Arkansas Panel: Look at Tax Hikes, Revenue Shifts for Roads

A task force on Thursday recommended several options for boosting money for Arkansas roads, including tapping into car sales tax revenue and raising fuel taxes, but stopped short of endorsing a specific plan to address a highway funding shortfall.

The recommendations issued by the Governor’s Working Group on Highway Funding are aimed at raising more than $160 million annually for highways over the next three years. The panel is expected to give its report to Republican Gov. Asa Hutchinson early next month.

“More than anything, we just wanted to lay the groundwork for some of the individual mechanisms you could use, or some of the ways you could package the individual mechanisms together,” said state budget administrator Duncan Baird, the group’s chairman.

Arkansas highway officials say they have $20.4 billion in needs over the next decade, but only $3.6 billion in expected state and federal money to use. Hutchinson, who formed the group in April, has said he thinks any proposed fee or tax increases need to be offset by tax cuts elsewhere.

“It is important to fund our highways but we want to keep the hardworking Arkansan in mind when they are at the gas pump filling up their truck as they commute to work,” Hutchinson said in a prepared statement Thursday.

The governor said he’ll make his own recommendations on highway funding next month or early January, and will also decide whether he wants additional work from the panel.

One of the plans recommended by the group calls for offsetting any tax increase for highways with an already planned cut in the state’s sales tax in groceries. It also would give the highway department a sales tax rebate on construction materials used for road projects.

Rep. Andy Davis, a member of the panel who backed that approach, said only revenue-neutral plans would have hope of passing in the majority-Republican Legislature.

“I think there’s just a general belief that we need to keep pressure on state government to control spending, and any time we add revenue availability then we’re letting that pressure off,” said Davis, a Republican from Little Rock.

Despite that warning, the panel’s recommendations include various proposals to raise the state’s tax on gasoline and diesel fuel, including plans to tie the fuel tax to inflation. Another proposal would remove the sales tax exemption for gasoline and diesel.

The recommendations also include gradually transferring new and used car sales tax revenue to highways, an idea that opponents say will threaten funding for education, health and other programs.

Randy Zook, president of the Arkansas state Chamber of Commerce, said offering a range of options made sense given the difficulty in passing any highway funding plan.

“Are people willing to pay for it? I think people will if they get a clear picture of what they get for their money,” Zook said.

One of the largest proposals phases in a fuel tax increase – which would also make up for inflation – to eventually raise $460 million a year. The proposal by Frank Scott, a member of the state Highway Commission, also calls for the state to consider imposing a fee based on drivers’ reported annual mileage.

“My recommendation is shoot for the stars and hopefully land on the moon,” Scott said.

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