Federal Highway Trust Fund's insolvency could pose problems before summer construction season

10/23/2014 02:17 PM

FRANKFORT — Kentucky road projects may again be jeopardized without congressional action on the federal Highway Trust Fund before next summer’s construction season, Transportation Cabinet Secretary Mike Hancock told lawmakers Thursday.

The trust has crept perilously close toward insolvency this year before Congress extended the plan through next May on Sept. 30. Gov. Steve Beshear, appearing with U.S. Transportation Secretary Anthony Foxx and Hancock at the state Capitol in July, said the state had at the time delayed about $185 million in federal highway projects with the fund’s insolvency looming, and additional federal projects could have been postponed without action.

That scenario could be repeated with the federal Highway Trust Fund’s extension set to expire May 31, Hancock told the Budget Review Subcommittee on Transportation.

“The money will again run out and we’ll be watching that, and Congress is going to have to take some kind of action in order for the Highway Trust Fund to be solvent after the end of May of next year,” he said. “The difficulty there with May, as all of you know, in Kentucky we have very distinct construction seasons, and May is the point at which we’ve loaded up the construction program for the summer months.

“And so to have a federal Highway Trust Fund that’s all but running out of gas at the very moment that we need for it to be fully engaged to pay the bills, that’s something we’re looking at with great concern and much uncertainty today.”

Hancock presented figures that show the trust has been propped up by $65.3 billion in general highway fund transfers since 2008. Most recently, Congress appropriated a $10.8 billion transfer to keep the trust solvent until the end of May.

“This is what we’re operating in the face of as we look at our federal program,” Hancock said.

Hancock referenced the federal gasoline tax rate, which has remained at 18.4 cents per gallon since 1993. Gas prices averaged about $1.11 per gallon that year, making the gas tax about 16.6 percent the cost per gallon at the pump.

With gas averaging about $3.53 per gallon in 2013, that percentage dropped to 5.2 percent, he said. To bring that up to the same 16.6 percent level as 1993, Hancock said the federal gas tax rate would need to reach 58.5 cents per gallon.

“When you talk about the price of a gallon of gasoline, I think far too often folks think that the taxing structure, particularly on the federal side, has some kind of huge impact, and truthfully it has not on the federal side,” Hancock said.

While Congress wrestles with a teetering highway fund, the state’s Road Fund is on firmer ground. David Talley, the Department of Highways’ innovative finance manager, told lawmakers the fund has about $7.1 million more in the first quarter of fiscal year 2015 than the previous fiscal year, with motor fuel tax receipts up $3.5 million compared to the first quarter of fiscal year 2014.

In all, the biennial budget projected a $13.7 million decline in the Road Fund in fiscal year 2015 compared to the previous year, according to figures presented by Talley.

Gas taxes account for the lion’s share of Road Fund receipts. In fiscal year 2014, the $886.2 million in gas taxes amounted to 57 percent of the Road Fund that year.

But gas tax receipts may decline with uncertainty in prices at the pump. Rep. Hubie Collins, D-Wittensville, noted some speculated millions could be lost as the gas tax, which is based on the average wholesale price of gasoline, fluctuates in the near future. Beshear proposed setting the floor of the gas tax rate at 25.9 cents per gallon, its level at the end of 2013, after a 1.5 cent per gallon drop on Jan. 1.

Generally, a penny drop in the gas tax rate equates to a $30 million loss to the Road Fund if annualized, according to the Kentucky Transportation Cabinet. The current gas tax rate is 25.5 cents per gallon, sans a 5-cent-per-gallon supplemental user fee and a 1.4-cent-per-gallon environmental assurance fee, according to the cabinet.

“I think I’ve heard some speculate anywhere from a loss of 100, 150 million dollars if things continue like they are, and really that’s scary thinking back if we had budgeted some things as was proposed, we wouldn’t lose that,” Collins said.

The Democrat-led House agreed, passing a budget that set the rate requested by the governor in his budget. The Republican-led Senate, however, disagreed with the plan and the two sides scrapped the plan in the final version of the two-year spending plan.

The gas tax proposal has become fodder for Republicans on the campaign trail as they seek a majority in the chamber for the first time since 1921, but Collins said the House’s version of the budget would have shored up funding for state highway projects, which cross party lines.

“I don’t see it as an issue because who is going to pay any attention to taxes already on it,” Collins told Pure Politics after the subcommittee meeting. “We didn’t vote to raise the taxes. It was already there, and the thing about it was, it’s just whether you want good roads or whether you don’t.”

He added that counties get about 48 percent of gas tax receipts, “so the counties are suffering from it, too. So I don’t like taxes, but I think if we want good roads and continue to drive on good roads, we’re going to have to kind of go along with the way the taxes are and not let them go down any on fuel.”

Kevin Wheatley

Kevin Wheatley is a reporter for Pure Politics. He joined cn|2 in September 2014 after five years at The State Journal in Frankfort, where he covered Kentucky government and politics. You can reach him at kevin.wheatley@charter.com or 502-792-1135 and follow him on Twitter at @KWheatley_cn2.

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