After Tax Hike, Arkansas Plans Highway Building Boom

 

Starting about a year from now, Arkansas will begin widening highways in every corner of the state as part of $1.8 billion commitment that will represent the largest infusion of new tax dollars into the state’s transportation system in recent history. The money is the result of a 10-year half-cent statewide sales tax increase voters approved November 6, a rare victory for transportation funding advocates at a time when money for roads is flattening.

When the Arkansas legislature voted to place the sales tax amendment on the ballot, it was responding to the same challenge facing virtually every state. The federal gas tax and most state gas taxes — states’ leading source of transportation dollars — are assessed on a cents-per-gallon basis, which means they don’t keep up with inflation. Plus, as vehicles are becoming more fuel efficient, drivers are buying less gas and paying less in gas taxes. Raising gas taxes is unpopular with the public.

As a mostly poor, mostly rural state, this problem is particularly acute in Arkansas. When the legislature’s Blue Ribbon Committee on Highway Finance studied the issue two years ago, it found that Arkansas has the nation’s 12th largest state highway system, but ranked 42nd in its ability to pay for them. Now, says Madison Murphy, chairman of the Arkansas State Highway Commission, the state is preparing to issue bonds using the prospective sales tax revenue so it can begin construction in late 2013 or early 2014. Many of the projects will expand roads with two lanes to four lanes and four lanes to six.

Transportation funding advocates succeeded in Arkansas in the same year they mostly failed in Georgia, Iowa, Maryland and Michigan, despite major pushes for new dollars. The success in Arkansas occurred even as voters were electing new Republican majorities in the legislature that favor lower taxes and even though the state already had one of the nation’s highest combined state and local sales tax rates. The measure passed in 68 of the state’s 75 counties, receiving 58 percent of the vote overall.

Why did it pass? Supporters note they presented voters with a specific list of projects the tax would fund and they emphasized that the tax was temporary. The measure received strong backing from the business community. Some conservative groups such as the state chapter of Americans for Prosperity opposed the tax, arguing it would hurt the state’s business climate, as did some Republican lawmakers. Yet many prominent Republicans were onboard as well, including Lieutenant Governor Mark Darr and U.S. Senator John Boozman.

Yet all those dynamics — a temporary tax, a specific set of projects and support from business groups and Republicans — were also in play in Georgia this summer, where voters defeated sales tax increases for transportation in nine out of 12 regional votes, including in metro Atlanta. In Atlanta, the vote meant that a years-long strategy to get voters to pay more to help ease congestion ended in total failure.

Arkansas’ approach, however, differed from Georgia’s in subtle ways. Part of the problem in metro Atlanta was various organizations and local governments struggled to agree on what projects to include. In Arkansas, 30 percent of the money will go to localities — 15 percent for cities and 15 percent for counties — to use on whatever projects they deem most worthy. “One of the things we always said is that everyone will benefit,” says Scott Bennett, director of the Arkansas State Highway and Transportation Department, “because there’s a portion of this revenue that will be distributed to every city and county.”

Another selling point was the sales tax increase didn’t apply to gas, medicine or groceries. And, supporters said the work would be done by contractors and consultants, not state employees. “The pitch was this tax will not grow government.” says Randy Zook, the president and CEO of the Arkansas Chamber of Commerce. “It will increase the quality, safety and capacity of our highways.”

Even as supporters of the plan celebrate, they also argue it’s not a permanent solution. The Blue Ribbon Committee found that Arkansas was $19.5 billion short of being able to pay for its highway funding needs. After the sales tax expires in 10 years, the state will be back to depending on the stagnating gas tax, unless it finds an alternative.

The Blue Ribbon Committee recommended permanently dedicating sales taxes from things like vehicle sales, car repairs and tire purchases to highways, instead of the state’s general fund. That would provide Arkansas’ roads with a funding source more likely to keep up with needs than the gas tax.

But, if the recent experiences of other states such as Nebraska and Utah are a guide, trying to take revenue that currently goes to the general fund and redirect it to transportation will prompt a fight from supporters of services, such as education and health care that the general fund sustains. So far, the legislature hasn’t acted on the proposal. “If you’re going to give more money to one agency, you’re obviously going to have to cut some money from another agency,” Bennett says. “That’s the discussion that the legislature is going to have to have.”

 
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