Arkansas Advocates: Modest surplus is ominous sign for governor's highway plan | Arkansas Blog

Tuesday, February 2, 2016

Arkansas Advocates: Modest surplus is ominous sign for governor's highway plan

Posted By on Tue, Feb 2, 2016 at 4:12 PM

Earlier today, I wrote that the $36 million surplus the state was projecting for FY 2016 was good news for Gov. Asa Hutchinson's plan for highways, which (in the absence of any gas tax increase) relies heavily on surplus funds to pay for roads.

But this blog post from Arkansas Advocates for Children and Families has convinced me I was wrong. It calls the "modest" forecast an "ominous sign for the governor's highway plan."

"A $35.9 million surplus won’t even be close to enough once we start counting on it for highways," it states.

The governor's plan calls for 25 percent of the General Improvement Fund — which derives from surplus — to be expended on highways each year, beginning in FY 2018. Based on the average surplus over the last ten years, he expects that will bring in $48 million for roads annually. As Advocates points out, that assumes a surplus of about $192 million per year. The problem is that we really don't know what future surpluses will be; it's a roll of the dice. Yes, the average annual surplus over the past ten years has reached that figure, but it's fluctuated wildly within that time span, from $409 million to $0. For six out of the last ten years, the surplus has been less than $192 million.

Advocates puts it like this:

Part of Asa Hutchinson’s highway plan is to send $48 million a year to highways by using 25% of surplus funds starting in 2017. If the surplus falls below $192 million, we won’t have enough to fill that $48 million promise. If surpluses flounder, as they have been known to do, programs are going to be looking at each other wondering who will be the first to get cut.

Now, in the immediate term — for the coming fiscal year, FY 2017 — the governor will be drawing on funds that actually, well, exist. His plan calls for using about $20 million of unobligated surplus from the 2015 fiscal year, plus $20 million from his own rainy day fund.

The question is what happens after that. The state has a projection for revenue in the coming 2017 fiscal year, but it can't yet make a projection for surplus, since it doesn't have a budget yet (the legislature will hammer out the budget in the fiscal session later this spring).

Here's what we do know. The FY 2015 surplus was $191 million. The FY 2016 surplus is projected at the moment to be $36 million. In other words, surpluses are volatile; this is Advocates' point. It's bad policy — especially for a conservative like Hutchinson, I'd think — to premise a core function of government around a revenue stream that fluctuates so unpredictably.

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