As Fuel Taxes Plummet, States Weigh Charging by the Mile Instead of the Tank

by Julie Carr Smyth (Associated Press) Evan Burroughs has spent eight years touting the virtues of an Oregon pilot program charging motorists by the distance their vehicle travels rather than the gas it guzzles, yet his own mother still hasn’t bought in.

Margaret Burroughs, 85, said she has no intention of inserting a tracking device on her Nissan Murano to record the miles she drives to get groceries or attend needlepoint meetings. She figures it’s far less hassle to just pay at the pump, as Americans have done for more than a century.

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Burroughs’ reluctance exemplifies the myriad hurdles U.S. states face as they experiment with road usage charging programs aimed at one day replacing motor fuel taxes, whose purchasing power is less each year, in part due to inflation, fuel efficiency and the rise of electric cars.

The federal government is about to pilot its own such program, funded by $125 million from the infrastructure measure President Joe Biden signed in November 2021.

So far, only three states — Oregon, Utah and Virginia — are generating revenue from road usage charges, despite the looming threat of an ever-widening gap between states’ gas tax proceeds and their transportation budgets. Hawaii will soon become the fourth. Without action, the gap could reach $67 billion by 2050 due to fuel efficiency alone, Boston-based CDM Smith estimates.

Many states have implemented stopgap measures, such as imposing additional taxes or registration fees on electric vehicles and, more recently, adding per-kilowatt-hour taxes to electricity accessed at public charging stations.

Last year, Colorado began adding a 27-cent tax to home deliveries from Amazon and other online retailers to help fund transportation projects. Some states also are testing electronic tolling systems.

But road usage charges — also known as mileage-based user fees, distance-based fees or vehicle-miles-traveled taxes — are attracting the bulk of the academic attention, research dollars and legislative activity.

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Patricia Hendren, executive director of the Eastern Transportation Coalition, said figuring out how to account for multistate trips is particularly important in the eastern U.S. READ MORE

Excerpt from NACS: In response to record high gas prices, the Governor of California, Gavin Newsom, signed a law (SBX1-2) into effect that his office describes as an effort to “combat price gouging at the pump.”

Californians paid an average of $6.294 per gallon in June of 2022, with gas prices routinely topping $5.

California aims to reduce the demand for gasoline by 94% by 2045; the state has the second-highest gas tax in the country (54 cents per gallon) and requires oil companies to sell a special blend of gasoline to the state’s residents.

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Dissenters of the bill argue that the new law will encourage lower gasoline supply and thus drive prices higher. “At the end of the day, this proposal does not solve Californians’ gasoline supply problem and will likely lead to the very same unintended consequences legislators have reiterated to the Governor: less investment, less supply, and higher costs for Californians,” Kevin Slagle, spokesperson for the Western States Petroleum Association, when the bill was proposed. READ MORE

Excerpt from Sacramento Bee: To close the gap on future revenue declines, the report outlined several possible options: raise existing fuel taxes and vehicle registration fees, use other general funds and reducing spending, or create new revenue by charging drivers based on mileage.

The lion’s share of this year’s $14.2 billion in state transportation funding comes from state fuel taxes, including the .57 cents that California drivers pay per gallon of gasoline. Much of it goes to road repairs, highway maintenance and public transit at the Department of Transportation. The report tracked the impacts of climate policies on state transportation funding by calculating revenue losses based on the Air Resources Board 2022 scoping plan, which set a sweeping policy framework to achieve decarbonization across polluting sectors. Transportation experts and analysts have studied gas tax revenue declines as a drawback to EV adoption for years, but it’s still largely unclear when and how quickly the state will lose transportation funding.

Among the potential remedies for the future shortfall, fuel tax increases and creating a per-mile cost to drivers would burden low-income Californians the most, because they’re less able to afford an electric vehicle and more likely to have longer commutes amid high housing costs. “I don’t think that anybody realistically thinks that that [fuel tax increases] will happen or should happen,” Weinstein Agrawal added. “It just seems unfair and politically highly unlikely to go anywhere.” READ MORE

Excerpt from Livingston Parish News/The Center Square: A new report highlights Louisiana's declining gas tax revenues amid a government-motivated transition to electric vehicles and offers solutions to replace the funding.

A report issued last week by the Reason Foundation, a free market think tank, examined the impact on Louisiana's gas tax revenues based on different scenarios of electric vehicle adoption in the coming years.

Collections from Louisiana's 20 cent per gallon gas tax, the primary funding source for road and bridge work, increased from $590 million in fiscal year 2014 to $636.4 million in fiscal year 2019, before declining by 8% to $585 million amid the pandemic in 2020. By fiscal year 2022, revenues had rebounded to $622.4 million, but researchers expect increased fuel efficiency standards and electric vehicle sales to put collections on a downward trajectory over the coming decades.

"Under the worst case, in which a high-level shift to electric vehicles is assumed, potential fuel tax revenue in Louisiana would be reduced by almost 40% by 2040 and almost 49% by 2050," according to the report. "With a mid-level electric vehicle shift, Louisiana could anticipate a decline in fuel tax revenue to about $500 million by 2040 and slightly less per year through 2050."

The "most reasonable" mid-level scenario translates to a loss of $250 million by 2040 and over $325 million by 2050, assuming just under 40% of vehicles would be EVs by that time.

"After 100 years, per-gallon gas taxes are running out of steam," Robert Poole, director of transportation policy at Reason Foundation and author of the study, said in a statement. "As fuel tax revenue continues to decline, Louisiana should expect to phase out the gas tax altogether and replace it with per-mile charges." READ MORE