- Associated Press - Saturday, January 23, 2016

LITTLE ROCK, Ark. (AP) - With a plan to tap into the state’s surplus and divert some general revenue, Gov. Asa Hutchinson is offering short-term relief to Arkansas’ long-struggling highway funding system. At the same time, his approach may inject more uncertainty into the state’s budget in the coming years.

Hutchinson is estimating his proposal could generate as much as $339 million for the state’s highways over the next half-decade without adopting any of the tax or fee increases suggested by a task force he formed.

“We are going to be able to pull together with more efficient government, with a conservative approach to this, fund highways and not raise taxes,” Hutchinson told reporters as he unveiled his plan last week.

Hutchinson’s plan instead relies heavily on one-time money, with the Republican governor proposing using $40 million from the surplus and rainy day funds in the coming year for road needs. He’s proposed setting aside up to a quarter of the state’s surplus in subsequent years, a figure he estimates could be $48 million based on the average surplus over the past decade.

Arkansas has regularly had a surplus over the past several years, and finance officials said earlier this month state revenue for the fiscal year so far is running $66.9 million ahead of forecast. But a surplus of that size - or any surplus, for that matter - isn’t a guarantee.

The surplus outlook could also be clouded by Hutchinson’s plan to tap into general revenues for the first time to pay for road needs. He’s proposing gradually shifting some tax revenue from new and used vehicle sales to roads - starting with $1.5 million in the coming year and capped at $25 million within five years.

Similar plans to tap into general revenue have met resistance from Democrats and advocates who say it’ll threaten funding for other state services such as higher education and social services. Unease about a more far-reaching proposal to tap into road-related tax revenues last year prompted Hutchinson to form a task force to look at highway funding.

Hutchinson’s approach is more limited and he vows it won’t jeopardize state services, saying the money can be found through efficiencies in state government. But the concern among groups that have opposed past general revenue transfer attempts remains. The plan comes at the same time Hutchinson’s $103 million income tax cut is taking effect. Hutchinson, who campaigned on a promise to cut taxes across the board, has said he wants to pursue other income tax reductions in later years.

Leaders of the majority-Republican House and Senate say they believe Hutchinson’s plan will be easier for lawmakers to support since it doesn’t include any tax hikes, though they haven’t started counting votes yet. Many Republicans were unlikely to support any tax increase, even if it included any offsetting cuts.

Hutchinson defended the plan, telling reporters he believed it was a sustainable way to fund highways in the short term. But he also acknowledged it may have to be tweaked in the future.

“It is realistic and it is adaptable and I believe it is sustainable,” Hutchinson said. “It is a good plan for as long as we can forecast. It may have to be adjusted, and that’s what governance is about.”

Hutchinson says his highway plan, like the rest of the state’s budget, hinges on whether lawmakers agree to his proposal to keep Arkansas’ hybrid Medicaid expansion alive but with new limits on its eligibility and benefits. In other words, tapping into the surplus and general revenue isn’t likely if the state can’t count on the savings it expects from expanded health insurance coverage.

The biggest question Hutchinson’s plan left unanswered is how to fund Arkansas’ highways on a longer term basis. Highway officials say they have $20.4 billion in needs over the next decade, but expect only $3.6 billion in state and federal funding.

“It’s not the long term solution, but it is the critical first step to making sure we can match our federal funds for the foreseeable future,” Arkansas Highway and Transportation Director Scott Bennett said.


Andrew DeMillo has covered Arkansas government and politics for The Associated Press since 2005. Follow him on Twitter at www.twitter.com/ademillo

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