Distributions underway to repay local governments for gas tax suspension

by Mackenzi Klemann, Indiana Capital Chronicle
July 21, 2026

Indiana will begin distributing highway funds to local governments this week to cover losses from the state’s gas tax suspension.

The State Board of Finance met Tuesday morning to authorize the transfer of $121 million from the State Highway Fund to local governments through the Motor Vehicle Highway Account, the Highway Road and Street Fund, and the Local Road and Bridge Matching Fund.

The transfer covers the portion of foregone revenue from April 8 through May 31 that would have been distributed to local governments in June and July.

Comptroller Elise Nieshalla said funds should hit accounts this week.

Gov. Mike Braun suspended Indiana’s 7% sales tax on gasoline in April to offset high fuel prices from the war with Iran. He renewed the energy emergency and also paused collections of the state’s 36-cents-per-gallon excise tax in May.

Both taxes remain suspended through August 6.

AAA reported Indiana’s average gas price at $3.34 Tuesday — which includes a 60-cent reduction from Braun’s action.

Indiana lawmakers would have to come in for a special session if they want to grant further relief to Hoosier drivers.

The Indiana Department of Transportation and local governments are expected to forego a combined $533 million for the duration of the suspension, according to estimates released earlier this month.

Gas tax breaks to cost state, local governments $533M

Braun pledged to reimburse local governments from the State Highway Fund, and has suggested lawmakers could draw from the state’s growing surplus to make the Indiana Department of Transportation whole.

“Over the last 18 months, we have right-sized government and done more with less,” Braun said in a statement Tuesday.

“And because of that, we were able to make life more affordable for Hoosiers this summer with the cheapest gas in the country. Today we honored our commitment to ensure that this tax relief for Hoosiers had no adverse effect on the roads and infrastructure in our communities.”

The State Board of Finance voted unanimously Tuesday in favor of the transfer, with additional distributions expected.

State tax collections grew by 6.8% during fiscal year 2026, bringing Indiana’s budget reserves to nearly $4 billion as of June 30.

“We’ve been able to raise revenue without raising taxes,” said Treasurer Daniel Elliott, a member of the board. “We’ve been able to manage our money wisely, and by focusing on looking at how we can help make these governments whole.”

Braun cites the surplus to justify pausing gas tax collections, with ample revenue available to make the State Highway Fund whole if lawmakers choose to tap into it when they return in January.

State Budget Director Chad Ranney said Braun intends to ask the legislature to transfer funds from the General Fund back to the State Highway Fund as part of his recommended budget.

“Money’s there,” he said. “It’s probably the right thing to do.”

Noblesville Mayor Chris Jensen thanked Braun on social media Tuesday.

“I appreciate @GovBraun taking this necessary step to move our communities across the Hoosier state forward. While I understand the immediate need for relief for our citizens, we have to be mindful of the downstream effect decisions like this have on our cities and state. As I often say, if we truly are the “Crossroads of America,” then our infrastructure should be worthy of that slogan.”

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Indiana Capital Chronicle is part of States Newsroom, a nonprofit news network supported by grants and a coalition of donors as a 501c(3) public charity. Indiana Capital Chronicle maintains editorial independence. Contact Editor Niki Kelly for questions: info@indianacapitalchronicle.com.

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