INDIANAPOLIS – Local road funding is shaping up to be a key battleground in the next legislative session.
City, county and town officials are struggling with receipts from the state gas tax that are less than what they received in 2000, while the cost of maintaining roads and bridges has only gone up.
State legislators and administrators have shied away from the problem in recent years while pointing to tight state budgets and cuts to major programs.
But now that Indiana has built up a budget surplus – and is preparing to send tax dollars back to Hoosiers – the discussion is likely to change.
“The inadequate funding has been a problem for a long time, and it’s time to have a difficult conversation,” said Matt Greller, executive director of the Indiana Association of Cities and Towns. “Studies show that Indiana’s infrastructure, particularly local roads and streets, are woefully underfunded.”
Kosciusko County, for instance, is receiving $1 million less than it got 12 years ago. When the increased cost of building and repairing roads and bridges is added in, the loss is more like $1.4 million.
Each side has its own views on the issue, but the only fact everyone seems to agree on is the current system won’t work for the future.
“The state is eventually going to have to change the way they tax the use of vehicles,” said Rep. Jeff Espich, R-Uniondale. “The gasoline tax is wearing out.”
Gas tax yielding less
Indiana has an 18-cent tax on every gallon of gas purchased. It was raised to that level in 2003. A similar federal gas tax provides funding for state roads.
On average, Indiana drivers pay $108 annually in state gas taxes, according to the Build Indiana Council. Drivers also pay sales tax on gasoline purchases, but none of that money goes to roads.
In fiscal year 2011, the most recent year for which data is available, $543 million in gas tax money came into the state. That money is split among a number of pots, with about $300 million going to the Motor Vehicle Highway Fund.
Some other smaller revenue sources also go into that fund, from which money is distributed to local government.
Over time, less money is coming in from gas taxes because drivers are using more fuel-efficient vehicles. That has resulted in a 15 percent drop since 2005 in revenue sent to local governments from the motor vehicle account.
A smaller pot of money from vehicle and licensing fees also goes to local governments, but that fund has remained relatively stable.
“The gas tax is a questionable funding source in terms of sustainability,” said Adam Horst, Indiana state budget director. “It is going to continue to go down.”
Before the most recent recession hit, Espich had tried unsuccessfully for years to get the legislature to address what he saw as a coming problem.
He proposed indexing the gas tax so that it would rise slowly each year. He also pushed a complicated formula that would assess the gas tax on Hoosiers depending on the number of miles traveled.
According to USA Today, Minnesota and Oregon already are testing technology to keep track of mileage. Other states, including Washington and Nevada, are preparing similar projects.
The greatest obstacle to a miles-driven tax, so far, is how to track it, because in-vehicle boxes that track miles driven have caused privacy concerns.
Highway fund busy
The Motor Vehicle Highway Fund has less available for road funding also because it’s being relied on to cover other expenses.
In fiscal year 2011, $127 million was diverted from the highway fund to pay for running the Bureau of Motor Vehicles, the Department of Revenue Motor Fuel Tax Division and the Indiana State Police.
Expenses for those entities are up 9 percent since fiscal year 2000, while their revenue is down.
Overall, Indiana distributed $522 million to local governments and INDOT for the fiscal year that ended in July, compared with $624 million in 2005. INDOT receives 53 percent of the money, and cities, towns and counties use a formula to split the rest.
No one seems to remember when agency expenses started being paid from the motor vehicle fund, but it has been at least a decade.
Horst said Gov. Mitch Daniels’ administration paid back a $63 million loan the BMV commission took from the account when Democrats were in charge. He also said he thought a roughly 1 percent annual increase in expenses was reasonable.
Greller acknowledges that the expenses from those agencies can be justified. But he would prefer if the legislature would move the $127 million in expenses to the state general fund, which is financed with sales, income and gaming tax dollars.
That would free up the money, equivalent to about 3 cents of the 18-cent gas tax, to go to INDOT and the local governments.
“That money is supposed to go into asphalt and concrete,” Bottorff said.
And for the first time in a number of years, the state is running a significant surplus, big enough to send an estimated $200 million back to Hoosiers in automatic tax credits next year, and another $200 million to shore up state pensions.
Despite that, Sen. Luke Kenley, R-Noblesville, the budget architect for the Senate, said shifting expenses away from the motor vehicle fund probably won’t happen.
“There is some sense that it’s an appropriate sharing of expense. That’s how it was justified to begin with,” he said.
“The problem is if we get more money to local roads and streets, then that creates a hole in the state budget. We will be short in one bucket or another.”
Other alternatives
While the long-term discussion grows, the Association of Indiana Counties is hoping for some short-term aid and has identified increased local road funding as its primary objective in 2013.
David Bottorff, executive director of the county group, said local officials have been tapping other funds to make up for the losses from the Motor Vehicle Highway Fund in recent years. This includes property tax dollars, cash received from riverboat agreements and local income taxes.
Espich also said he wants local governments to fully use tools the legislature has provided them for local road funding before asking for state changes.
Counties can adopt a motor vehicle excise surtax and wheel tax, but only 47 – about half – have done so, taking in about $69 million statewide in calendar year 2010.
The tax varies from county to county with certain minimums.
The Legislative Services Agency, the nonpartisan fiscal arm of the Indiana General Assembly, has estimated that if all counties adopted the tax at the maximum rate, an additional $99.6 million would be available for local road funding.
A large portion of that new money would come from just a few urban counties.
“I empathize with their problem, but I don’t think they have done everything they can to help themselves,” Espich said.
Kenley went further, saying local officials want state legislators to give them more money so they can keep their promises to constituents not to raise or institute new taxes.
Bradford Jackson, president of the Kosciusko County commissioners, said a wheel tax has never gained traction in his county.
“Why should that be on us when we have the gas tax?” he said. “It’s frustrating that the costs keep going up and we are supposed to balance it on the county books.”
Bottorff conceded that some kind of increased local effort must be part of the discussion.
He and Greller also see other issues to deal with.
For instance, they say analysis should be made of the cost to maintain a county-level road as opposed to a city road. Also, the formula doesn’t account for metropolitan areas with multilane roads. Municipalities want to be able to adopt the wheel tax in counties where it has failed. And local units would like to be able to more easily merge the money for local road funding, some of which is currently set aside for operations.
“Everything should be on the table,” Greller said.
