February 11, 2019

Kentucky's Road Fund Ends Fiscal Year with $51 Million More Than Expected

     An unexpected windfall meant Kentucky’s Road Fund had very few bumps this past fiscal year, but the executive director for the Transportation Cabinet’s Office of Budget and Fiscal Management warns there could be a dangerous curve ahead. Robin Brewer testified to the Interim Joint Committee on Transportation Thursday morning about the performance of the Road Fund during Fiscal Year 2017, which ended June 30. She told lawmakers the Fund ended up bringing in $51 million more than expected, but she credits a record amount of motor vehicle usage tax collected this fiscal year with the jump in revenue.

     The state brought in $499.8 million in motor vehicle usage tax; $30 million more than the estimated $469.5 million. Brewer told lawmakers that was a record amount collected but warned, “We know that can’t be sustainable, and it’s just not a long-term solution to our situation.” The largest revenue generator for the Road Fund is the motor fuels tax, which did see a $13 million increase over projections. But, Brewer warned that was simply due to an increase in consumption. The motor fuels tax brought in $760.5 million in FY 2017. It was projected to make $747.3 million. It is only the motor fuels tax portion of the Road Fund that is portioned out to cities and counties through a revenue-sharing formula. The motor vehicle usage tax goes directly to the Transportation Cabinet.

     A large portion of the gas tax revenue is divided using a “formula of fifths” that was developed in 1948. It provides a large chunk of gas tax revenues to counties. Proponents of a change in the formula, like the Kentucky League of Cities, would like to see the allocation based more on road usage and population as the state has become more urban in the past 69 years. A bill in the 2017 Regular Session of the General Assembly, House Bill 292, would have changed the formula for revenue earned above Fiscal Year 2014, when the Road Fund saw the largest motor fuels tax revenue in a 10-year period. The gas tax brought in $886.2 million in FY 2014.

     During Thursday’s testimony Brewer told lawmakers the motor fuels tax is expected to stay relatively flat for Fiscal Year 2018. “We’re still very far from the level of FY 14,” testified Brewer. Still, she says the Transportation Cabinet and Governor’s Office of Economic Analysis and the Office of the State Budget Director all expect the Road Fund may once again exceed estimates for FY 2018 revenue. “But, we probably aren’t likely to meet the actual revenues that we collected in FY 17,” she warned. The Fund has estimated revenues of close to $1.5 billion for FY 2018, with an expected $749.8 million from the motor fuels tax.

     Concern was raised by Senator Paul Hornback (R-Shelbyville) about the impact alternative fuel vehicles will have on the motor fuels tax in the very near future. Brewer told lawmakers the state currently has about 30,000 hybrid-type vehicles registered. “They probably go to the pump half as much,” agreed Brewer. Hornback predicted that number will only grow. “We’ve got more vehicles driving more miles that are not paying their part,” he said. “When we’re looking at making a new road fund, we might want to look at the formula that is flawed and doesn’t account for vehicles that are the future.”

     Committee Co-Chair Senator Ernie Harris (R-Prospect) said lawmakers are working to take alternative fuel vehicles into account. “We’re looking at what other states are doing, as far as an extra need during registration.” He agreed things need to change. “If I were king for a day, I’d raise the gas tax another six or seven cents, but that’s probably why I’m not going to be king for a day,” he joked. He quickly made the serious observation, “We have a lot of needs.”

     Brewer also reported to the Committee on how the Transportation Cabinet handled the General Fund Reduction Order signed by Governor Bevin on July 19, 2017. The governor issued the order as the state was ending the Fiscal Year $138.5 million short. Brewer said the General Fund accounts for only 0.7 percent of the Transportation Cabinet’s budget, so the reduction amounted to a $62,300 cut. She testified the Cabinet was also ordered to look for savings in restricted funds. She said another $900,000 was found by combining excess and unappropriated money in the Motor Boat Titling Fund, Avis Replacement Account and County Clerk IT Improvement Account.