Financial Blog

JOHN BRUMMETT: Highway shell game

The next step in this busy season at the state Capitol is to approve the governors plan to tap Barack Obamas Medicaid expansion money to buy a vast supply of Band-Aids made of asphalt and concrete.

The governors office calls that a highway program.

You get the idea that Asa Hutchinson is finished for a while being the columnist-pleasing centrist. He appears to be entering that inevitable season in which hell go all Bobby Jindal on us.

Hutchinson simply had to have that recently approved Medicaid expansion for his budget. He had no arithmetical choice other than to be progressive in that instance. But now that its done, he apparently has no intention of taking the states omnipresent highway funding challenge very seriously.

His plan for the third legislative session of the spring, beginning May 19, is to tap for highways the margins of the states general revenue fund. That would be a tradition-breaking practice. And there is good reason for the tradition. Highways ought to be funded by users. General taxes ought to pay for general needs.

Hutchinson specifically intends to spend general revenue surplus funds, which arent actually surplus funds if theyre pre-emptively spent.

His plan is to do this bare minimum of a shell game to accomplish two things:

o Allow the Highway Department at least to match available federal funds for maintenance projects.

o Free him to get to the GOP gubernatorial primary without having both embraced Obamacare and raised taxes.

He openly hinged this Band-Aid application for highways on first getting the Medicaid expansion, with its requisite savings for the general fund. And that led to the assertion in this space that the governor was proposing to fill potholes with Obamacare.

Which reminds me: I need to check with the city about whether there is any Obamacare available to put in these potholes in the alley behind my house. We have a dire need for universal health insurance out there. Otherwise somebody is going to lose a Fiat or a Miata.

Smooth roadways are a powerful political cause. People like them. Powerful contracting companies like them. Their lobbyists like them. The five constitutionally independent highway commissioners like them. Our motor vehicles suspension systems appreciate them.

Legislators will ponder taxes for highways when theyd tell public schools to tighten their belts.

The people even voted themselves a constitutional amendment in 2012 imposing a half-cent sales tax for a decade so the Highway Commission could tear up downtown Little Rock by making Interstate 30 the eighth concrete wonder of the world.

So its kind of interesting that Asas minimalist proposal for highways is encountering Republican resistance on account of its being too timid.

Four Republican state senators--Jimmy Hickey of Texarkana, Bill Sample of Hot Springs, Ronald Caldwell of Wynne and Greg Standridge of Russellville--have proposed raising the per-gallon fuel tax by five cents next year and by three cents a few years after that.

Its kind of brave, actually, if unimaginative. The problem is that a pure per-gallon tax, based solely on consumption, has no flexibility as cars become more fuel-efficient and highway maintenance costs grow. Its why we have the problem now.

Ive long suggested putting the sales tax on motor fuel on top of the per-gallon tax, so that wed be covered both by consumption and price. Its an elastic form of revenue generation.

A Democratic state senator, Keith Ingram of West Memphis, who fancies himself running against Hutchinson for governor, was quoted over the weekend as saying there was a bipartisan window for actually addressing taxes and a long-term solution to the highway problem.

He told me legislators are interested in the idea of indexing the motor-fuel tax, meaning tying its rate to inflation. He also said the sales-tax idea isnt bad.

But he and the Senate Democratic caucus arent taking any lead. Theyve merely told the governor they dont like using general revenue for highways and that several ideas are bubbling up even in the governors own party.

I guess thats fair. If the voters had wanted Democrats to run things, they wouldnt have fired so many of them.

State Rep. Michael John Gray of Augusta, head of the House Democratic caucus, tells me the caucus:

o Supports looking at all highway funding options.

o Believes that the governor should show leadership on the issue.

o Asserts that a long-term solution is better.

o Warns that tapping surplus funds is not the best way to go.

I predict the Legislature will wallow around for a few days and then find the votes only to oblige Asas new season of right-leaning minimalism.

But you never know about highways. Once then-Gov. Bill Clinton vetoed a motor-fuel tax increase and told legislators to go override him because the highways needed the money.

And this current governor has had much more recent experience with veto trickery.


John Brummett, whose column appears regularly in the Arkansas Democrat-Gazette, was inducted into the Arkansas Writers Hall of Fame in 2014. Email him at This email address is being protected from spambots. You need JavaScript enabled to view it.. Read his @johnbrummett Twitter feed.

Editorial on 05/10/2016

Southwest Gas Corporation Announces First Quarter 2016 Earnings

For the twelve months ended March 31, 2016, consolidated net income was $141.8million, or $3.00per basic share, compared to $142.3million, or $3.06per basic share, in the twelve-month period ended March31, 2015. Construction services results improved by $12.4million between periods.

Natural Gas Operations Segment Results

First Quarter

Operating margin, defined as operating revenues less the cost of gas sold, increased $12million between quarters. New customers contributed $3 million in operating margin during the first quarter of 2016, as approximately 26,000 net new customers were added during the last twelve months. Combined rate relief in the California jurisdiction and Paiute Pipeline Company provided $3million in operating margin. Operating margin attributable to the Nevada conservation and energy efficiency surcharge, which was implemented in January 2016, was $4million. Amounts collected through the surcharge do not impact net income as they also result in an increase in associated amortization expense. Operating margin associated with infrastructure replacement mechanisms, customers outside the decoupling mechanisms, and other miscellaneous revenues increased $2million.

Operations and maintenance expenses increased $5.3million between quarters due primarily to general cost increases and the timing and scope of pipeline facility maintenance services. In addition, expenses for pipeline integrity management and damage prevention programs increased $1.6million. On a combined basis, depreciation and general taxes increased $8.1million, or 12%, between quarters. Approximately one-half of the increase was due to amortization associated with the recovery of regulatory assets, as noted above. The other half of the increased depreciation and general tax expense reflects the impacts of a 6% increase in average gas plant in service.

Other income and deductions decreased $847,000 between quarters primarily due to lower returns associated with the cash surrender values of company-owned life insurance (COLI) policies and a $223,000 decrease in interest income.

Twelve Months to Date

Operating margin increased $22million between periods including $8 million attributable to customer growth and a combined $6 million of rate relief in the California jurisdiction and Paiute Pipeline Company. Operating margin attributable to the Nevada conservation and energy efficiency surcharge implemented in January 2016 was $4million (a corresponding increase is reflected in amortization expense). Operating margin associated with infrastructure replacement mechanisms, customers outside the decoupling mechanisms, and other miscellaneous revenues improved $4million.

Operations and maintenance expenses increased $21.7million between periods primarily due to general cost increases, higher employee-related expenses including pension costs (approximately $5million of which resulted in increased expense), and higher legal claims and expenses. In addition, expenses for pipeline integrity management and damage prevention programs increased by $4.7million. Depreciation expense and general taxes (combined) increased $15.8million, or 6%, primarily due to a 5% increase in average gas plant in service and $6million of amortizations related to the recovery of regulatory assets.

Other income decreased $6.7million between periods. The current period reflects a $900,000 decrease in COLI policy cash surrender values net of recognized death benefits, while the prior twelve-month period included $5.7million of COLI-related income. Net interest deductions decreased $2.9million between periods primarily due to the redemptions of $65million of Industrial Development Revenue Bonds (IDRBs) in November 2014, $31.2million of IDRBs in May 2015, and $20million of IDRBs in September 2015.

Construction Services Segment Results

First Quarter

Revenues increased $25million between quarters, due to incremental work that was able to be completed as a result of favorable weather conditions in several operating areas. Construction expenses increased $18.5million between quarters primarily due to the incremental work noted above. However, the increase in these expenses overall was mitigated by construction expenses of the prior-year quarter that were impacted by a $5.6million loss reserve on an industrial project in Canada.

Depreciation and amortization expense increased $823,000 between quarters due to depreciation on new equipment purchased to support incremental work. Net interest deductions decreased $390,000 between quarters primarily due to a reduction in average outstanding borrowings.

Twelve Months to Date

Revenues increased $235million between periods primarily due to additional pipe replacement work in the current period and to a full year of incremental revenues from the companies acquired in October2014 ($72.5million). Favorable weather conditions in several operating areas during the first quarter of 2016 and the fourth quarter of 2015 provided an extended construction season. Construction expenses increased $208million between periods due to additional pipe replacement work during the twelve months ended March 31, 2016 and incremental construction costs associated with the acquired companies.

Depreciation and amortization expense increased $6.2million between periods primarily due to amortization of intangible assets recognized from the acquisition and depreciation of equipment purchased to support the additional volume of work. Net interest deductions increased $2million between periods primarily due to higher outstanding borrowings associated with the acquisition in October 2014.

Outlook for 2016 1st Quarter 2016 Update

Natural Gas Segment:

  • Operating margin for 2016 is anticipated to benefit from customer growth (similar to 2015), infrastructure tracker mechanisms, expansion projects, and California attrition. Combined, these items are expected to produce approximately 3% in incremental margin. Additionally, new rates established to recover Nevada conservation and energy efficiency program costs are expected to increase margin by approximately $11million, but will be offset by a similar increase in amortization expense.
  • Operations and maintenance expense is expected to increase modestly as compared to 2015 due to increased general costs, pipeline integrity management and damage prevention programs, and costs associated with customer growth. These increases will be mitigated by a decrease in pension costs. Depreciation and general taxes should increase consistent with the growth in gas plant in service (approximately 5% to 6%) plus the amortization of Nevada conservation and energy efficiency program costs noted above.
  • Operating income is expected to increase by 4% to 5% between years.
  • Net interest deductions for 2016 are expected to be approximately $5million to $7million higher than 2015, primarily due to an anticipated increase in average outstanding debt associated with the financing of capital expenditures.
  • Changes in cash surrender values of COLI policies will continue to be subject to volatility. Management generally anticipates longer term normal increases in COLI cash surrender values to range from $3million to $5million on an annual basis.
  • Capital expenditures in 2016 are estimated at $460million, in support of customer growth, system improvements, and accelerated pipe replacement programs.

Construction Services Segment:

  • Centuri has a strong base of large utility clients (many with multi-year pipe replacement programs) that can sustain and grow its business. Revenues for 2016 are anticipated to be 3% to 7% greater than 2015 levels.
  • Operating income is expected to be approximately 5.5% to 6% of revenues.
  • Based on the current interest rate environment, net interest deductions for 2016 are expected to be between $6.5million and $7.5million.
  • These collective expectations are before consideration of the portion of earnings attributable to the noncontrolling interests. Additionally, changes in foreign exchange rates could influence results.

Southwest Gas Corporation provides natural gas service to 1,964,000 customers in Arizona, Nevada, and California.

This press release may contain statements which constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (Reform Act). All such forward-looking statements are intended to be subject to the safe harbor protection provided by the Reform Act. A number of important factors affecting the business and financial results of the Company could cause actual results to differ materially from those stated in the forward-looking statements. These factors include, but are not limited to, the timing and amount of rate relief, changes in rate design, customer growth rates, the effects of regulation/deregulation, the impacts of construction activity at Centuri, future earnings trends, seasonal patterns, and the impacts of stock market volatility. In addition, the Company can provide no assurance that its discussions about future operating margin, operations and maintenance expenses, operating income, depreciation and general taxes, COLI cash surrender values, financing expenses, and capital expenditures of the natural gas segment will occur. Likewise, the Company can provide no assurance that discussions regarding construction services segment revenues, operating income, and net interest deductions will transpire. The statements in this press release are made as of the date of this press release, even if subsequently made available by the Company on its Web site or otherwise. The Company does not assume any obligation to update the forward-looking statements provided to reflect events that occur or circumstances that exist after the date on which they were made.

City Council debates sales tax measure will launch poll of voters

“I don’t want to launch something that isn’t going to fly,” said Councilman John Procter at the conclusion of Monday’s marathon discussion on a proposed sales tax measure to boost public safety.

There has been a question if any such tax would also include funding for youth programs and Police Chief Steve McLean is an advocate for same.

“I am reluctant to support any tax measure that does not include funds for the youth,” McLean said Tuesday. “I’ve said it before and I will say it again…police cannot arrest our way out of any problem,” and the city must have programs to ensure youth “take the right path. Our youth has been minimized far too often and it has to stop. The youth in this community deserves better,” and preventative programs and decreasing crime, “go hand in hand…”

Monday the council considered a report noting options to generate sales tax revenue to boost fire and police services including as well as options for special or general taxes.

The report said City Manager Jaime Fontes “gives you the benefits and burdens of a special tax” that allows mandated spending but must garner 67 percent to pass.

That number was not attained in 2014 when voters gave a simple majority to a funding plan with a half-cent sales tax.

During public comment Richard Rudman — wearing a SPPD K-9 shirt — asked that the council “find the best way to take care of public safety…”

Various speakers addressed the council with some advocating a 50-50 police and fire split with others urging youth programs be allocated 30 percent.

Community Service Officer Martha Brown urged the council to consider public safety first and foremost.

She noted that the city had experienced “turbulent times” in 2013-2014 with nine homicides in 16 months and “some inner-city violence we don’t even know about.”

With more funding both police and fire could have a stronger presence and make time for positive youth interactions, which Brown said would have a strong effect that would naturally help deter crime.

Firefighter Nick Bacigalupo said the SPFD is “just a year away from losing a third of the department,” when the Federal Safer Grant sunsets that funds five firefighters, and less than 50 percent of a tax would not overcome a funding shortfall.

Fire Captain Jerry Byrum said the rise in fire calls is not “really attributable to the youth…it’s the age and the size of the community. The larger Santa Paula gets and the older Santa Paula gets the calls go up.”

The risk of fire for the city’s aging housing stock is also a factor said Byrum. 

Police Commander Ish Cordero said if the council did decide to exclude youth programs to consider any split of sales tax revenue per based on per capita staffing. 

the dark side of social media

The NZ Farming post attracted 7000 likes and hundreds of nasty comments. Why so much hatred and vitriol? Are cyclists really such a massive problem in these peoples lives? Havent they got more important issues to worry about? Cyclists are everyday people, mothers, fathers, sisters, brothers, electricians, doctors, and believe it or not, farmers. How does threatening to kill them solve any issues?

Yes, I know there some dickhead cyclists out there, just as there are some dickhead motorists.

I know that haters will never be convinced, but I will try to explain why cyclists do what they do, for the more level-headed people reading:

Why do cyclists wear lycra?

It only takes one ride in the wind, with loose clothing flapping everywhere, to realise how much drag it causes, and how much faster and easier it is to have aerodynamic clothing. Cycle shorts also have padding where you need it most!

Why do cyclists ride two abreast?

In our area (Waipa) some bright spark from the council decided to put signs up a few years ago saying Single file is safer which has caused a lot of angst with motorists when they see us two abreast. Single file is not safer. Let me explain: When riding single file on a narrow country road, motorists tend to think they can get past even when there is oncoming traffic, or when approaching a blind corner. Often there isnt enough room and the motorist swerves into the cyclists to avoid the oncoming vehicle when they realise theyre not going to get past in time. Its safer to ride two abreast, which forces the motorist to slow down, sit behind the bunch if necessary, and pass when safe to do so.

Cyclists dont pay road tax/rego so shouldnt be allowed on the road.

I hear this one a lot and its garbage. Local roads are paid for 50 per cent by general taxes and 50 per cent by council rates. Im a ratepayer and a taxpayer so I think that qualifies me to ride a bike on the road. A lot of the cost is in maintaining the road, and bikes cause almost zero damage to the road when compared to cars, trucks, or tractors.

Cyclists dont obey the road rules and think they are above the law.

Another one I hear a lot. Yes there are cyclists who go through stop signs. There are also motorists who do exactly the same. It doesnt help to point the finger at either group.

Id like to thank the 95 per cent  of motorists who are patient and understanding and courteous. Id also like to thank the 95 per cent of cyclists who are the same. To the 5 per cent of angry motorists and 5 per cent of idiot cyclists, I would like to say pull your head in and get over yourselves. Youre ruining it for everyone.

And to the Facebook haters, maybe you should listen to what my grandmother always used to tell me; if you havent got anything nice to say, then dont say anything at all.

- Marc Gascoigne is a Cambridge dairy farmer and president of the Te Awamutu Sports Cycling club. He welcomes feedback at This email address is being protected from spambots. You need JavaScript enabled to view it.. But if its abusive and threatening, dont bother, it will just get binned.


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