After Passing Gas Tax Increase, Lawmakers To Tackle Long-Term Road Funding

By: Leslie Bonilla Muniz

Indiana’s gas tax will continue to rise with inflation — up to one penny a year — while key figures gather for a long-term look at how the state funds its roads: inflation, electric vehicles, local road woes and all.

The three-year extension of the annual tax hike, inserted into the state budget, comes alongside the new task force.

“We know for sure that things are going to change in the transportation world in all kinds of ways, and it’s unwise to wait until they occur,” said Rep. Jeff Thompson, R-Lizton, who chairs the House’s powerful budget-writing committee. He’ll be a member of the task force.

“It doesn’t have to be solved today, but it’s unwise to wait until it’s right in front of you,” he added.

It’s the first such task force since 2017. That resulted in legislation raising the gas tax by 10 cents, indexing the tax to inflation with a cap of one penny, and directing revenue from a separate gas sales tax to a dedicated road improvement account rather than the state’s general fund.

“I think we just dive in and put our nose to the grindstone, and let’s see what we can come up with,” Rep. Jim Pressel, R-Rolling Prairie, told the Indiana Capital Chronicle. He leads the House’s Roads and Transportation Committee, and will also be a member of the study committee.

Officially dubbed the “Funding Indiana’s Roads for a Stronger, Safer Tomorrow Task Force,” the body is charged with creating plans for both state and local road and bridge needs. A report is due to the legislature by Jan. 1, 2024.

Adapting to increases in inflation, electric vehicles

Pressel said the task force, authorized in the latest two-year budget, will likely plan for at least 20 years into the future. That means worrying about how economic trends like inflation and buying trends like electric vehicle adoption will impact the state’s ability to fund its roads and bridges.

The transportation infrastructure industry saw commodity prices surge by 50% over the last two years, said Brian Gould, executive director of the Build Indiana Council. The industry group has a seat on the task force.

Gould said his group remained supportive of the gas tax adjustment, but still identified inflation as a primary funding worry.

“The first couple of years that we had the index in place, it did exactly what it was supposed to do. We saw inflation of 3-4%,” Gould said. “A penny increase really kept our industry right on pace with where cost increases were going for materials. Obviously, the last two years, a 50% increase in inflation, a penny’s not going to do it. It was not able to keep up.”

Electric vehicles are another cause for funding concerns.

About 10,400 all-electric vehicles were registered in Indiana in 2021, according to the U.S. Department of Energy, along with 7,500 plug-in hybrid electric and 88,200 hybrid electric vehicle and other fuel types. Gas-only and diesel vehicles still account for 89% of the state’s registered vehicles, but that’s changing.

Vehicles that use alternative fuels pay less — or not at all — in gas taxes, which fund transportation infrastructure improvements. Instead, owners pay higher registration fees, but the price is based on assumptions of how many miles those vehicles will drive and how efficiently they’ll do it.

“I think [the task force] is just the next step of evolution in looking at [long-term financing] with the onset and growing popularity of electric vehicles,” Office of Management and Budget Director Cris Johnston said at a news conference last week. “We still have to find a way to take care of the investments that have been made in our roadways.”

Under current law, the annual inflation adjustment to the gas tax, which maxes out at a penny, was set to end in 2024. Lawmakers in the budget agreed to an extension, pushing the expiration date out to 2027. The three-year add will cost drivers about $90 million.

Pressel said the change originated with his Senate colleagues, but added, “I have to believe that’s part of helping us get through this or maintain until we can get the larger conversation about what [the future] looks like.”

Indiana brought in $1.7 billion through gas and other fuel taxes in fiscal year 2022, according to the most recent state revenue and spending handbook.

State plan must:

• Include cost estimates, including what can be financed with existing revenue and what needs new streams
• Find money for maintenance, with an emphasis on “stable and predictable” sources
• Review the state’s debt, fuel tax, and its fee system
• Consider if sales tax could be redirected toward infrastructure funding
• Consider if collective purchasing agreements between state and local government could lower costs
• Ensure value for taxpayers
• Communities face stark differences in infrastructure condition

The state’s contention with long-term revenue factors will occur amid a long-simmering fight over how the state redistributes money to local units of government.

About 71% of Indiana’s roads and 95% of its bridges are at least in “fair” condition, according to a Purdue University transportation asset management portal. But huge disparities exist between locally funded assets statewide.

Harrison County, for example, recorded 98% of its roads in fair or better condition, with several other counties also above 90%. More were in the 70-80% range.

But that number crashes down for other localities, small and large alike.

Tipton County, with a population of 15,000, recorded just 15% of its roads in fair or better condition. Several other counties languished in the 20% range.

Marion County, an economic engine with a population nearing 1 million, recorded 48% of its roads in fair or better condition. The city of Indianapolis found in a study last year that it needs to spend hundreds of millions more dollars a year to maintain its existing infrastructure, let alone embark on new additions.

“I feel that we have enough of the revenue stream. It’s: how you you divvy it up?” Pressel asked. “I think there’s plenty of dollars there to do what really needs to be done … to do maintenance.”

Pressel said he understood both the benefits of funding initiatives like Community Crossings — which allows communities with smaller populations and tax bases to access more money — and the outcry from larger localities.

He floated the idea of splitting the program into two tiers, with slightly lower grants for lower populations and slightly higher grants for higher populations.

Infrastructure for the future

As the task force considers how to pay for Indiana’s existing roads and bridges, as well as new ones, its members will likely consider several unused or new financing mechanisms.

Pressel and others emphasized a desire to get non-Hoosiers who drive on the state’s roads — and contribute to both traffic and wear-and-tear — to also pay taxes.

“It’s pretty easy to get across Indiana and not even stop, right? It’s like 160 miles across the state, and you could you could do that in one fell swoop,” he said, without filling up on gas and paying gas taxes.

To that end, lawmakers are expected to update a tolling study completed in 2017. Lawmakers that year authorized the governor to toll without General Assembly involvement, though Gov. Eric Holcomb hasn’t taken them up on the offer.

Holcomb said in 2018 that he would not add new tolls while in office. But he’s term-limited, and will cycle out of office in January 2025. Several Republicans, a Democrat and a Libertarian are vying to replace him.

Pressel suggested the idea of new toll lanes to fund lane additions to highways. The state is working on additions to Interstate 65 and Interstate 70, but is adding just a couple miles per year.

Charging taxes by vehicle miles traveled could also be on the table.

So could more strategies for local communities that need additional funding, Pressel said, like regional fuel taxes where revenue stays in the area rather than going to the general fund. But he encouraged local units of government to use existing “tools” like maxing out wheel taxes.

“I think giving them the tools is probably more doable than saying we’re going to commit to changing the road funding formula just for Indianapolis, because that’s truly not fair to the other parts of the state,” Pressel said. He and other key lawmakers have said shifting the formula from road miles to lane miles is a non-starter.

The task force will also likely consider new strategies for taxing alternative fuels. Lawmakers took a stab at that this year in House Bill 1050, which lays out tax collections for interstate motor carriers that run on other fuels.

The language establishing the task force is nearly identical to the previous iteration. What’s different from years ago, however, is the data.

“I think one of the biggest advantages that we will have this summer and fall when we start this process is we have been collecting data for the last seven years since the last task force met,” said Gould, who was involved in the last task force as part of Accelerating Indiana Municipalities. He added that the numbers could show where the state has seen the greatest improvements and where the greatest need remains.

Pressel said he was looking forward to the collaboration — but hoped it wouldn’t become a multi-year endeavor.

“I’d like to update the data, … update the studies, take testimony, bring the locals in … and let’s have an overall conversation about what their thoughts are, what maybe some of their ideas are, and then see how we can put it all together again,” Pressel said. “That’s what I hope to get out of this task force.”

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