Tax increase for Indiana road funding appears unlikely

Cigarette and gas tax increases proposed by Indiana House Republicans to finance infrastructure improvements appear increasingly doomed as negotiations on a road funding plan continue in the waning days of this year's legislative session.

House Roads Committee chairman Rep. Ed Soliday, R-Valparaiso said Monday that no final agreement on roads funding has been reached, but that he was open to the idea of raising state taxes in a future session.

House Republicans have insisted for weeks that the tax on a pack of cigarettes should be increased by $1 and the state's 18-cent per gallon gas tax should increase by four pennies — a plan that Gov. Mike Pence and the GOP-controlled Senate vehemently oppose.

"Eventually, we have to deal with the issue," said Soliday. "Whether that's going to be this year or not" is still being negotiated.

House Republicans, led by Soliday and Speaker Brian Bosma, have argued for a long-term road financing plan that includes the tax increases, under a broad package that would create a dedicated revenue stream for infrastructure while pumping an estimated $714 million into state roads spending in 2017 alone. It also would direct about $130 million to local road projects, with more to come in future years, according to projections from the Association of Indiana Counties.

Their plan is supported by labor unions, local governments, the Indiana Chamber of Commerce and other key interest groups.

But Pence and his Senate allies are adamant that they do not want to raise taxes. They have called for a short-term solution that would draw down the state's $2 billion budget reserves to pump an estimated $470 million into state roads spending in 2017, while also handing local income taxes held in reserve back to local government for projects. Senate leaders also want to conduct a study before entertaining the possibility of tax increases, even though officials have studied the state's transportation needs multiple times in recent years.

"Our caucus feels pretty strongly that you need to prove to the taxpayer that you've exhausted every other resource first," said Noblesville Sen. Luke Kenley, who is chairman of the Senate Appropriations Committee.

Soliday has said Indiana's infrastructure ranks in the bottom third of U.S. states. Without additional funding, he said, the state's roads can't improve because gas tax revenues have declined as cars become more fuel efficient.

Both the Senate and the House agree that local governments should be empowered to raise their own vehicle registration taxes.

Kenley and Soliday both say they expect an agreement on a compromise to be announced before the session ends Thursday.