State Fees on Hybrid, Electric Cars Suggest Alternative Path for Highway Funding

Posted December 15, 2014 at 2:55pm

In his Nov. 14 budget request, Mark Gottlieb, Wisconsin’s secretary of Transportation, suggested assessing a special $50 registration fee on owners of hybrid and electric vehicles “to ensure these owners continue to pay their fair share of the operating costs of our infrastructure.”

If the fee is approved, Wisconsin would become the sixth state to impose a special fee on electric and hybrid vehicle owners, ostensibly to make up for the lost revenue in gas taxes they would not be paying.

Advocates of more efficient and alternative-fuel vehicles consider that an affront to their efforts, in effect penalizing motorists for using less petroleum.

But such fees also illustrate a critical problem for those who want more money to spend building and maintaining roads and bridges: The drive for fuel efficiency and alternative fuels cuts into collection of the excise taxes on fuel that have paid for highway projects for decades.

The new fees may be the first steps toward divorcing highway spending from the gas tax. Instead, Wisconsin would join Washington, North Carolina, Colorado, Virginia and Nebraska in beginning to charge motorists directly for using the roads. Virginia originally imposed the fee on ordinary hybrid vehicles but limited it to all-electric and liquefied natural gas vehicles earlier this year.

These fees are not a cure-all, and they raise complicated questions of competing policy interests and fairness. Still, if the trend catches on in other states, it could give state and federal policymakers confidence to propose alternatives to the gas tax.

It’s a significant shift. Gas tax revenues built the Interstate Highway System but are increasingly insufficient to keep up with the country’s infrastructure needs.

Vehicle fuel efficiency is increasing, driven most recently by the Obama administration’s new rule that passenger cars increase their average fuel efficiency from around 29 miles per gallon today to 54.5 mile per gallon by 2025.

The Congressional Budget Office expects gas tax revenue to plateau at roughly $39 billion per year. Projected infrastructure costs, on the other hand, are expected to continue growing, creating a roughly $264 billion gap over the next decade. At some point in the coming years or decades, policymakers are going to have to wean highway programs off the gas tax.

“If we’re going to become more energy-efficient, which is a goal, we’re going to use less and less gas and we’re going to have to think about a different revenue source,” said Deborah Gordon, director of the energy and climate program at the Carnegie Endowment for International Peace.


The Search for Ready Money

Lawmakers in Washington and in state capitals have started looking at alternatives.

Some proposals would fund transportation projects directly from the general fund. Others would use new revenues from a tax overhaul to pay for projects. There has also been some interest in moving toward a “vehicle miles traveled” model, which would charge people for the miles they drive.

Wisconsin and the five states that already tax the most fuel-efficient vehicles are some of the first real-world experiments of a post-gas tax model. Wisconsin’s transportation budget proposal also includes a “highway use fee” based on the manufacturer’s suggested retail price for new vehicles.

Nobody should expect these fees to replace gas tax revenues anytime soon.

For now, the market for electric vehicles is tiny, though it has been growing. Nationwide, the Department of Energy estimates that fewer than 200,000 plug-in hybrids or electric cars such as the Chevrolet Volt are on the road, out of a total fleet of 227 million vehicles.

In this case, however, what’s significant isn’t just the money generated from the fees. It’s the willingness of state officials to look beyond the gas tax.

“You’re trying to get the most equitable way to say, ‘How do you cover the people who actually use our roads and bridges and highways?’” Walker said. “If there’s multiple ways that you charge up or fuel your vehicle then there should be an equitable way to say it’s a sales tax on gas or it’s a sales tax on electricity or it’s a sales tax on natural gas.”

This fee is far from a ideal solution, however. For one thing, it works against efforts to get more people to buy fuel-efficient vehicles. At least 37 states, as well as the District of Columbia and the federal government, have incentives such as parking perks and tax rebates to encourage people to buy electric vehicles. Assessing a special tax works against those incentives.

The taxes, in a way, pit two strong public policy interests against each other. On the one hand, governments are trying to improve their environmental and energy independence records. On the other, they need revenue for their infrastructure programs.

Gordon said special fees on electric vehicles work against environmental efforts and bring in so little revenue as to be inefficient.

“Imposing a fee on an electric vehicle to fill a backstop in the gas tax is not the wave of the future,” she said.

Drivers and manufacturers of electric cars oppose being singled out for special fees.

Genevieve Cullen, vice president of the Electric Drive Transportation Association, acknowledged that drivers should pay their fair share for road maintenance, regardless of what type of fuel they use. She says now is not the time, however.

“In a comprehensive fix that treats technologies equally, everyone ultimately should pay their fair share,” she said. “At this moment when [electric vehicles] are such a small part of the fleet and we are working to build out market share so that we can achieve their aid and energy security goals that we’re all striving for, it seems a premature way and potentially a shortsighted way because it could inhibit their market growth.”