The dark side of the EV revolution: Road taxes

The U.S.’ electric vehicle boom is ushering in a new crisis lawmakers have known for decades is coming: The gas tax system that prevents crumbling roads and bridges is evaporating.

There's a solution waiting in the wings. Charging drivers for the miles they traverse could easily replace the roughly $80 billion in revenue that state and federal gas taxes produce annually. The problem is getting elected officials to put that plan into action.

Gas taxes are among the most politically risky issues elected officials can wade into, and few — on the state or the federal level — are willing to put their weight behind proposals to charge drivers to use public roads.

“It is certainly the third-rail issue here,” said Democratic Sen. Dave Cortese, chair of the California Senate’s Transportation Committee. “That all tends to rear its ugly head whenever anybody even talks about gas tax increases or this issue of a potential replacement for it.”

California is hardly alone — a politically diverse set of states, including Minnesota, Oregon, Utah, New Hampshire and Virginia, is also confronting a loss in revenue thanks to the EV transition. State lawmakers know a fiscal cliff is looming, but the vast majority of them can't muster the political will to deal with it.

Transportation experts say it's a problem elected officials need to be thinking about now, even as the electric vehicle transition is still nascent in most states. As more EVs hit the road, the logistics of ditching gas taxes will only become more difficult.

The future is approaching most rapidly in California, where Gov. Gavin Newsom's goal to end the sale of new gas-powered cars by 2035 is projected to produce a 64 percent — or $5 billion — decline in gas taxes over the next decade. EVs make up about 5 percent of all cars on the road and a quarter of new car sales — and aren't paying their full share of road taxes. California already charges EVs a fee of $118 per year, but it's only enough to make up about a fifth of the amount drivers would have paid at the pump.

California Democrats still feel the sting from the last time they tinkered with gas prices, a 12-cent-per-gallon hike in 2017. Weathered billboards still dot rural highways in Republican areas blaming state Democrats for raising gas prices. That vote resulted in a recall campaign led by the Republican Party and anti-tax groups that ousted state Sen. Josh Newman, who represents a competitive district in Orange County.

Newman reclaimed the seat in 2020, but said his experience is what every lawmaker fears. He blamed the recall on a lack of voter education, and said a road-user charge could face a similar backlash if people don’t understand why a change is happening.

“It's hard for me to envision a smooth transition to a system where Californians get a bill in the mail that says, 'You drove 1400 miles last month, you owe $140 bucks,'” Newman said. “People would lose their minds.”

A national problem

All states rely on a mix of state and federal gas revenue — along with vehicle registration fees and local sales taxes — to build and maintain America’s extensive roadways and public transit systems.

The revenue generated from those taxes steadily increased as car ownership exploded, but transportation experts say it has been apparent since the 1970s that increased vehicle fuel efficiency would eventually shift that curve downward.

That trend is now being supercharged as 16 states have adopted all or part of California’s stronger-than-federal regulations — which call for 68 percent of new cars to be zero-emission by 2030 — and the Biden administration has instituted federal fuel efficiency standards that are expected to make two-thirds of vehicles sold in the United States either fully electric or hybrid electric- and gasoline-powered vehicles by 2032.

The shift to electric vehicles has been faster in Democratic states that have incentivized EV purchasing as a tool to fight climate change, but conservative lawmakers aren’t immune to gas revenue declines as efficient hybrids are increasingly popular .

“Looking to the future, we could see that it was cutting into the funding,” said Republican Utah Rep. Kay Christofferson, who spearheaded the launch of a voluntary road-user fee in 2020 that’s one of the few active programs around the country. “We thought if things are moving that fast, we've got to get ahead of this and understand it.”

Attempts by lawmakers in Minnesota and New Hampshire to pass road use legislation have failed amid concerns about cost and data privacy.

Minnesota state Rep. Steve Elkins, a Democrat who previously worked as a transportation economist, plans to reintroduce his proposal next year to establish a per-mile fee for electric vehicles after four failed attempts. He said the legislation had caused concerns about the privacy implications of tracking drivers' movements and pushback from EV advocates angry over new fees, but also that his fellow lawmakers questioned the need to act. Less than 1 percent of registered cars in Minnesota are EVs, though the state has a goal of 65 percent by 2040.

“If we wait until there's 100,000 or 200,000 EVs on the road, and have to do a big bang implementation, there's a much bigger risk of failure,” he said.

Most states are still trying to raise gas taxes more or raise fees on EV owners. Nearly three dozen states have approved gas tax increases and additional fees specifically for EV owners over the last decade to offset revenue shortfalls — but not at high enough levels to reverse long-term declines as more drivers skip the pump.

Those that have tried to transition are mostly in the voluntary stage. Utah, Oregon and Virginia's programs have gotten good feedback from participants. But questions remain about how a much larger group of non self-selecting drivers will respond to statewide mandates, as well as how state transportation agencies can handle the administrative logistics.

Beyond voter appetite, state leaders will have to contend with potentially massive increases in administrative costs that will come from shifting away from gas taxes that are simple and inexpensive to collect. While drivers pay for gas at the pump, the actual taxes are collected from storage facilities that hold fuel before it’s trucked to gas stations. In California, for instance, there are only 32 of these facilities tax collectors have to deal with.

“Every dollar you raise from a gas tax, it costs less than a penny to administer it in California,” said Alan Jenn, an assistant professor at UC Davis and expert in road-user charges. “So imagine the administrative cost of going from that to now collecting taxes from 40 million people.”

One way to save money, according to officials in Oregon and Utah, is to use vehicles' existing GPS and diagnostic systems to measure mileage, rather than installing additional state-approved devices.

The key to getting auto companies on board with sharing that information is likely widespread adoption and pressure from states or a federal road-user program. State lawmakers shouldn’t expect help from Congress any time soon.

The federal 18.4-cent-per-gallon gas tax, which doesn’t adjust for inflation, has lost almost half its value since it was last raised in 1993. Congress has already turned to tapping the country’s general fund to pay for transportation expenses, and the Federal Highway Administration is expected to spend twice as much money as it takes in by 2030, said Jeff Davis, a senior fellow with the Eno Center for Transportation.

The Bipartisan Infrastructure Law championed by the Biden administration included $10 million per year from 2022 through 2026 to fund a national road-user pilot that hasn’t come to fruition. The law required the Department of Transportation to establish an advisory board by February 2022, but it still hasn’t been formed.

“No matter who is in the White House, it's really challenging to deal with the pilot program that is seen as exploring a tax increase,” said Garett Shrode, who co-authored an Eno study on road-user fees.

Going it alone

That means it's going to be up to states, which account for roughly a quarter of overall transportation revenues, to chart their own paths. There are some signs of movement.

Hawaii became the first state to approve a mandatory road-user charge last summer after a similar proposal stalled the previous year. Messaging matters: Democratic Sen. Chris Lee said lawmakers focused on communicating how the program works, after the previous year's debate stalled amid rural drivers worried they could end up paying more and EV owners who believed the new charge would be on top of an existing $50 registration fee.

“Everybody was upset and thought that was absolutely unfair, and they would have been right if that had been true, but it wasn't,” Lee said. “So going into last year, we were very clear from the outset that this is a replacement, not an additional tax.”

Hawaii’s program, which will allow EV drivers to voluntarily sign up in 2025 in exchange for waiving the registration free before becoming mandatory for EVs in 2028 and all vehicles in 2033, included an education campaign where 360,000 drivers were mailed postcards showing how much they will pay in road-user fees, a move possible because the state records odometer readings annually.

That sort of messaging would be a challenge in states like Michigan and Tennessee, which only record the number of miles driven when a title is transferred. That lack of data will make it much harder to convince drivers in those states that the transition from a gas tax to a road-user charge isn’t costing them more.

“In order for this to be politically acceptable, it has to be an even trade," Davis said.

California's Department of Transportation is launching its fourth pilot road-user charge program this month, aimed at testing credit and debit payments through a new state website.

California Assemblymember Lori Wilson, chair of her chamber’s transportation committee, said she plans to hold informational hearings on the issue next year and didn’t rule out the idea of authoring a road-use charge bill in the future. Her committee staff estimate it would take six years to fully switch off from the gas tax system.

"I think people are skeptical because they don't understand the impacts of it,” she said. “And you don't want to be the person who touches a hot button and then it goes wrong."