Arkansas Passes a Transportation Plan

May 27, 2016

To wrap up a special legislative session on highway funding, Arkansas Governor Asa Hutchinson signed a measure that will generate close to $300 million over two years to help pay for upgrades to the state’s roads and bridges.

The plan shifts existing sources of funding to transportation, including several key changes. The plan:

  • Employs a one-time transfer of $40 million from the state rainy day fund
  • Dedicates 25 percent of future general fund budget surpluses to fund transportation
  • Brings in $21.5 million of investment earnings from the state treasury
  • Rededicates $4 million of fuel tax revenue that had previously been going to the general fund

In 2012, voters approved a 0.5 percent sales tax for highway spending, but a portion of the revenue had been going to Constitutional Officers and other government services. The plan will ensure the revenue goes towards transportation.

Overall, this plan will raise enough in its first year ($50 million) for Arkansas to qualify for $200 million in federal matching funds for highway improvements. The plan is expected to raise $32.4 million in 2018 plus any surplus general revenue funds.

Arkansas is just the latest state looking for ways to raise enough revenue to cover anticipated highway spending. A commission of transportation officials called together by Governor Hutchinson in 2015 identified $20.4 billion worth of improvements to be made over the next 10 years. However, only $3.6 billion of revenue is expected to be available over that time to address the needs. Stagnant fuel tax revenue, due to a broader trend mainly caused by more fuel efficient vehicles, changing travel patterns, and gas tax rates that are not adjusted for inflation, presents funding challenges for the state.

Earlier in the special session a few state senators proposed increasing Arkansas’s gas and diesel tax by 5 cents immediately, with another 3 cents per gallon increase in 2019. This measure was estimated to raise an additional $160 million per year in 2019, but all tax increases would expire after 2021. Arkansas’s gas tax is relatively low at 21.8 cents per gallon, ranking 38th in the nation, but that rate is higher than its neighbors. An 8 cent increase would have seen Arkansas jump to 24th highest in state gas taxes.

With the end of the special session, the legislature and Governor Hutchinson have solved the short-term transportation funding question for Arkansas, but a long-term solution is still needed.

For more on gas taxes, click here.

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