Study: Voters Favor New Tax on Fuel Wholesalers for Highways

Study: Voters Favor New Tax on Fuel Wholesalers for Highways
Craig Douglass, executive director of the Arkansas Good Roads Foundation, presents revenue projections to the State Highway Commission at a special meeting Wednesday at the state Highway Department's central office.  (Sarah Campbell)

Arkansans prefer maintaining roads to building new ones, would favor a sales tax on fuel wholesalers and support making permanent the temporary one-half cent sales tax they approved in 2012, researchers told the State Highway Commission Wednesday.

Voters also oppose any increase in the current per-gallon fuel tax collected on gasoline and diesel, according to the new study.

Commissioners took no action during a special meeting in which the Arkansas Good Roads Foundation and the Gilmore Strategy Group presented findings from a six-month study seeking long-term solutions to pay for state highways. 

The study involved 20 meetings with stakeholders and a survey of 800 likely voters. The margin of error was 3.5 percent.

The groups also presented potential revenue projections associated with a 6.5 percent sales tax on wholesalers and making permanent the existing half-cent sales tax to fund highway improvements.

Based on consumers paying $2.31 a gallon for gas and $2.55 a gallon for diesel, the tax on wholesalers would generate $231 million for Fiscal Year 2019, according to Craig Douglass, the foundation's executive director.

If the tax were phased in over a three-year period, that figure would drop to $71 million.

Without the phase-in, the Highway Department could see $245 million in FY 2020 and $261 million in FY 2021. If the new tax were phased in, it would generate $151 million and $261 million, respectively.

In both scenarios, projections are $277 million for FY 2022, $294 million for FY 2023 and $312 million for FY 2024.

The existing half-cent sales tax expires in Fiscal Year 2023. If made permanent, the tax would mean another $518 million for FY 2024. Douglass told commissioners they could levy more or less than the 6.5 percent used for those projections.

Douglass said the study's findings are not recommendations but meant to inform commissioners, who make recommendations to the Legislature. The findings will be presented to the governor, legislators and other stakeholders on Monday.

Highway Department Director Scott Bennett said the Governor's Working Group on Highway Funding determined last year that the department needs $250 million in new net revenue over the next three to five years to match federal highway aid and have an enhanced roads maintenance program. The working group set a $400 million target for the next six to seven years, he said.

Douglass said voters are eager to make decisions about highways. The survey said 80 percent of respondents thought the decision to raise taxes for highway improvements should lie with voters, not the Legislature.

"The voters want the ball," Douglass said. "They want to decide."

Douglass said, for the voters to make the decision on this package, a bond issue would have to be attached to it. He said a package could go to voters in a special election this year if Gov. Asa Hutchinson were to call for one.

Douglass also called making the existing tax permanent a "no-brainer," based on the survey results.

Other Findings

Jon Gilmore of the Gilmore Strategy Group presented more findings.

He said 62 percent of respondents favor making the existing sales tax permanent, and 35 percent of those were strongly in favor of that proposal. Those who favored it were then asked if they would approve the proposal today, and 81 percent said they would.

Support for the new tax on wholesalers wasn't as solid, at 48 percent in favor; about half of those were strongly in favor.

Those in favor were also asked if they would still favor the new tax if they knew the extra cost to wholesalers would be passed on to consumers. Gilmore said 55 percent of the group still supported the new tax, but only 18 percent said they strongly favored it.

Another finding showed 71 percent of those surveyed agree that the state should focus on maintaining existing roads and bridges, while 12 percent said the focus should be on building new roads and bridges. Another 14 percent said the state should focus on both, while 4 percent didn't know, refused to answer or gave another answer.

Respondents also expressed what they wouldn't support; 62 percent opposed an increase in gas taxes to improve highways and 45 percent of those strongly opposed it. But when respondents were told gas taxes had not risen in 15 years, 56 percent said they'd favor an increase (but only 23 percent were strongly in favor).

Those in favor were also asked how much more they'd pay per gallon; 48 percent said 1 to 3 cents.

Those surveyed also opposed — by 59 percent — automatically increasing the gas tax to keep up with inflation in the cost of building and maintaining highways.

Gilmore added that the majority of those surveyed said they believed the Highway Department is efficient in spending its money. 

Douglass also said that — before the campaign began for the temporary half-cent sales tax — only 40 percent of the people supported it. Commissioners agreed that the support of cities and counties played a big role in getting the tax approved and would be needed again to get any new taxes passed.

Commissioners also expressed concern about electric and more fuel-efficient vehicles reducing revenue from the tax on wholesalers. But Bennett said a registration fee of $80 on electric vehicles — plus making the existing tax permanent — should make up for lost fuel tax revenue. 

The Legislature

The discussion on long-term funding for Arkansas highways comes as state lawmakers prepare for a session to begin next week. Legislative leaders had not seen the Good Roads report on Wednesday, but they expressed doubt that lawmakers would vote to raise taxes for highways.

"The likelihood that a highway gas tax, diesel tax, sales tax is going to pass to support highways through this Legislature are pretty well slim to none," state Sen. Jim Hendren, R-Gravette, said. 

Hendren also said sending an issue to voters, or diverting existing revenue from other programs to highways, would be uphill battles.

Speaker of the House Jeremy Gillam, R-Judsonia, acknowledged that finding a funding solution is important.

"I know we still have some issues we've got to work through on some more intermediate and long-term funding sources, because it is a factor of economic development we've got to take into account," he said.

Gillam said that, while it's too soon to tell how highway funding might figure into this month's session, the Legislature must make sure the Highway Department has the money it needs to match federal aid dollars.