AASHTO Journal, 27 March 2015
The Kentucky Legislature voted on the last day of its session to halt a “free fall” in the state’s per-gallon motor fuel excise charge, in a measure that would effectively freeze it near current levels to prevent more automatic declines in the tax that funds highway improvements.
The bill is described as the “Road Fund stabilization plan,” by its House sponsor, Appropriations and Revenue Chairman Rick Rand. “As we all know, our fuel tax has been in free fall, and this will help us stabilize that by setting a new floor,” he said.
It now goes to Gov. Steve Beshear, who had been calling for such action, to sign into law. The measure’s new 26-cent base user fee on gasoline will take effect immediately when he signs.
That would end a threat to highway funding that Beshear and Kentucky Transportation Cabinet Secretary Mike Hancock have said could strip the transportation agency of hundreds of millions of dollars a year, and jeopardize the KYTC’s ability to maintain the state’s highway system.
Under the law until now, the portion of the state motor fuel tax that was linked to average wholesale fuel prices had a very low price floor, so that when pump prices plunged in the past year it began taking the per-gallon fee down as well.
Hancock warned last November that under the state fee formula, the excise charge on gasoline, diesel fuel and ethanol would fall 4.3 cents as of Jan. 1 and could fall further in subsequent quarters. He said that Jan. 1 change alone would remove $129 million from the Road Fund on an annual basis.
With the Jan. 1 decline, the state’s fuel tax had declined in four of the past five quarters. Later, the formula set in motion a 5.1-cent drop slated for April 1, which would reportedly take another $150 million a year out of the Road Fund.
Although lawmakers voted to head off most of the additional fuel charge reductions, the KYTC says the declines incurred so far will still take $165 million out of the budget through the end of fiscal 2016.
The Legislature will not be back until January, its next regular session, when it will decide on a new transportation budget and highway plan. Until then it will be up to executive branch to allocate revenue among projects under consideration.
The legislative fix won final passage in the House on March 24 by a vote of 67-29, and passed the Senate on a 29-9 vote.
The legislation also allows for an annual fuel tax adjustment, instead of the current changes, and will allow the fuel tax to rise or fall up to 10 percent a year.