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story.lead_photo.caption Sen. Jim Hendren is shown in this file photo. — Photo by Staton Breidenthal

FAYETTEVILLE -- Money for roads is the most vital issue for Northwest Arkansas in the coming legislative session, political leaders and the governor said.

State highway money is about $400 million a year short of needs, according to Arkansas Transportation Department estimates. The governor wants the Legislature to come up with more money, which would probably require a tax increase rather than shifting existing revenue. He said any such increase should probably be referred to the voters on the 2020 ballot.

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Source: Staff report

Lawmakers will try to reach a consensus during the session, but the specifics of a proposal are a long way off, legislators said.

"More so than any other region in the state, we should be interested in the solution the Legislature comes up with for highways," said Sen. Jim Hendren, R-Sulphur Springs. The longtime Benton County lawmaker is the incoming president pro tempore of the Senate.

"Our growth in population and economic development puts a real strain on our infrastructure, and it could end up strangling our opportunity for growth," Hendren said. "Finding a solution will not be easy but is very important to Northwest Arkansas."

Gov. Asa Hutchinson and Sen.-elect Greg Leding, D-Fayetteville, agreed. Leding is the only Democratic senator from Washington or Benton counties.

"Obviously, it's the highway bill," Hutchinson said. "The ideas on that are still being formulated, but it impacts Northwest Arkansas greatly."

Hutchinson is the first governor born and raised in Benton County. Overall, six state senators and 14 state representatives live in Benton and Washington counties. One senator and three representatives from the region are Democrats, with the rest being Republicans.

The fact a new highway bill is still very much a work in progress means Northwest Arkansas can and should take an active role in shaping it, Hutchinson said. The region's influence should be felt, he said. How they shape it is up to them, he said.

Hutchinson signed a highway funding bill in May 2016, but that measure used cash reserve built up over years and interest earned on the reserve. The $50 million one-time measure took advantage of $200 million a year for five years offered by the federal government for road projects. The measure passed in a special session of the Legislature.

Critics included Senate minority leader Keith Ingram, D-West Memphis. The measure drew down the state reserve without addressing long-term highway needs, Ingram said at the time. The senator described the program as a "Band-Aid." Earlier efforts to raise taxes on fuel made no progress.

Before the 2016 measure, the last increase in taxes for roads was in 2012. It's a temporary measure that expires after 2022. Voters approved a 0.5 percent increase in state sales taxes to improve interstates within the state.

Hendren agreed any proposal to increase taxes for highways will likely go to the voters for approval. The state's constitution requires a three-quarters majority vote in each chamber of the Legislature to pass an increase in most taxes.

"That is why big programs are punted out to the people, and additional gas taxes or something else will probably go to a vote," Hendren said.

Highways will obviously be big, Leding said, but at least one other anticipated measure will probably not live up to expectations. People are expecting too much out of a proposal to start collecting city sales taxes on purchases through the Internet, he said.

Amazon is the largest online retailer, and it already collects local sales taxes, Leding said. Cities expecting a windfall out of a bill to make other online retailers pay their share may be setting themselves up for disappointment, he said.

A bill that will have more impact on the Northwest Arkansas region than people readily expect is the plan to the cut the top rate of the state's income tax, Hutchinson said. Hutchinson proposes to reduce the rate from 6.9 percent to 5.9 percent over three years.

"That top income tax rate hurts our recruiting of top talent to Arkansas companies, and I hear that daily when I'm in Northwest Arkansas," the governor said.

Several of the nation's largest corporations have headquarters in the region.

"I was talking recently with the governor of Massachusetts, and he was dumbfounded when I told him what our top rate was and at what income level people started paying the top rate," Hutchinson said. Arkansas' top tax rate begins at $79,300 a year, state tax tables show. Massachusetts has a flat income tax rate of 5.1 percent.

Arkansas' top income tax rate is surpassed by 15 other states, a comparison of tax rates show, but is higher than any surrounding state. States with higher income tax top brackets include California, New York and Minnesota. Many of the states with higher rates also have the top tax bracket that affects higher incomes, Hutchinson said.

The recruitment issue is a valid one, said Cameron Smith of Cameron Smith and Associates, an executive recruiting firm in Rogers.

"When we are recruiting executives here from other states, the Arkansas tax rate can be a barrier, especially if they are coming from Texas, Tennessee or Florida where there is no state tax," Smith said Thursday. "We try our best to offset the additional rate by helping the candidate negotiate a higher salary. Normally a 15 percent increase in compensation is considered a fair increase."

The governor's plan would require a three-quarters vote in the Legislature because it would raise the tax rate on some as it reduces the number of tax brackets, even though it offers some increases in tax deductions. The Legislature has alternative plans it could consider, formulated by a legislative task force.

The Legislature wants to avoid the budget crises created by excessive tax cuts in other states such as Oklahoma and Kansas, Hendren said.

"We had legislators from both those states come talk to the task force, and I respect them for giving us the straight story on that," he said. "They have budgets in distress and told us about how you have to be prudent about implementing tax reform. With any large tax reform package, you have to have many safety triggers in place so you don't cripple your budget if there is a downturn.

"I hope I never have to give that kind of testimony."

Large tax cuts can be self-defeating as an economic incentive if it cuts vital services, Hendren said. Workforce education is of particular concern to Northwest Arkansas, he said.

"It is a national problem," Hendren said of finding and keeping a trained, qualified workforce. Hendren manages a plastics company.

"I just got back from a trade show in Nashville, Tenn. Everyone there said it was getting more and more difficult to find qualified people to hire."

In addition to adult education, general education and higher education are always at the top of the region's legislative priorities, Leding said, and so is healthcare.

General News on 01/09/2019

Print Headline: Highways top NWA's priorities in session Governor touts regional advantages of tax reform

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