State transportation officials say they need $200 million more per year

A confluence of factors – federal belt-tightening, the end of the Major Moves program and dwindling gasoline tax revenues as drivers switch to fuel-efficient vehicles – are undercutting the Indiana's old infrastructure funding streams.

As a result, state transportation officials say they need $200 million more per year. Municipalities say they've reached a breaking point and now need as much as $800 million more per year.

"There is no doubt that there's a looming crisis in this arena," said David Holt, a vice president at the logistics group Conexus Indiana.

Key legislative leaders say there is broad agreement on some fiscal tweaks that could net more than $120 million per year as a starting point. What comes next – including how much to spend, when to do so and who should foot the bill – is much murkier.

State and local governments' ability to maintain the roads they already have, as well as Indiana's chances of finishing the 142-mile Interstate 69 extension and other major projects in a timely manner, could depend on their solution.

"It's clearly one of our top issues this year, and we're very concerned about it. It's a 50-state crisis – everybody is facing this," said state Senate President Pro Tem David Long, R-Fort Wayne.

"How do you go forward with securing the needs not only of the state but of the counties, cities and towns? We really do need to find some answers. That's going to be a topic of discussion throughout the session, no question about it."

Opening offer

Gov. Mike Pence's administration rolled out a two-year, $29 billion budget proposal last week that ties transportation funding closely to Indiana's economy.

His spending plan would alter what Indiana does with its surplus. Right now, the surplus is split between giving Hoosiers income tax credits and bolstering the state's pension funds. Pence is seeking to redirect those pension fund payments to a new infrastructure fund.

If the state's economic forecasts hold up, that could mean about $347 million over the two-year period for transportation – with the split between state and local governments left to lawmakers to decide.

"The most critical need in the next two years, certainly, is to find additional dollars for investment in our state and local transportation and infrastructure network," said Pence's budget director, Chris Atkins.

Pence's method was met with a cool reception from House Speaker Brian Bosma, R-Indianapolis. He called it "creative," and said he is "certain" that infrastructure spending will get "more attention" in the budget the House is expected to advance by Feb. 19.

"I predict that the House budget will have a significantly larger investment in transportation. It won't just rely on the extra surplus, as it was in the governor's budget," Bosma said.

Short-term fix

The Indiana Department of Transportation's budget during the 2012 fiscal year was $2.1 billion, including $1 billion for road construction.

Most of that money came from three sources: the federal government provided $888 million; the state's highway fund, which contains mostly gas tax revenue, brought in $543 million; and the $3.85 billion "Major Moves" lease of a northern Indiana toll road supplied $447 million.

Those "Major Moves" dollars were set aside for specific projects, so the state's transportation department has long anticipated their end.

The highway fund, though, is a larger problem. It's funded through Indiana's 18-cents-a-gallon gasoline tax. That tax hasn't increased since 2003, which means its income has taken one blow resulting from inflation and another blow as motorists have shifted to hybrids or other fuel-efficient vehicles.

The House speaker said there is one step that lawmakers have "settled on quite confidently" – grabbing about $120 million in gas tax revenues that are currently being spent on funding the Indiana State Police, the Bureau of Motor Vehicles, the Department of Revenue and more, and pump that money directly into transportation.

That money would have to be replaced by giving those agencies another $120 million or so out of Indiana's general fund. That's $120 million that could not go to increasing K-12 or higher education spending, or funding Pence's proposed income tax cuts.

And, Bosma said, it's not enough to solve the problem.

"That doesn't even meet what we believe is an underestimated need by the Department of Transportation of $200 million a year, and that does nothing for local roads and doesn't accomplish many of the other items that even Gov. Pence has talked about in infrastructure," he said.

House Ways and Means Committee Chairman Tim Brown, the Crawfordsville Republican who is his chamber's lead budget-writer, said removing those "off the top expenses" will be looked at "most heavily" during this year's legislative session.

Trickier solutions

There is another step lawmakers could take to solve the problem, but it carries a host of political implications.

Indiana currently collects about $550 million per year in sales tax on gasoline purchases, in addition to the 18-cents-a-gallon gas tax. Transportation and logistics groups are calling those sales taxes "user fees" that ought to be pumped right back into roads.

Senate leaders, including Long and the chamber's chief budget-writer, Appropriations Committee Chairman Luke Kenley, R-Noblesville, have said they are considering that argument.

"It's one (solution) that we're going to focus on in the Senate a little bit, knowing that there are other options as well, and we'll see where that takes us," Long said.

Dennis Faulkenberg, the president of the Indianapolis transportation consulting firm APPIAN, said such a move would work well because "sales tax is inflation-proof."

"Maybe it should be phased in, but we believe that's a road use tax that ought to go to roads in Indiana," he said. "We think that those who use the roads ought to pay for the roads."

Kenley said he has a big problem with Indiana using more state budget dollars to fill local transportation holes: Municipalities don't have any "skin in the game."

"It's clearly to their advantage to see us just give them more money, and I think the discussion is a little more difficult than that," he said.

He said many counties have not adopted wheel taxes. He also suggested license fees ranging from $20 to $50 per driver.

Holt, with Conexus Indiana, said those ideas might be politically unpopular, but would help ease the pinch.

"A user fee system is a good system – you use it, you pay for it. And in general, a registration fee is a really fair way across the board to basically have everyone pay their fair share," he said.

Planning ahead

APPIAN's Faulkenberg said Indiana also should link its gas tax rate to inflation – either by tying it to the Consumer Price Index or to construction costs. Each 1 cent increase in the gas tax would net the state another $30 million or so, he said.

Holt said he considers that an "obvious" and necessary step.

"You take the one-time hit as a politician," Holt said. "Indexing just keeps the value of money up where it was, so that tax is the exact same. Now, it actually loses value as a tax over time."

Meanwhile, Rep. Randy Frye, R-Greensburg, has introduced a measure that would impose a tax rate equal to Indiana's gas tax on compressed natural gas vehicles.

Indianapolis-based Monarch Beverage Co. recently announced it will spend $7.6 million to convert most of its trucking fleet, and will also build a fueling station for those vehicles.

Right now, compressed natural gas vehicles pay no gas tax. Frye said his bill could bring in about $1 million per year off the bat, and that he expects that amount would increase over time.

"If we don't apply the road use tax," Frye said, "our road use tax will just drop off the table. We have to do this just so we don't see a decrease."

A long-term problem

During his campaign for governor, Pence said he plans to appoint a panel to study Indiana's infrastructure needs and then use that panel's recommendations as the basis for a plan of his own.

Some lawmakers and political observers said they believe that's exactly what will happen.

Devoting the extra $120 million in gas tax revenues currently spent on state police and license branches to transportation could be the first part of a multi-step process, said John Ketzenberger, the president of the Indiana Fiscal Policy Institute.

"You really aren't gaining anything, but you can earmark that money for construction projects. That buys you some time. Then you build a blue-ribbon committee between legislative leaders and the governor" to study longer-term solutions," he said.

Such a study would aim to produce a list of projects that need to be completed and cost estimates for those projects.

"Then you come back next session or the session after, even, and say, here's what we're going to do. At that point you have the revenue plan laid out, you have the expenditures laid out, and then you pass the legislation," he said.

Brown, the House Ways and Means chairman, said Ketzenberger is on target.

"I definitely think this year we'll just do some incremental things. I don't think we'll do a whole, big, comprehensive" package, Brown said. "It'll be a long-term study. It's a long-term process."

Kenley, his Senate counterpart, said he hopes lawmakers won't delay action for another year. He said he wants to see "comprehensive planning" and "significant steps" taken during 2013's four-month legislative session.

"I hope that we can do some comprehensive planning on the transportation funding this year, and I hope we'll take some significant steps to establishing a solid way to fund all these issues," Kenley said.

"It may evolve that we can't get it all done this year," he said, "but I think I would rather plan ahead and be ahead of the issue and be prepared on these points, because Indiana's economy is so dependent on its road infrastructure."