Updates to Indiana Fuel Tax and Registration Revenue Projections

Abstract

Highway revenues both at the federal and state levels have failed to keep up with expected investments required for infrastructure preservation and improvement. The reasons for this trend include the increasing fuel efficiency of vehicles, slowing of the growth in vehicle-miles of travel, and the erosion of the purchasing power of the dollar due to inflation. Past studies on the issue of highway revenue forecasting for Indiana highways were conducted under different economic conditions than what exists today. The present study updates the revenue projections of particularly with the recognition of new CAFE Standards. The present study also updates the equations for estimating vehicle miles of travel. Impacts of alternative options for changing the fuel tax rate structure are also investigated. The present study predicted fuel tax revenues from 2012 to 2025 under the existing fuel tax rate structure and also considered possible options for changes in fuel tax rates. Fuel tax revenue from existing rate structure indicated a continuous annual decrease from 2012 to 2025 by 2.96% to 3.49% in real terms. Adopting one of the four fuel tax rate modifications would provide additional short- term revenue for a variable number of years. A 1-cent increase would offset the decline in the total fuel tax revenue only for a year after which it will continually decline every year. A 3-cent increase would provide a substantial increase in revenue in the short term but will continually decline, however, the 2025 revenue from 3-cent increase would be a little higher than the 2012 revenue level. Both inflation indexing and an ad valorem tax would also provide substantial increase in fuel tax revenue.