Thursday, October 06, 2011

Questions for the Highway Commission on Bond Issue

Secure Arkansas and some Tea Party organizations want the Highway Commission to answer some basic questions about the proposed bond issue voters will be asked to approve on November the 8th.  

1.      It appears that the primary funding source to pay off these bonds is the money we would otherwise get from the federal highway trust fund.   If for any reason the federal government fails to deliver the expected monies from this fund over the next 15 years would the state and its taxpayers be expected to make up any shortfalls needed to pay off the bonds?

 Editor's note: we have found that the answer to this question is YES.

2.      The federal gasoline tax is the primary means the federal government uses to replenish the federal highway trust fund which appears to be the primary source you are relying on to pay off these bonds.  Is the tax “permanent” or is it a tax that has to be renewed from time to time?  Since it was first levied in 1956, has this tax ever lapsed or been diverted to purposes other than the federal highway trust fund?

Editor's note: we have found that the tax has been diverted to deficit reduction twice since 2000, and that the tax does have to be renewed.  It may actually be technically lapsed right now.  It was supposed to end September 30th unless renewed, and I can't find anyplace in the news where it was renewed.

3.      The question before us seems to be whether we simply spend the federal highway money as it comes in, or borrow against those expected revenues and get as much money as we can up front.   We understand that the loan amount we can get is $575 million dollars, but we don’t know the other amounts.  How much money did we get from the federal highway trust fund each year over the last five years, and how much revenue did we get from the four cent diesel tax that is also dedicated to bond repayment?   How many total dollars from these sources do you expect to take in over the next 15 years?

 Editor's note: Those numbers appear to be about $58 million each year from the feds and $15 million from the diesel tax, so we are giving up roughly $73 million in annual revenue over the next fifteen years ($1.095 billion) to get the $0.575 billion early.  We would get about $300 million, or over half the money from the issue, simply by letting the money come in over four years.  

4.      Approximately how many dollars will be paid in interest for this $575 million?  How many dollars will be paid in bond fees, brokerage fees, and commissions?   How many dollars will be allocated to pay legal fees necessary when floating a bond issue? 

5.      Which firms will be retained to broker the bond deal and provide the legal work for the bond deal?  Also, how were these firms selected (were these jobs ever competitively bid)?

6.      There is currently a four cent a gallon diesel tax which was brought into existence to pay off the last round of GARVEE bonds.  It seems to us the dedicated revenues would have “nowhere to go” should we finally pay off these bonds.   While it is not a “new tax”, it is a tax created for and devoted to paying off these bonds. So while no “new tax” would be needed to engage in another round of borrowing, it seems to us that an existing tax could be ended.   Should there be no bonds, isn’t it true that the legislature could simply end this tax without a loss of state fuel tax money going to your department?  If the legislature redirected this fuel tax to your department instead of to bond repayment, isn’t it true that your department would receive more dollars from state fuel taxes than they do now?   If so, how many cents could the legislature take off of the state’s gasoline tax and still break even in fuel tax revenues?

7.      Please provide us with the total number of road dollars you intend to spend in each congressional district with this bond money.

8.      There is confusion about what this money is to be spent on.   Some officials are saying that new construction will be associated with this project.  Some say that the plan is only going to fix what we already have.   Others say that it is a two-phase program with some of each.  Could you provide us with a map that shows where you intend to do what?   Also, a definition of what the terms mean.  For example, does “improve” simply mean that you resurface a road, or are you permitted to add lanes, on-ramps, exits, new bridges, and the like?

9.      Some of us are concerned about money paid in gasoline taxes being diverted to subsidizing mass transit and alternative locomotion whose users “free ride” on vehicle users.  We feel that the free market should determine the mix between mass transit and private vehicle use.   Can you guarantee us that no money from this program will be spent on facilities or infrastructure for mass transit, trollies, light rail, bicycle paths, or recreational trails? 

10.  There are rumors that this plan will borrow money before the Highway Commission even needs it to fund road work.  As this rumor has it, they plan to turn the money over to financial traders who will use it to speculate on various investments with the idea that they can make money trading until they spend it.  If true, we feel this is a volatile time to try such a scheme, and that there is an unacceptable risk of them losing money and leaving us to make good what they lost, plus the interest on what they borrowed to speculate.  The only ones sure to win in such a plan is the financial firm that does the trading and rakes in the commissions.  

What do you do with funds that you get off the bonds but have not yet spent?  What is the maximum amount of time between the day you expect to raise bond money and the day you expect to spend it?  If there is a plan like this in the works, how much do you estimate it will cost you in payments over the life of the program to the investment bankers who will manage this program?  Also if it is true, what firm are you going to use and how were they selected (was the job competitively bid)?


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