Let’s have a rational discussion about state transportation funding

By Philip Jones

Many state legislators, perhaps believing that electric vehicle (EV) adoption is a major contributor to the current or projected funding gap for state transportation systems, are introducing and passing legislative proposals that purport to fix this perceived inequity. But nothing could be further from the truth. The significant causes of the increased deficits in state highway funding are the increased efficiencies of internal combustion engines, partly due to tighter CAFÉ standards, level vehicle miles travel (VMT), and importantly the failure in most cases to index state motor vehicle fuel taxes to inflation. ATE has done state-based assessments in Florida, Texas, Minnesota and other states, clearly showing that highway trust funds are barely impacted by the growth in electric vehicles on the roads.

What we really need is a factual, data-driven conversation in state legislatures about how to stabilize highway funding sources through more rational approaches – whether through the gas tax, vehicle registration fees, state bond revenues, toll revenue, road user charges/mileage-based user fees or other methods. Instead of proposing punitive taxes in the range of an extra $150 or $250 a year, added to existing state annual registration fees and imposed only on electric vehicles, we should be thinking of more sustainable and equitable ways to fund state transportation infrastructure.

There are a variety of factors that state decision-makers should consider in developing new approaches. A white paper published in April 2020 by our road user charge task force sets forth a few broad principles to guide the framework: fairness, proportionality among fuels, consistency with a state’s public policy goals on air pollutants and GHGs, decarbonization, economic innovation, and ease of implementation of new funding methods. As EVs are poised to gain much greater market share in the next few years, we need to step up these high-level conversations to a more detailed discussion that results in actionable approaches by state authorities.

Equitable solutions that may meet these principles include a road user charge (RUC) system, or some type of VMT (vehicle miles traveled) method where a per-mile tax is assessed on all vehicles, tracked by their odometers, then calculated and assessed annually. As opposed to the “rough justice” imposed by an adder to a vehicle registration fee, this would be a more accurate way to calculate the real use of roads and highways by any vehicle, ICE or EV. This approach should be fully integrated and transparent, and should include privacy protections. Several states have either passed legislation or have developed programs to test RUC pilots. These include Oregon, Washington state, Colorado, California, Hawaii and Delaware, with more expected soon.

But the timetables of these pilot programs are too lengthy, and need to be accelerated. Perhaps the $125 million provided for VMT programs in the bipartisan Infrastructure Investment and Jobs Act could help leverage and kick-start some of these state efforts. We believe that federal and state governments need to collaborative on such a critical funding issue, as state-based highway infrastructure interconnects through our federal system.

If the current approach is used, supplementing registration fees with extra charges for EVs and hybrids, we should develop a more rational approach based on data, instead of choosing arbitrary amounts. One principle of a fair system is that the EV tax should not exceed the fee for a comparable ICE vehicle. But this issue of comparability is often disregarded, which means that the inherent efficiency of an electric vehicle that averages over 100 miles per gallon equivalent MPGe is not fully considered. The federal EPA, of course, publishes fuel efficiency standards for every new vehicle in miles per gallon, or MPGe for electric vehicles. As an example, a highly efficient Honda Civic gasoline car achieves about 36 mpg, meaning that in a state with a gas tax in the range of 18-21 cents per gallon and 10,000 miles travelled per year, the annual motor vehicle fuel taxes paid would be in the $75 to $85 range. This is considerably lower than some of the EV taxes being proposed in state legislatures recently in the $150 to $225 range. Such a gap does not make economic sense, and, if implemented, would likely slow down the adoption of EVs in those states.

In fact, if a state were truly serious about achieving the genuine economic and environmental benefits of zero emission vehicles, it may want to consider delaying any type of additional fees or taxes on electric vehicles until the market is more mature. This would make the vehicle registration policy consistent with many of the state policies to accelerate adoption of clean energy resources and clean transportation. To speed EV adoption, Norway adopted a series of incentives and benefits for electric vehicles over a decade ago, including a total suspension of the value-added tax on cars, which is around 20 percent. Combined with other incentives, this policy worked effectively, and recently Norway has achieved over 75 percent of new vehicle sales to be electric. Accordingly, the government has scaled back the incentives and re-imposed the VAT taxes and reduced other incentives as the market matured. State legislatures could do something similar in our nascent U.S. market, developing consistent tax and regulatory policies to help the transformation of this industry. This should help us achieve our stated goals of less smog, fewer greenhouse gases, and staying competitive with a rapidly rising China.

Let’s demonstrate our ability to collaborate at the state level, with some well targeted federal assistance, finding a fair and sustainable method to fund our transportation infrastructure. The bow wave of EVs is coming, and it is critical to collaborate and find real solutions – the good news is that we have time before potential funding gaps caused by electric vehicles become significant enough to make a difference.