By Rob Moritz
Arkansas News Bureau

LITTLE ROCK — With a December deadline looming, a special state commission faces a “perfect storm,” as one member puts it, in recommending new ways to pay for state highway improvements.

The Arkansas Blue Ribbon Commission on Highway Finance is charged with developing financing options for filling a $15 billion gap between projected state highway needs and anticipated revenue over the next decade.

The long-held method, fuel taxes, won’t cut it anymore with motorists driving more fuel-efficient vehicles fewer miles, highway officials say. But managing a tight state budget in a struggling economy has soured the political climate for raising taxes or even diverting existing collections from the general treasury to road-building.

“It’s a perfect storm,” says commission member Madison Murphy, acknowledging, “This may not be the best time in the world to try and figure this out.”

But the panel’s work has at least one high-ranking advocate. Incoming House Speaker Robert Moore, D-Arkansas City, says lawmakers owe it to future generations to change course in highway funding to spur economic growth.

The 19-member commission was created by the Legislature in 2009 and already has missed one deadline for making road funding recommendations to the Legislature and the governor.

Members, who began meeting in May 2009, issued an interim report rather than a final report by their original July 1 deadline and gave themselves five more months to submit recommendations to the governor and the Legislature.

The panel resumed meetings in August and is scheduled to gather again Tuesday and Wednesday to vote on final recommendations for a final report due by Dec. 1.

Members appear to have narrowed their options to diverting proceeds from state sales taxes on vehicles and related parts and services from general revenue to highway improvements, indexing the gas and diesel excise tax with a three-year trailing average of the Construction Cost Index and imposing a new excise tax on the wholesale price of motor fuels.

The general revenue transfer would occur over a period of time, possibly 10 years, and any new taxes also would be phased in over a period of time to limit the impact, panel members said.

Also, a bond issue for highway construction, to be repaid with proceeds from a one-half cent sales tax increase over 10 years, would be referred to voters.
Murphy, a member of the Arkansas Highway Commission, said the bond issue alone would fund a $1.7 billion construction program during the first five years.

“It would be substantial and it would create jobs,” he said, noting that 26 percent of the state’s general revenue is derived from road usage.

Gov. Mike Beebe has said he opposes a tax hike or transferring general revenues to highway construction without a source to make up the loss.

Committee members said they realize the potential political fall out from their proposals — no one wants to raises taxes, especially in a struggling economy — but they urged politicians and the public to study the recommendations and to understand how important a good highway system is to the state and its economy.

“None of us are oblivious to the sort of economic situation that we are in and nobody is expecting anybody to run out there and want to raise taxes,” said Sen. John Paul Capps, D-Searcy, chairman of the panel. “We know that, but still that didn’t free us from the responsibility on that committee of trying to devise a new type of funding mechanism.

“So, it may look like we’re saying, ‘raise taxes,’ but what I think it’s saying is, this is a new way to fund it, or at least a better way” to bridge the gap between projected highways needs of $19 billion and anticipated revenue of $4 billion over the next 10 years, Capps said.

Members of the highway panel said last week they expect legislators to at least look at their recommendations during the regular session that convenes in January.

“We’ll have some viable options,” said Rep. John Lowery, D-El Dorado. “Then, the powers that be, the governor and legislators, and more importantly the people, will say what they want to do and what they don’t want to do. If they want to stay with the status quo, the way things are, we’ll do nothing.”

Moore said he has been following the panel’s work and hopes the Legislature will act on the recommendations during the 2011 session.

“I think that is one of the top issues that we need to deal with,” Moore said. “I certainly am convinced by the information that I have received that the declining highway revenues and increasing costs is at a point for the future growth and economic development for the state of Arkansas that we’re going to have to have additional funding.”

Moore acknowledged raising taxes would be difficult and that there are “inherent problems” with diverting state revenue, but said the panel’s recommendations still should be discussed and debated.

“We’re going to have to roll up our sleeves and be able to … find that funding … my goal will be that at end of the 88th General Assembly we will find a way and that road map will be clear as to how we do it. We owe it to future generations,” Moore said.

“It’s a tough issue that will be measured in benefit, not when we go home and talk to our local newspaper at the end of the session, but two decades from now when people look back and say this legislative body and governor did something that is still benefiting the state of Arkansas,” he said.