Kentucky Transportation Cabinet (KYTC) Secretary Greg Thomas today testified before the Interim Joint Committee on Transportation about the condition of the Road Fund cash balance—the funding source for all Cabinet operations including construction, maintenance and general support.
In his testimony, Sec. Thomas detailed the seriousness of a low Road Fund cash balance and introduced the Cabinet’s “Pause-50” plan to restore funding back to normal operating levels.
“For the first time in recent history, the Cabinet faces a low Road Fund cash balance, which compromises our ability to authorize new state road projects over the next biennium,” said Sec. Thomas. “The “Pause-50” approach is designed to slow or delay the starts of new projects so that we can pay current expenditures, recoup lost revenue and rebuild our funding base.”
Based on the KYTC’s cash management plan, the Cabinet strives to have a balance of at least $100 million at any given time. The last time the cash balance neared zero was in 2004 when it hit $30 million.
Consequently, the Cabinet will implement the “Pause-50” plan by halting the starts of new state-funded projects in all phases, which includes design, right of way/utilities, and construction for the first year of the biennium; and in the second year, aim for a goal of $50 million to allocate on state-funded projects starts.
In essence, the Cabinet will “pause” adding new state-funded projects for the first year in the biennium. For the second year, the Cabinet anticipates the availability of $50 million for state-funded projects starts. The dollar amount could be higher or lower depending on actual expenditures of current projects and the flow of state revenue funding.
In March, Sec. Thomas gave legislators a brief overview of the situation and identified several critical factors that have contributed to the low cash balance—mainly, overspending with limited funds.
State spending has greatly exceeded revenues since Fiscal Year 2014. Road Fund revenues totaled $4.5 billion over FY 2014-2016. Over the same period, expenses totaled $5.035 billion, exceeding revenues by $498 million; meaning that the start of new state funded projects must be delayed in order to meet payment of current expenditures as well as restoring the $100 million cash balance threshold.
Another contributing factor is the decline of 6.5 cents per gallon in the motor fuels tax in FY 2015. As a result, Road Fund revenues over FY 2015-2016 period are anticipated to be $152 million less than FY 2014 revenues. The motor fuels tax is currently at the statutory floor of 26 cents per gallon for FY 2016, and is expected to remain at the statutory floor for FY 2017 and FY 2018.
“The bottom line is that our current level of spending is unsustainable, and quite frankly, unacceptable,” continued Sec. Thomas. “There are several reasons and causes for concern. However, we feel that we have the situation under control.”
Despite concerns, the Cabinet will proceed and continue work on other projects not financed by state construction funds, which include:
Local county and city governments will continue to utilize the Flex Fund and Bridge Replacement programs.