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Ark. Voters OK $205M Sales Tax Hike For Highway Funding

By Abraham Gross · Nov 4, 2020, 12:19 AM EST

Arkansas voters approved Issue 1 on Tuesday, permanently extending a 0.5-cent sales tax increase to provide the state with an extra $205 million a year in annual infrastructure and highway funding.

The ballot measure amends the state constitution to permanently extend the increase, which passed at the polls in 2012 and was set to expire in 2023. Most of the additional revenue will be directed to state highway projects. As of late Tuesday, the measure was approved 55.3% to 44.7% with nearly 83% of the votes reported.

The measure is estimated to raise $205 million annually for state highway funding, with an additional $88 million evenly split between the Arkansas county aid and municipal aid funds, according to a fiscal note written when the state Legislature approved the measure for the ballot in March 2019.

The vote represents a victory for Republican Gov. Asa Hutchinson, who supported the measure as part of a $300 million infrastructure proposal to provide long-term funding for the state's highways. The other parts of the plan — raising the sales taxes for gasoline and diesel fuel — have already been signed into law.

In an online post after the result was called, Hutchinson thanked lawmakers for giving voters the opportunity to approve more funding for infrastructure projects.

"This is a victory for jobs, our future and safety on our roads," Hutchinson said.

Arkansas currently has a general state sales tax rate of 6.5%, and it lowered its sales tax rate on food to 0.125% from 1.5% on Jan. 1, 2019. The amendment exempts food and food ingredients from the increase.

The amendment caused a rift between Hutchinson and conservative members of the state Republican Party, which controls the Legislature. Senate Majority Leader Bart Hester, R-Cave Springs, who voted against both the amendment and the gas tax increases, previously told Law360 that he would have preferred earmarking the higher tax revenue from economic growth.

Democrats also expressed their concerns that the tax increase would mean more working-class residents would have to shoulder the burden of highway funding as the state provides a tax cut to the state's top earners. The tax cut, which was endorsed by Hutchinson and enacted in February 2019, will reduce the state's top income tax rate by 1 percentage point over two years beginning in the current fiscal year.

Those comments came before the novel coronavirus pandemic, which has hit funding for transit and transportation projects particularly hard as states grapple with the dual effects of reduced ridership and travel amid a weakened economy.

Arkansas has continued to report revenue gains, with net available revenue totaling $227.4 million above the prior year, according to the state's year-to-date revenue summary in September, the most recent month for which figures are available.

--Additional reporting by Paul Williams. Editing by Neil Cohen.

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