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While Arkansas's state highway system of about 16,300 miles accounts for one-fifth of the state's mileage, it carries over three-fourths of the state's traffic. Road needs have been steadily increasing and conditions have been deteriorating on some segments, particularly Interstates. In 1996 about 30.5 percent of rural Interstates and 25.2 percent of urban Interstates were rated in poor condition. A study in the mid-1990s identified a total state system need of about $6.9 billion over 10 years with a funding gap of $2.3 billion, based on existing revenue sources at the time of the study. The Interstate's 10-year repair needs were estimated at about $1.075 billion.
In 1995, a proposed bonding package for highway improvements was defeated in a vote of the citizens by a margin of 13 to 87 percent. Recognizing that road conditions were continuing to decline and that the state's economy was being impacted by poor road conditions, the Governor in 1997 appointed a Citizens Council on Highways and Transportation to address future road and bridge needs and review financing mechanisms to fund needed improvements to Arkansas's state highway system.
In October 1998, the Council issued its report, Arkansas's Highway and Waterway Transportation Needs: A Road Map for the 21st Century. The Council recommended that the funding gap be met by the issuance of bonds secured by future transportation funding (i.e., GARVEE bonds) and that the match be funded by a combination of existing state funds and a phased increase in the tax on truck diesel fuel.
With the support of the Arkansas State Highway Commission and the Governor, the Arkansas General Assembly in 1999 passed a comprehensive funding package which put the question of issuing GARVEE bonds to a vote of the people. The package also included a phase-in of a three cent gasoline tax increase and a four cent diesel fuel tax increase over two years.
On June 15, 1999, Arkansas voters overwhelmingly approved by a four-to-one margin the proposal to allow the Commission to issue $575 million in GARVEE bonds to help finance reconstruction of Arkansas' Interstate highways on an accelerated schedule. The Interstate Rehabilitation Program (IRP), as it is known, will rebuild approximately 380 miles, or 60 percent of Arkansas' total Interstate miles within five years. The total cost of this rehabilitation program is estimated to be $950 million.
Arkansas sold its first GARVEE issue of $175 million in March 2000 and a second issue of $185 million in July 2001. The third issue is planned for 2002. The Arkansas bonds are backed by a full faith and credit pledge of the state, plus state motor fuel taxes. Future Federal funds, together with the required state matching funds and the proceeds from the phased-in four cent diesel fuel tax, will be used to retire the bonds.
Construction began under the Interstate Rehabilitation Program in the spring of 2000. The Arkansas Highway and Transportation Department will rehabilitate about 125 miles of Interstates yearly, compared to 12 to 15 miles previously with pay-as-you-go financing. The Department is on schedule to have all Interstate rehabilitation projects underway in three years and completed in five years. The first five projects were completed by the summer of 2001, marking the beginning of safer, more convenient travel on the Interstate system in Arkansas.
Arkansas recognized that GARVEEs could facilitate urgent highway rehabilitation needs in the state by advancing the work years earlier than would have been possible with traditional financing methods. The state investigated a broad range of traditional and innovative financing approaches to meet its rehabilitation needs, and identified GARVEEs as the best solution to quickly respond to the state's gap in available funding. The result is reconstruction of 60 percent of Arkansas' interstate system to improve safety, enhance mobility, and support continued economic growth in the state.
