Week in Review

LITTLE ROCK – The director of the state Highway and Transportation Department told legislators that Arkansas needs an additional $200 million a year in funding simply to maintain state highways in their current condition.

His report came during the first meeting of the Arkansas Blue Ribbon Committee on Highway Finance, a 19-member panel created by Act 374 of 2009 to explore methods of paying for highway and bridge improvements.

The Highway Department brings in about $898 million a year in state and federal funding, but more than half of that amount is obligated to debt service and other fixed expenses. A large proportion of the federal funding Arkansas receives is dedicated to paying off bonds issued to pay for interstate highway improvements.

The department maintains about 16,200 miles of highway. About 77 percent of the traffic in Arkansas travels on state highways. The remainder of the roads in Arkansas are maintained by cities and counties, and although they are more extensive in miles they carry a smaller volume of traffic.

Legislators on the Blue Ribbon Committee were candid about the dearth of politically acceptable financing options, and about the grim prospects of highway funding if nothing is done. A major problem is that motor fuels taxes, the major source of funding for highways, is not expected to grow in proportion with the rest of the economy or with inflation.

The state tax on gasoline is 21.5 cents a gallon. It is not tied to inflation and unlike the sales tax it does not generate more revenue as inflation raises the price of products. In fact, when gasoline prices go up people tend to drive less or carpool. They also tend to buy more fuel-efficient cars. Therefore higher gas prices has a dampening effect fuel tax revenues.

However, inflation certainly drives up the cost of building and maintaining roads. There have been discussions about several alternative methods of generating revenue. One idea that has been talked about is to allocate to the Highway Department revenue from the sales tax on car parts and products related to motor vehicles. There is opposition to this idea because it would reduce revenue that now goes for schools, prisons, health care and higher education.

Another idea is to impose a sales tax on motor fuels, rather than the current tax that is collected on a per gallon basis. Then it would generate increased revenue as the price of gasoline goes up.

The difficulty is that raising taxes of any kind would create vocal opposition, especially in the current economic climate.

School Funding

The Arkansas Supreme Court has under consideration a lawsuit filed by 14 school districts that contend they did not receive enough state funding under Amendment 74 of the state Constitution.

State officials, legislators and school administrators are watching the case closely because of its potential impact on school funding statewide, and its potential impact on the state budget.

Amendment 74, approved by Arkansas voters in 1996, requires districts to levy a minimum of 25 mills in property taxes for maintenance and operations of schools.