DALLAS – Progress on Kansas’s 10-year, $7.8 billion highway program will slow to a crawl if state lawmakers allow a sales tax to expire and divert transportation funds to other purposes, Transportation Secretary Mike King said Monday.
The House Committee on Taxation has approved an amended version of Senate Bill 84 that would divert revenues from a 0.4% sales tax dedicated to the Kansas Department of Transportation into the general fund in fiscal 2014 and 2015.
“Loss of the sales tax revenue will reduce the agency’s anticipated revenues by nearly $382 million over the next two years,” King said. “This is in addition to proposed transfers from the state highway fund of nearly $300 million.”
The diversion would cause delays or even cancellations as early as this summer of some projects in the Transportation Works for Kansas program financed in part with $1.1 billion of highway revenue bonds, he said.
“Highway projects will be cut or delayed,” King said. “At this time, we haven’t analyzed which projects may be affected, but we will consider all categories of projects – preservation, modernization and expansion -- that are scheduled to be let in fiscal year 2014 and after.”
The revenue streams supporting KDOT’s bonds include a 0.4% slice from a 1% increase in the state sales tax that went into effect in 2010.
KDOT’s $1.54 billion of outstanding highway revenue bonds are rated Aa1 with a negative outlook by Moody’s Investors Service, AA-plus with a stable outlook by Fitch, and AAA with a stable outlook by Standard & Poor’s.
The 1% increase in the state sales tax rate from 5.3% that went into effect in fiscal 2011 included a permanent 0.4% for transportation and a temporary 0.6% to bolster the state budget. Unless lawmakers act, the rate will drop to 5.7% at the beginning of fiscal 2014, with revenue from the remaining 0.4% dedicated to transportation.
The House version of the tax bill would keep the scheduled July 1 expiration date for the 0.6% sales tax. Gov. Sam Brownback wants the tax extended to compensate for phased reductions in the state income tax rate. The Senate budget plan retains the full 6.3% tax rate as Brownback requested. Brownback’s two-year budget plan transfers more than $500 million from the highway fund to the general fund. Diversions from the state highway fund into the general fund totaled $143 million in fiscal 2009, $149 million in fiscal 2010, and $205 million in fiscal 2011.
The Senate approved a tax plan that incorporates Brownback’s plan to lower income tax rates by taking the top income tax rate to 3.5% by fiscal 2017 from the current 4.9%.
The House budget plan calls for annual income tax rate cuts whenever state revenues grow by more than 2% in a fiscal year.
The 10-year road program adopted by the Legislature in 2010 authorized KDOT to issue bonds totaling up to 18% of the annual revenues deposited into the highway fund. The financing plan originally included $1.5 billion of revenue bonds, but was revised to $1.1 billion of bonds with more pay-as-you-go funding. The first debt issued for the program was a $325 million issue of taxable Build America Bonds in August 2010, the state’s first new-money issue for highway projects since 2004.
Another $725 million of highway revenue bonds are to be issued through fiscal 2018 for the T-Works effort.
