We Could See Fewer Orange Barrels (unless something changes)
It’s a common anecdote in our area that we have two seasons, winter and construction. We’re nearing the end of the construction season, and over the next several weeks, you’ll see key road projects completed or buttoned up for the winter.
Those construction projects are critical to our communities and the local economy. The Indiana economy thrives because of our ability to move goods, services, and people easily throughout the state. Each year, governments prioritize those critical transportation arteries for improvements and advance new road priorities to accommodate the needs of our growing communities.
The ability to advance new projects will become harder in the years to come as the amount of funds available for road improvements simply isn’t keeping up with rising construction costs. Unless something changes, the future focus may just be on maintaining the assets we have rather than considering new improvements.
We certainly have felt the effects of rising costs of goods and services in our households, so it makes sense that we’d also feel that in road construction. Inflation has impacted every industry.
Historically, it was assumed that inflation would rise about 2.5% each year in the road business, and state and local governments would plan accordingly. The economic disruptions caused by COVID, the following supply chain issues, and the labor market pressures have caused that number to spike. From 2020-2022, construction materials increased by 36%, and labor costs increased by 16%.
To dive deeper into that, some specifics show that gasoline was up 95%, diesel up 86%, galvanized steel 113%, structural steel 67%, steel rebar 80%, and asphalt binder 50%. Like what is happening in our homes, the result is that purchasing power is limited because of these rising costs.
Funding for those key road projects has historically come from the gas tax. However, as vehicles have become more fuel efficient, that revenue stream has shrunk. Since 2017, vehicles have become 17% more efficient. In the next 25 years, they’ll become even more efficient, further reducing the funds available for road maintenance and improvements.
If we go back in time, we had similar challenges in 2005 and needed to find a way to fund the State’s transportation needs. The State leased the Indiana Toll Road in 2006, and the $3.8 billion lease payment has helped fund major transportation projects over that twenty-year period. Now, twenty years later, lawmakers will have to decide what’s next. It will need to be a top priority of our new governor.
So what is on the table? Tolling could be an option on other key arteries in the state. I think could get a lot of consideration, especially given how much traffic just passes through the State, uses our roads, but doesn’t contribute to the maintenance and upkeep of those roads.
Other considerations could include EV charging tax, freight road user charge, passenger road user charge, change in registration fees depending on the age of the vehicle and fuel efficiency, increased transportation taxes, or dedicated portions of sales or income taxes.
More than a dozen options are likely to be on the table and could be considered. It’s unlikely everyone will coalesce around one option, and some options could face stiff opposition.
In 2022, CNBC ranked Indiana #1 in the country for infrastructure. The State and local governments have done important work making strategic investments to help meet the needs of businesses and citizens. To stay near the top, something must change, and we look forward to the discussion about how to fund this critical need in the years ahead.
