Kentucky Leaders Work to Solve Transportation Challenges

Kentucky Senate President Robert Stivers recognizes the importance of infrastructure investment to his state, but he expressed concerns about one funding strategy recently implemented in nearby states.

“I am very much opposed to a gas tax (increase),” Stivers, CSG 2018 national chair, told attendees Jan. 18 at the Kentuckians for Better Transportation conference in Lexington, Kentucky. “I am very much for building roads because roads bring jobs and opportunity, but it’s not going to be on an antiquated tax system that we currently have in place. … You’re going to have to come up with a different structure where you’re capturing use on the road, not gallons burned, because that is going to continue to be the shrinking base.”

Two of Kentucky’s neighbors—Indiana and Tennessee—were among eight states that did raise gas taxes last year.

Stivers said his issue with the gas tax is that it will continue to bring diminishing returns and that will make it difficult for Kentucky to plan ahead.

“Let’s say you put a nickel on the gas tax,” he said. “That’s going to generate about $160 million—$32 million per penny. Well that’s based on the current consumption levels. If you have continual consumption level reduction, then what does that do? Your base shrinks.”

Two numbers have the Senate president particularly concerned about the future of the gas tax as a revenue source—the 125 Tesla all-electric semi-trucks recently purchased by one of Kentucky’s largest employers, UPS, and the 1,400 plug-in electric hybrid and battery electric vehicles registered in the state.

“I would say in three to four to five years, those numbers will double, triple, quadruple or even go 10 times greater than what they are,” Stivers said.

While Kentucky has been on quite a run over the last year in terms of economic development, with a state record $9.2 billion in major projects announced by companies such as Amazon, aluminum producer Braidy Industries and energy storage solution company EnerBlu, Stivers said bringing all of the state along will require putting more toward infrastructure.

“(Governor Matt Bevin) talks about making (Kentucky) a centralized place, a manufacturing hub for the United States,” Stivers said. “If you’re going to get the rural parts that generally don’t have the opportunity as other areas (do), it’s going to be dependent on having a quality transportation system.”

Rep. Rocky Adkins, Minority Floor Leader in the Kentucky House, knows well the needs of Kentucky’s rural communities. He represents the Eastern Kentucky community of Sandy Hook.

“We’ve done great things but we can do better,” he said of the state’s economic development successes. “Without all modes of transportation being where we need (them) in our communities, I can tell you now that those regions and those areas will not be as competitive as we need to be to bring the industrial manufacturing sector to Kentucky and keep it strong in Kentucky for generations to come.”

Adkins said he hopes Kentucky can build on recent investments and expansions by auto manufacturers Toyota, Ford and General Motors in the state.

“My dream and my vision of all over Kentucky is to take advantage of this 21st century economy, to watch the investment that’s gone on at our auto manufacturers … continue to expand. … Those industries have confidence in Kentucky. They wouldn’t be making these investments without the 30 years of investments that have been made to build the kind of confidence that we need for the future. But let’s not be satisfied with that.”

Kentucky’s Infrastructure Funding Challenges

There are warning signs causing Kentucky policymakers concern the state may not be able to keep pace and keep the winning streak going, including:

  • 1,000 of Kentucky’s 14,272 bridges in poor condition;
  • More than 3,700 miles of roads in urgent need of repair;
  • An annual average funding shortfall over the past decade of $451 million;
  • A $205 million annual need for repaving and maintenance costs;
  • $50 million in runway repaving needs at general aviation airports around the state; and
  • At least $498 million in needed projects at the commonwealth’s public riverports over the next decade.

Another funding concern on the horizon: in recent years, the state has been able to use a financing mechanism called toll credits in meeting matching requirements to receive federal funding. But the Kentucky Transportation Cabinet estimates that accumulated toll credits could be exhausted by fiscal year 2020, requiring the use of an estimated $122 million annually in road fund revenues to match federal monies.

Overall, a January analysis by Commonwealth Economics, a company that advises state and local government agencies and others on project finance and economic trends, recommends that Kentucky needs an additional $554 million or more in annual transportation funding “in order to continue providing a safe and efficient transportation system.” That equates to a 33.5-cent gas tax increase.

Kentucky state Rep. Sal Santoro, who co-chairs the budget review subcommittee on transportation, has been leading a working group to come up with recommendations for Kentucky’s transportation funding challenges. He also pre-filed legislation for this session to enact new fees on electric vehicles.  

“Seventeen states already have fees (on them),” he said. “Indiana—they have a fee of $150. Tennessee has a fee of $100.”

Santoro believes licensing and registration fees of all stripes could be ripe for re-evaluation.

“Some of our registration fees haven’t changed since President Kennedy was our president,” he said. “Our license plate fees haven’t changed since 1980. It all has to be looked at.”

Stivers agrees that something at the registration level may be the way to go, particularly if the state looks to transition away from the per-gallon gas tax to a more mileage-based charge as states such as California, Oregon and Washington have been exploring. He explained how it might work.

“Robert Stivers is going to go in and register his new car,” he said. “I’m going to get assessed 25,000 miles and something equivalent to … 26.2 cents per gallon (gas) tax. …  Well if I don’t want to pay that, then I can attach one of these GPS (devices) to my (vehicle) and then come in and protest at the end of the year and (get a) refund. If I have a privacy issue, I don’t have to do that. I can just go ahead and pay my 25,000-mile assessment on a quarterly basis.”

Stivers also envisions a way to give in-state residents a discount on the gas tax when their mileage-based registration fees are paid up.

But he also recognizes that a transition to a new system of transportation funding could take time and that it may be necessary to do something short-term to meet Kentucky’s transportation needs. That could mean falling back on that old standby—the gas tax. Kentucky Gov. Matt Bevin didn’t rule out an increase during his closing remarks at the KBT conference on Jan. 19.

“We don’t have enough money,” Bevin said. “We’re going to need more of it. It is going to be driven by one source only and that is the taxpayer. … Ultimately, whether there’s a change in the variable excise tax on fuel will be determined by our Legislature. This will be a conversation that we have. … And other states around us are doing the same thing. It’s a good time for it. We need it. We can’t afford to be left behind.”

With neighbors—and economic competitors—like Indiana and Tennessee making moves to shore up their transportation spending in 2017, getting left behind could be a real possibility.

Indiana lawmakers last year passed a transportation package that included a 10-cent gas tax increase, electric vehicle fees and a promise to explore expanded tolling in the future.

“We are starting to get pretty busy this year,” said Anthony McClellan of the Indiana Department of Transportation. “And we’re looking forward to the next 20 years (when) we should have funding to take care of our infrastructure and maintain it and also add to it some.”

Tennessee’s 2017 transportation package included a six-cent gas tax increase and increases to vehicle registration and other fees.

“It adds about $250 million to our program annually,” said Paul Degges of the Tennessee Department of Transportation. “We’ve got a $10.5 billion program that has a pretty large portfolio—962 projects across the state—so we have really been kicking it into high gear. Our December (transportation project construction) letting was the largest letting in our agency’s history.”

Degges said while it is not the job of his agency to create jobs or economic development, that can be an important byproduct of infrastructure investment.

“Our job is to create the conditions for the private sector to thrive and create jobs,” he said. “By making these transportation investments out there, we’re seeing growth. … In Tennessee, we have the lowest unemployment in the history of the state. Our perspective is basically we’re at full employment. We really think the investments we’ve been making in transportation have been critical to that. While roads and transportation services and infrastructure by themselves don’t create the conditions to grow jobs, without them it just wouldn’t happen.”

Kentucky policymakers like Stivers, the Republican Senate President, and Adkins, the Sandy Hook Democrat, hope they too can keep their state’s economic engine humming as they seek to modernize its infrastructure and how it’s funded.

“Our challenge is to make sure that the momentum that we have built over the last 30 years continues (for) the next 30 years and it is being threatened in the transportation sector as we stand here today,” Adkins said.