States eye new fees and tolls to replace lost gas taxes from electric vehicles

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Traffic streams out of downtown San Francisco, Ca. on the southbound section, (left) of the I-280 freeway on Wednesday May 21, 2014, as seen from the 20th Street overpass. A stretch of southbound Interstate 280 in San Francisco will be closed for a safety enhancement project over Memorial Day weekend, between downtown San Francisco and the Pennsylvania Avenue on-ramp starting at 9 p.m. on Thursday and will reopen 5 a.m on Tuesday. (Michael Macor/San Francisco Chronicle via AP) Michael Macor/ASSOCIATED PRESS

States eye new fees and tolls to replace lost gas taxes from electric vehicles

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The push for electric vehicles has forced states to consider new ways to raise funds to build and maintain roads to replace lost gas tax revenues.

States are considering launching new tolls, implementing fees at public EV charging stations, and enacting vehicle-miles traveled tax to offset and eventually replace gas taxes.

Currently, motor fuels taxes make up the largest share of state transportation budgets, but the funds have been shrinking in recent years at both the federal and state levels as cars have gotten more fuel-efficient.

In 2022, gas taxes accounted for 38.4% of states’ transportation revenue, down from 41.1% in 2018, according to data from the National Conference of State Legislatures.

Revenue generated by the federal gas tax, which has stood unchanged at 18.4 cents per gallon since 1993, has also fallen. Since 2008, Congress has shifted billions of dollars, mostly from the Treasury Department’s general fund, to the Highway Trust Fund to make up for the shortfall.

And despite state efforts to adjust their gas taxes to account for different factors, such as service fees, distance traveled, and whether or not the taxes are indexed for inflation, data from the Tax Foundation found that just four states — California, Indiana, Montana, and Tennessee — actually generate enough revenue from the motor fuels tax to cover their highway spending.

The disparity between gas tax revenues and maintenance needs is expected to widen significantly by the end of the decade as electric vehicles grow in popularity and drivers’ reliance on motor fuels declines.

States could lose as much as $87 billion in gas tax revenue by 2050 due to the higher proportion of EVs and highly fuel-efficient vehicles on roads, according to a projection from CDM Smith, an engineering firm.

Electric vehicle adoption is also accelerating faster than expected in the United States. Drivers are now expected to reach a 53% EV adoption by the end of the decade, according to data from the Boston Consulting Group.

The faster-than-expected shift means that states must get creative to find new ways to pay for the construction and maintenance of their roadways — and quickly.

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Below are some of the ways state governments are hoping to generate funds from EV drivers.

Vehicle-miles traveled fee: A vehicle-miles traveled, or VMT, fee is a mileage-based payment program that levies fees on drivers based on the number of miles traveled (or amount of road they have used). They are generally imposed on passenger vehicles only.

The VMT fee has been studied widely at both the state and federal levels as a means of transitioning away from the motor fuels tax — but it is a lightning rod, sparking concerns about economic equity and privacy.

Transportation Secretary Pete Buttigieg made headlines after he suggested in a 2021 interview that VMT taxes “show a lot of promise” and later walked back his comments amid backlash.

In 2020, House lawmakers passed a bill that would have created a federal pilot program to test the VMT tax, though the effort failed to gain traction in the Senate.

At the state level, VMT fee programs are considered a financially viable alternative, though they are also controversial. At least a dozen states have commissioned studies on a VMT program, though just several have progressed beyond the research phase.

Beginning in 2015, Oregon adopted a VMT fee for all light-duty passenger vehicles (the fee currently stands at 1.9 cents per mile driven), and Utah passed its own version of the program, with a 1.5 cent-per-mile fee, beginning in 2020.

Virginia created a hybrid system for fuel-efficient and electric drivers. The state passed the Mileage Choice Program in 2020 that allows drivers to choose between paying an annual “Highway Use Fee,” or HUF, at the time of registration, which currently stands at $116.49, or opting for the miles-driven fee. The latter could be a more attractive option for car owners who drive fewer miles.

Special registration fees: Thirty-one states currently require a special registration fee for plug-in electric vehicles in addition to traditional fees associated with registering a motor vehicle.

Ten states have laws in place requiring electric vehicle owners to pay annual fees, which range anywhere from $50 to more than $200.

These funds are almost entirely directed to transportation funds used for road maintenance and construction, though some states have opted to allocate a certain percentage of the funds to building out new electric vehicle infrastructure, such as charging stations.

Fees at charging stations: Another strategy for reducing the lost revenue from motor fuels tax is to impose a fee on electric vehicle drivers who use public EV charging stations based on a per-kilowatt-hour fee structure.

At least four states — Iowa, Kentucky, Oklahoma, and Pennsylvania — have implemented such fees, according to the NCSL.

But states are grappling with a lack of electric vehicle charging infrastructure, and many do not yet have the necessary network of public charging stations in place.

Tolls: Other states have considered adding tolls on some major roadways to make up for the reduced funding.

Most recently, Gov. Gretchen Whitmer (D-MI) suggested she was open to charging tolls on major roads in the state, following a recent report that projected Michigan could generate more than $1 billion per year in new revenue by adding a 6-cent per mile toll on 14 major highways.

Other states are conducting research to see how tolls could either add to or replace traditional gas taxes or any existing electric vehicle registration fees.

Such policies are a short-term tool to help give states relief, Joseph Kane, a fellow at the Brookings Institution who specializes in matters of transportation and infrastructure, said in an interview.

“It gets hard to say whether [specific proposals] are good or bad, as much as it’s like just part of a trend we’ve been seeing nationally,” Kane said.

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“In lieu of, like, other solutions, it’s like, ‘Hey, this is something we can do, probably, in the short term,'” he added. It’s evidence that states “are trying to scrounge whatever resources they can to do this, and they’re willing to test new approaches.”

© 2023 Washington Examiner

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