Can Missouri fix I-70 and keep up with Kansas tax cuts?

Republican legislative leaders are determined to raise the money needed to prevent Interstate 70 from crumbling into ruins even as they move to counter massive tax cuts in Kansas with some of their own.

And they are making both of the seemingly conflicting ideas high-profile pieces of their 2013 agenda. They could ultimately put proposals on the ballot asking voters to borrow money and raise some taxes.

A recent report by the Blue Ribbon Citizens Committee on Missouri’s Transportation Needs — appointed by former House Speaker Steve Tilley — concluded that the state needs to find an additional $600 million to $1 billion a year for critical transportation needs.

Despite the desire to reinvest in Missouri’s highways, Senate President Pro Tem Tom Dempsey, a St. Charles Republican, said the state must respond to tax cuts in Kansas if it wants to remain competitive.

“Cutting income taxes will send a message to the rest of the country and the state of Missouri that we are headed in the right direction,” he said.

The two ideas don’t have to be mutually exclusive, Dempsey said.

Any tax cuts must be revenue neutral, he said, and would be paid for by making it easier to collect sales taxes on online purchases and by reducing the amount of tax credits the state issues each year. As for a new source of highway funding, tax increases would be directed entirely to transportation and would have to be approved by the public at the ballot box, Dempsey said.

“We need to have a discussion with the public about a function that is a core responsibility of government,” he said. “My preference is to have that dialogue and then go out and ask the public to support a dedicated funding stream.”

Among the most urgent projects is fixing Interstate 70, which Missouri Department of Transportation director Kevin Keith has warned will be a “gravel parking lot” in less than 20 years if the state doesn’t make improvements.

“No matter where you live in Missouri, you’re familiar with I-70,” said Sen. Mike Kehoe, a Jefferson City Republican and chairman of the Senate Transportation Committee. “That connects the second and third largest rail hub in the country, too, in St. Louis and Kansas City. It’s a key to commerce and transportation. Being able to rebuild that road would be a home run.”

The current method to fund transportation infrastructure — the state’s 17-cents-per-gallon fuel tax — is not sustainable in the long term, Dempsey said. The state hasn’t raised its fuel tax since 1992, and consumption continues to drop each year.

Cars are becoming more fuel-efficient, more people use alternatives to gasoline, and their driving habits are changing. All that, Dempsey said, makes the gas tax less lucrative.

One idea being floated calls for cutting income taxes to a flat 4 percent rate while offsetting lost revenue with an increase of the state’s cigarette tax from 17 cents to 43 cents per pack. Voters in November rejected a larger cigarette tax increase intended to raise money for education.

That would be coupled with raising sales taxes by a half-cent. The added revenue would go to a newly created fund for the upgrade and upkeep of I-70.

Rep. Jeremy LaFaver, a Kansas City Democrat who sits on the House Budget Committee, said cutting income taxes while raising sales taxes would simply shift the tax burden onto low- and moderate-income families.

“That’s not acceptable,” he said. “I don’t want to put the burden on the backs of those who can least afford it.”

Kehoe said the idea is a good starting point for discussion but isn’t the only way forward.

“There’s increasing the gas tax, there’s increasing the sales taxes, there’s fees and tolls,” he said. “We need to look at all of those to see which ones Missourians would favor most.”

A 1 percent increase to the state’s sales tax would generate $700 million in additional revenue, Kehoe said, and the resulting road construction would translate to roughly 22,000 jobs annually.

To raise a similar amount from a fuel tax increase would mean raising the rate by 20 to 30 cents per gallon.

Kehoe added that any targeted tax increase for transportation would have to be temporary and include a project list “so Missourians know how long it was going to last and what they can expect from it.”

Democrats, who represent less than a third of seats in both the House and Senate, agree that it’s time for Missouri to invest in its infrastructure. But they question whether the time is right to cut taxes. They argue Missouri is already a low-tax state that is underfunding many of its core responsibilities, such as public education.

A recent report by the nonpartisan Tax Foundation ranked Missouri 47th out of 50 in state and local revenue collection.

With concerns about how massive tax cuts in Kansas could end up impacting health care, education and other state functions, Senate Minority Leader Jolie Justus said following the Sunflower State’s example could prove foolish.

“Kansas has been incredibly reckless, not only in their incentives that they offer, but also in their tax cuts,” said Justus, a Kansas City Democrat. “The cost to attract new business to their state is going to end up very damaging.”

Regardless of the funding method that ultimately emerges, Kehoe said it’s encouraging that state lawmakers are serious about making an investment in the state’s transportation system.

Interest rates are at an all-time low, construction companies are badly in need of work and the state has a AAA bond rating — all of which he said makes this the perfect time to borrow money for needed infrastructure projects.

But transportation needs aren’t the only big-ticket item lawmakers are considering taking to the voters.

Another proposal would borrow around $800 million to finance construction at college campuses and repairs at state mental health institutions and office buildings. The bonds would be repaid using millions of dollars that have previously been committed to old debt payments that have already been paid off.

Some have expressed skepticism that voters would approve two massive funding proposals so close together, but Kehoe remains optimistic.

“We just have to go out and explain that to voters,” Kehoe said. “The sooner the better, because the cost of money isn’t always going to be as good as it is.”