Arkansas Democrat-Gazette Reprint

Listless revenue for state worries AHTD
Listless revenue for state worries highway agency
To get U.S. match for 2017's projects, surplus must grow

By Noel Oman 
Reprint from Arkansas Democrat-Gazette, 12/13/16

The state Highway and Transportation Department already is expressing unease about its ability to match all of the federal funds it's due next year.
Legislation enacted earlier this year relies largely on the agency's receiving a share of the general-revenue surplus to help raise $50 million annually to match all the federal transportation money available to the state.

Most federal money that goes to state highway construction projects requires the state to match a percentage of it. Typically, state projects use 80 percent federal money and 20 percent state money.

That $50 million in matching money would translate into $250 million in highway construction annually. That money could build the equivalent and then some of a new Broadway Bridge, which costs $98.4 million, plus the new U.S. 412 Bypass in Northwest Arkansas, which costs $100.6 million.
Because the department already has scheduled construction projects in anticipation of receiving the federal match, any shortfall would result in paring some of those projects.

Under the legislation, the department would receive 25 percent of the surplus. Over the past 10 years, 25 percent of the surplus has averaged about $48 million.

But state general revenue has been below projections for the first five months of fiscal 2017, which began July 1. And Gov. Asa Hutchinson's budget projects no surplus.

"I don't think you have to be a math whiz to figure out that 25 percent of zero is zero," Scott Bennett, the department's director, told a panel of lawmakers Monday. "We do have a little bit of concern."

Bennett spoke at a meeting of the Highway Commission Review and Advisory Subcommittee of the Arkansas Legislative Council. The same legislation that provided the money also created the subcommittee to review the department's spending and construction priorities.

Under the legislation, which is the five-year Arkansas Highway Improvement Plan of 2016 and was signed into law in May, state budget officials made a one-time transfer of $40 million in "rainy day" funds to the Highway Transfer Fund to take care of highway needs for fiscal 2017.

That money was used to match federal funds in the past federal fiscal year, which ended Sept. 30. Bennett's concern comes in regard to matching federal funds in the federal fiscal year that ends Sept. 30, 2017. State and federal fiscal years run on different calendars.

He said the department won't have a good idea of how much surplus, if any, will be available until after the legislative session ends in the spring. The department won't get the surplus until July, and it has to obligate its match of the federal money beginning in August.

The uncertainty will leave the department with little room to maneuver financially. It must pay contractors with state money before it can be reimbursed with federal money.

"There's a little bit of a window there, and we're going to have to pay a lot of attention to cash flow to make sure the money is going to be there to match the federal funds," Bennett said.

Other money the legislation provides to the department in future years includes a Securities Reserve Fund that will transfer investment earnings from the state Treasury to the Highway Department. Under the five-year measure, $1.5 million will be transferred this year, with that amount increasing to $20 million in each of the next three years and $25 million in the fifth year.

The subcommittee co-chairman, state Sen. Bruce Maloch, D-Magnolia, agreed that the surplus and other money on which the department is depending will have to be monitored closely, and noted that Gov. Asa Hutchinson is proposing tax cuts as part of his legislative package for the regular meeting of the General Assembly, which begins next month.

"You raise a number of issues that have been on my mind that we have to be very conscious of going into the session," Maloch told Bennett. "This committee is not a place for a discussion of tax cuts or anything like that. But the fact of the matter is what we did in the special session to help highways does in fact depend upon both interest earnings and a portion of the surplus.  "Historically, we have budgeted conservatively and we have projected revenue conservatively. But the fact of the matter is the first five months of this fiscal year we're still under our projections, so it is something that we need to be very conscious of."

State Rep. Andy Davis, R-Little Rock, a subcommittee member who sponsored the legislation, said Bennett has a "valid point to be concerned about our federal funding goals."  But he said few budgets are crafted to include a surplus. "It's a little worrisome that we're still running below forecast," Davis added. "But there is not any reason to be worried [about matching federal funds] until the session is over" next spring.

Jake Bleed, a spokesman for the Arkansas Finance and Administration Department, said the current fiscal year still has seven months left, more than enough time for a revenue turnaround. He noted that the latest monthly revenue projection showed revenue falling about $10 million short of projections. The previous month showed revenue was $30 million off. "We are below forecast, but we are making up ground quickly," Bleed said.

Bennett also presented a report showing that the department has at least 53 road and bridge projects worth $1.4 billion under construction in the state. The report accounts for every road and bridge project under construction and worth at least $10 million, which is mandated by the legislation creating the subcommittee. The projects are on a total of 26 roadways -- interstates, U.S. highways or state highways -- in 35 of the state's 75 counties. The report lists another 78 projects worth at least $10 million each that are to be awarded contracts through 2020.

Maloch said he is cognizant of the constitutional independence of the department and its commission, but he and others think that the subcommittee reports the department is required to file will help foster better communication between the department and the Legislature. The five-member commission was created by Amendment 42 to the constitution in 1952 with the power to administer the department. The governor appoints its members to 10-year terms. The Legislature retains the power to raise taxes for the department.

"I want you to know that I certainly understand the constitutional separation of the highway funding, but I do think it's beneficial to the Highway Department, the Highway Commission and the Legislature to have meetings like this," Maloch said.