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Indiana lawmakers rejected spending budget reserve for roads

Hoosier lawmakers were all smiles Thursday as Republican Gov. Eric Holcomb, seated center, signs their road funding plan into law. It hikes fuel taxes and vehicle registration fees to pay for billions of dollars in highway and bridge improvements for years to come.

INDIANAPOLIS — The Republican-controlled General Assembly rejected any notion of spending the state's nearly $2 billion budget reserve as an alternative to hiking fuel taxes and vehicle registration fees to pay for road improvements.

State Rep. Ed Soliday, R-Valparaiso, the sponsor of House Enrolled Act 1002, said the idea of entirely draining the state's bank account before asking Hoosiers to pay more quickly was dismissed as short-sighted on numerous levels, including Indiana's need for long-term infrastructure funding.

"That would have lasted about two years, and this a 20-year plan," Soliday said.

Indeed, the 10 cents per gallon fuel tax hike that takes effect July 1, and the higher vehicle registration fees Hoosiers will pay starting in 2018, are projected to generate almost $5 billion in new funds for state and local road work over the next seven years.

If the federal government someday approves Indiana's request to toll its existing interstate highways, the state is poised to reap a total of some $2 billion in annual revenue dedicated to infrastructure projects.

House Speaker Brian Bosma, R-Indianapolis, said that easily will surpass the $4 billion the state spent on road work between 2006 and 2015 using the proceeds of the Indiana Toll Road Lease — and the new revenue sources should continue indefinitely.

"We've made the largest investment in infrastructure in our state's history," Bosma said. "It will be a generational change."

Soliday said another reason lawmakers declined to spend the budget reserve, was the anticipated hit to Indiana's perfect "AAA" credit rating if the state no longer maintained an operating balance equal to about 11.5 percent of annual spending.

A lower credit rating would mean that bonds sold by the state, or through the state on behalf of local governments, are considered riskier investments for which purchasers could demand greater returns.

"You spend the surplus, and every single entity in this state that borrows money, their interest rate just went up," Soliday said. "It's a false economy to do that."

At the same time, Bosma said lawmakers ruled out exploiting the state's superior credit by borrowing all the money needed for road work and leaving it to future generations to figure out how to pay for it.

"We are still paying bonds from the Gov. Evan Bayh administration (1989-97)," Bosma said. "The assets created by those bonds are long since gone, they've been repaved, they've been depreciated entirely. It was our goal not to thrust that burden on our children, on our grandchildren."

"The roads bill puts this on users," he said. "It's a conservative principle to have users pay for the assets they're using."

Soliday said a third reason lawmakers chose not to spend down the state's reserve is the possibility of an economic recession on the horizon.

The United States currently is in the midst of its third-longest economic expansion ever. A downturn, even if it is less severe than the Great Recession of 2008-09, could quickly diminish Indiana's primary revenue sources: sales and income taxes.

"We burned through $1.3 billion (in reserves) in the last recession, and the last thing we want to do is cut teacher pay, and that's 53 percent of the budget," Soliday said. "We want to protect our teachers."

House Democratic Leader Scott Pelath, D-Michigan City, quipped after most Hoosier Republicans voted to hike taxes: "I'm not sure this is the party of Reagan, anymore."


Statehouse Bureau Chief

Dan is Statehouse Bureau Chief for The Times. Since 2009, he's reported on Indiana government and politics — and how both impact the Region — from the state capital in Indianapolis. He originally is from Orland Park, Ill.