Indiana becomes first state to approve interstate tolling to rebuild highways

After years of underfunding its highways, Indiana Gov. Mike Braun recently signed House Bill 1461, which authorizes the state to toll its Interstates. This law makes Indiana the first state in the nation to authorize tolling for its existing Interstate system. Widespread use of tolling to rebuild and expand highways can reshape transportation funding in a way that adjusts for changes in vehicle technology.

For more than 100 years, states have relied on fuel taxes to fund the majority of their highway needs. However, the gas tax is becoming an increasingly unsustainable revenue source due to a combination of electric vehicles, hybrid vehicles, and most importantly, the increased fuel efficiency of vehicles with traditional internal combustion engines. The gas tax once worked as a highway funding source, but it is no longer sustainable. I’ve written before that the gas tax is like a rock band with a good career and is on a farewell tour, but everybody knows the band’s best days are behind it.

Indiana has a funding problem. The state lacks the revenue to maintain its highways adequately. Indiana ranks in the bottom third of all states in terms of interstate pavement condition, according to Reason Foundation’s Annual Highway Report.

State Rep. Jim Pressel (R-District 20), chair of the House Transportation Committee, introduced and argued for the bill. Despite pushback from some Republicans, the bill passed overwhelmingly (74-21 and 38-10) in the state’s House and Senate, respectively. The governor chose to sign the bill into law when he could have let it become law without his signature.

As the fuel tax produces less revenue, Indiana’s interstate highways are also reaching the end of their design life. Intended to be rebuilt after 50 years, many highways are 60 or 70 years old. The state cannot just add another layer of asphalt and hope the overlay solves the problem. These roadways need to be rebuilt from the roadbed up, and this type of reconstruction is not cheap. Many of these highways also need to be widened due to annual increases in vehicle miles of travel. These traffic volume increases, which had slowed in the last decade, are now increasing again due partly to growth in freight movement.

The need to rebuild highways as the gas tax becomes unsustainable is why tolling is so essential. It is important to note that this is not your grandfather’s ‘throw-coins-as-you-stop-at-the-tollbooth’ operation. This is 21st-century all-electronic tolling, which has been adopted by most toll roads nationwide. Electronic tolling is much faster than 20th-century tolling. Wehicles don’t have to wait in line, stop, and wait for change or for the toll gate to rise. It is also safer because there aren’t any tollbooths, which have a disproportionate number of traffic accidents due to weaving and changing travel speeds. And the collection costs have declined from 25% to about 5% because tollbooth operators are not needed, and there is less physical infrastructure to manage.

Tolling has other significant advantages for funding highways. Tolling ensures that users pay the full costs of the highways they drive on. Interstates are built to a higher standard and have larger traffic volumes, so they cost more to build and maintain than other roads and streets. However, with the current gas tax, drivers pay the same amount per mile to use each. Further, out-of-state drivers are far more likely to be on Interstates than local roads. So, in some cases, the fuel tax subsidizes out-of-state travelers who do not buy fuel in Indiana.

Tolling also helps ensure proper maintenance. The tolls should be high enough to provide the revenue needed for the highway’s ongoing maintenance. The Indiana Toll Road has a lower International Roughness Index (indicating smoother pavement and fewer potholes) than the state’s Interstate highways

Long-term infrastructure needs reliable funding and should be funded using long-term finance rather than annually out of tax money. Tolling provides the revenue to service long-term bonds. When most people buy a house, they do not pay cash up front. Rather, they finance it over time. The same is true for state transportation departments. Instead of waiting until they have all the funds to build the project, they can finance it over time.

Finally, tolling is a good fit for public-private partnerships (P3s). Indiana was one of the early adopters of P3s and has one of the most comprehensive pieces of tolling legislation. In 2006, Indiana used a P3 for a long-term lease of the Indiana Toll Road, which was in bad shape because the state refused to raise the toll rate for 20 years despite the roadway maintenance costs continuing to climb.

Indiana is a pioneer in using tolling for Interstate reconstruction. While the state might be the first to authorize tolling its Interstate highways, it won’t be the last. Last year, Michigan released a study that found the tolling of interstates feasible. North Carolina, Virginia, and Wisconsin have each examined tolling some or all of their Interstates as the need to rebuild them grows. With the gas tax being unsustainable and the need to modernize aging Interstates growing, other states will need to follow Indiana’s lead.

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