Highway Revenue Sources

HEA 1002-2017 a game-changer for Indiana

In 2017, BIC was a key player in passing the comprehensive, long-term road funding package known as HEA 1002. The new legislation increased the state gas tax and over time transfers additional sales tax revenues to roads. As a result, Indiana can now invest at record levels in state and local road and bridge construction projects over the long-term. Annual estimates for the new, additional funding:

Economic outlook uncertain for Federal Highway Trust Fund

While Indiana leaders have provided a long-term, dedicated and stable STATE funding stream for highway improvements, our system still relies heavily on FEDERAL highway funds. In fiscal year 2019, INDOT’s total capital construction budget, including design, right-of-way and construction, is nearly $1.5 billion. That budget depends on about $750 million in federal funds, equating to 50% of INDOT’s capital budget. Another $250 million in federal funds is distributed to local road and bridge projects for total federal funding of about $1 billion.

Given the reliance on federal funds, BIC is concerned about the economic outlook for the Federal Highway Trust Fund. The gas tax was last raised 26 years ago and, of course, is not keeping up. Annually, the HTF spends nearly 30% more than it takes in. At the end of the current highway bill (FAST Act) in 2020, the HTF will face an average annual deficit of $20 billion.

We ask our federal lawmakers to FIX THE FEDERAL HIGHWAY TRUST FUND and MAKE SURE INDIANA IS TREATED FAIRLY when it comes to distributing funds.

New Revenue for the Highway Trust Fund

New revenue sources must be identified to sustain the Highway Trust Fund. Studies have identified many options including a federal fuel tax increase, imported oil tariff, sales tax on fuel, weight and distance-based fees, or vehicle miles traveled tax. BIC supports new revenue that is user fee based, long term and sustainable.

Funding Equity for Indiana

The federal highway program includes complex formulas that determine the distribution of funds between the 50 states. Historically, those formulas have put Indiana at a disadvantage. As a highway funding “donor state,” Hoosier motorists contribute a greater share of fuel tax revenue to the federal Highway Trust Fund (HTF) than the share of funds the state receives back. Since the creation of the program in 1956, Indiana has forgone over $3 billion that instead went to other states for road construction and repair. Under the 2015 Fixing America’s Surface Transportation (FAST) Act, Indiana’s rate of return has averaged only 92.8%.

Build Indiana Council believes all states should receive a minimum of 95 percent return on their share of fuel tax contributions. This percentage should govern the distribution of all federal highway program funds – no matter their source. 

Refocus the Federal Highway Program back on Highways

A study by Reason Foundation shows a 25% diversion of Highway Trust Fund spending to non-road uses – nearly $11 billion per year. This diversion includes enhancement projects such as bike paths, scenic trails, historic preservation, decorative lighting, etc. Diverted gas tax dollars also fund non-road portions of federal highway projects, transit, the National Highway Traffic Safety Administration, and the Federal Motor Carrier Safety Administration.

BIC believes it is time to re-dedicate highway user fees to highways. Fund these other programs from elsewhere in the budget. Non-road programs should be funded elsewhere in the federal budget.

Allow states to toll interstate highways

Although federal law restricts states from tolling existing interstate highways, tolling can be a major source of revenue to enhance state infrastructure investment. The Build Indiana Council supports the move towards tolling in the state of Indiana. We ask our Congressional delegation to advocate for reforms to the Federal Highway Program to give all states the freedom to implement tolls if they believe it is in their best interests.

If reforms are not achievable, devolve the program back to the states

The federal highway program is at a crossroads. Key issues related to Highway Trust Fund (HTF) revenue, program efficiency, and state funding fairness will all have to be decided. Build Indiana Council supports a comprehensive and thoughtful reauthorization of the federal highway program that includes program reforms and equitable funding distribution formulas. However, if Congress is unable to properly fund the program, eliminate program diversions, streamline burdensome regulations and ensure funding fairness for Indiana, then Congress should give control back to the states.