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Kentucky Highways Would Have Lost $291 Million Without the Gas Tax Freeze

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Amid tumbling gas prices earlier this year, the Kentucky General Assembly created an artificial “floor” to the state's fuel tax to try and mitigate dwindling tax receipts into the state road fund.

On Tuesday, transportation officials said recent legislative action ensured that the state didn’t miss out on about $291 million in fuel tax revenue.

But Mike Hancock, the secretary of the Transportation Cabinet, said the state still lost about $165 million.

“We have lost a considerable amount of money that we would have otherwise enjoyed had we not had the freefall” in gas prices, Hancock said during a joint meeting of the legislature’s transportation committees on Tuesday.

The state's fuel tax rate is tied to the average wholesale price of gas. As a result of low gas prices, the fuel tax dropped from 32.5 cents to 27.6 cents per gallon from July 2014 to March 2015.

The tax rate would have dropped to 22.5 cents per gallon in April 2015, but in the last minutes of the legislative session, lawmakers voted to establish a “floor” for the fuel tax, meaning it couldn't go below 26 cents per gallon, even if gas prices continued to drop.

The tax will not be able to increase or decrease more than 10 percent in a year.

The legislation also "froze" the fuel tax rate at 26 cents for the 2016 fiscal year and changed the frequency of when the gas tax is assessed. Starting in the 2017 fiscal year, it will be evaluated annually instead of quarterly.

Because the annualized rate didn’t immediately take effect, the highway fund ended up missing out on about $100 million that would have come from a higher average price of gas by the end of the 2016 fiscal year, said state Rep. Leslie Combs, a Democrat from Pikeville.

“That’s a big number. I just think it’s important for everybody to know when we make these decisions, here we are, months later, the kind of impacts we make,” Combs said.

When asked how much the transportation cabinet’s budget stood to lose as a result of the dip in gas prices and the freeze, Hancock said effects would be minimal and will level out in the future.

“What I don’t foresee happening with this is a tumultuous decline and a series of peaks and valleys, we do not want that,” Hancock said.

“Whatever that number ultimately becomes, my goal would be for it to be a smooth path and level back out.”