AASHTO Journal, 6 March 2015
Mike Hancock, secretary of the Kentucky Transportation Cabinet, used an opinion piece in the state capital city’s newspaper to aggressively set the record straight, after a letter-writer criticized plans to try to stabilize the motor fuel user fee and highway revenue.
Hancock’s Feb. 26 op-ed came as a bill awaits action in the state legislature to lock in the state’s percentage fuel fee at current levels before an April 1 reset under current law can further erode revenue coming into the road fund.
The fuel fee’s per-gallon revenue had already fallen 4.3 cents in January because of plunging gasoline prices and an even lower price floor in current law. Unless the legislature acts soon it could fall another 5.1 cents in April.
Hancock has said the Jan. 1 drop in the fuel fee and a second decline in April would result in a budget shortfall of $56.4 million in the current fiscal year and $194 million in fiscal 2016.
Separately, the chairman of the Senate Transportation Committee warned that unless the legislature changes the floor price in current law to stabilize it, the road fund could lose a third of its projected revenue.
And since the KYTC disburses 48.2 percent of motor fuels tax revenue to local governments, counties are already bracing for a drop in their road funding as well.
So after a writer in a Feb. 16 letter to The State Journal of Frankfort, Ky., complained about “the myth of Kentucky’s gas tax crisis,” Hancock mounted a sharp defense.
“Since nearly every Kentuckian uses our roads, it’s important to understand how that transportation system is paid for and maintained,” he wrote. “Kentucky’s taxation of motor fuels, such as gasoline, ethanol and diesel, is a user fee, paid by those who use our highways and bridges. It also is one of the two primary revenue sources of the Kentucky Road Fund – the other being a tax on motor vehicle sales and leases.”
He noted that the KYTC “receives nothing for its highways program from other taxes that Kentuckians pay – income tax, sales tax, property tax, payroll tax.”
Hancock explained that the fuel fees include a 9 percent excise tax on the average weighted wholesale price of motor fuels, plus “a fixed, supplemental user fee of 5 cents per gallon.”
The state also assesses a fee of 1.4 cents a gallon for cleaning up old underground fuel tanks, but that money does not go into the road fund, he said.
Although the legislature first tied its fuel revenue to wholesale prices in 1986, it set a statutory price floor in 2009 of $1.786 a gallon. Since then, the effective per-gallon tax derived from the percentage edged higher with prices, but the 2014 swoon in oil and related fuel prices began quickly cutting those user charges.
And since current law allows the trigger price for tax purposes to rise no more than 10 percent a year, even a price rebound at the pump would not restore the lost funds.
Hancock said the money his agency received as fuel revenue grew was used to pay for many transportation improvements across the state. But “Kentucky’s transportation needs far outstrip its transportation revenues, which is the reason there is concern about a dramatic downturn in gas tax revenues.”
The nearly half of motor-fuels tax revenue that is returned to local governments, he said, is “in the form of revenue sharing for local streets and roads.” Hancock added that the KYTC mission, “includes the maintenance of Kentucky’s highways and bridges, including more than $203 million spent on snow and ice removal in just the last four winters.”
The KYCT chief noted that the letter writer erroneously asserted that Kentucky pays a higher tax than most of its neighboring states, when in fact “Illinois, Indiana, Ohio and West Virginia all have higher taxes on motor fuels.”
“We believe Kentuckians value our work and services,” Hancock summed up. “They value good pavement and sound bridges. They value highways that are well-maintained and modernized. They want brush trimmed and medians mowed in summer and roadways plowed in winter – as events of the past couple of weeks have borne out.
“The fact is that we at the Kentucky Transportation Cabinet work every day to be conscientious stewards of the tax dollars paid by those who use our transportation system. Regardless of what happens with the motor fuels tax in the 2015 General Assembly, we at the cabinet will do what we always do – the best we can, with what we have.”