States Consider New Ways to Fund Roads as Nation Shifts Toward EVs

Transportation electrification has gained significant momentum in recent years, with policymakers playing a pivotal role in state efforts to transform the transportation sector. In addition to cutting emissions, electric vehicles can also be cheaper to maintain because electric motors require no routine maintenance, unlike gasoline motors.

President Joe Biden signed an executive order calling for half of the vehicles sold in the United States to be electric by 2030. Automakers have also announced aggressive EV mandates, including Volkswagen and General Motors, which will stop selling internal-combustion-engine vehicles by 2035.

State and local governments rely on fuel tax revenue to fund road preservation and improvement projects. But fuel tax revenue has been dropping in recent years because drivers of vehicles with better fuel efficiency pay less per-gallon gas and diesel taxes. The growth in sales of electric and hybrid vehicles has accelerated the trend.

Cars and trucks are using less gas or running on electricity, shrinking funds for roads and bridges. But electric vehicles still contribute to road wear and tear, so states and local governments need money to maintain them.

State policymakers are considering other ways to pay for the nation’s transportation infrastructure. One growing policy trend is applying a separate registration fee for hybrid or electric vehicles.

According to the National Conference of State Legislatures (NCSL):

While most states offer some sort of incentive to support EV adoption, 28 states—including many of those that offer EV incentives – have laws requiring a special registration fee for BEVs and 14 states impose a fee specifically on PHEVs that operate on a combination of electricity and gasoline. The fees range from $50 each year in Colorado and Hawaii to $212.78 for a plug-in electric vehicle in Georgia.

However, special registration fees are not the only mechanism to lower gas tax revenue and promote equity among drivers. After exploring several options, such as a tire tax, a battery tax, and expanding other user fees like gas taxes and registration fees, Oregon settled on a per-mile charge as the fairest and most accurate way to pay for state roads and bridges.

Since 2015, Oregon has offered drivers the option of paying a per-mile charge called a road usage charge instead of a gas tax. Participants receive a device that plugs into their car and tracks how far they drive. Then they pay 1.9 cents per mile and receive a credit for any gas tax they’ve paid.

Several states have enacted studies or pilot programs examining the feasibility of road user charges. But opponents have voiced several concerns with the concept of an RUC system, from privacy issues to the share of costs rural drivers would pay.

At least four states — Iowa, Kentucky, Oklahoma, and Pennsylvania — are trying to recoup lost fuel tax revenue by taxing the electricity used at public charging stations. One drawback to this approach is EV drivers mostly charge their vehicles at home and thus would not be subject to the tax.

While Maryland has not adopted laws to address the increasing popularity of EVs’ impact on shrinking revenue from gas taxes, the Old Line State does offer several EV incentives, including a one-time excise tax credit of up to $3,000 for purchasing a qualifying zero-emission plug-in or fuel cell electric vehicle. In addition, drivers of plug-in electric vehicles titled and registered in Maryland can use state HOV lanes regardless of the number of passengers, providing they obtain and display an HOV permit on the vehicle.

Stay tuned to Conduit Street for more information.