Indiana lawmakers seek road-funding changes, hope to avoid fiscal cliff

While education dominates half of Indiana’s budget and Medicaid costs worry lawmakers, a projected transportation infrastructure funding shortfall creeps closer.

Motor fuel taxation yields eight of every 10 state dollars that fund roads and bridges for both the Indiana Department of Transportation and local governments. But as Hoosiers upgrade to more fuel-efficient vehicles—or try electric and hybrid options—there’ll be less money to work with.

And inflation means those dollars aren’t stretching as far.

“I believe we are about to hit a cliff, and it’s going to be in 2030,” said Rep. Jim Pressel, R-Rolling Prairie. He chairs the House’s transportation-focused committee.

He and other key lawmakers spent almost two years studying revenue-raising possibilities at the state and local level. They haven’t yet coalesced around any single fix.

But with the budget-writing legislative session beginning in January, they’re hoping to take action.

State-level prospects

Indiana found in 2017 what was hailed as a long-term solution.

Lawmakers that year added 10 cents to the 18-cent, road-funding gasoline excise tax and baked in an inflation index raising it by a penny annually. In 2023, they added a three-year extension to the annual index.

But inflation, federal fuel-efficiency standards and the state’s registration fee setup are eroding INDOT’s income, according to a November 2023 presentation. The agency expects revenue to slump in 2030, per a July revenue study, and purchasing power is projected to fall sooner and more steeply.

That’s as INDOT recommends spending $1.3 billion annually for the next 10 years on improving road and bridge conditions. The agency also wants to spend $280 million per year on other assets, like signs and retaining walls.

In its revenue study, INDOT offered more than a dozen ways to raise revenue, including by increasing existing transportation fees and taxes.

But lawmakers appear to be souring on gasoline excise tax hikes.

Although Appropriations Committee Chair Sen. Ryan Mishler, R-Mishawaka, told reporters this month that “everything” is on the table, he cautioned that taxes ideally cover a broad base and have low rates. Pressel said an increase would be “foolish” because the per-gallon revenue tax is a “terrible model,” while the Senate’s transportation lead, Sen. Michael Crider, R-Greenfield, called it “outdated” and “not … effective long term.”

That could be good news for truckers.

Indiana Motor Truck Association President Gary Langston observed that his industry doesn’t yet have widespread access to alternative fuels. Electric batteries are too heavy and take too long to charge.

“We’re still going to trudge along at our six-and-a-half to seven miles per gallon,” Langston said—with truckers consistently paying taxes on that diesel fuel.

INDOT also suggested tying registration fees to vehicle age or fuel efficiency, taxing electric vehicle charging, adding truck-specific usage fees, pulling from sales or income taxes, tolling more roads and bridges, adding road usage fees, and more.

Pressel, who plans to introduce legislation, didn’t want to penalize specific demographics, like electric vehicle-owners and truckers. Dipping into taxes that fuel the General Fund was another no-go.

“I’m pretty dead-set on, if we’re gonna pay for transportation, we’re going to pay through our road-funding revenue streams,” Pressel said.

His bill will explore the for-hire ride service fee and parcel delivery fee suggested by INDOT. “Is it a good idea? Is it bad idea? I don’t know, but I want to have a good conversation about it,” Pressel said.

Equal-opportunity road user charge, or RUC, systems will also be part of the conversation, he said.

They’re billed as a fair way to fund roads: those who drive more will pay more, and vice versa. Three states have implemented RUC programs, according to INDOT, and 15 others have studied the concept.

But it comes with technology challenges and a privacy backlash—and wouldn’t achieve lawmakers’ goal of charging out-of-state vehicles if begun before national interoperability. A program logging vehicle miles isn’t expected to gain much traction.

Lawmakers have placed another kind of use fee firmly in the governor’s hands. Outgoing-Gov. Eric Holcomb never took them up on the offer to add new tolls.

One problem—the state’s registration fee setup—comes with a simpler fix.

Indiana directs “supplemental” registration fees paid by electric- and hybrid-vehicle owners toward the Community Crossings Matching Grant Fund, which helps pay for community road and bridge projects. When Hoosiers upgrade, they buy less or no gasoline—and don’t pay taxes on it. Under a “conservative” scenario, in which the switch to such vehicles is slower, INDOT predicted it would lose more than $200 million to Community Crossings by 203; locals could lose out on nearly $90 million.

Some of that money could be re-routed. Pressel said he’d like to keep $150 million for Community Crossings, which would send about $75 million directly to INDOT and locals.

Local possibilities

Cities, towns and counties have a potentially tough road ahead.

In an August report, Purdue University’s Local Technical Assistance Program estimated an annual funding gap of nearly $500 million per year in construction costs just to keep road conditions as-is. The gap grew to $1.2 billion annually to improve conditions, and to $1.9 billion to eliminate “poor” roads.

Indiana’s single dedicated bridge-funding mechanism further left counties facing a gap of about $500 million annually, according to the report, although some likely used road funding to plug holes.

Even if eligible municipalities and counties maxed out local tools like the wheel tax and excise surtax, there’s still an annual $650 million deficit simply to maintain current road and bridge conditions.

“While the data certainly shows that we have improved, you can’t stop investing. You have to maintain the investment to make sure you don’t start backsliding,” said Ryan Hoff, the government affairs director and general counsel for the Association of Indiana Counties.

That’s because fixing lightly-battered roads costs significantly less than re-doing failed ones.

Roads in “good” condition need basic seals, fills and rejuvenators that cost less than $10,000 per mile, according to the Local Technical Assistance Program’s report. “Fair” condition might require seals, microsurfaces and overlays that cost under $100,000 per mile. But the worst roads can only be fixed with major rehabilitation—or full reconstruction—of between $150,000 and $1.5 million per mile.

Similarly, per the report, it’s 50% cheaper to get a “fair”-rated bridge into “good” shape than it is to get a “poor” bridge into “good” territory.

If lawmakers add more revenue streams to the funding formula, locals will benefit. But Pressel also plans to introduce some other funding tools.

Community Crossings, for instance, could see more changes.

Smaller communities complained of having to save for years to match a grant, while larger communities grumbled about how low the $1 million award cap is compared to their funding needs. Pressel envisions a tiered process.

Hoff said the association hadn’t taken a position based on community size. Instead, the group has called for recognition of counties’ additional statutory transportation infrastructure responsibilities: counties have to take care of all bridges over 20 feet long.

Pressel also plans to propose bringing back Local Trax, a matching-grant program helping communities improve or eliminate dangerous at-grade rail crossings. The money would come out of Community Crossing’s excess for one year, before the excess is instead pumped into the motor vehicle highway fund.

Pressel said his legislation would also include language opening township reserves to other uses.

“There’s a lot of excess dollars in township government; we require 15% of their previous budget to be held in reserves,” he said. “So, what if we were to say something like, above 15% should be eligible for road funding (and) safety improvement projects within the township that raised the money?”

Hoff, representing counties, said that where high reserves exist, “it would make sense.”

“It’s just a different way of allowing property tax dollars to be used for infrastructure improvement,” he added.

What’ll it be?

Lawmakers haven’t found a silver bullet.

“As I’m sitting here, I don’t have a solution that I would say, ‘This is it, and this is the way we should go,’” Crider said.

He wanted whatever becomes law to be “fair to the motoring public,” featuring a “correlation between the amount of miles that they drive and the amount that they pay.” That includes use by out-of-state drivers.

The General Assembly will be in session from January through April.

“I’m hopeful that we get in front of this this session, to identify what really are good options on the local side and the state side,” Pressel said. “I know we’re going to start down that path. I don’t have a good sense of where we end up yet.”

The Indiana Capital Chronicle is an independent, not-for-profit news organization that covers state government, policy and elections.