Enhancing Kentucky’s Transportation Funding Capacity: A Review of Six Innovative Financing Options

Abstract

Kentucky faces several challenges in meeting the funding needs for its transportation infrastructure. The state currently relies on a revenue stream based on road user taxes and fees. However, the structure of these taxes and fees are such that revenues have not kept up with the growth in the number of licensed drivers and motor vehicle travel. In addition, inflationary pressures, coupled with the Road Fund's low growth rate, have diminished the purchasing power of Road Fund revenues. It is increasingly clear that Kentucky will not be fiscally capable of meeting its transportation investment needs if steps are not taken to address current revenue trends. Traditional financing mechanisms have not proven adequate to meet the state's current transportation needs. Knowing the options available to enhance current revenues can assist policymakers in making critical policy decisions needed to ensure continuing adequacy of funds to meet the demands of the state's transportation system. Because of the myriad of transportation funding options available to states, knowledge of the options and an understanding of how these options can be used for efficient transportation financing is a complex undertaking. This study was designed to provide such desired information. This report identifies and investigates six innovative finance options that could potentially be used to mitigate Kentucky's funding challenges. These innovative finance options are reviewed and an explanation of each option, discussion of advantages and disadvantages, estimate of potential revenue that could be generated, and review of implementation needs are discussed. The six innovative finance options summarized in this report are: (a) adjust the indexing formula for the motor fuel tax; (b) eliminate tax expenditures to increase Road Fund revenue; (c) impose usage tax on motor vehicle repair parts and labor; (d) establish a supplemental vehicle enforcement fee to create a Motor Vehicle Safety Enhancement Fund; (e) use tax increment financing for local transportation projects; and (f) utilize tolling to construct, maintain and operate new roads and bridges.