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New Highway Tax to Take Effect in Arkansas

4 min read

LITTLE ROCK – Arkansas’ sales tax on most items will increase by half a cent starting Monday under an effort to raise more cash for the state’s highway system, but transportation officials and advocates say a longer term solution is needed for road funding.

The state’s sales tax will increase to 6.5 percent under the temporary tax increase voters approved last year to raise $1.8 billion for the state’s roads and highways. The tax won’t apply to groceries, gasoline or medicine and will expire by 2023.

Arkansas highway officials say they hope to soon issue bonds that will be repaid by the tax revenue so they can begin work on a list of projects around the state by the end of the year.

The goal, backers of the tax say, is to chip away at a gap between the state’s road needs and the funding available. The Arkansas Highway and Transportation Department says it has $23 billion in needs over the next decade, but only $6 billion in revenue – including the money expected from the tax increase.

“I think the voters recognized there’s a limited source of revenue for highways and this was one way to enhance it, so they supported it as I did,” Gov. Mike Beebe said last week.

But Beebe acknowledged that the tax hike is just a stopgap measure.

“Absent some kind of infrastructure program federally, the odds are it’s an uphill battle to find a long-term systemic solution to highway funding,” Beebe said.

The tax increase was one of the top recommendations from the Blue Ribbon Committee on Highway Finance, which was formed to study ways to increase funding for the state’s roads.

Highway supporters say they haven’t given up on a more controversial recommendation from the panel to divert sales tax revenue from road-related items such as car sales and vehicle parts to the state’s highway program. They argue that the per-gallon gas tax that primarily pays for Arkansas’ roads is an inadequate funding source, with revenues declining as vehicles’ gas mileage improves over time.

A proposal to phase in that transfer over a decade failed before a House panel in March, facing heavy opposition from Beebe and groups who said it would gut Arkansas’ general revenue budget.

The proposal would have transferred sales tax dollars from new and used vehicle sales to the state highway department and local governments once the state’s sales tax collections exceed $2.25 billion. The proposal would have phased in the amount of money transferred. Finance officials estimated it would have taken away $22 million from the general fund in 2015 and $345 million by 2024.

Rep. Jonathan Barnett, a former member of the state highway commission and the sponsor of the bill, said shifting that revenue is the only long-term solution left for addressing the widening gap in funding for state roads.

“We know what we need to do,” said Barnett, R-Siloam Springs. “We’re going to have to get into future revenue growth and any sensible person who has studied highway financing knows we’ve got to get into future revenue growth.”

Education and health advocates lobbied against Barnett’s bill, which they have dubbed “highway robbery,” and say a variety of services would be hurt by diverting revenue growth to highways. They argued the damage would be even more severe, considering a package of tax cuts lawmakers approved that will eventually cost the state more than $140 million a year.

Beebe, who leaves office in 2015, said he remains philosophically opposed to transferring general revenue to highways.

“You’ve always got more needs than you’ve got resources for in general revenue, the chief of which is obviously education,” Beebe said.

Barnett, who is term-limited and can’t run for re-election next year, said he plans to continue pushing for the idea after he leaves office and said it may eventually take a group referring it to voters as a ballot measure.

He’ll have allies among the state’s top highway officials, who say they still see the transfer as the best option for addressing the funding deficit.

Highway Commissioner Robert Moore, the former House speaker who advocated referring the tax to voters, said he hopes whoever succeeds Beebe as governor and lawmakers will embrace the transfer idea or another long-term solution.

Moore said the approval of the highway sales tax by voters – at a time when Republicans won control of the Legislature partly on an anti-tax vow – should offer some guidance to the state’s political leaders on how much of a priority they should place on road funding.

“It has to send a message out to people who are in leadership positions that people think good roads are important,” Moore said. “Everybody, even those who don’t get out and drive, is dependent on good access to transportation that determines how we enjoy the lives that we live.”

(Copyright 2013 The Associated Press. All rights reserved. This material may not be published, rewritten, broadcast or distributed.)

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