Indiana’s gas tax will continue to track inflation but it could be a stopgap — with an examination of long-term transportation infrastructure funding on the way. Photo by Brandon Bell, Getty Images.

By Leslie Bonilla Muñiz
Indiana Capital Chronicle

INDIANAPOLIS — 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.

Rep. Jeff Thompson, R-Lizton. Photo by Whitney Downard, Indiana Capital Chronicle.

“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

Rep. Jim Pressel, R-Rolling Prairie.

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.

Gov. Eric Holcomb and key members of his cabinet, including Office and Management and Budget Director Cris Johnston, hold a 3 a.m. news conference at the end of the session. Photo by Casey Smith, Indiana Capital Chronicle.

“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.