In recent years, states have begun responding to the diminishing buying power of motor fuel revenue. States are concerned that in the long term, the current structure of state and federal fuel tax revenue will not be able to meet infrastructure funding needs as most gas taxes are set at fixed rates and do not rise with inflation, new vehicle fuel economy continues to increase, and the sale of electric vehicles rapidly grows. Since 2013, 33 states have taken actions to raise their fuel tax revenues. Many of the actions resulted from multi-year transportation plans and were combined with other revenue-raising actions. While motor fuel taxes have been impacted by the rise in vehicle fuel efficiency and the increase in electric vehicle sales, they currently remain the largest revenue source for transportation. According to NASBO’s State Expenditure Report, in fiscal 2022 motor fuel taxes represented 38.4 percent of transportation fund revenue, followed by license and registration fees (19.8 percent), vehicle sales and use taxes (10.4 percent), tolls (1.3 percent), and all other (30.1 percent).
Transportation projects have also been impacted by the declining purchasing power from federal fuel taxes. The federal Highway Trust Fund, which provides aid to states for various transportation purposes, receives more than 80 percent of its revenues from federal taxes on gasoline and diesel. However, federal fuel taxes have not been raised since 1992 and are not adjusted for inflation. As highlighted by the American Association of State Highway and Transportation Officials’ (AASHTO) latest report on Transportation Governance and Finance, the federal gas tax has lost roughly one-third of its value over the past thirty years. In addition, in recent years the federal government had to make a series of transfers to the Highway Trust Fund to help keep it solvent. When looking at overall state transportation spending, state governments contributed 73.3 percent of transportation funding in fiscal 2022, while federal dollars accounted for 26.7 percent, according to NASBO’s State Expenditure Report.
The decline in purchasing power from both state and federal motor fuel taxes has led states to examine alternative revenue sources for transportation. AASHTO notes there are currently approximately 100 revenue sources used for roads and bridges. The use of these revenue sources varies greatly in frequency and scope. Some revenue sources receiving increased attention in recent years includes road usage charges, vehicle fees and taxes, fees at charging stations, and tolls and express lanes.
- Road Usage Charges – Also known as vehicle-miles traveled fees or mileage-based user fees, these fees charge people based on the number of miles driven instead of how much fuel they buy. They have been used in states such as Oregon and Utah, while other states continue to look at the option.
- Vehicle Fees and Taxes – These include registration fees on passenger vehicles, vehicle title fees, and other taxes and fees. In recent years many states have created new fees for electric and hybrid vehicles. According to AASHTO, 30 states have additional fees for electric vehicles and at least 20 have fees for hybrid vehicles.
- Fees at Charging Stations – These fees vary in structure and are charged to drivers who use public electric vehicle charging stations. According to the National Conference of State Legislatures (NCSL), at least four states have implemented fees at charging stations (Iowa, Kentucky, Oklahoma, and Pennsylvania).
- Tolls and Express Lanes – At least 19 states charge tolls for the use of specific roads, according to AASHTO. Revenues from the tolls are often required to be spent on the toll facilities. States may also include express lanes on certain roads. These allow drivers the option to pay a specified fee to drive on dedicated lanes to help avoid traffic congestion.
While states continue to examine ways to supplement revenue they receive from gas taxes, transportation spending has been bolstered by both federal COVID-19 aid to states and the passage of the Infrastructure Investment and Jobs Act (IIJA). Since the pandemic began, states have received federal COVID-19 aid that has been eligible to use for certain transportation purposes, including $10 billion in emergency funding for state transportation departments from a December 2020 relief measure. In addition, states were recently granted additional flexibility to use American Rescue Plan Act (ARPA) funds for transportation infrastructure. In 2021, IIJA was signed into law. IIJA includes $550 billion in new spending over five years (fiscal year 2022 through fiscal year 2026) for roads/bridges/major projects, passenger and freight rail, public transit, broadband, airports, ports, water infrastructure, and resiliency. Although the additional federal funds are beneficial, states will need to continue examining alternative transportation funding sources to meet current and future demands for roads, bridges, public transit, and other forms of transportation.
Below are recent articles highlighting states considering changes to their transportation funding sources:
National - Paid Express Lanes Grow More Popular in Once-Reluctant South (March 4)
National - States eye new fees and tolls to replace lost gas taxes from electric vehicles (February 8)
National - As More Electric Vehicles Hit Roads, States Look to Replace the Gas Tax (February 1)
National - States Losing Gas Tax Revenue with EV Adoption (January 18)
Connecticut - Lamont defends truck mileage tax: ‘You got to pay your bills’ (March 8)
Iowa - How One State Is Rolling Out an EV Charging Tax System (February 2)
Louisiana - Louisiana faces loss in gas tax revenue as lawmakers contemplate next steps (March 7)
Massachusetts - Road pricing is back on the agenda in Mass., as Rhode Island’s toll program remains mired in legal woes (March 7)
Michigan - Report estimates up to $3.9B funding gap for Michigan roads, floats tax increase (March 7)
North Carolina - How North Carolina is planning to recoup the gas tax from electric vehicles (January 24)
Ohio - Ohio looking at options to replace gas tax (January 16)
Oklahoma – ODOT program looks to find replacement for gas tax (January 26)
Pennsylvania - Proposed EV fee falls short of solving state's infrastructure woes (March 8)
Rhode Island - Rhode Island DOT Seeks Appeal on Truck Tolling Case (February 14)
South Carolina - South Carolina weighs ‘Yankee tax’ on newcomer driving fees (February 21)
Vermont - Planned EV fees aim to replace Vt. gas tax revenue (February 8)
Washington - Democratic lawmakers steer pay-per-mile into slow lane to replace gas tax, eventually (February 22)
Wyoming - Lawmakers propose sweeping electric vehicle charging tax (January 30)