State officials and members of the private transportation infrastructure sector are searching for a strategy not only to catch up to Kentucky’s needs but get ahead of the curve.
As the June issue of The Lane Report detailed in the cover story, gasoline tax rates and collections that keep the state road fund filled have fallen with prices in recent years. The General Assembly added a floor of 26 cents a gallon to the tax formula last year and the Kentucky Transportation Cabinet’s Pause 50 program suspended new projects for a year so the road fund could rebuild to the $100 million minimum believed appropriate to manage the financial Grand Central Station of payment traffic the cabinet oversees. This month, the commonwealth will begin new project spending for fiscal 2018 at $50 million, less than a third of typical years recently.
“The Cabinet did the right thing in enacting Pause 50,” said Juva Barber, executive director of Kentuckians for Better Transportation (KBT). “They had to right-size the ship. This gave them a chance to know that they can pay the bills that they have before they do more.”
Allowing the road fund to fall so low the state couldn’t pay its highway construction and maintenance bills would have started a chain-reaction of problems for the entire sector. Avoiding it, though, caused the state to fall further behind in maintaining its multimodal transportation infrastructure, including not only roads but bridges, ports, railroad crossings and more.
Pause 50 is considered a short-term success.
“That doesn’t take away the need. People need those projects to go forward. It just takes longer for it to happen,” Barber said. “We still fell a(nother) year behind.”
Transportation spending had exceeded revenue by nearly $500 million for the 2014-16 biennium, Transportation Secretary Greg Thomas told legislators in testimony a year ago. Gas tax rates are tied to the wholesale price of gasoline, which had steadily declined. Revenue in 2015 was $195 million less than 2014.
Wholesale gasoline prices run roughly 20 cents a gallon below retail, according to the National Association for Convenience and Retail Fueling, whose members well about 80 percent of U.S. gasoline. The cost of retailing is 12 to 16 cents a gallon, and sellers make about 5 cents profit a gallon.
Under Kentucky’s current formula, gasoline taxes will not begin to rise off the 26 cents a gallon floor until wholesale prices top $2.17 a gallon
In late June, retail prices were bouncing around at levels at or below $2.17.
Founded in 1978, KBT is a multimodal trade association with 303 members across a variety of sectors, from contractors to construction engineers, chambers of commerce, railroads, airports, some counties and cities, and even important system users like UPS and Toyota, Barber said, “because they can’t do what they do without a multimodal transportation system.”
KBT advocates for a safe, sustainable transportation network, which means there must be adequate long-term financial support to keep Kentucky competitive, she said. Roads and bridges get most of the political attention, but members want all of the elements maintained and improved because all the pieces impact each other.
“It’s so Kentucky can maintain its competitive edge, which is where we are located in the country,” Barber said. The state has attracted the UPS Worldport, a DHL air freight global hub and soon the first-ever Amazon Prime hub because their sites are within a day’s drive of the majority of the U.S. market. “But you have to actually be able to drive there. You have to have the infrastructure support” for the logistics sector to function.
Beyond its roads and its bridges, she said, about 70 of which are now closed for safety reasons, Kentucky has some 2,000 railroad crossings, eight public ports and public transit on its responsibility checklist.
All of it is part of an international supply chain for manufacturers, commerce and consumers, raw product producers and users, including agriculture as well as public service systems such as education.
“It is a national and international process,” she said. “We don’t buy all the Camrys we manufacture here in Kentucky.”
According to Barber, the Transportation Cabinet has identified a need for an additional $205 million a year just for road resurfacing and bridge maintenance. Additions to the system that are being sought across the state add to the total.
There is no obvious answer. The gas tax funding model that has been a mainstay for states and the federal government has been losing traction over the past decade, especially after the 2008-09 recession as Americans drove fewer miles, their vehicles have grown more fuel efficient and a small but growing number of electrics and natural gas-powered cars and trucks use no gasoline at all.
Gasoline taxes increased 4 cents a gallon in Tennessee on July 1 and will increase another 1 cent each of the following two years, adding up to 6 cents total. Tennessee’s tax on diesel fuel is going up 10 cents over the next three years. Tennesseans also are paying an extra $5 to register cars, but their sales tax on groceries dropped from 5 percent to 4 percent.
Indiana’s gas tax increased 10 cents a gallon July 1 and its diesel tax 31 cents. Registration fees increased $15 for gas vehicles, $50 for hybrids and $150 for electrics.
In Kentucky on June 28, House Speaker Jeff Hoover appointed a bipartisan transportation task force to examine state roads and bridges needs and options. The task force will make recommendations by December, in advance of the 2018 General Assembly that convenes in January.
Rep. Sal Santoro, R-Florence, and Rep. John Simms, D-Flemingsburg will co-chair the group. Santoro said it will look at all aspects of the road fund, including planning and funding.
Others on the task force are Marie Rader, R-McKee, who chairs the House Transportation Committee; Matt Castlen, R-Petrie; Jeff Greer, D-Brandenburg; Bart Rowland, R-Tompkinsville; Phil Moffett, R-Louisville; Chad McCoy, R-Bardstown; and Attica Scott, D-Louisville.
“Everything is on the table,” Santoro said. “Don’t think we’re not going to shake the bushes because we are.”
Barber encourages Kentucky’s business community to support making changes in funding for transportation infrastructure.
“They need to understand that transportation is important to all of us,” she said, not just to the road and bridge builders. “Manufacturing, mining, agriculture, service providers – it matters to all of us. We need to be supportive of infrastructure, and be supportive of making changes to fund it.”
Mark Green is executive editor of The Lane Report. He can be reached at [email protected]