August 2018 Issue
by Caleb Talley
Quality infrastructure is critical to preserving and improving the link between producer and consumer. It’s a prerequisite for economic development.
Yet, Arkansas has left plenty of room for improvement when it comes to the maintenance of its expansive state highway system, thanks by and large to a historic funding problem.
Arkansas highways are in desperate need of repair and expansion. But the funding to turn those needs into realities is largely nonexistent, turning to issue of state highway funding into a perennial debate inside the chambers of the Arkansas Legislature…..
In the Rearview
The state highway system was conceived 105 years ago, during the Thirty-ninth Arkansas General Assembly, with the ratification of Act 302, which created the State Highway Commission. Prior to the act’s passage, there had been no statewide authority to plan or direct road construction, all of which was organized at the local level.
By 1916, the federal government began to distribute funding to states for roadway construction, and in 1921, standards were set in Washington by which states would be held in order to qualify for highway monies. Arkansas failed to meet those standards over the course of two years, and in 1923, lost all its share of federal highway funding.
In 1949, after nearly three decades of highway funding conspiracies, near bankruptcies and commission realignments, Sid McMath was elected governor on the promise of a major highway construction project to be financed through bonds. At the time, at least eight Arkansas counties did not have a single paved road. McMath wanted to change that.
McMath sent the program to a vote of the public. And despite opposition, it passed, creating the largest construction and maintenance program in the state’s history. McMath’s plan “to get Arkansas out of the mud and the dust” split funding between rural-to-market roads and primary highways. His infrastructure plan also saw a number of rural roadways become state highways, leaving Arkansas with more miles of highway than neighboring states, such as Tennessee, with greater populations and larger budgets.
And despite a long history of funding issues, the state has yet to relinquish any of those roadways to the counties or municipalities they originally belonged to.
A Special Session
In December 2015, President Barack Obama signed into law the largest infrastructure spending plan in more than a decade, ending an era of stopgaps in federal-to-state highway funding. The FAST Act would appropriate more than $300 billion in transportation funding over the course of five years. The new law was to be paid for, in large part, with gas tax revenue collected from every state.
In order for Arkansas to access a $200-million share of its own gas tax revenue, the state would be required to put up $50 million in match money in each of those five years. If the state failed to meet that requirement, the $200 million it was owed would be distributed to other states.
And when lawmakers failed to agree to a funding plan during the regular legislative session of the 2016 General Assembly early the next year, Gov. Asa Hutchinson called legislators into a special session to ensure the state would receive its federal match funds.
The three-day special session ended with Hutchinson signing into law a five-year plan to utilize surplus revenues to meet the required $50 million in match funds. While the move was praised by some for increasing highway funding without raising taxes, it also drew criticism from those looking for more long-term solutions.
Sen. Keith Ingram, D-West Memphis, was one of the biggest skeptics of the governor’s proposal.
“I went to the floor of the Senate and spoke on the governor’s plan to take surplus funds,” says Ingram from his fourth-floor office at the Arkansas State Capitol. “I said it was smoke and mirrors, that it wouldn’t work.”
A Dead End
According to Ingram, the Senate minority leader, relying on surplus funds was merely a Band-Aid on a problem that required surgery, a short-term fix that would only last so long before it reached a dead-end. He believes the state has reached that dead-end.
“[The administration] said they had an average of $200 million in surplus funds over the last 10 years,” says Ingram. “Last year, the surplus was somewhere around $15 million. This year, there’s zero surplus, even though they have used this figure of $41.7 million.”
The $41.7 million sum he references represents the amount of revenue the state carried over from fiscal 2018, which ended July 1. According to Ingram, the revenue that came above projections isn’t even a surplus at all. It’s revenue that flowed from the Revenue Stabilization Act (RSA) without any spending authority.
“It’s technically not surplus funds,” he says. “The $41.7 million over the forecast did not fully fund all RSA. Therefore, that money is not considered, by law, surplus. It’s recouped or unspent general revenue.”
As of late July, the state is more than $20 million short of its $50 million commitment. “I don’t know where that money is coming from,” says Ingram. “And that’s a real concern.”
But according to the governor, the state will continue to meet its commitment, just as it did the previous two years, regardless of how narrowly.
“We’re fulfilling our commitment to the highway department of about $50 million each year in general revenue to make sure that we are meeting our federal match and able to sustain our current highway plan,” Hutchinson says from campaign headquarters in downtown Little Rock.
Hutchinson submitted a request to state lawmakers, asking for the approval of the additional $21.9 million needed to meet the state’s commitment before a July 31 deadline.
“There shouldn’t be any difficulty meeting the full match,” he assures. “We’ll meet it this year. We’ll meet it each year.”
According to the Department of Finance and Administration, a request was made to the Arkansas Legislative Council for the release of $21.9 million from the state’s rainy-day fund. If the request is approved, the balance of the state’s rainy-day fund would drop to nearly $23 million.
Rubber Meets the Road
Regardless of whether or not Arkansas puts up its match money in 2018, the state is in desperate need of a long-term funding solution for highway construction and maintenance, something it hasn’t seen since 1992.
In the past, and as recently as the 2016 session, lawmakers have proposed additional fuel taxes to fund highway improvements. But others, Hutchinson and Ingram included, worry that tying highway funding to gas consumption is unreliable given the growing number of electric and fuel-efficient cars.
“We need to develop a highway funding plan that recognizes the reality of more fuel-efficient cars,” says Hutchinson, “a better plan long term for a keeping up with the needs of our highway system, which is one of the largest highway systems in the United States.”
Ingram sees an opportunity to generate highway funding with a tax of a different kind.
“I think we have an opportunity that is never going to come along again,” he says. “And that’s the internet tax.”
The Senate minority leader says he would like to see taxes generated from automobile-related sales go toward state highways, while using revenue from an internet sales tax to offset the loss to the general revenue.
“Let’s take automobile related parts – the users – batteries, tires, automobile-related parts, and give that revenue to the highway department for roads and maintenance,” he says. “And then, we use the internet tax money to offset that loss to the general revenue. That way, nobody loses… It’s the only chance I see that we’re ever going to have to get something that has the potential for growth for the highway department.”
The Road Ahead
While the governor would like to see some state highways return to counties and municipalities, he knows it’s unlikely to happen any time soon.
“You had a time in the past that the state took on highways that were never designed to be state highways,” Hutchinson says. “That was a political decision made decades ago. We still live with that today. It’s hard to reverse political decisions even though they’re ancient.”
Hutchinson believes the future of sustainable highway funding in Arkansas will ultimately be decided by the voters.
“There are a lot of different ideas that are out there,” Hutchinson says. “But it’s my goal for the 2019 session of the General Assembly to present a long-term highway funding plan that the people of Arkansas can vote on… I think we just have to look at what we can build consensus around and what is the best option for the voters to consider.”
“I’m resigned to the fact that, probably, the best thing we can do is get something on the ballot and let the citizens of the state vote on it,” he says. “Looking at specific taxes – whether local or state – if they are specific in nature, people tend to vote for them. They want to know where it’s going, that it’s not getting caught up in the bureaucracy of government.
“The investment in infrastructure is for the future,” Ingram adds. “These aren’t dollars that go away at the end of the year. These are dollars that go on for generations, making a difference… Somewhere along the way, we failed to keep up.”