Arkansas Highway Funding Plan Thrown into Reverse by Anti-Tax Fervor

July 4, 2011

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If you've been wondering why Congress has not been able to reauthorize the federal highway program, take a look at what's happened in Arkansas. There the anti-tax fervor that currently reigns on Capitol Hill has been taken to an instructive extreme.

Earlier this year the Arkansas Trucking Association, whose members include some of the largest and most successful trucking companies in the country, asked Gov. Mike Beebe to propose a temporary 5-cent increase in the 22.5-cent state diesel tax.

These businesses were asking their government to raise their own taxes so the state could pay for much-needed improvements in its highways. The revenue would finance a $1.2 billion interstate and U.S. highway bond program. With the governor's support, the measure was introduced and passed by the General Assembly.

The move by the Arkansas carriers was applauded in Washington, D.C., by Bill Graves, president and CEO of American Trucking Associations, who said he is proud to work with a group of companies that are ready to "lead with their chin" in the fight to get more highway funding. American Trucking Associations correspondingly supports an increase in the federal diesel fuel tax to fund highway improvements for freight.

But the Arkansas plan has come to a jarring stop. Before it can go into effect, it must be approved by the electorate. That vote was scheduled for November, but now at ATA's request the governor is going to withdraw the question.

Polls done by the Arkansas Trucking Association and others show that Arkansas voters are not likely to support the tax increase.

"There have been four polls, and around 60% in each have opposed this tax," said Lane Kidd, president of the Arkansas association. "Even more important, the percentage of those who have supported it has never been above 36%."

In his June 16 letter to Gov. Beebe, withdrawing his association's support for the tax increase, Kidd said the polls make it clear that the question would likely fail at the ballot box.

"While this is the right tax, it is the wrong time to ask voters to approve this measure," he wrote.

And there's a bigger issue, from trucking's perspective, he said. "The trucking industry can ill afford to set a precedent nationally by failing to pass a self-imposed fuel tax to improve highways. This scenario will likely occur if the election is held, jeopardizing the industry's ability to build support for future funding of highways in this manner."

Public Mood

In an interview last week, Kidd said, "I don't get it. There's no question it's a public mood. One could say it's this Tea Party anti-tax conservative movement that seems to be permeating throughout the South or the country, that we just don't want to pay any more taxes for any reason."

Matt DeCample, spokesman for Gov. Beebe, agreed that there's a strong anti-tax sentiment in the electorate right now. The most recent poll indicated that voters are somewhat concerned about the condition of their highways, but DeCample's read is that the anti-tax sentiment simply is stronger than the desire to improve the roads.

He also said the polling showed that if a correlation could be made between raising the diesel tax and higher costs for consumer goods, support for the diesel tax hike dropped even further.
Respondents in the most recent poll were told that the increase might lead to indirect price hikes in consumer goods as truck lines pass on their costs, but they also were given a list of reasons why the increase would be good for Arkansas.

It would fund road improvements, create jobs and make Arkansas a more desirable place for companies to do business, for example. Agricultural vehicles would be exempted from the increase, and without the increase, the state might be forced to charge tolls. And, they were told, the governor supports the increase as the best way to pay for highway repairs.

And Kidd noted that the upcharge to consumers from the diesel tax hike would have been "infinitesimal."

Still, 63% said they would oppose the increase, while only 34% said they would support it.

In fact, 56% of the respondents said they would rather pay for road improvements by raising the state sales tax by a half-cent - a direct increase in their personal costs - than through the diesel tax increase. Kidd said the pollster thought the respondents may have just been confused, but the underlying message was clear: "We just live in a time when there is no tax that is a good tax."

Strategic Withdrawal

The Arkansas Trucking Association has opted for a strategic withdrawal. It has asked Gov. Beebe to support renewal of the state's existing interstate highway bond program, which carries a 4-cent diesel tax, and the governor has agreed.

"The governor will call an election for renewal of the existing bond program that has been in place for more than a decade," said DeCample. "We are working now to determine the best date."

Under this new arrangement, the governor also has agreed to seek repeal of an exemption from the state sales tax on tractors and semi-trailers that had been part of the diesel tax increase package.

In that package, the state would have recouped the lost revenue from the sales tax exemption, about $4 million a year, from the $34 million generated by the diesel tax hike, Kidd said.
Now there will be no exemption, and the sales tax will revert to a 2003 law that caps the tax at about $600 on a truck and $60 on semi-trailer. "Repeal of the exemption does not mean companies will pay the full sales tax," Kidd said. The cap saves Arkansas carriers about $19 million a year, he said.

DeCample confirmed that the governor supports repeal of the exemption. "Our support for it was always based on it being revenue neutral, and we had to have diesel tax to do that," he said. "Without the tax it's hard for us to support the exemption."

The lesson Kidd takes away from this experience is that the trucking industry has to do a better job of convincing the public that the fuel tax is a good way to raise infrastructure funds.
"It does send a signal to the industry that our preferred method of taxation may not be the method that the people want any longer," he said.

Trucking needs good highways and is willing to invest in them, but must depend on public and political support to get that done, he said.

"We simply have to do a better job of convincing the public to let us continue investing in infrastructure with what has worked, which is the fuel tax," he said. "Especially a self-imposed tax they don't have to pay. We've seen a cultural shift and I'm not sure what it will take to get people to realize that we'll never have good highways and bridges by cutting taxes."

Evidently all the talk about bridges to nowhere has led to a bridge to nowhere.

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