The first meeting of the Interim Joint Committee on Transportation was held on<Day> Monday, June 21, 2004, at 1:00 PM, in Room 131 of the Capitol Annex. Senator Virgil Moore and Representative Hubert Collins, Co-Chaired this meeting. Representative Collins called the meeting to order, and the secretary called the roll.
Present were:
Members: Senator Virgil Moore, Co-Chair; Representative Hubert Collins, Co-Chair; Senators Charlie Borders, Ernesto Scorsone, Gary Tapp, and Elizabeth Tori; Representatives Eddie Ballard, Carolyn Belcher, Denver Butler, Mike Denham, Jimmie Lee, Paul Marcotte, Lonnie Napier, Rick Nelson, Don Pasley, Marie Rader, Rick Rand, Ancel Smith, Jim Stewart, Jim Thompson, and Tommy Turner. Senator Leeper attended the meeting via teleconference from the Crisp Center, Murray Extension program site in Paducah.
Guests Appearing Before the Committee: Prentice Harvey, State Farm Insurance; Todd Smith, Grinnell Mutual Reinsurance Co., Grinnell, Iowa; Mack Bushart, Commissioner, Department of Vehicle Regulation, and Dana Fugazzi, Staff Attorney, Kentucky Transportation Cabinet; Jim Shackelford, Consumer Protection Division, Attorney General's Office; Tom Underwood. Executive Director, and Fran Reitman, President, Kentucky Truck and Automobile Recyclers Association; Gary Morris Acting Director, Division of Taxpayer Assistance and Compliance, and Jim Oliver, Branch Manager, Miscellaneous Tax, Kentucky Revenue Cabinet.
LRC Staff: Kathy Jones, John Snyder, and Linda Hughes.
Chairman Collins reminded the Committee members that the Committee's next meeting will convene on its regularly scheduled first Tuesday of the month, July 6, 2004, at 1:00 p.m., and that meeting will be held at the new Transportation Cabinet Building in Frankfort.
Chairman Collins then turned the meeting over to Senator Moore for an announcement. Senator Moore informed the members that there was a resolution in their folders memorializing Senator Paul Herron, Jr. After a number of Committee members paid homage to Senator Herron, Senator Moore requested two minutes of silence in memory of the departed senator; then, turned the meeting back over to Representative Collins
Chairman Collins said the first item on the Committee's agenda was the continuation of the discussion of unrebuildable automobile titles. He said there is a discrepancy involving if states will issue a rebuilt title to a vehicle if it has ever been issued a title branded "rerebuildable." He noted that Kentucky's law (KRS 186.530) allows for an automobile, branded "unrebuildable" in another state, to be rebuilt, titled, and operated on the highways in Kentucky. Chairman Collins said the problem occurs when an individual purchases a vehicle that has been issued a rebuilt title in Kentucky but previously the title had been branded "unrebuildable," "junk," or "for parts only" by another state. When the persons tries to title that auto in a state that does not allow the titling of such vehicles the consumer is stuck with a vehicle that cannot be licensed. Chairman Collins said that a number of individuals have been asked to appear before the Committee in the hopes of finding a solution to this problem.
Persons invited to appear before the Committee on this subject were: Prentice Harvey, State Farm Insurance; Todd Smith, Grinnell Mutual Reinsurance Co., Grinnell, Iowa; Mack Bushart, Commissioner, Department of Vehicle Regulation, Kentucky Transportation Cabinet; Jim Shackelford, Attorney General's Office; Tom Underwood, Executive Director, Kentucky Recyclers Association.
Prentice Harvey, stated that State Farm Insurance, who he represents, insures approximately 500,0000 vehicles in Kentucky, which represents around 20 percent of Kentucky's market. He said that in 2003, there were 77,000 damaged motor vehicle State Farm Insurance claims, with 11,000 of these determined to be "totaled." Mr. Harvey stated when determining a motor vehicle to be "totaled" State Farm Insurance follows Kentucky law, i.e., if a vehicle can not be restored for 75 percent of its value ( parts and labor), then the vehicle is deemed to be "totaled." Mr. Harvey commented that State Farm Insurance did not take a position on 2004 House Bill 459.
Senator Borders stated that he was more interested in the disclosure process and the safety of the vehicle once it has been rebuilt.
Representative Napier commented that, being an auctioneer, the safest way to approach auctioning rebuilt automobiles is to have the purchaser sign a disclaimer stating the vehicle has been rebuilt and may not be allowed to be titled in some states. In other words, he said, buyer beware. He said that that would eliminate any down-the-road legal problems.
Mr. Todd Smith, Grinnell Mutual Reinsurance Co., and past President of the Property and Casualty Insurance Association of America, stated that his association represents about one-third of all insurance companies in the United States, and while this is an important issue, it is not one that his Association has discussed in length. He stated that the Association does support the concept of Kentucky's 2004 House Bill 459.
Mr. Smith said that 48 states have salvage title laws and of those states some go further and include "junk" or "nonrebuildable" title laws.
Representative Smith commented that he understands a vehicle receiving an "unrebuildable" title when there is a safety issue involved, but automobiles in some cases are being classified as "nonrebuildable" simply because the cost for cosmetic restoration is 75 percent higher than the value of the automobile, and he stated, he disagreed with that in principal.
Chairman Collins asked, in the cosmetic cases that Representative Smith just mentioned, if there was a way Kentucky could get those states to reverse their decisions. Mr. Harvey stated that he did not know. Mr. Harvey stated that presently there are numerous law suits pending throughout the country on the issue of rebuildable vehicles.
The next person testifying on this subject was Mack Bushart, Kentucky Transportation Cabinet. Mr. Bushart said in 2003, there were 44,183 automobiles that Kentucky issued branded "rebuilt" titles and of those 44,183, 2,100 previously had been issued an unrebuildable title by another state. In 2002 there were 2,235 and to date in 2004 1,200 have been issued.
Mr. Bushart noted that the states that issue "unrebuildable" titles are: Florida, Tennessee, Ohio, Indiana, West Virginia, Michigan, Illinois, Maine, Massachusetts, and Virginia. And, he said vehicles that go through Kentucky's system under our current law have their "unrebuildable" title converted to a "rebuilt" title yet they cannot be registered or titled in the states previously cited.
Mr. Bushart stated states are currently in the process of joining the National Motor Vehicle Title Information System (NMVTIS), that allows any member state access to its computerized database. He said that according to NMVTIS, there are 16 states currently members of the System (Kentucky being one of the 16); four states considering joining; and 13 states in the development stage of joining NMVTIS. Mr. Bushart stated that under NMVTIS brands on titles are not lost when a vehicle travels from state to state, because NMVTIS maintains a history of all brands that have ever been applied by any state to the vehicle. As more states join NMVTIS it will make registering a vehicle branded unrebuildable even more difficult, according to Mr. Bushart.
Chairman Collins asked if there had ever been title exceptions made in these states. Mr. Bushart said no, not to his knowledge.
Senator Borders asked if Kentucky checks its rebuilt automobiles for safety purposes. Mr. Bushart stated that the local sheriff checks the Vehicle Identification Number, the front and back windshields for damaged, and that the running lights, horn, and windshield wipers work properly. Senator Borders asked if the underneath of an automobile is checked for structural damage. Mr. Bushart said no, and commented that the sheriffs are not trained to conduct such an inspection.
Representative Smith asked if there is a problem with driving through one of these states with such a vehicle. Mr. Bushart said no, the problem only arises when a person tries to title the vehicle in one of these states.
Representative Smith noted that a possible problem in Florida is that their mechanics are paid $55 an hour compared to Kentucky's hourly wages of $28, and that those salaries are computed when determining the 75 percent value of the automobile.
The next person to discuss this issue was Mr. Jim Shackelford from the Kentucky Attorney General's Office, Division of Consumer Protection. Mr. Shackelford said in 1994 Kentucky began issuing salvage titles and Kentuckians were better off for this change. He said that he did not believe that a disclosure of any nature on the face of a title would be effective. He said that it leaves too much "gray area."
Mr. Tom Underwood, Executive Director, and Fran Reitman, President, Kentucky Recyclers Association testified next. Ms. Reitman presented personal information regarding her purchase of a truck that was branded "unrebuildable" in Florida, because of minimal cosmetic damage. She stated that the truck was rebuilt in Kentucky and that she had actually driven the truck to Frankfort today for the meeting.
Mr. Underwood presented a slide show depicting several automobiles that were branded "unrebuildable" due to cosmetic damage, and also several vehicles that were allowed to be restored that showed serious structural damage prior to restoration. He stated that there is no unified way of determining when an automobile should be branded "unrebuildable" or be allowed to be restored.
The last person to testify on this subject was Ms. Carol Kirby, Ron Kirby & Associates, a Kentucky automobile auction business located in Franklin, Kentucky. Ms. Kirby stated that her business was put in the middle of such a problem when a Kentucky seller sold a truck at her auction, with a clearly marked Kentucky "rebuilt" title, and the Tennessee buyer was unable to title that truck in his state due to Tennessee's laws. She noted that the seller did nothing wrong, and neither did the buyer, however, being the middle person, and from a business standpoint, her business chose to "eat" the $5,800, which was the sale price for the truck.
Representative Napier stated that a disclosure would eliminate such a problem. Ms. Kirby thanked Representative Napier, however she stated that even though that was true, from a business point of view, it would not be in the best interest to portray a business in such a manner.
At this time Chairman Collins turned the meeting over to Senator Moore, who stated the next item on the Committee's agenda was a discussion of gasoline tax issues. Mr. Gary Morris and Mr. Jim Oliver, Kentucky Revenue Cabinet, testified on this subject.
A brief history set out by the Revenue Cabinet in a handout to the Committee showed that Kentucky first enacted a 9 cents gasoline tax in 1920 and a special fuels tax on diesel in 1952. In 1980, the gasoline and special fuels taxes were based upon a 9 percent of the average wholesale price of gasoline, with a minimum average wholesale price of $1.00 per gallon. In 1982 the General Assembly increased the minimum average wholesale price of gasoline to $1.11 per gallon, and since that establishment the actual wholesale price has been lower than $1.11 per gallon until it was raised to $1.22 per gallon for July 1, 2004 through September 30, 2004. And in 1986, the General Assembly enacted the supplemental highway user tax of 5 cents per gallon on gasoline and 2 cents per gallon on special fuels.
Mr. Morris said that the tax rates for gasoline and special fuels (diesel) are established each calendar quarter by the Department of Revenue. The current gasoline tax rate is 15 cents per gallon, and special fuels tax rate is 12 cents per gallon. He said that effective for the calendar quarter beginning July 1, 2004, the gasoline tax rate will be 16 cents and the special fuels tax rate, 13 cents per gallon.
Mr. Morris said that the rates established for each calendar quarter are calculated by adding 9 percent of the average wholesale price of gasoline (a statutory minimum wholesale price of $1.11 per gallon with a maximum of $1.50 per gallon) and a supplemental highway user tax of 5 cents per gallon for gasoline and 2 cents per gallon on special fuels. He said that the average wholesale price of gasoline (obtained from Lundberg Survey and the federal Energy Information Administration) is established each calendar quarter based on gasoline price data for the first month of the previous calendar quarter.
Mr. Morris said that the average wholesale price of gasoline for the month of April 2004 was $1.22 per gallon. The increase in the average wholesale price over the statutory minimum of $1.11 will result in tax increase for the calendar quarter beginning July 1, 2004. The gasoline tax rate for July 1, 2004 through September 30, 2004, will be 16 cents per gallon ($1.22 x 9% which equals 11 cents per gallon and the supplemental tax of 5 cents). The special fuels for July 1, 2004 through September 30, 2004 will be 13 cents (the 11 cents plus the supplemental tax of 2 cents).
Mr. Morris said that the average wholesale price of gasoline for July 2004 will also determine the tax rates for the calendar quarter of October 1, 2004 through December 31, 2004. He noted that if the average wholesale price of gasoline falls below $1.11 per gallon, the tax rates will fall back to 15 cents per gallon for gasoline and 12 cents per gallon for special fuels. However, he said that the tax rates will not increase more than 1 penny during the fiscal year ending June 30, 2005.
Representative Marcotte asked how much Road Fund money the state would receive from a penny increase. Mr. Oliver said, over a three month period, one penny would raise two million Road Fund dollars. Mr. Morris stated that the total figure is around $7.5 million; $5.4 million from gasoline tax and $2.1 million from special fuels tax.
Representative Rand asked about a newspaper article regarding state reimbursement of gasoline tax money to some Kentucky marinas. Mr. Morris said that he is aware of this situation and that around $900,000 will be distributed to various marinas, identified by the Cabinet. He noted that that money was being sent directly to the marinas with no stipulation on how the money is to be used. Representative Rand stated that there are a number of small communities along the Ohio River that have had to close their boat ramps because they did not have adequate money to repair them, and asked if these communities would receive any of the $900,000. Mr. Morris stated that Commissioner Treesh is aware of the situation and is currently studying the best way to distribute that money.
The last item on the Committee's agenda was a revenue of two regulations - 600 KAR 4:010 (Definitions and procedures governing the disadvantaged Business Program) and 600 KAR 4:021 (Repeal of 600 KAR 4:020, current procedures for Disadvantaged Business programs made obsolete by federal law). After a brief explanation by Ms. Dana Fugazzi, Transportation Cabinet, Senator Tapp moved to approve the regulations. Senator Borders seconded the motion, which passed by voice vote.
With no further business before the Committee, the meeting adjourned at 2:35 p.m.