whenever the bonds were paid off, whichever comes
first.
36
Add new roadway
capacity for economic
development
Meet system preservation,
safety, and congestion
relief needs on existing
roads
Maintain existing
highway conditions
Protect existing tax base
from further erosion
•Bond issue
funded by 1/2¢
general sales
tax sunset with
bonds, approved
by the electorate
• 10 part transfer
of the sales tax
on new and
used cars, tires
& batteries and
auto services
with triggers to
minimize impact
on general fund
agencies
• New excise tax
on the wholesale
price of motor
fuels at a rate of
6% phased in at
1% per year
• Index motor fuel
excise tax to the
Construct Cost
Index
• Adjust motor
vehicle license
fees to average of
surrounding states
•Adjust taxes and
fees for heavy
truck damage
37
APPENDIX A
Recommendations of the Blue Ribbon Committee on Highway Finance
These Recommendations appear nearly like they appeared in the Blue Ribbon Committee’s
Final Report except (1) they are rearranged in the order they appear in Chapter 5 of the
Reader’s Companion for easy reference, (2) they are slightly reformatted or truncated so the
recommendations and the Committee rationale are clearly delineated, (3) they are corrected
where correction is warranted and (4) additional information, rationale and alternatives
analysis has been added where warranted. Any corrections or additions from the original
text will be shown in italics. Beside each recommendation it will be noted in which section
each can be found in the Blue Ribbon Committee’s Final Report (Revenue Proposals, Other
Recommended Legislation, Recommended Studies, or Other Recommendations).
Obviously, the full text can be found in the Final Report of the Blue Ribbon Committee on
Highway Finance in its original, unedited version.
All revenue projections are made assuming a 1.7% annual VMT growth over the coming
decade, increased average fleet fuel efficiency averaging approximately 2.8% per year over the
same period based on Cambridge Systematics’ average absorption projections done for TXDOT
in 20081, and gasoline and diesel prices based on the Moody’s Econometrics projections. In
addition, all revenue projections, unless otherwise noted, assume that 70% of net revenues
will go to AHTD, 15% to the counties and 15% to the cities.
1
This is slightly revised but more accurate statement on the source of average fleet fuel efficiency figures
than in the published Final Report.
State Highway Recommendations
1. Reissue GARVEE Bonds for Interstate Rehabilitation (Revenue Proposals)
Committee Recommendation:
The Committee recommends that the proposed Interstate Rehabilitation Bond program be
forwarded to a vote of the people as soon as possible.
Rationale:
Act 511 of 2007, the “Arkansas Interstate Highway Financing Act of 2007”, provided the
mechanism to allow the AHTD to reissue bonds for Interstate rehabilitation. Act 153 of 2009
extended the time period for the issuance of the bonds. The maximum amount of bonds that
can be reissued remains at $575 million (similar to the 1999 program). The last series of bonds
must be reissued by December 31, 2015 and the proposed bond program must be passed by a
vote of the people.
38
39
In the 1999 Interstate Rehabilitation Program (IRP), AHTD issued $575 million in bonds.
Using this bonding revenue in addition to other revenue sources allowed over 50% (356 miles)
of the Interstate System in Arkansas to be improved with a total cost of $1.6 billion. Upon
completion of the 1999 IRP, Arkansas Interstates went from being some of the worst roads in
the country to some of the best. Needs on the Interstate System still exist and are continuing
to increase.
As a financing tool, issuing bonds would allow for accelerated improvements. This would also
serve as a hedge against anticipated cost inflation. Reissuance of the bonds would not require
any additional taxes or fees as they will continue to be funded by the Federal-Aid Interstate
Maintenance funds and the existing diesel tax revenues approved in 1999.
2. Index Motor Fuel Excise Taxes (Revenue Proposals)
The Committee recommends indexing the existing gas and diesel excise taxes to the Arkansas
Highway Construction Cost Index three-year trailing average using 2010 as the base year. The
indexing should be an annual and automatic administrative function of the Department of
Finance and Administration conducted as soon as practicable after the end of the fiscal year
or calendar year, whichever is most advantageous. A cap of 2¢ per gallon per year should be
set beyond which an automatic adjustment could not go. Also, a hard floor should be set at
the previous year’s indexed rate so that the excise taxes cannot be automatically reduced by
administrative action, but only be reduced by action of the General Assembly.
Rationale:
Indexing the motor fuel taxes is a way to protect the purchasing power of the main highway
revenue base from erosion by construction cost inflation. This option provides elasticity to the
base, utilizes the existing and highly efficient tax collection system, and is highway-user based.
The Arkansas Highway Construction Cost Index is directly related to the costs of building and
maintaining roadways in Arkansas, and the three-year trailing average smoothes the volatility
of any sudden price moves due to international events or weather related disaster.
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to conduct a study on modernizing and simplifying Arkansas’ license fee classification system.
The study should also recommend a method of gradually raising Arkansas’ light duty vehicle
license fees to the regional average. Finally, the study should coordinate with the Heavy Truck
Study that could be conducted by AHTD to recommend adjustments in license fees for heavy
trucks.
Rationale:
Vehicle registration fees comprise nearly 20% of the revenue to AHTD yet trail the national
and regional averages by considerable amounts. Arkansas’ system of charging for registering
motor vehicles and issuing license fees has grown more complex over the years and could
benefit from simplification. In several instances, the same type of vehicle is charged different
fees based on its use rather than its damage to the roadways, a situation that should be
corrected. Because of the complexity of this structure, a definitive revenue projection could
not be made.
4. Heavy Truck Study (Recommended Studies)
Revenue Projections:
The following table shows a projection of the revenue that would be generated for AHTD and
cities and counties annually from 2012 through 2020 under this recommendation. It should be
noted that the revenue shown includes the existing revenue from the current motor fuel taxes.
When the FHWA cost allocation study is published, the Arkansas State Highway and
Transportation Department, in consultation with the Arkansas Trucking Association, should
analyze diesel taxes and license fees for heavy trucks using Arkansas roads against the
methods and standards put forth in the national study to determine if those trucks are fairly
compensating the state for the damage they are estimated to be doing. AHTD should then
recommend any corrective measures and tax or fee adjustments over and above those
otherwise recommended in this report to the General Assembly.
Three important things should be noted. First, if construction costs do not go up, neither does
the indexed excise tax. Second, this increased revenue does not advance the ball from where
we are; it just keeps the pothole from getting any deeper. And finally, even if motor fuels are
indexed, by the end of the decade, AHTD will be approximately $162 million short of breaking
even unless license and registration fees are raised commensurately or other taxes are levied.
Rationale:
The preferred method for determining the cost of the damage heavy trucks do to the public
highways is a cost allocation study. Arkansas has never conducted a state specific cost
40
41
allocation study, but a new national cost allocation study was due from the Federal Highway
Administration this year but has not been released by the time the Blue Ribbon Committee
completed its work. Consequently, it has been impossible to independently determine whether
Arkansas is being adequately compensated for the damage that heavy trucks do to our
roadways.
6. Transfer Sales Tax Revenue on New and Used Cars, Tires, Batteries and Auto Parts and
Services from the General Fund to a New Highway Trust Fund (Revenue Proposals)
The Committee believes that it is important that the industry and the custodian of the public’s
roads agree upon a fair and impartial method for accurately determining the answer to this
question.
The Committee recommends that beginning the first day of September following the issuance
of the Treasurer of the State’s annual report in which the gross collection of general revenue for
sales and use tax exceeds $2.2 billion, a ten-year phase-in of the sales and use tax estimated
to represent auto related sales (tires, batteries, auto parts and services) and the actual sales and
use tax on new and used motor vehicles, trailers or semi-trailers required to be licensed in this
state, will begin.
5. Levy a New Excise Tax on the Wholesale Price of Motor Fuels (Revenue Proposals)
Rationale:
Arkansas’ highway system has traditionally been highway-user fee based. In 14 states,
general sales taxes on new and used cars, tires and batteries and/or auto parts and services
are considered highway-user related revenues and are used to support the highway program.
Arkansas has historically used those highway-user related taxes to support General Fund
agencies while relying primarily on excise taxes on motor fuels and license fees to support its
highway program.
The Committee recommends levying a new excise tax on the wholesale price of motor fuels as
a method for raising new revenue over and above protecting the current tax base.
Rationale:
This option has most of the strengths of removing the sales tax exemption on motor fuels
without the fatal flaws. It is a user fee. It provides a new revenue source with elasticity. It can
be phased-in and has the potential to raise substantial revenue. It can be levied at the same
point in the supply chain as the current excise tax on fuel volume, and it is expected that the
administrative and collection costs will be comparably low. Since it is levied at a uniform rate
statewide, it avoids some of the locational disruptions that removing the sales tax exemption
would cause, and it does not force oil retailers to make expensive and disruptive changes to
their method of operation.
However, as traditional user fees wane at an accelerating rate due to higher average fleet fuel
efficiency in the future, more of the tax burden for maintaining roads will have to fall on taxing
the vehicle through sales taxes and license fees or come from direct mileage charges such as
tolls or VMT taxes. The attractive thing about this concept is that it does not require a new tax.
For illustrative purposes it is assumed the tax would be phased in 1% per year up to the 6%
state general sales tax rate beginning in FY 2012. The ultimate tax rate and the phase-in
period are variables the General Assembly can adjust based on economic and budgetary
considerations. The top rate can ultimately be greater or lesser than the general sales tax rate.
The $2.2 billion trigger represents a slightly higher number than the high point in the gross
general sales and use tax receipts that occurred in 2007. Rather than require retailers to keep
differentiated tax reports for these sales, the estimated percent of gross sales tax revenue
attributed to tires, batteries and auto parts and services would be transferred to the highway
fund phased over a ten-year period. The sales of motor vehicles and trailers are already
recorded separately, therefore the actual tax receipts would be transferred in phases over ten
years. Once triggered, the phased-in transfer could only be stopped or delayed by legislative
action.
Revenues will vary from projections based on actual wholesale motor fuel prices, and
therefore, have built-in elasticity so that revenues should rise automatically with an increase in
construction costs.
The trigger date under current conditions is expected to be state fiscal year 2014. To the extent
the General Assembly reduces sales and use tax revenue by further reducing or removing the
tax from groceries, the trigger date would be pushed further into the future.
The chart below reflects all new revenue.
Protecting General Revenue Agencies
Revenue
from New Excise Tax on Wholesale Price of Motor Fuels (in millions)
! ! ! " ! # ! $ ! % ! & ! ' ! ( !!
42
Great concern was expressed by some members of the Committee over the potential impact
such a revenue transfer could have on the General Fund agencies that rely on these revenues.
In order to protect those agencies and the important services they provide to the state, the
Committee recommended that the transfer be phased in over a decade and that it not be
started until state general sales tax revenues had regained their high water mark set in 2007.
Over the decade, state General Revenues are projected to grow at a rate that should minimize
or negate the impact on the General Fund left by the transfer. In addition, increasing revenues
from the full implementation Streamlined Sales Tax Agreement to allow collection of internet
43
sales can be reasonably expected to replace at least a portion of the transferred revenues.
7. Temporary Ten-Year One-half Cent Sales Tax to Fund a Bonded Five-Year Construction Program
Committing to the Concept, Then Figuring Out How to Do It
It may help to think of this proposal like the sales taxes on groceries. While most citizens
believed its repeal was the right thing to do, finding the precise time and mustering the political
will took a while.
The first step in assessing this proposal is to determine if it is the right thing to do or whether
philosophically, Arkansas is committed to supporting its highways with pure user fees. If one
believes that it is appropriate that the general sales tax on highway user related items be used
for highways, then the question becomes how and when to begin the transfer.
The Committee attempted to buffer the impact of the transfer, but the reality is that it may have
to be a session by session call based on economic conditions and revenue projections, and the
demands of the general fund agencies . . . assuming, of course, that one is committed to the
concept.
What’s the Alternative?
The Committee did not directly consider alternatives to this option, but some commentary
since the Report’s release suggests a preference for only user fees. If user fees are preferred,
there are two ready alternatives to the transfer that would provide an equivalent amount of
revenue for the immediate future. First, the existing volume based excise tax could be raised
approximately 2¢ per year for each of the next ten years. If it is also indexed for construction
cost increases, it will provide some elasticity as well. The second option is to double the rate of
taxation on a new excise tax on the wholesale price of motor fuels over that proposed above.
So instead of phasing in a six percent tax over as many years, one would phase in a twelve
percent tax over six years. Both alternatives are, of course, new taxes and are shown below in
revenue projections.
The table below compares revenue from the sales tax transfer with that raised from increasing
the wholesale excise tax.
The 2011 General Assembly should refer a constitutional amendment to the voters at the
2012 general election that would (1) levy a one-half cent general sales tax for ten years and
(2) authorize the issuance of general obligation bonds in five series to be retired from the
proceeds of the ½¢ sales tax to fund a five-year construction program. The primary purpose
of the construction program would be to build new state highway capacity on the Four-Lane
Grid System – including capacity improvements on existing freeways. Fifteen percent of the
sales tax revenue would go to cities and fifteen percent would go to counties for local roadway
improvements and would not be bonded unless acted upon separately by individual cities and/
or counties. Cities and counties should be allowed to use their allocations of this revenue for
any surface transportation improvement.
Rationale:
Like the GARVEE bonds, a bond issue is a way of expediting improvements to preempt
projected construction cost increases. The statewide sales tax would allow investment in
strategic connectors that highway-user fees alone might not be able to fund in a timely
manner.
The issue is presented as a self-repealing constitutional amendment because it is the only
way under Arkansas’ outdated constitution that a sun-setting sales tax could be paired with a
general obligation bond issue that requires voter approval.
AHTD estimates the projected revenue will support a $1.794 billion construction program
with bonds issued in five equal series beginning in 2012. Construction projects would be let
to contract over the first five years, with the bonds being retired in ten years. It was the intent
of the Committee that the sales tax would expire after ten years or when the bonds were paid
off, whichever came first. Since tax revenue often exceeds projections, it is possible the bonds
could be paid off early, in which case the out-year funds to cities and counties would cease on
bond retirement.
Alternatives
to Revenue Transfer (in millions)
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45
8. State Highway System Reduction Study (Recommended Studies)
It is recommended that AHTD conduct a study to identify those current and planned new
state highway routes that meet defined state strategic objectives. A target cap on state mileage
should be proposed by the study that would reduce the state highway mileage to its strategic
core.
Rationale:
The AHTD System Reduction Study should identify the specific roadways recommended to
be transferred to city and county governments, the cost required to improve those roadways
to a state of good repair prior to transfer, legal issues that may be raised by the transfer, and
the amount of funds necessary to be provided the individual receiving jurisdictions in order
to adequately maintain the roads over time. Because of their long design life and high costs,
bridges on routes proposed to be transferred may need special consideration, which should be
addressed in the study. The study should also consider whether and under what circumstances
a local jurisdiction might refuse to accept a road proposed for transfer.
The study should specifically consider urban arterial mileage and low volume rural state
highways that could be gradually transferred to the appropriate cities and counties over the
period of a decade. Roadways that met the criteria would be included in the State Aid System
that would be expanded to include urban arterial roadways. The roadways should be assumed
to be in a state of good repair when transferred and the costs for that should be included in the
study.
The purpose of the state highway network is to connect the state – both destinations within the
state and the state with the nation. It is not to move people around within those destinations.
However, the gradual accretion of old state highways within cities that now function as urban
arterial roadways and low volume rural highways burden the state highway system to such a
degree that it does not have the resources to make needed strategic investments.
Shrinking the state highway system to its strategic core will require a commensurate investment
in local road systems to make any transfer a win-win proposition between AHTD and local
governments.
9. Build Sub-State Capacity
9.1 Regional Mobility Authority (RMA) Tax Capacity and Multi-County Taxing Authority
(Other Recommended Legislation)
Regional mobility authorities currently authorized by law should be strengthened by providing
additional local option taxing authority for the organizations, by providing start-up funding
to incentivize their creation, by establishing an infrastructure bank to provide loan financing
to RMAs, by establishing multi-county taxing authorities for the purpose of improving surface
46
transportation facilities and services within the designated RMA region and by providing
matching funds to RMAs for any regional funds raised during the first five years after RMAs
are established. If multi-county special taxing districts cannot be accomplished legislatively, a
constitutional amendment allowing their establishment should be proposed.
Rationale:
Arkansas’ RMA legislation is in line with a national trend to create regional funding structures
to provide specific transportation improvements to support the regional economy. It is robust
legislation except in two areas. The first area involves the financing provisions. RMAs must
rely on borrowing unused local sales tax capacity from their member local governments.
Second, while RMAs may be composed of several counties, any taxes levied for the
benefit of RMAs must be voted on and spent within the individual counties. Truly regional
improvements, that may be primarily located in one county, cannot be financed by the entire
region.
RMAs are voluntary associations, whereas the Regional Transportation Districts discussed
below would be established statewide by legislative action. Both are an attempt to bring more
resources to the table. Several comments at [the Committee’s] public hearings suggested that
locally defined projects, referred to the voters, and funded with a sunsetting tax have had and
can have a high rate of success.
9.2 Multi-County Regional Transportation Districts Study
(Recommended Studies)
An interim study should be undertaken on the desirability and methods for the establishment
of special districts--Regional Transportation Districts--throughout the State of Arkansas with
broad local option taxing capacity to provide sub-State transportation facilities and revenues.
The RTDs should have powers similar to the Regional Mobility authorities, be established
generally along commute sheds within the State to capture sub-State market areas, and should
have multi-county taxing authority subject to popular vote within each district.
Rationale:
The concept of regional transportation authorities is spreading internationally and in the
United States and is currently focused mainly on metropolitan economic regions. In Arkansas,
the Regional Mobility Authority Act establishes a framework for the voluntary establishment
of such mobility authorities. To date, only Washington and Benton counties have formed an
RMA.
However, if the State divests itself of local and sub-regional roadways, some mechanism
should be available to step into the gap. Indeed, it was suggested in at least two of the public
hearings that the State concentrate on its strategic investments while more sub-State priorities
could be dealt with better at the local or regional level since there would not be an issue of
transferring locally levied taxes to other parts of the State.
47
The State of Georgia recently established multi-county special taxing districts for roadway
improvements with special local (regional) option tax authority. This legislation might prove a
beneficial model for developing other institutions to share the burden of roadway improvement
with AHTD.
10. Vehicle Miles Traveled (VMT) Tax (Other Recommendations)
The VMT tax is not recommended for consideration at this time because of uncertainties
over collection methods and technologies, privacy issues and absence of federal standards.
However, it is the consensus of opinion in the transportation profession and among the
committee that because of shifts to hybrid, electric and alternative fueled vehicles in the future,
a direct mileage charge for the light duty fleet will be necessary to maintain the transportation
system. Average fleet fuel efficiency is projected to accelerate rapidly after 2020 and a national
policy on VMT taxes is expected prior to that time.
From a long-term revenue perspective, it is recommended that AHTD begin planning for
transitioning to a VMT tax by 2020 in order to be prepared to move quickly once national
standards are established. Absent federal preparation for a VMT tax, the committee
recommends that AHTD work with the Texas DOT and other states that are actively working
on VMT tax standards independent of federal action.
11. Public Private Partnership/Tolling (Other Recommendations)
Based on extensive analysis by AHTD, tolling existing and certain proposed new
roadways is not currently viable. It is noted that future changes in federal policy regarding
tolling existing freeways could make tolling a useful tool for some improvements to major
facilities. Tolling and the use of public private partnerships to finance improvements should
be regularly assessed by AHTD as to their usefulness as a partial funding mechanism for
appropriate projects, including major roadways on new location and capacity additions to
existing freeways.
City and County Recommendations
1. State Aid Programs for Counties and Cities (Revenue Proposals)
The Committee recommends levying 1¢ per gallon of new motor fuel excise tax to fund the
County Aid program, directing the revenue generated by the existing 1¢ per gallon funding
into the Highway Fund and indexing the County Aid 1¢ per gallon to the Arkansas Highway
Construction Cost Index three-year trailing average. The Committee further recommends
levying 1¢ per gallon new motor fuel excise taxes to fund a new State Aid to Cities Program
and indexing it to the Arkansas State Highway Construction Cost Index three-year trailing
average. The Arkansas State Highway and Transportation Department, in consultation with the
48
Arkansas Municipal League, should be tasked with developing the criteria for fund allocation,
project eligibility and project selection.
Special Comment:
This recommendation got convoluted in a last minute restructuring. The original
recommendation from the New Revenue Subcommittee was to increase the County Aid
program gradually to 3¢ per gallon to compensate for the ravages of inflation since it was
created in 1973, then to create a City Aid program equal to the County Aid Program (gradually
going to 3¢ per gallon) to try to return to the 70/15/15 division of myth, and then to index
them both. There was some objection to raising the County Aid dedicated tax to 3¢ and
both recommendations were tabled. In combining the two proposals for reconsideration, the
drafters mistakenly assumed that the current County Aid funding came from AHTD’s 70%
rather from an already dedicated 1¢ per gallon.
The intent of this recommendation therefore can be more easily satisfied by (1) indexing the
existing County Aid 1¢ to the Arkansas Highway Construction Cost Index three year trailing
average (CCI-3) and (2) levying a new 1¢ per gallon motor fuels tax to fund a new City Aid
Program, likewise indexed to the CCI-3.
Some Thoughts on How to Structure a New City Aid Program
Like the County Aid program, a new City Aid Program would be administered by AHTD.
Eligible roadways would be all the non-freeway state highways within the city limits of Arkansas
municipalities. Those roadways serve as urban arterials in virtually every community in the
state.
Program funds should be allocated by county by the relative number of lane-miles of state
highway (non-freeway) within all incorporated municipalities within each county. Annually, the
City Aid projects within each county are to be recommended to AHTD by the already existing
Intergovernmental Cooperation Councils.
Rationale:
The State Aid to Counties Program was begun in 1973 with a $9 million appropriation that
has grown to a full 1¢ motor fuels tax generating approximately $20 million per year today.
However, adjusted for inflation, the original appropriation would require 2.25¢ of motor
fuel tax to retain the same purchasing power. There are currently 15,000 miles authorized
for the County Aid system, yet only 9,339 miles are currently designated due, in large part
to the inadequate revenue available for it and the large amount of mileage not meeting the
established criteria for the system.
The State Aid for Cities program was authorized in 1973 using funds received by the State from
Federal Revenue Sharing. However, the Revenue Sharing Program ended in 1981, ending the
funding source for the State Aid to Cities Program. From 1973 through 1981, the State Aid for
Cities Program received almost $7.2 million.
Directing the existing revenue for the State Aid for Counties Program into the Highway Fund
49
would result in all existing highway revenue being distributed at 70% to AHTD, 15% to
counties and 15% to cities. Indexing these taxes would protect the purchasing power of this
revenue source in the future.
The following table shows a projection of the revenue that would be generated for the State
Aid Programs for Counties and Cities annually from 2012 through 2020 based on the simplified
intent of this recommendation, which was to create a new City Aid Program commensurate
with the County Aid Program.
New
Revenue to Cities (New 1¢ indexed) and Counties (from indexing)
! " # $ % & 2. Constitutional Amendment to Raise 3.0 Mill Limit for County Road Tax
Rationale:
Only 47% of the 16,443 mile State Highway System nominally pays for itself based on the
volume of traffic and the current tax rate. The clear purpose of the State primary highway
system is relatively long-distance travel to get from place to place. User fees are clearly
the most equitable way to pay for those roadways. The sole purpose of a great many of the
other state, county and city routes is to provide access to property. Whether it is commercial
property or simply the road that leads to your house, that property is increased in value by
having adequate, safe and well-maintained access. Property tax, in the form of the county
road tax, is therefore an equitable means of paying for local roads, the primary purpose of
which is access to property. Unfortunately, unlike the property tax levy for schools or libraries,
the property tax millage for roads is capped by the Constitution at three mills.
While 40 of the Arkansas’ 75 counties levy 2.5 mills or greater for county road tax (33 levy
the full 3.0 mills), 25 levy under 2.0 mills and 27 of those levy under 1.5 mills. In some
cases, a local sales tax has been substituted for the county road millage. Of the 40 counties
with a 2.5+ road millage, 45% also have a county sales tax dedicated to roads, and it is still
inadequate. On the other hand, 71% of the counties with road taxes of less than 2.5 mills levy
a dedicated sales tax for roadways.
4. City and County Reporting on Turnback Expenditures
A constitutional amendment should be offered to allow county quorum courts to remove the
limitation on the amount of the county road tax provided any such tax levied over 3.0 mills
must be approved by the voters of the county.
Rationale:
County quorum courts should still be allowed to levy up to 3.0 mills directly. However, the
county road millage above 3.0 mills should be allowed if referred to and approved by the
electorate without limitation. It is true that local governments have significant local sales tax
capacity. However, Arkansas roads have been primarily user fee supported. Low volume
roadways benefit property, and property taxes are the most equitable means of supporting
those roads. Adequate property tax capacity should be available to local governments if their
citizens deem it preferable.
Cities and counties should be required to annually report turnback expenditures by location,
amount and type of expenditure. AHTD, the Arkansas Municipal League, and the Arkansas
Association of Counties should jointly develop and recommend reporting formats and
standards.
Rationale:
Unlike reporting of expenditures on the State Highway System and the existing State Aid
Program for Counties, there is no reliable and comprehensive reporting of expenditures of
highway turnback funds by counties and cities. Reporting on existing state aid expenditures
(turnback and county/city aid programs) is the first step in establishing accountability for these
funds.
3. Required County Minimum Tax Effort (Other Recommended Legislation)
There should be a minimum local tax effort required in order to receive highway turnback
funds. In order for a county or the cities within that county to receive any turnback funds
above that received in 2010, counties should be required to levy and maintain a county
road tax millage of 2.5 mills or higher . If a county has a county sales tax dedicated by ballot
language to roads and that tax generates an annual amount of funding equal to or greater than
what would have been generated by the difference between 2.5 mills and the county road
millage, it would be deemed to have met this requirement.
50
51
APPENDIX B
APPENDIX B
Case Studies
Case Studies, cont’d
Arkansas Scenario 2 - Lower Fuel Cost Estimates
CASE STUDY #3 - MARY STEWARD
1992 Buick Regal
ASSUMPTIONS
1. Fuel cost estimates from the June Energy Information Administration assume mild and flat economic recovery
2. New gas taxes based on complete adoption of all Blue Ribbon Committee recommendations phased in
3. New gas revenues adjusted downward by lower returns from new excise tax on wholesale price
4. $ Saved does not include incremental cost of purchasing a new auto
AVMT
AMPG
Gal/Yr
CASE STUDY #1 - JOE WHITE
2006 Ford Taurus
AVMT
AMPG//Gal/Yr
Gal/Yr
2011 Cost
2012 Cost
2013 Cost
2014 Cost
2015 Cost
2016 Cost
2017 Cost
2018 Cost
2019 Cost
2020 Cost
Totals
Phased-in
New Taxes
$/Gal
0.010
0.050
0.105
0.157
0.197
0.235
0.275
0.284
0.295
0.304
15,000
21
714
Total New
Tax Per
Year
$7
$36
$75
$69
$87
$104
$121
$125
$130
$134
$889
Avg. Annual
Total
Fuel Cost
Annual Fuel
$/Gal.
Costs
$2.53
$1,805
$2.67
$1,904
$2.91
$2,076
$3.01
$1,329
$3.07
$1,354
$3.14
$1,385
$3.20
$1,413
$3.25
$1,436
$3.29
$1,452
$3.34
$1,473
$15,626
New Car
Purchased
CAMRY Hybrid
MPG
Gal/yr
34
441
Net $ Saved
(Fuel
Savings
Fuel Cost
Less New
Savings
Taxes)
$0
-$7
$0
-$36
$0
-$75
$823
$754
$838
$751
$857
$754
$875
$753
$889
$763
$899
$769
$912
$778
$6,092
$5,204
CASE STUDY #2 - BILL FARMER
2000 Ford F-150
AVMT
AMPG
Gal/Yr
2011 Cost
2012 Cost
2013 Cost
2014 Cost
2015 Cost
2016 Cost
2017 Cost
2018 Cost
2019 Cost
2020 Cost
Totals
20,000
15
1333
Phased-in
New Taxes
$/Gal
0.010
0.050
0.105
0.157
0.197
0.235
0.275
0.284
0.295
0.304
Total New
Tax Per
Year
$133
$267
$400
$533
$219
$261
$306
$316
$328
$338
$3,100
Avg. Annual
Total
Fuel Cost
Annual Fuel
$/Gal.
Costs
$2.53
$3,369
$2.67
$3,555
$2.91
$3,875
$3.01
$4,017
$3.07
$3,410
$3.14
$3,488
$3.20
$3,559
$3.25
$3,616
$3.29
$3,657
$3.34
$3,709
$36,254
52
New Car
Purchased
New F-150
MPG
Gal/Yr.
18
1111
Net $ Saved
(Fuel
Savings
Fuel Cost
Less New
Savings
Taxes)
$0
-$133
$0
-$267
$0
-$400
$0
-$533
$682
$463
$698
$436
$712
$406
$723
$408
$731
$404
$742
$404
$4,288
$1,188
2011 Cost
2012 Cost
2013 Cost
2014 Cost
2015 Cost
2016 Cost
2017 Cost
2018 Cost
2019 Cost
2020 Cost
Totals
9,000
16
563
Phased-in
New Taxes
$/Gal
0.010
0.050
0.105
0.157
0.197
0.235
0.275
0.284
0.295
0.304
Total New
Tax Per
Year
$6
$28
$59
$67
$84
$101
$118
$122
$126
$130
$842
Avg. Annual
Total
Fuel Cost
Annual Fuel
$/Gal.
Costs
$2.53
$1,421
$2.67
$1,500
$2.91
$1,635
$3.01
$1,291
$3.07
$1,315
$3.14
$1,345
$3.20
$1,373
$3.25
$1,395
$3.29
$1,410
$3.34
$1,431
$14,116
New Car
Purchased
FORD TAURUS (Used)
MPG
21
Gal./Yr
429
Net $ Saved
(Fuel
Savings
Fuel Cost
Less New
Savings
Taxes)
$0
-$6
$0
-$28
$0
-$59
$404
$336
$411
$327
$420
$320
$429
$311
$436
$314
$441
$314
$447
$317
$2,988
$2,146
CASE STUDY #4 - BOB HUMMER
2007 Chevy Suburban
AVMT
AMPG
Gal/Yr
2011 Cost
2012 Cost
2013 Cost
2014 Cost
2015 Cost
2016 Cost
2017 Cost
2018 Cost
2019 Cost
2020 Cost
Totals
16,000
15
1067
Phased-in
New Taxes
$/Gal
0.010
0.050
0.105
0.157
0.197
0.235
0.275
0.284
0.295
0.304
Total New
Tax Per
Year
$11
$53
$93
$140
$175
$188
$220
$227
$236
$139
$1,482
Avg. Annual
Total
Fuel Cost
Annual Fuel
$/Gal.
Costs
$2.53
$2,695
$2.67
$2,844
$2.91
$2,583
$3.01
$2,678
$3.07
$2,728
$3.14
$2,511
$3.20
$2,562
$3.25
$2,603
$3.29
$2,633
$3.34
$1,526
$25,364
New Car
Purchased
CHEVY SUBURBAN
MPG
18
Gal/Yr
889
CHEVY SUBURBAN
MPG
20
Gal/Yr
800
MAZDA MX-5
MPG
Gal./Yr.
35
457
Fuel Cost Net $ Saved
Savings
(Fuel
Over
Savings
Previous
Less New
Car
Taxes)
$0
-$11
$0
-$53
$517
$423
$536
$396
$546
$370
$279
$91
$285
$69
$289
$65
$293
$57
$1,144
$948.95
$3,888
$2,357
53
APPENDIX B
APPENDIX C
Case Studies, cont’d
County Turnback Factors*
CASE STUDY #4.1 - BOB HUMMER
2007 Chevy Suburban
AVMT
AMPG
Gal/Yr
+,++
+-++
+.++
+/++
+0++
+1++
+2++
+3++
+4++
,+++
,,++
,-++
,.++
,/++
,0++
,1++
,2++
,3++
,4++
-+++
-,++
--++
-.++
-/++
-0++
-1++
-2++
-3++
-4++
.+++
.,++
.-++
..++
./++
.0++
.1++
.2++
.3++
2011 Cost
2012 Cost
2013 Cost
2014 Cost
2015 Cost
2016 Cost
2017 Cost
2018 Cost
2019 Cost
2020 Cost
Totals
16,000
15
1067
Phased-in
New Taxes
$/Gal
0.010
0.050
0.105
0.157
0.197
0.235
0.275
0.284
0.295
0.304
Total New
Tax Per
Year
$11
$53
$93
$140
$175
$188
$220
$227
$236
$139
$1,482
Avg. Annual
Total
Fuel Cost
Annual Fuel
$/Gal.
Costs
$2.53
$2,695
$2.67
$2,844
$2.91
$2,583
$3.01
$2,678
$3.07
$2,728
$3.14
$2,511
$3.20
$2,562
$3.25
$2,603
$3.29
$2,633
$3.34
$1,526
$25,364
New Car
Purchased
CHEVY SUBURBAN
MPG
18
Gal/Yr
889
CHEVY SUBURBAN
MPG
20
Gal/Yr
800
MAZDA MX-5
MPG
Gal./Yr.
35
457
Fuel Cost
Savings
Over 2007
Car
$0
$0
$517
$536
$546
$837
$854
$868
$878
$2,035
$7,069
Net $ Saved
(Fuel
Savings
Less New
Taxes)
-$11
-$53
$423
$396
$370
$649
$648
$650
$642
$1,254.02
$4,969
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!%
#!%
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+(++4--3421-
*Numbers reflect 2010 census data.
54
55
APPENDIX C
APPENDIX D
County Turnback Factors, cont’d
17..
2...
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20..
21..
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23..
24..
25..
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27..
3...
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56
57
APPENDIX D
APPENDIX D
City Turnback Factors, cont’d
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59
APPENDIX D
APPENDIX D
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+(+++4+,,,1+(++,-,+.04.
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+(+++.+//0-2
+(++++24.+12
+(+++-/-2,+1
+(+++-2,43/4
+(+++.-,/30+
+(+++,+0.320
+(+++/-/2/.0
+(+++.+,-04+(+,04-/132.
+(+++-,11-43
+(+++,,42030
+(++++-32/-+
+(+++,-22/-/
+(++,.+4.041
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+(+++/+003-,
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+(+,-,.+2.3+
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+(+++2.+-1+2
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+(++-1+-20,0
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+(+++-+/.323
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+(++++/34124
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+(+++/+,.-/,
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+(+++-+3,,.2
+(+++,+-,4.4
+(+++/022/.1
+(++,,-0,422
+(++//0./,40
+(+++1/+3/,,
+(++++0/3--3
+(4444444443
To the B lue Ri bbon C om m i ttee on H i ghway F i n an ceTo
Rep
the
or tB lue Ri bbon C om m i ttee on High way F inance Re po r t
61
62

blue ribbon committee on highway finance report

Transcription

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