2016 Transportation Infrastructure Funding

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Overview

Three 2016 Indiana General Assembly bills address the topic of transportation infrastructure funding - Indiana House Bill 1001, Indiana Senate Bill 67,and Indiana Senate Bill 333. These three bills are analyzed from a Taxpayer Friendly standpoint elsewhere on this web page. Listed immediately below is a "Indiana State Reserves History by Fiscal Year" spreadsheet that provides pertinent data

Indiana State Reserves History By Fiscal Year

Indiana House Bill 1001 Road Funding: Taxpayer UNfriendly

Full details regarding HB 1001 can be accessed online at http://iga.in.gov/legislative/2016/bills/house/1001.

Passage of HB 1001 would result in net state tax increases of $1.6893 billion for fiscal years 2017 through 2020. Listed next is a compilation of these state tax increases for each fiscal year.

HB 1001 FY 2017 State Tax Increases
(millions of dollars)
$253.4 Cigarette Tax
$116.7 Gasoline Tax
$  41.2 Special Fuels Tax
$  24.9 Motor Carrier Surcharge
$    0.1 Electric Vehicle Fee
$436.3 TOTAL FY 2017 STATE TAX INCREASES

HB 1001 FY 2018 State Tax Increases
(millions of dollars)
$273.2 Cigarette Tax
$116.0 Gasoline Tax
$  41.7 Special Fuels Tax
$  25.0 Motor Carrier Surcharge
$    0.3 Electric Vehicle Fee
$456.2 TOTAL FY 2018 STATE TAX INCREASES

HB 1001 FY 2019 State Tax Increases
(millions of dollars)
$269.6 Cigarette Tax
$115.0 Gasoline Tax
$  42.3 Special Fuels Tax
$  25.2 Motor Carrier Surcharge
$    0.3 Electric Vehicle Fee
$452.4 TOTAL FY 2019 STATE TAX INCREASES
($33.6) Individual Income Tax DECREASE
$418.8 NET FY 2019 STATE TAX INCREASE

HB 1001 FY 2020 State Tax Increases
(millions of dollars)
$265.4 Cigarette Tax
$113.8 Gasoline Tax
$  42.7 Special Fuels Tax
$  25.4 Motor Carrier Surcharge
$    0.3 Electric Vehicle Fee
$447.6 TOTAL FY 2020 STATE TAX INCREASES
($69.6) Individual Income Tax DECREASE
$378.0 NET FY 2020 STATE TAX INCREASE

HB 1001 would also allow the two local tax increases listed next.

(a) County Excise Surtax / Wheel Tax. The maximum surtax rate would increase from 10% or $25 per excise vehicle, to 20% or $50. The maximum wheel tax rate would increase from $40 per non-excise vehicle to $80.

(b) Municipal Surtax and Wheel Tax. This provision would permit 43 municipalities with a population of at least 20,000 to impose their own surtax and wheel tax. An adopting municipality must adopt both taxes simultaneously. The surtax would be charged as a flat rate of between $7.50 and $25.00 on each vehicle registered in the municipality that is subject to the excise tax. The wheel tax would be assessed at a flat rate of between $5.00 and $40.00 on each vehicle registered in the municipality that is not subject to the excise tax.

The state and local tax increases in HB 1001 are unnecessary because the state has considerably more tax money sitting in cash reserve accounts than what is needed to (1) meet reasonably anticipated emergency needs and (2) provide a prudent reserve should there be a fiscal emergency.

(1) The state has more than enough cash in the Counter-Cyclical Revenue and Economic Stabilization Fund to meet reasonably anticipated emergency needs.

State revenue forecasts are prepared by the Indiana Economic Forum and the Revenue Forecast Technical Committee. The biggest General Fund revenue forecast "miss" in recent state budget history was for the 2009 fiscal year during the depths of the Great Recession. The December 13, 2007, state revenue forecast for fiscal year 2009 was $13.1632 billion. The actual fiscal year 2009 revenue was $257.0 million, or 2.0%, less.

The December 17, 2015, state General Fund revenue forecast for the current 2016 fiscal year is $14.9311 billion. Therefore, using the 2.0% revenue shortfall during the Great Recession as the worst case scenario, the total amount of cash reserves currently required to meet the state’s emergency needs is 2.0% of $14.9311 billion - or $298.6 million.

The state has a Counter-Cyclical Revenue and Economic Stabilization Fund that was established by Indiana Code 4-10-18 in 1982 “to assist in stabilizing revenue during periods of economic recession.” Cash in this non-reverting Fund may be combined by the State Treasurer with other amounts in the state treasury for the purposes of cash management. The cash balance in the Counter-Cyclical Revenue and Economic Stabilization Fund on June 30, 2015, was $376.6 million - more than enough to meet the state’s reasonably anticipated emergency needs of $298.6 million.

The adequacy of the cash in the Counter-Cyclical Revenue and Economic Stabilization Fund to meet the state’s reasonably anticipated emergency needs is enhanced by the Governor’s reversion authority, which has been in place sixty-nine years and is commonly used to maintain the balanced state budgets that our State Constitution has mandated the past 165 years. The Governor is empowered by his reversion authority to not spend state General Fund budgeted amounts if there are unanticipated revenue shortfalls. For example, Governor Mitch Daniels adroitly used his reversion authority during the depths of the recent Great Recession to responsibly conduct the state’s business.

(2) The state has considerably more tax money sitting in various cash reserve accounts than what is needed to provide a prudent reserve should there be a fiscal emergency.

The latest estimated combined June 30, 2016, balance in cash reserve accounts is projected to be $2.2774 billion as follows: $960.4 million in the General Fund, $438.6 million in the Rainy Day Fund, $577.6 million in the Medicaid Reserve Fund, and $300.8 million in the Tuition Reserve Fund. The $2.2774 billion combined cash reserve accounts balance is 15.0% of operating revenue.

The Indiana State Reserves History for fiscal years 2004 through 2015 reveals how much total cash reserve is prudently needed should there be a fiscal emergency - see the spreadsheet above near the top of this web page.

The state’s Counter-Cyclical Revenue and Economic Stabilization Fund was used in fiscal years 2004 and 2010 to meet the state’s emergency fiscal needs. The combined cash balance in the state’s General, Rainy Day, Medicaid Reserve, and Tuition Reserve funds was 5.0% of operating revenue in fiscal year 2004 and 6.1% of operating revenue in fiscal year 2010. A combined cash reserve accounts balance of 5.0% of operating revenue has proven to be what is prudently needed to allow the state’s Counter-Cyclical Revenue and Economic Stabilization Fund to be replenished after a fiscal emergency. Therefore, using 5.0% of operating revenue as a prudent threshold, the total amount of cash reserves the state needs for a fiscal emergency during the current 2016 fiscal year in the state’s General, Rainy Day, Medicaid Reserve, and Tuition Reserve funds is $683.2 million.

The state has $1.5942 billion more tax money sitting in cash reserve accounts than what is needed to (1) meet reasonably anticipated emergency needs and (2) provide a prudent reserve should there be a fiscal emergency. HB 1001 is Taxpayer UNfriendly because the state has excessive cash reserves that can be leveraged to provide needed transportation infrastructure funding WITHOUT state and local tax increases.

Indiana Senate Bill 67 Supplemental Distributions of Local Income Tax: Taxpayer Friendly

The full details of SB 67 can be accessed online at http://iga.in.gov/legislative/2016/bills/senate/67.

SB 67 deals with two subjects - an additional distribution and supplemental distributions.

ADDITIONAL DISTRIBUTION. SB 67 requires the State Budget Agency (SBA), before May 1, 2016, to make a one-time additional distribution from a county's adjusted gross income tax (CAGIT) trust account, county option income tax (COIT) trust account, or county economic development income tax (CEDIT) trust account equal to: (1) the amount of the balance in the county trust account on December 31, 2014, as determined by the SBA; minus (2) any supplemental distribution made under current law to the county in January 2016. The Office of Management and Budget (OMB) and the Department of Local Government Finance (DLGF) must determine the allocation of the additional distribution, based on that part of the balance in the county's trust account that would be distributed to the county, city, or town. The county auditor, before June 1, 2016, must distribute only to a county, city, or town an amount equal to the allocation amount determined for the county, city, or town by the OMB and the DLGF. At least 75% of the distributions made to a county, city, or town must be: (1) used exclusively for local road construction, maintenance, or repair, or capital projects for aviation, including capital projects of an airport authority; or (2) deposited in a rainy day fund to be used for transportation infrastructure funding at a later time. Any remaining distribution to a county, city, or town may be used for any purposes of the county, city, or town. The total statewide one-time additional distribution in 2016 is estimated to be $430 million. A table listing the one-time additional distribution estimate for each county, city, and town can be found online at http://www.indianasenaterepublicans.com/clientuploads/Documents/2016%20Session/SB%2067%20Estimated%20Distributions.pdf.

SUPPLEMENTAL DISTRIBUTIONS: If the SBA determines that the balance in a county's local income tax trust account exceeds 25% (rather than 50% under current law) of the certified distributions to be made to the county in the ensuing year (beginning in 2017), the SBA must make a supplemental distribution to the county. By reducing the threshold for supplemental distributions, SB 67 will increase the frequency of supplemental distributions paid to counties. The SBA will determine supplemental distributions using the new parameters before November 2, 2016, for distributions in 2017. Supplemental distributions made after December 31, 2016, must be allocated only to the civil units that did not receive an additional distribution. These civil units are townships, public libraries, school corporations, and certain special taxing units that are eligible for a local income tax distribution. This

allocation method will continue until the units excluded from the additional distribution receive allocations equal to the amount they would have received under that distribution. Once all the specified units in the county receive the appropriate allocation amount, the supplemental distributions will be allocated in the same manner as certified distributions. Supplemental distributions are deposited in a civil unit’s rainy day fund except the portion of revenue attributable to a special purpose rate. The supplemental distributions will eventually cease as trust balances of counties decrease. Total statewide supplemental distributions are estimated to be $79.6 million to 31 counties in 2017 and $135.5 million to 44 counties in 2018. A table listing supplemental distribution estimates by county can be found online at http://iga.in.gov/static-documents/f/3/7/9/f3799f4e/SB0067.03.ENGS.FN001.pdf.

SB 67 is Taxpayer Friendly because it makes local income tax revenue more quickly available to our local units of government for transportation infrastructure funding.

SB 67 passed the Indiana Senate 49-1 on January 19, 2016. The Indiana House of Representatives is urged to likewise pass the Taxpayer Friendly SB 67.

Indiana Senate Bill 333 Transportation Funding

The full details of SB 333 can be accessed online at http://iga.in.gov/legislative/2016/bills/senate/333.

(A Taxpayer Friendly analysis of SB 333 is not yet completed.)

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This page was last updated on 01/23/17.