Road projects delayed as state’s gas tax holiday dries up local coffers
Kristen Layton, a 25-year-old applied behavioral analyst in Kokomo, has enjoyed paying less at the pump over the last couple months. Since May, Hoosiers have saved around 62 cents per gallon after Gov. Mike Braun suspended the state’s gas taxes.
“I am glad that our gas price is going down,” Layton said as she filled up her Nissan Ultima for around $3.40 a gallon on a recent weekday morning. “I mean, I’m not the richest in the world, so affording gas is hard.”
But for city and county officials across Indiana who rely on gas tax revenue distributed from the state to pay for road repairs and repaving projects, the holiday has created a major headache and could result in fewer projects moving forward this summer.
John Geier, the Fulton County Highway Department superintendent, is anticipating up to 40% in lost revenue. He axed 15 miles of paving projects and cut the number of chip-and-seal miles planned for this summer in half in the north-central Indiana county.
“It’s a double-edged sword,” Geier said. “We’re saving money out of our pocketbooks, but it’s costing us, too.”
‘It just snowballs’
The governor first suspended the state’s 7% sales tax on gas in April, bringing prices down by around 23 cents per gallon. In May, he also suspended the state’s 36-cent per gallon excise gas tax. The tax holiday remains in effect until July 7, after which the governor could choose to extend it for another 30 days. After that, legislative action would be needed.
The move came after fuel prices across the globe soared following the U.S.-Israeli war against Iran and the closure of the Strait of Hormuz, through which much of the world’s oil is shipped. In the U.S., prices spiked by around 50% in May compared to March.
Braun said in May that the tax holiday “gives Hoosiers meaningful relief” at the pump while acknowledging the suspension is costing the state roughly $140 million in gas tax collections a month — all of which goes toward maintaining the roads and bridges across Indiana.
Cities, counties and towns will lose out on around $170 million in total by July, according to David Bottorff, director of the Association of Indiana Counties.
Without the revenue, many cities and counties will have to decide how to make up the funding gap. That could include pushing back projects to next year, furloughing highway and street department workers or delaying vehicle maintenance, according to Bottorff.
In Miami County, located in north-central Indiana, officials are holding off on buying a new dump truck to replace some of the older vehicles in its fleet, Chad Watson, the highway superintendent, said.
“That just snowballs, because … you really need to hope that next year you can order two (trucks) to try to catch up,” he said. “But I don’t know, sitting here today, whether we’ll do that or not.”
Losing gas tax monies also means some cities and counties will likely not have enough on-hand cash to apply for critical funding through the state’s Community Crossings Matching Grant program, Bottorff said. The grant helps local governments pay for major, multi-million dollar road and bridge projects.
Bottorff said around 50 of those projects happen every month statewide. Now, he estimates there will be 12 fewer grant-funded projects for every month.
Payback uncertainty
Brent Warren, superintendent of the Nappanee street department, said the city of around 7,000 near the Michigan border has received upward of $900,000 from Community Crossing grants in the last few years to pay for paving projects.
If the city can’t access those dollars this year, the street department will be limited to basic preventative maintenance instead of full repairs, he explained.
Warren said Nappanee has yet to feel a major hit from the lost gas tax revenue, but the biggest concern is whether they will get back the lost funding — something Braun has said the state will provide.
“We’ll backfill those lost revenues into locals, so they won’t have to worry about it,” Braun told reporters earlier this month.
Bottorff said Braun’s commitment is encouraging, but without a specific plan or guaranteed revenue source, counties and cities are still wary of overspending their road and street budgets.
“It’s difficult for us to tell our members to continue to spend money as if they’re going to get reimbursed when there’s not a definitive memo or statute to authorize that payback,” he said.
Allocating money from the state’s reserves would require legislative approval that likely wouldn’t come until early next year, if at all. By that point, the summer road season will be over and local governments will have already cut back on projects.
Instead, the Association of Indiana Counties is working to backfill local coffers sooner through the Indiana State Board of Finance, which has the authority to transfer money between state funds and appropriations and approve state loans.
The county association plans to request a funding transfer to local governments during the finance board’s meeting on June 30 to provide immediate relief and ensure road projects can continue throughout the summer, Bottorff said.
Back at the pump, Layton, the Kokomo resident, said although she’s enjoying the savings from the gas tax holiday, she’s also aware it could mean delayed road projects in her community.
And that’s something Layton doesn’t want to see happen.
“We have schools, we have buses, we have all these transportation vehicles to drive people everywhere that they need to go,” she said. “We need our roads fixed.”
Not exactly. Because of the higher price of gas Indiana had collected $425M more than anticipated before the tax holiday. So at $140M a month in cost they can run the tax holiday for 3 months and the state budget essentially breaks even. The tax holiday has been a complete win for the Governor and for gas customers and no one is being harmed unless this continues past 3 months in which case the state has a huge surplus that can fill the gap. I think the Governor even said local commitments would be kept.