Braun suspends gas taxes for final 30 days under his power
Governor Mike Braun (R) is giving Hoosier drivers one more month without state gasoline taxes, but the final extension available under his executive authority is also forcing a larger question into the open: how long can Indiana keep relying almost entirely on user fees to pay for roads when the cost of building them keeps climbing, and vehicles keep growing more efficient?
The Governor on July 2 extended his unilateral suspension of the state gasoline use tax and gasoline excise tax for another month through August 7, continuing a policy that has helped Hoosier motorists (and visitors) enjoy the cheapest gas prices in the country.
This extension is the final one he can order on his own. Further action would require action by the General Assembly.
“I’m going to do it for another 30 days, and anything beyond that would have to have a special session or authority from the legislature to do it,” Governor Braun stated on July 2, leading into the holiday travel weekend.
Gov. Braun continues to frame his self-titled “Braun Gas Tax Holiday” as part of his overall push to make life more affordable for Hoosiers, especially during the summer travel season. He argued at his July 2 press conference that Indiana has been able to absorb the lost tax revenue because state government is operating more efficiently and revenues are flowing in stronger than expected.
The more consequential part of Gov. Braun’s comments came when he shifted the conversation from the immediate gas tax holiday to the future of road funding. Indiana’s transportation finance system has long relied on user fees, including fuel taxes, to pay for roads and bridges. Braun has stressed multiple times now that the model is facing new pressure because the cost of infrastructure has climbed sharply.
“There is a longer-term consideration in terms of infrastructure, which has gotten so costly, due to steel and concrete going up way more than most other parts that feed into inflation,” the Governor alluded to reporters. “And that will be a discussion more broadly, too, on long-term road financing.”
As we have pointed out in these pages previously, the last major road funding package from the General Assembly came in 2017, when lawmakers raised transportation-related taxes and fees to create a long-term funding plan for state and local infrastructure.
Gov. Braun, who was a member of the House (and its Committee on Ways and Means) at the time, often points back to that moment, noting that Community Crossings was created the year before, and that the 2017 road funding bill remains the most recent major state action on long-term road financing.
What has changed since then is the cost side of the equation. Gov. Braun noted on July 2 that steel and concrete costs have risen roughly 50%, meaning existing road dollars do not buy as much as they once did.
“There needs to be a discussion among Hoosiers, among legislators, what we do that’s going to address that if we want to keep everything in good shape,” the Governor emphasizes.
The Governor also acknowledges another structural issue: the fuel tax model itself weakens as vehicles become more efficient. Gas taxes are meant to function as user fees, with drivers paying into the system based on fuel consumption. But as cars use less gas, and as electric and hybrid vehicles account for a larger share of the market, fuel consumption becomes a less reliable proxy for road use.
The gas tax suspensions this summer may be a preview of a future with less reliance on those revenue sources, though the Governor did not say he would push for that directly next legislative session when we asked. Still, he ties the depleting gas tax revenue source directly to the state’s ability to take on major highway projects in the future.
“The big discussion is going to be for all states. What do you do on any additions, any major improvements … in the past we generally haven’t gone into general revenues,” Gov. Braun observes.
The opening the Governor is leaving on the table could be a significant shift in how Indiana funds its infrastructure going forward. He has proposed more than once now that Indiana may need to consider tapping General Fund revenues for infrastructure . . . a significant departure from the state’s traditional reliance on dedicated transportation revenue.
Asked about earlier comments that Indiana may need to look at general revenue and state operating savings to help pay for infrastructure, Gov. Braun indicated lawmakers have already been discussing the idea.
“Well, I said that because lawmakers have already been talking about it,” Gov. Braun divulged. “And the only way you can even entertain that is if you’ve got that much better cash flow compared to what we’ve ever had before. Infrastructure eats up a lot. It’s always been done through user fees, not general revenues.”
Using General Fund dollars for roads would put infrastructure in direct competition with other state priorities, including education, healthcare, and public safety. Braun acknowledged that competition, saying surplus revenue could also be used to lower taxes or invest in early childhood learning.
At the same time, Gov. Braun argued roads are fundamental to the economic development gains he frequently cites.
“This would be the first time ever we’ve even had the ability to maybe look at that, because roads are important,” he asserted. “Economic development is not going to keep occurring in places that is getting a lot more traction now than ever before. If you don’t have good infrastructure.”
Gov. Braun’s openness to using General Fund revenue could be read, in part, as an alternative to leaning more heavily on tolls to fund state infrastructure in the future. General Fund dollars would spread the cost of infrastructure across the state budget rather than charging drivers at specific points of use. Tolling, by contrast, keeps road funding tied to users, but in a much more visible and politically sensitive way than the gas tax – and the early reaction to the Guv’s tolling trial balloon for fund certain specific interstate improvements was not well received.
Still, based on the Governor’s continued rhetoric, expect the Braun Administration to look to lean on many other potential sources of revenue other than the gas tax, including tolls. Recall the state is still waiting to hear back from the Federal Highway Administration on its I-70 tolling waiver. The Governor has not proposed a specific replacement for the gas tax. . . . nor did he suggest the state should abandon user fees altogether.
Meanwhile, local governments received a solid assurance and plan from the Governor to replace lost gas tax revenues.
We detailed for you in our most recent issue the concerns of Aim and the Association of Indiana Counties over municipalities and counties losing out on millions of local road dollars from the moratorium. We outlined – with specifics – how we expected a reimbursement scenario would likely play out . . . and it looks like the Governor took a page from our playbook.
At the Governor’s direction, the Office of Management and Budget will coordinate with the State Budget Agency and Department of Revenue to calculate the amount necessary to make local governments whole.
Look for State Budget Director Chad Ranney to introduce a formal request to transfer funds from the State Highway Fund for April and May at the State Board of Finance meeting on July 21.
Once the transfer is approved, local governments are expected to receive distributions from the Comptroller’s Office within five to seven business days. Similar requests will also then be made at the August and September State Board of Finance meetings as needed. Local governments are expected to be made whole no later than November 1.
The reimbursement will cover the full local loss. Asked whether communities could expect the full amount, the Governor answered, “Yes.” “It’s not going to cost us anything in the sense that we’ve got reserves that are there for that intended purpose,” he explained.
The Governor added the reimbursement is affordable because the state has reserves and stronger revenue. Note, of course, that this direction to backfill local coffers does not address the nine-figure shortfall state road coffers will suffer – perhaps as high as $360 million . . . and it remains uncertain whether the Indiana Department of Transportation will be made whole for the mega-payment to local governments.
Each month, the state has foregone roughly $52 million in revenue from the gas use tax, which was suspended in April, and $92 million per month in gas excise tax revenue since May. That’s roughly more than half a million total dollars in revenue the state has chosen not to collect over the summer. Of that money, $175 million is for locals, which will be reimbursed.
The money to backfill may be available in reserves, but it is still money being redirected to cover revenue the state chose not to collect. Gov. Braun argues that Indiana’s fiscal condition makes that possible. Again, now the question is whether that same logic becomes the foundation for a more permanent shift toward supplementing road funding with general revenues.
The final month of Gov. Braun’s gas tax suspension next leaves a potential continuation in the hands of lawmakers, who have a choice they did not have to make while the Governor was acting alone.
Asked whether a special session is off the table, Braun did not rule it out, but reminds that “the legislature would have to be interested in doing it.” Those conversations have not taken place yet . . . but the prospect of a special session could seriously return the closer we edge to that August 7 suspension end date if gas prices continue to remain high.
Gov. Braun suggested to reporters on July 2, though, that the pressure to continue the tax holiday may ease if gasoline prices keep falling on their own. He pointed to oil markets and the Middle East, saying prices had come down even amid uncertainty involving Iran.
“I think you’ve seen that the dynamic currently is, regardless of what’s happening in the Middle East, Iran has probably been pushing the envelope, oil prices have come down,” Gov. Braun noted – albeit before the resumption of Iranian attacks on commercial vessels in the Strait of Hormuz, and two nights of U.S. retaliation this week. Bloomberg reports Thursday morning that “tanker traffic in the Strait of Hormuz came to a near standstill” following the second night of U.S. attacks.
The national average price of regular fuel per gallon at mid-week was $3.79, according to AAA, down from the average price of $4.16/gallon a month ago. Indiana’s average price still stood at the lowest in the country mid-week at $3.06/gallon, with most Central Indiana counties reporting an average price below $3 as well.
But the Governor’s hopes of oil prices coming down may have diminished this week. NBC News reports Wednesday that U.S. crude oil jumped more than 7.0% to nearly $76 per barrel after President Donald Trump (R) said the U.S. ceasefire deal with Iran was “over” and that the United States was planning additional strikes. Brent crude, the international benchmark, rose almost 8.0% to $80 per barrel. Wholesale gas futures also rose 6.0%, while heating oil prices – a proxy for jet fuel – climbed 12 percent.
And by Thursday morning, the Office of the Attorney General’s FuelWatch website pegged the average cost per gallon of gas at $3.263 among the 4,805 gas stations OAG monitors (at the same time, AAA was listing the Indiana average at $3.219 per gallon vs. a national average price of $3.846).
Indiana’s gas tax suspensions have been the prime reason the state’s gas prices have remained the lowest, and with the latest oil price jumps due to ongoing tensions with Iran, prices at the pump are starting to reverse the downward trend we saw over the last month.
If crude prices keep climbing, the return of Indiana’s gas taxes could hit drivers at the same time global energy prices are moving higher, making the end of the holiday more visible at the pump. If pressure mounts to extend relief for Hoosiers past August – and the Labor Day travel weekend – there may be a special session for the General Assembly in the near future.
But keep in mind there’s also an election in November that could affect the optics and logistics for a special session in late summer, deterring legislative leaders from corralling everyone back to the State House. Though high gas prices leading up to Election Day, when Hoosiers just spent much of the summer with the lowest gas prices in the country, may not be ideal for legislators either, particularly with absentee voting beginning in just about two months.
Regardless, come January, it looks like the Third Floor will have a potentially mammoth task ahead in the next state budget: rethinking the future of road funding in Indiana, especially with the Governor’s calls for change throughout this gas tax holiday.