Wednesday, October 26, 2011

My Thoughts on the Highway Bond Issue

On November 8th, the voters in Arkansas will have an opportunity to vote on reauthorizing the Highway Commission to issue GARVEE bonds that will be used to maintain our highways. This is similar to a program that voters approved back in 1999.

At this time I am planning on voting against this proposal and here are the reasons why:

1)  Its debt.
Instead of going into debt to pay for our roads, we need to transition to a pay as we go system.  This will force us to make some tough decisions, but I believe it will be best for our state in the long run.  At the end of this post, I have provided potential solutions that our state should look at.

2)  Economic uncertainty. 
Because of the current and expected future state of the economy over the next several years, there is a chance that the current 4 cent sales tax and the amount that the Federal Government sends to the state will not be enough to cover the payment of the bond leaving the Arkansas taxpayers to come up with additional funds to repay the bond.

In addition, as far as I am aware there is no cap on the interest rate of the bonds.  While the current rate is around 3%, there is no guarantee that they will be this low when the bonds are issued over the next several years.  A higher rate will amount to the Arkansas taxpayers paying more in interest.

Please read this article: D.C. Gridlock Imperils Garvees

Garvee bond ratings are at risk from the increasingly unpredictable budget and policy process in Washington, Standard & Poor’s warned in a report released Friday.
The agency said it retained a stable outlook on all of the Garvees it rates. But in its report, it said, “We believe there are several potential risks that if realized alone or in combination, might cause us to reevaluate the ratings on some or all of our Garvee bonds.”

3) Timing
I believe that this is an issue that should be decided at a regularly scheduled election like the primary in May or the General in November of next year.  By scheduling a special election in November of this year, there is an additional cost to hold the election.

For those who would like to see an opposite viewpoint, please read Representative Nate Bell's piece on why you should vote for the bond issue:

So how do we fix our roads?  There are two recommendations I would make as a starting point:

1) Transportation Summit (9.6MB Download- Not recommended on slower connections)

From the summit: Commissioner Jim Simpson, New Jersey DOT, and Secretary Sean 
Connaughton, Virginia DOT, shared what is happening in their respective 
states’ transportation systems during The Voice of Our State DOT Directors 
Special General Session.  They addressed bold initiatives their states are 
taking to find innovative methods of improving, maintaining, and maximizing transportation systems by doing more with less in the best interest of the state. 

I was able to listen in on this conversation and will be looking at some of the innovative ways these two states are using to tackle there transportation needs.

2) Summary of Recommendations, Murphy AHTD Report:

1. Re-direct more existing resources (on a fast-track basis) to Arkansas' Interstates and restore them to first class condition.

2. Redirect a greater portion of ED funds to upgrading major arteries and interstates.

3. Encourage public policy at the Federal level to accomplish the following:

  • Require states to certify that they have adequate funds available to maintain a new road or highway over its useful life before allowing federal highway funds to be spent on its Construction.
  • Require states to certify that at least 90% of their existing urban and suburban highways are in good condition before allowing them to undertake new construction.
  • Support a joint state/federal effort, through Congress, toward the establishment of a national goal for improving the condition of our interstate Highway system, and provide incentives to states to meet these goals.
4. Repeal or significantly amend Amendment 42 (Mack-Blackwell). Reintegrate AHTD into the executive branch; give it cabinet level status as an essential government service ... a status it surely warrants.

5. Have the Director of AHTD report to the Governor and serve at the Governor's pleasure. Subject the hiring of the Director to the Highway Commission's consent, plus Senate confirmation.

6. Restructure the Highway Commission to provide for eight members, geographically chosen and serving four year terms appointed by the Governor.  No more than five members may be from the same political party.
(Another option worthy of discussion is providing for Commissioners to be elected. Either way--bi-partisan composition should be mandatory).

7. Concentrate highway priorities and resource allocations where the greatest needs and economic development potential occurs. To better affect this, move to a planning and resource system model aimed at greater objectivity in determination of priorities and distribution of resources.

Sub-recommendations (#7)

  • AHTD should develop and use a dynamic computer model to assure a wholly objective determination of construction and maintenance priorities for the state. The model should embody a uniform system for allocation of projected costs to planned construction and maintenance of highways, roads and bridges and fully integrate with a system of performance-based budgeting and activities-based-cost accounting.
  • A public report on priorities should be shared regularly in periodicals and the media, as well as be made available on the internet (would include progress on construction underway).
  • The design of the model should be contracted out and overseen by both a reliable independent accounting firm and the state's audit committee (should one be put in place as recommended in other Murphy Reports)
  • The Governor should task an accountability and performance advisory group with conducting a nationwide search to retain the finest team of "cost conscience" transportation experts in the country to design the model planning and resource system for Arkansas. They should also design (outside of AHTD) the base inputs and outputs comprising the system. The goal should be to make this a "best practices" model that other states would want to consider using.
8. The planning, design, and cost-estimating of Arkansas transportation needs should not be predominantly an "in-house" function at AHTD. Instead, much of it should be contracted out on the basis of performance as well as cost-saving incentives built into contracts.

9. As a matter of control and oversight, the Governor, through an independent audit committee (such a body has been recommended in another Murphy study), should also contract for the periodic independent review by an independent accounting firm with the requisite expertise.  It would randomly review selected highway system job cost estimates, design specs, and jobs in progress.

10. AHTD should demonstrate to the public a "good faith effort" to substantially reduce operating costs. 

Cost Saving Recommendations, AHTD

1. Restore control of 5000 miles currently in the state's 16,288 mile system to county or municipal government jurisdictions for maintenance and upkeep.

Possible savings or efficiencies: $13-$16 million annually.

2. Eliminate 5 of the 10 existing AHTD District Offices and 54 of 82 field offices across the state.

Possible savings or efficiencies: $5 million (An additional $4 million in maintenance expenditures and about $1 million in administrative and overhead costs).

3. Integrate the existing Arkansas Highway Police organization, currently an integral division of the Arkansas Highway and Transportation Department, into the Arkansas' State Police organization.

Possible savings or efficiencies: $2.5 million

4. Offload a number of roadside parks, and explore opportunities under TEA 21 to privatize existing interstate rest areas.

Possible savings or efficiencies: (including those acted already): $1.3 million per year plus an estimated one time savings of $11.7 million in rehab costs.

*The Murphy Commission would also have recommended not spending $19 million for roadside park electronic surveillance, which becomes unnecessary in light of 12 parks to be closed, as decided by AHTD.

5. Scale back AHTD's workforce by 5%.

Possible savings or efficiencies: $8.8 million

6. Explore the efficacy of outsourcing more in-house programs at AHTD:

Possible savings or efficiencies: $1.8 million

7. Integrate AHTD's stand-alone retirement system into the existing State Public Employees Retirement system. 

Possible savings or efficiencies: $2.1 million

8. Discontinue redundant AHTD auditing of motor fuel suppliers. (Department of Finance and Administration audits them)

Possible savings or efficiencies: $150,000 to $200,000

9. Exempt AHTD (and other state agencies as well) from paying state and local sales taxes.

Possible savings or efficiencies: $4.3 million

10. Miscellaneous Recommendations:

Sell AHTD 'twin engine aircraft:

Projected Savings: $160,000 per year and $2.6 million from the sale of the aircraft.

Reduce by 400 the number of state-owned vehicles assigned to department employees.

Projected Savings: $1 million per year

End funding to the Good Roads Council, $20,000 per year in savings

Summary of total savings:
Annual Savings:
$39,160,000 to $42,160,000
One-time Savings:
Total Projected Savings:
$53,460,000 to $56,460,000

As always, I am open to other ideas and solutions to any of the other issues we have here in Arkansas.  Feel free to send me an email:

Here to Serve,
David Meeks