Kentucky's gas tax shrinks as road needs grow

FILE - In this Wednesday, May 16, 2012 file photo, newly constructed roadways are being built in Fairfax County, Va. President Barack Obama’s budget will propose an ambitious six-year, $478 billion public works program of highway, bridge and transit upgrades, half of it financed with a one-time mandatory tax on profits that U.S. companies have amassed overseas, White House officials said. Obama will unveil a $4 trillion budget on Monday, Feb. 2, 2015.(AP Photo/Haraz N. Ghanbari, File)
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FRANKFORT, Ky. (AP) - Kentucky's gas tax is shrinking even as its need for road and bridge work grows.

Triggered by automatic reductions pegged to the price of fuel, Kentucky's gas tax dropped 4.3 cents in January and is scheduled to drop another 5.1 cents in April, decreases that amount to a $270 million cut to the state's road fund.

The dramatic drops, the biggest swing in gas tax rates in at least three decades, has prompted at least one county government to lay off workers and is putting pressure on state lawmakers to do something in their 30-day legislative session that ends in March. Any legislative fix is likely doomed after House Democrats tried to raise the gas tax last year but were defeated by Senate Republicans.

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But this year, it is some Senate Republicans leading the effort to freeze the gas tax before the scheduled April 1 drop.

"Our gas tax, if we don't stop this freefall, will go from about 32 cents down to 22 cents. We're going to lose a third of our state funding," said Republican Sen. Ernie Harris, chairman of the Senate Transportation Committee. "We have got to stabilize this gas tax because of all the infrastructure needs we have. If somebody wants to put a label on me, go for it. I don't care. This is just protecting what we have."

The pressure on Kentucky's road fund comes amid declining federal transportation spending nationwide that is shifting more responsibility for road and bridge maintenance to state and local governments. Federal road spending in Kentucky has remained flat, and state officials have turned to tolls to pay for major bridge projects in Louisville and northern Kentucky. Kentucky's gas tax is tied to the average wholesale price of fuel, which is adjusted every three months. From 2009 to 2014, while gas prices soared to nearly $4 per gallon, the state's gas tax increased 47 percent from 21.1 cents per gallon to 31.1 cents per gallon.
But as gas prices began to drop last year, so did the state's gas tax. The tax dropped 0.6 cents on Oct. 1 before dropping 4.3 cents on Jan. 1. A one cent drop equals about $30 million in state revenue. State transportation officials say it appears the tax will drop another 5.1 cents per gallon on April 1.

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Last year, House Democrats proposed raising the tax 1.5 cents per gallon and freezing it to stop the fluctuations. Senate Republicans offered to freeze the tax at 29 cents per gallon. House Republicans, who were trying to pick up a handful of seats to seize control of the chamber in the November elections, went to war over the tax increase that ultimately did not make it into the final version of the state spending plan.

But this year, with another 5.1 cent drop looming, Harris is urging lawmakers to freeze the gas tax at its current rate of 26.2 cents per gallon. The Senate Republican leadership has balked at the bill, arguing the Kentucky constitution says all revenue-raising bills must begin in the House of Representatives. But House Democrats are still wary of last year's fight and say that any bill would have to start in the Senate.

Democratic House Speaker Greg Stumbo pointed to a 1957 state Supreme Court decision that said freezing tax rates did not count as raising revenue, meaning the Senate could pass a gas tax bill before the House. But Republican Senate President Robert Stivers disagreed.

"I'm not concerned with the drop in gas tax, what I'm concerned with is about the maintenance of our roads and construction of new roads and expansion of roads," Stivers said.

Just under half of the state's road money, or 48 percent, goes to local governments. After the last drop, Grayson County laid off some of its road workers, according to Vince Lang, executive director of the Kentucky County Judge/Executive Association.

"This loss, I don't know if they will ever be able to make it up," he said. "You just have to drop the idea of any kind of new resurfacing in these counties."

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