Road funding in Kentucky is failing to keep up with rising costs, leaving counties unable to maintain critical infrastructure. Despite efforts to stabilize funding through legislative measures, inflation and shifts in fuel consumption are eroding the purchasing power of county road aid, putting the future of county roads and bridges at risk.
Current funding model
Counties own and maintain more than half of the roads and a third of the bridges in Kentucky. Counties receive 18.3% of Kentucky’s motor fuel tax receipts through the county road aid revenue sharing program, which is the primary source of road funding for counties. Funding is distributed to counties based on the “Fifths Formula”: 20% of funds equally to all counties, 20% based on rural road mileage, 20% based on rural population, and 40% based on rural land area.
Kentucky’s motor fuels tax is adjusted annually based on the average wholesale price (AWP) of gasoline, which affects county road aid receipts. Essentially, when gas prices rise, the tax rate increases, and when prices fall, the rate decreases. Legislation was passed in 2015 to limit the volatility of the tax rate by establishing a wholesale floor price, capping increases and decreases by ten percent and adjusting the rate annually instead of quarterly.
In FY2023, the motor fuels tax rate saw its first increase since the floor was established in 2015. However, as gas prices decline, this increase will not be sustained. The AWP dropped in FY2024, leading to a reduction in the tax rate from 30.1 cents per gallon in FY2024 to 27.8 cents per gallon for FY2025.
Motor fuels tax receipts are influenced by both the tax rate and gasoline consumption. As a result, county road aid has experienced significant fluctuations, dropping to $120.39 million in FY2021 during the pandemic, then rebounding to a record $151.97 million in FY2024 as travel increased. However, the outlook for FY2025 projects a decrease to $146.91 million.
Rising costs
The decline in county road aid is particularly concerning as inflation has driven up the cost of road construction. The National Highway Construction Cost Index (NHCCI) has risen by 90% over the past decade, meaning the costs of maintaining and improving infrastructure have nearly doubled.
In FY2024, counties would have needed an additional $139.1 million in county road aid to match the buying power they had in FY2014.
To address this shortfall, the General Assembly took action during the 2024 legislative session by establishing the County Priority Projects Program ($20 million for FY2025 and FY2026) and the County-City Bridge Improvement Program ($25 million for FY2025 and FY2026). While these programs provide some relief, they are not enough to close the widening funding gap.
Legislative focus
As electric vehicles and charging stations become more prevalent, counties must be included in the state's plans, as they currently do not receive any of Kentucky’s electric vehicle user fee or vehicle charging station tax revenue.
Without a long-term solution, Kentucky's counties will struggle to maintain the vital infrastructure that keeps communities connected and the economy moving.
