KY transportation officials: 10-cent gas tax suspension could shave roughly $26.8M a month from road fund

Deputy Secretary Mike Hancock of the Kentucky Transportation Cabinet told the interim Joint Committee on Transportation that the governor's executive order reducing the motor fuels tax by 10 cents per gallon is intended to give Kentuckians relief at the pump, but it will have immediate budgetary consequences.

"The governor issued the executive order to reduce the state gas tax by 10 cents a gallon to give Kentuckians relief at the pump," Hancock said, noting the order also freezes a scheduled 0.6-cent change and was filed as an emergency regulation that remains in effect until the later of an end to hostilities in Iran or Kentucky pump prices falling below $3 a gallon.

Sean McCurin, executive director of the cabinet's Office of Budget and Fiscal Management, presented the committee with the administration's estimates: "The impact on the road fund is estimated at $26.8 million for one month," he said, adding that the statutory distribution formula directs about 44% of the reduction to county road aid, rural secondary and municipal road aid. McCurin told lawmakers the estimated one-month effect to counties and cities is about $1.8 million and that roughly $15 million of the one-month reduction would come out of funds available to the cabinet.

Industry representatives offered similar but not identical figures. Chad Laroo, executive director of the Kentucky Association of Highway Contractors, said the two pending suspensions together could reduce revenues by about $26.5 million per month and noted about $8 million of a given month's loss is paid by out-of-state drivers.

Committee members pressed witnesses on how much of the tax cut reaches consumers at the pump, whether the rainy day (budget reserve) fund is an appropriate backfill, and which programs or projects would be deferred if revenues fall short. McCurin told the panel the effect depends on the duration of the suspension and that frequent cabinet cash-management meetings seek to avoid cutting payments to ongoing projects: shortfalls would most likely slow authorizations for projects that spend out quickly, such as resurfacing.

The committee's discussion turned to local decisions about extending the governor's emergency declaration. The panel voted by voice to ask the Transportation Cabinet for a list of mayors and county judge executives who had signed a petroleum-marketer letter urging local adoption of the suspension. The motion passed without a roll-call tally recorded on the committee record.

Several lawmakers characterized the move as a "self-inflicted" budget cut that risks delaying work on rural secondary and municipal roads even as it provides only small monthly savings to drivers. Lawmakers repeatedly contrasted modest per-driver savings with the size of the transportation program: witnesses estimated the average driver saves between a few dollars and roughly $5 per month from the 10-cent cut, while the cabinet warned of tens of millions of dollars in lost funding.

What happens next: the cabinet and industry urged the panel to consider options to stabilize transportation funding, including legislative fixes to the gas-tax index and possible use of the budget reserve trust fund if the governor requests an appropriation. The committee did not adopt a policy recommendation at the meeting; it recorded the cabinet's estimates and asked officials for the list of local jurisdictions that requested the extension so lawmakers can track local decisions.