Counties own and maintain more than half of the roads and a third of the bridges in Kentucky, amounting to over 40,000 road miles and over 5,000 bridges.
As counties work to maintain this extensive infrastructure network that connects communities and supports local economies, they are facing a growing challenge: road funding is no longer keeping pace with rising costs. Despite legislative efforts to stabilize revenue, inflation and shifts in the motor fuels tax are steadily eroding the purchasing power of county road aid, leaving local governments struggling to maintain critical infrastructure.
Current funding model
Counties receive 18.3% of Kentucky’s motor fuels 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. When gas prices rise, the tax rate increases, and when prices fall, the rate decreases.
In 2015, the General Assembly passed legislation to reduce volatility by establishing a wholesale floor price (26 cents per gallon), capping increases and decreases in the tax rate by ten percent, and adjusting the rate annually instead of quarterly.
The tax rate rose for the first time since 2015 in FY2023. However, subsequent declines in fuel prices have reversed that trend. After reaching 30.1 cents per gallon (cpg) in FY2024, the tax rate fell to 27.8 cpg in FY2025 and dropped further to 26.4 cpg for FY2026, just 0.4 cents above the 2015 floor.
As the tax rate has fluctuated in recent years, so have motor fuel tax receipts and county road aid. After reaching a record of $151.97 million in county road aid in FY2024, county road aid dropped to $142.1 million in FY2025 and will likely continue to decline over the next couple of years.
Projections presented to the Consensus Forecasting Group last month indicate motor fuels tax receipts will decline by another 4.3% to 5% in FY2026, with continued decreases expected into FY2027. This is the group of economists whose forecasts are used by legislators to craft the biennial state budget.
Rising costs outpacing revenue
The decline in county road aid is especially concerning amid rapidly rising construction costs. The National Highway Construction Cost Index (NHCCI) has increased by roughly 90% over the past decade, meaning the cost of maintaining and improving infrastructure has nearly doubled.
To match the purchasing power counties had in FY2014, county road aid would have needed an additional $158 million in FY2025.
In practical terms, counties today have less than half the purchasing power they did over a decade ago.
For a county, that means fewer miles of road can be resurfaced each year and more roads fall into poor or failing condition. Maintenance cycles stretch longer, deferred projects pile up, and county officials are forced to make tradeoffs between keeping existing infrastructure functional and addressing growing backlogs of repair needs.
Legislative focus
Recognizing this growing gap, Kentucky legislators in 2024 created the County Priority Projects Program – now known as the Local Assistance Road Program (LARP) – allocating $20 million annually for county and city road rehabilitation. Demand for the program has far exceeded available funding; counties submitted more than $100 million in eligible project requests for the FY2026 cycle.
While funding from LARP provides some relief, it is not sufficient to address the structural funding imbalance. Without a long-term solution, counties will continue to face mounting challenges in maintaining essential infrastructure that keeps communities connected and the economy moving.
