As Kentuckians continue to enjoy low gas prices, the state’s road fund continues to suffer because of lost revenue from the motor fuels tax.
Officials say the fund, which finances state highway maintenance and construction projects, dipped to dangerously low levels last month ahead of scheduled debt payments the state was required to make.
Robin Brewer, budget director for the Transportation Cabinet, said “alarms were going off” because of how little cash the state had on hand.
“We had an erosion of our cash balance over several years,” Brewer said. “So when it’s time for those large payments to go out the door, it was alarming.”
Officials predict that during August of next year, the road fund’s cash on hand will fall below the $100 million cushion set by the cabinet.
The problem is in many ways a revenue problem. Kentucky’s motor fuels tax is tied to the wholesale price of gasoline and as gas prices have dropped, so have the state’s returns from the fee.
Over the 2016 fiscal year, which ended June 30, the road fund brought in $44.2 million less than the previous fiscal year. The losses are due to the motor fuels tax generating $100.2 million less than the year before.
Last year, a $51.6 million uptick in the motor vehicle usage tax — a fee paid when owners first register their cars — helped mitigate the losses.
According to the National Conference on State Legislatures, 17 states have increased their state gas taxes since 2013, around the same time gas prices began to fall from historically high levels.
Kentucky did not increase its gas tax, but did set a “floor” to try and soften the blow of dwindling tax receipts into the state road fund.
Rep. Jerry Miller, a Louisville Republican, said the fund’s low balance is also due to overspending by former Gov. Steve Beshear’s administration.
“From contracting and spending practices of a year ago, we’ve got ourselves kinda dug into a hole so we’re hopefully going to be digging ourselves out of that hole,” Miller said.
On July 1, the Transportation Cabinet froze $145 million in highway construction projects for one year in an effort to recoup lost revenue, pay current expenditures and rebuild the state road fund.
Road resurfacing projects, the Louisville bridges project, construction of the I-69 corridor and bridge replacement projects will still progress under the plan.
Officials predict revenues into the road fund will continue to decline this fiscal year, with an estimated $25.6 million decrease.