Call to Order and Roll Call
The 1st meeting of the Interim Joint Committee on Transportation was held on<Day> Tuesday, June 2, 2015, at 1:00 PM, in Room 149 of the Capitol Annex. Representative Hubert Collins, Chair, called the meeting to order, and the secretary called the roll.
Present were:
Members: Senator Ernie Harris, Co-Chair; Representative Hubert Collins, Co-Chair; Senators Joe Bowen, Jared Carpenter, C.B. Embry Jr., Jimmy Higdon, Gerald A. Neal, Dorsey Ridley, Albert Robinson, Brandon Smith, Johnny Ray Turner, and Mike Wilson; Representatives Denver Butler, Leslie Combs, Tim Couch, Will Coursey, Tom McKee, Russ A. Meyer, Charles Miller, Jerry T. Miller, Terry Mills, Rick G. Nelson, Tanya Pullin, Marie Rader, Steve Riggs, Sal Santoro, John Short, Arnold Simpson, Diane St. Onge, Fitz Steele, Jim Stewart III, and Tommy Turner.
Guests: From the Kentucky Transportation Cabinet: Mike Hancock, Secretary; Russ Romine, Deputy Secretary; Rodney Kuhl, Commissioner, Department of Vehicle Regulation; Rick Taylor, Deputy Commissioner, Department of Vehicle Regulation; Becky Goodman, General Counsel, Department of Vehicle Regulation; and Kim Jenkins, Legislative Liaison; Ashli Watts, Director of Public Affairs, Kentucky Chamber of Commerce; and Dana Debel, Director of State and Local Government Affairs, Delta Air Lines.
LRC Staff: John Snyder, Brandon White, Dana Fugazzi, and Cindy Smith.
Partnership for Open and Fair Skies
Ashli Watts, Director of Public Affairs, Kentucky Chamber of Commerce spoke in support of airports like CVG, Louisville International Airport, Blue Grass and other smaller airports that play a vital role in Kentucky communities, serving as hubs for commerce and economic development.
She said that for more than two decades, the passenger airline industry has benefitted from the Open Skies agreements that expands markets, increases tourism and brings numerous benefits to airports and communities across the country. Recently it has come to light that Qatar and the United Arab Emirates have been undermining this international agreement, by subsidizing their airlines by over $42 billion, which is negatively impacting U.S. airlines. This issue crosses party lines and has united both labor and business groups because market-distorting practices that violate international agreements have no place in today’s trade environment. The stakes are high: every daily international roundtrip flight a U.S. airline loses to a subsidized Gulf carrier means an estimated 821 U.S. jobs lost.
The Kentucky Chamber is proud to stand with the partnership for Open and Fair Skies, Delta, other U.S. and global carriers that are playing by the rules, and urges all lawmakers in Kentucky to be vocal on this issue and sign letters to the administration to seek a freeze on further expansion by these gulf carriers and open government to government consultations to resolve this dispute as quickly as possible.
Dana Debel, Director of State and Local Government Affairs, Delta Air Lines, said that since 1992, the U.S. has signed 116 Open Skies Agreements, which are bi-lateral trade agreements between the U.S. and other countries. These agreements give each country’s airlines free and open access to other country’s market for international flights. Delta fully supports the Open Skies policy and only has concerns relating to two of the agreements. Delta is asking for the U.S. government to open consultations with Qatar and the United Arab Emirates (UAE) and to seek a freeze on new Gulf carrier capacity into the U.S. during the talks. The governments of Qatar and the UAE have provided three of their state-owned airlines, Qatar Airways, Etihad Airways, and Emirates Airline, with $42.3 billion in quantifiable subsidies and other unfair benefits since 2004 alone. Emirates has made more than $11 billion in purchases of goods and services from other government-owned companies at below-market prices since 2004. The gulf carriers are expected to grow capacity at more than three times the growth rate of global DKP between 2012 and 2020. By 2020, the Gulf carriers’ capacity will far exceed that of U.S. carriers. Each daily widebody roundtrip frequency lost because of subsidized Gull carrier competition results in a new loss of over 800 U.S. jobs.
In response to a question by Chairman Collins, Ms. Debel said that Delta still exists out of the Northern Kentucky/Cincinnati airport, but is smaller than it was at its peak. Delta has over 90 flights per day to over 40 markets.
In response to a question by Chairman Harris, Ms. Debel said there is currently one airport in Qatar, and in UAE there are two, but there is not a lot of traffic between the two airports. The growth is not to serve the local market since essentially all business is international. Delta is establishing the airports in the countries it services as hubs to transit passengers between the Americas, Europe, and the East.
In response to a question by Chairman Harris, Ms. Debel said the Middle Eastern carriers today have 25 routes they are servicing between those two countries and the U.S. The American carriers have two routes because the market forces are tilted so heavily in their favor. Those routes are generally one flight per day for the U.S. carriers.
In response to a question by Representative Pullen, Ms. Debel said these agreements are similar to the World Trade Organization (WTO), but there is a separate body that governs these particular agreements that is not WTO, it is the International Civil Aviation Organization (ICAO). Unlike WTO where there is a long history of law that guides these, there have not been many issues to come up on the Open Skies Agreement.
In response to a question by Chairman Collins, Ms. Debel said the jobs number is effectively an economic estimate and not a hard number. Delta has been moving away from the smaller aircraft over the past seven years because the customer prefers the bigger product.
In response to a question by Representative St. Onge, Ms. Debel said existing services are not being pulled, but Delta is asking for a moratorium on new services while the U.S. government is in consultation with the countries.
Update on implementation of general transportation related legislation from the 2015 Session
Mike Hancock, Secretary, Kentucky Transportation Cabinet, and Kim Jenkins, Legislative Liaison, Kentucky Transportation Cabinet provided a brief update of the implementation of general transportation legislation from the 2015 Session. In regard to HB 179, HB 209, HB 315, HB 378, HJR 100, SB 133, and SJR 78, the Transportation Cabinet is in full implementation mode and moving forward to continue to implement the legislative changes.
In response to a question by Senator Bowen, Secretary Hancock said the Cabinet has a report by consultants on the costs for turning the Natural Parkway into interstate standards, and he will provide a copy of that report to the committee.
Update on implementation and effects of HB 299 from the 2015 Session, Stabilization of Motor Fuel Tax Rates
Russ Romine, Deputy Secretary, Kentucky Transportation Cabinet provided a brief history of the gas tax from FY 2010 – FY 2016. Kentucky’s gas tax has three components: (1) a variable rate, based on a percentage of the average wholesale price (AWP) of gasoline; (2) a fixed tax of 5 cents per gallon; and (3) the 1.4 cents per gallon fee for underground storage tank mitigation. The first quarter of FY 2015 had a total tax rate of 32.5 cents. In October, at the end of the first quarter, due to falling gas prices, .6 cents per gallon was lost off the tax rate. Again in January, due to falling prices, an additional 4.3 cents per gallon was lost off the tax rate. Over the first two quarters of the current fiscal year, 4.9 cents per gallon was lost. Entering into the current calendar year prices continued to drop. In January the weighted AWP of gas was 1.441 cents per gallon. That was the lowest the AWP had been since January, 2009. As a result, starting April 1, the loss was expected to be an additional 5.1 cents off the gas tax for a loss of 10 cents per gallon since July, 2014. The passage of HB 299 did the following: (1) established the AWP floor at $2.177 per gallon which yields an effective rate at the pump of 26.0 cents per gallon; this action preserved 3.5 cents per gallon of the rate that would have been lost on April 1; (2) held the $2.177 AWP floor constant through FY 2016; (3) changed to an annual AWP calculation from a quarterly AWP calculation; and (4) limited the increase or decrease of the AWP over the previous years to not more than 10 percent from year to year beginning in FY 2017.
Deputy Secretary Romine discussed HB 510. It was funded through the general fund and its primary purpose was to minimize the impact to the county and municipal road aid program. Almost eight million dollars is going to local governments to help them deal with anticipated loss this fiscal year. Looking ahead to FY 2016, the construction account and rural secondary programs will feel the full hit due to falling gas prices.
In response to a question by Senator Neal, Secretary Hancock said the needs of the highway infrastructure far exceed the state’s ability to pay for them. The road system requires a great deal of money to keep it functioning as it should and to keep Kentucky in the forefront. Many things will not be able to be done due to the fall of the gas tax.
In response to a question by Senator Neal, Deputy Secretary Romine said at least $165 million in revenue will be lost this year and all of next year, but the cabinet does not have an exact calculation on the economic impact.
In response to a question by Representative Mills, Deputy Secretary Romine said the average wholesale price (AWP) is the price at the pump minus 60-70 cents. HB 299 raised the floor to $2.18 per gallon. In 2017, the tax rate fluctuation of +/- 10 percent will be based on that amount.
In response to a question by Representative Combs, Deputy Secretary Romine said the amount of money lost if the annual available rate was implemented would depend on what gas prices do.
In response to a question by Representative Short, Secretary Hancock said that in both large and small counties the money received is used mostly for resurfacing projects and sometimes for support staff in the county. When a decline of 10-15 percent is seen, then there are less resurfacing projects.
In response to a question by Senator Bowen, Secretary Hancock said that flex fuel vehicles, such as natural gas and ethanol, are covered under existing formulas but some vehicles (electric cars) do not pay any fuel tax and are essentially driving free on the roads.
In response to a question by Chairman Collins, Deputy Secretary Romine said the Federal Highway Trust Fund will run out in the end of July or the first part of August. Secretary Hancock added that the recent two month extension added no new revenue.
In response to a question by Chairman Harris, Secretary Hancock said there has been a variety of discussion within the past week about indexing the federal tax, which has been at 18.4 cents per gallon since 1993. Any time a state works with the same budget for 25 years, efficiencies give out early on. States are guilty of turning nothing into something and trying to keep everyone happy with the roads. They are not near where they could be if the federal gas tax were indexed initially.
In response to a question by Representative Steele, Secretary Hancock said the price per ton of blacktop only goes down if there is competition.
In response to a question by Chairman Collins, Secretary Hancock said that every bid for repaving is calculated on its own merits and that often the bids are lower than estimated.
In response to a question by Representative Simpson, Secretary Hancock said there is increased pressure on the remaining money to build new roads while maintaining the roads we have. The maintenance budget has been the same since 2010 and it needs an increase.
In response to a question by Representative Simpson, Secretary Hancock said the performance measures are at the national level. Congress is putting together rules that govern performance measures in each state. The receipt of federal funds will depend on how the state is doing with the performance indicators. It is an effort to get attention on system upkeep.
In response to a question by Representative Jerry Miller, Secretary Hancock said repaving standards have not been lowered, but there have been mix design changes. He stated that he does not support a reduction in the standards of repaving.
Representative Combs stated that if the rate would have been based on annualized AWP in FY 2016 rather than FY 2017, the loss would have only been between $12-$30 million dollars instead of $132 million in 2016.
Update on implementation of SB 153 from the 2015 Session, Omnibus Revision of Motor Carrier Statutes
Rodney Kuhl, Commissioner, Vehicle Regulation, Kentucky Transportation Cabinet, Becky Goodman, General Counsel, Vehicle Regulation, Kentucky Transportation Cabinet, and Rick Taylor, Deputy Commissioner, Vehicle Regulation, Kentucky Transportation reported on SB 153 from the 2015 Session. Commissioner Kuhl said the cabinet is carefully reviewing 13 regulations to implement the changes. The cabinet started with the Transportation Network Company (TNC) regulation. If those regulations touched other regulations, those updates were made as well to get them into compliance. The cabinet has worked out the processes to determine how all regulations might be affected. The forms have also all been revised and updated.
In response to a question by Chairman Collins, Deputy Commissioner Taylor said the motor carrier training that was repealed in SB 153 had one approved training entity and another entity with a pending application during the past session. The requirement applied to motor carriers at 26,000 and above. There was some question as to whether private carriers were included.
In response to a question by Chairman Collins, Commissioner Taylor said there is a national shortage of new drivers coming on board, which is a concern to that industry across the nation.
In response to a question by Chairman Collins, Commissioner Taylor said that the cabinet is moving forward on the temporary tag issue and should have something in a couple of months.
Chairman Harris noted that the committee will hold two out-of-town meetings during the interim, one at the Louisville Speedway and one to see the Louisville Bridges Project. The next meeting will be July 7 in Frankfort.
With no further business to come before the committee, Chairman Collins adjourned the meeting at 2:25 P.M.