FRANKFORT, Ky. (WDRB) – Kentucky lawmakers are weighing higher gas taxes to help shore up a road funding system that, despite the state’s economic recovery, is generating less money than it has in the past.
A proposal to raise the taxes failed in last year’s General Assembly and has not yet been re-introduced during the 2019 legislative session that began last week. But some lawmakers say the looming issue cannot be ignored.
“We’ve got to act on it,” said Rep. Sal Santoro, chairman of the House budget review subcommittee on transportation. “Time is running out, and I know that no one likes any increase, but our No. 1 concern is safety.”
At the same time, Santoro was noncommittal when asked if there will be an attempt to raise the gas tax in the current legislative session. “I would definitely like it (if) we could possibly get something this session,” he said.
Kentucky’s gas tax collections have been depressed for about five years, the result of a sustained drop in fuel prices that began in 2014, improvements in vehicle fuel economy and alternatives such as electric cars and hybrids.
That means less revenue for a fund that build new interchanges, widen roads and add sound barriers.
Kentuckians pay 26 cents per gallon when they fill up; nearly all of the tax goes to the state road fund, with 1.4 cents set aside for environmental cleanup costs. In 2014, when gas prices were higher, the state’s tax rate was as high as 32.5 cents.
While state road fund collections are beating annual projections, transportation officials worry that future revenues won’t be enough to tackle a backlog of work on aging roads and bridges -- and to build new ones.
In another challenge, Kentucky expects that as early as next year it will need to come up with an additional $120 million annually to meet the state’s mandatory share of federally funded road projects.
Santoro, a Republican from Florence in northern Kentucky, was among the sponsors of the 2018 bill that would have raised the gas tax as well as added registration and annual renewal charges for electric and hybrid vehicles, and increased fees on specialty license plates.
The 10-cent gas tax increase would have pushed the state tax to 36 cents per gallon. In all, the bill would have generated more than $433 million per year.
But the measure died in a House committee at the end of a session in which lawmakers passed a contentious bill overhauling the state’s sales tax.
Raising the gas tax has the support of the Kentucky Chamber of Commerce, which wields influence with the Republican majorities in the House and Senate, and Greater Louisville Inc., the metro area’s chamber.
Kentuckians for Better Transportation, a statewide group, supports a way to address the funding challenges and says one way to generate more money for the road fund is to adjust “all current user fees, including the motor fuels tax rate.”
The organization "is hopeful that a bill will not only be filled but will garner the bipartisan support it needs to pass in this legislative session," said Katie Haller, its member services director.
But to opponents like Americans for Prosperity’s Kentucky chapter, hiking gas taxes to aid the road fund ignores larger issues with the state’s approach to transportation funding.
A better solution, said Andrew McNeill, the group’s Kentucky director, is to revamp the road fund, eliminating “corporate welfare” and other tax breaks that benefit the railroad and other industries.
“We need to think about how to fix the road fund so that it’s put together in a way so that it can meet future infrastructure needs, but we do not have and we cannot support throwing good money into a bad program,” he said.
The Kentucky Transportation Cabinet has estimated it needs roughly $490 million a year in extra road fund revenue to address all of the state’s high-priority projects.
The cabinet supports more revenue for the road fund, but “how exactly that will be done, we’ll work with the legislators on that,” spokeswoman Naitore Djigbenou said.
A ‘significant decline’
Fuel taxes aren’t the only revenues that make up Kentucky’s road fund. But they are the biggest.
For the year that ended last June, gas taxes of $765 million accounted for about half of the $1.51 billion road fund. Taxes on new and transferred vehicles generated the next-highest amount, $493 million.
Those taxes and other road fund revenues help pay for state construction and maintenance projects and a mix of other things, such as state workers’ pension costs. Kentucky calculates the tax based on average wholesale prices.
But fuel tax receipts are still well below the levels of the mid-2010s, when the state routinely took in more than $800 million a year and climbed to $886 million in 2014. Then, faced with steep revenue losses due to falling gas prices, lawmakers passed a bill in 2015 that changed how Kentucky gets its gas tax revenue.
Those changes, which included setting a floor on wholesale prices, have kept the per-gallon tax at 26 cents.
The increase in fuel tax revenue last year was a result of people buying more gas, but there’s still been a “significant decline” in those revenues in recent years, said Robin Brewer, executive director of the Transportation Cabinet’s office of budget and financial management.
The taxes on vehicles have helped soften the blow from less gas tax revenue, Brewer told lawmakers last August.
“We know that, unfortunately, that that growth just is not sustainable,” she said. “You know, it’s not going to continue.”
Kentucky also is bracing for the loss of federal toll credits, which the U.S. government has provided the state based on past investment in the previously tolled parkway system. Kentucky has used the credits of about $120 million per year to fulfill the required state support on federal road projects.
But those credits could be exhausted starting next year, forcing the state to dip into road fund dollars to provide the matching funds.
“The loss of toll credits is going to mean that not a single road is going to be built or improved in Kentucky starting in the next budget based on using state money,” said state Sen. Ernie Harris, chairman of the Senate Transportation Committee. “And that’s critical.”
Harris, a Republican from Prospect, said he believes there will be bipartisan support for a bill that generates more money for the road fund, even if it doesn’t happen this year. In 2020, lawmakers will take up the next two-year road spending plan.
Any bill also ought to include fees on vehicles that don’t rely on gasoline, Harris said. The measure introduced last year set registration fees of $50 on hybrid vehicles, $100 for hybrid electric cars and $150 for electric cars, sending the money to the road fund.
The fees would be paid each year when drivers renew their registration.
“It’s a user fee,” Harris said. “If you want to use the roads you’ve got to pay your fair share. So that’s why part of the discussion needs to be what do we do about electric and hybrid vehicles that don’t use gas?”
But that approach is problematic, said Stuart Ungar, president and co-founder of Evolve KY, a group of electric car owners.
Ungar said he doesn’t believe electric car drivers object to helping pay for roads, but he takes issue with the fees lawmakers want.
Any plan ought to be equitable and take into account, for instance, the benefits of cars that don’t directly produce emissions.
“There are other costs,” Ungar said. “There are these health costs, and I don’t feel that’s being factored into the equation.”