Sunday, May 29, 2016

Asa Hutchinson's radical change in state budgeting for highways

Posted By on Sun, May 29, 2016 at 8:16 AM

click to enlarge REVOLUTIONARY: By tricky labeling, Gov. Asa Hutchinson has achieved an unprecedented transfer of $76 million a year from support of general state government to highways.
  • REVOLUTIONARY: By tricky labeling, Gov. Asa Hutchinson has achieved an unprecedented transfer of $76 million a year from support of general state government to highways.
Gov. Asa Hutchinson's highway spending plan amounts to a radical realignment of financing of  state government, though it has been sold as merely a prudent use of  "surplus" money.

An article in today's Arkansas Democrat-Gazette by Michael Wickline provided graphic information about just how radical this financing plan is. A major focus of the article was an examination of the wisdom of counting on diverting $20 million a year from earnings on state investments to highways. Count me slightly pessimistic about the ability of the treasurers' investment team, led by former Rep. Ed Garner, to cash in on smart market timing on riskier investments to increase earnings in times of extremely low yields on the traditional low-risk investments the state once solely used. That $20 million depends on a sharp increase in the treasurer's investment performance, nearly tripling in 2017 to $60 million against a five-year average of about $22 million.

But forget that. Far more important is Hutchinson's plan to starve state government out of almost $200 million a year. Here's the real bottom line:

In four fiscal years, 2018-21, Hutchinson counts on putting $76.68 million a year into highways. This is money that otherwise would have gone to other agencies of state government — schools, colleges, prisons, medical services, State Police, environmental regulation and more.

It's worse than it appears because Hutchinson plans to budget 25 percent of "surplus" annually for highways, or $48 million a year. This means he anticipates an overall "surplus" of $192 million a year. To deliver for highways, he'll have to budget that surplus — effectively an appropriation of general revenues.

To budget a $200 million annual surplus means denying that amount of money to other state agencies. Also: The leftover "surplus" after highways will be under even greater control of the governor, another revolutionary reshaping of traditional powers.

(This transfer of power to the executive could have one positive result: the end of the unholy pork barreling by dividing surplus for individual legislative projects in a manner that is wholly unconstitutional.)

To recap the highway plan: On an annual basis for four years, Hutchinson sets aside $20 million of investment earnings for highways; $48 million of a budgeted "surplus"; $5.88 million in sales tax revenue that formerly went to general government services, and $2.8 million from diesel taxes that went to the general budget, for a total of $76.68 million. That's a direct transfer of general revenues to highways, which — until this year — had been paid exclusively by user fees.

If the budgeting holds, there's another $144 million a year in budgeted "surplus" of general revenues for the governor to play with — altogether about $220 million a year gone from the general state budget. This is conservative and prudent, the governor says. It is also potentially starvation-inducing for big segments of state government. I suspect Republican legislators who signed onto the governor's plan rather than a true highway spending proposal understood this fully and approvingly.

I wrote this week that this is a free lunch plan for the governor — he gets his money without a tax increase. But everybody else in state government — other than the freeway department — will have to do without lunch while picking up the governor's tab.

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