In 2012, Arkansans got to vote on a proposal to help fund highway construction. In 2020, they will get to do it again on a permanent basis.
Seven years ago, a proposal for a 10-year, 0.5% sales tax dedicated for $1.3 billion in highway funding passed with more than 58% of the vote.
A constitutional amendment to make the 0.5% tax permanent will be on the 2020 ballot. Supporters and critics of the proposal agree that Arkansas is in dire need of a highway funding mechanism but disagree on the wisdom of the sales tax.
Gov. Asa Hutchinson said the sales tax would generate $205 million annually for the state’s Department of Transportation and another $88 million to be split between cities and counties.
On the other side, Bill Kopsky, executive director of the Arkansas Public Policy Panel, personally opposes the 0.5% sales tax, which he said is an example of a “rigged” tax system that punishes middle- and lower-income Arkansans.
Kopsky said Arkansans who make less than $18,000 spend 13% of their income on taxes, compared with less than 6% for high-income earners in the state. With the election more than a year away, Kopsky said, the Arkansas Public Policy Panel hasn’t taken an official stance on the proposal.
“This is really shifting costs from wealthy businesses to low-income consumers,” Kopsky said. “That is what sales taxes do generally and why they are, generally, bad policy. We’ve cut all the taxes that wealthy individuals normally would pay, and their proportion of what they pay on sales taxes is much lower than what a middle-class or lower-income family pays. We really need to reform how we pay for state services in Arkansas.”
Arkansas Trucking Association President Shannon Newton, a supporter of the sales tax, said the permanent extension of the tax would be a win-win for all Arkansans.
“It has been very popular and continues to be very popular,” Newton said. “The half-cent burden is spread out over all the sales tax [and] allows everybody to pay a little bit and everybody receives a benefit of a lot. The cities and counties have a very big stake in that. When you look at everybody is paying and as that money is dispersed, it is reaching every part of rural Arkansas as well as the 70% that is going to the highway department.”
Newton said the ATA expects to contribute financially to the campaign to get the measure approved in 2020. The Trucking Association will also, in all likelihood, use its network of industry leaders to remind the public of the benefits of the sales tax.
Newton said an important aspect of the tax is that it isn’t an increase. Arkansans are already paying the tax.
“More importantly would be encouraging and educating our members and all the network we have access to to the importance of the half-cent campaign and the importance of infrastructure funding, how that money has been used for the past 10 years and how it will continue to benefit Arkansans,” Newton said. “Ever since the half-cent passed, it has been popular across all polls, all parties — that particular plan, the usage of those funds and dedicating that money to roads. You can divide it by men, women, rural Arkansas, central Arkansas, northwest Arkansas.
“We anticipate educating people about what has been done and what remains to be done. We think they will continue to feel that way about it.”
While Newton expressed confidence in the proposal’s chances, Kopsky said his concern is that the half-cent sales tax will be lost among other issues on the 2020 ballot, which will include contested state races, a presidential race and other ballot questions. He said he hasn’t heard a lot of vocal opposition as of yet — and it is still more than a year from vote — of the half-cent extension.
“For some groups that have traditionally opposed measures like this, there is the calculation of fear that if this is defeated, the highway lobby may try to pull more money out of general revenue,” Kopsky said. “There is so much other high-level stuff happening right now that this has potential to get lost in the wash and not have anyone really engage in it one way or the other. It is a really noisy time period. Part of my concern is that I don’t think a lot of people are going to pay a lot of attention to it.
“Whether you’re pro or con there needs to be a giant education effort to make sure people understand what they are signing up for.”
The Legislature’s proposed solution to the state’s long-standing highway funding problem is actually a combination of solutions.
The half-cent sales tax is the meatiest portion, but the state also approved a separate bill that raises the gas tax 3 cents a gallon and the diesel tax 6 cents a gallon, which went into effect in October. Those tax increases, along with registration fees for hybrid and electric vehicles, were projected to raise another $58 million for the state and $26 million for cities and counties.
Revenue from casino taxes would raise $35 million. If the casino tax fell short of that amount, the money would come from general revenue sources.
The state had tried in recent years to come up with a plan with Hutchinson forming the Working Group on Highway Funding in 2015. This past legislative session, something was finally done, something Newton — a member of the working group — was discussing with a legislator this past week.
“All the different forms and shapes and debates that have been had on the topic of infrastructure funding — there are as many ideas as there are people,” Newton said. “The fact that we were able to compile a plan to get all of the Legislature and the governor and all of industry stakeholders to really push and pull for this specific plan says a lot. Is it perfect? No. If you were to write one, would it be exactly what you would write? Would it be what I would write? No. But it is a plan with broad-based support in which everybody pays a little and the benefit is a lot.
“When we were evaluating what types of solutions we would support, is it feasible and is it meaningful? This plan checked both of those boxes.”
Newton said it is important to note that if the proposal fails at the ballot box, the funding that the Arkansas Department of Transportation and cities and counties are currently receiving from the 10-year tax will end in 2023. Infrastructure funding would then probably face a bigger hole.
“We have finally got to a point where it is not just the people in Little Rock, it’s not just the people who do business on the roads, it’s everybody who has realized we are behind and we have a problem,” Newton said. “If I can keep paying what I have been paying, that sounds like a solution most people would go along with.”
Kopsky said the sales tax’s permanent extension would also be an extension of state actions that will further punish the middle and lower economic classes.
“This really is just one drop in the bucket of bad policy in Arkansas,” Kopsky said. “We need to have a much broader conversation about the inequity in the state. Our current tax policy that the Legislature and governor really put on steroids is fueling economic disparity in the state. We should be doing the opposite: investing in policies that close those income gaps.”