Electric Cars And Fuel Sippers Spell Doom For State Gas Tax
As roads and bridges in Illinois crumble, so too does the primary source of revenue the state relies on to fix them—the gas tax.
Illinois adds 19-cents to the pump price of each gallon of gas to underwrite road work, a fee that hasn’t changed in 27 years even though inflation has cut the purchasing power by half. And with cars getting ever better gas mileage, the so-called Motor Fuel Tax reaps less today to fund repairs than it did a decade ago: $1.38 billion in 2007, last year $1.28 billion, state data shows.
Experts warn that the same march of technology that has helped lay waste to manufacturing, in-store retailers, print-on-paper newspapers and other businesses, will soon exact a similar toll on the revenue-generating power of the gas tax. That will set Illinois, other states and the federal government, which levies a similar tax for road work, scrambling for alternatives.
The ultimate disrupter could be the electric car, which Ford, General Motors, Volvo and Tesla have all committed to making in a big way. Though it won’t happen overnight, the equation eventually becomes simple: the fewer internal combustion engines powering the vehicles of tomorrow, the less gas tax collected.
“It’s completely unsustainable and it’s really a crisis right now,” said Audrey Wennink, director of transportation for the Metropolitan Planning Council. “You can boost or change the structure of the gas tax, as some states have done, but in the long term it isn’t going to work. You have to find another way.”
She gives the tax five more years before the bottom drops out.
Wennink’s group last year proposed a 10-year, $43 billion transportation plan for the state that included a 30-cent leap in the gas tax. To no one’s surprise, the idea was a non-starter in a political climate where tax hikes are a hard and sometimes toxic sell.
Recent talk in Springfield about a new infrastructure development program prompted the reelection-seeking Gov. Bruce Rauner to say he would not support a higher gas tax, which was last raised in 1990. Only three states – Mississippi, Oklahoma and Alaska – have gone longer without boosting their gas taxes.
In Washington, discussions over a $1 trillion infrastructure plan have generated talk of raising the federal gas tax of 18.4-cents a gallon, according to Bloomberg News. The federal tax has stayed the same since 1993, and there are few signs of support from the Republican-controlled Congress, where most members have signed a pledge not to raise taxes of any kind.
Illinois is in many ways an outlier when it comes to pinching transportation related revenue sources.
Transportation for America, a nonprofit advocacy group, says 31 states have hiked transportation revenue since 2012, with 20 of them bumping up charges for their gas tax. In 2016, New Jersey raised its per-gallon charge from 14.5 cents-a-gallon to 37.5 cents, a whopping 23-cent increase.
But transportation analysts characterize that spate of state gas tax hikes as a stopgap, a last gasp effort to temporarily finance road and bridge repairs until a more reliable replacement funding source can be put into place.
“There’s a strong argument that says we need to boost or change the structure of the gas tax, to index it, which some states have done. But in the long term it isn’t going to work. You have to have another way,” said Joseph Schofer, a professor of civil and environmental engineering at Northwestern University.
That other way could be a tax based on mileage, not all that different from the way drivers who lease cars get charged if they exceed a predetermined allotment of miles. Oregon began experimenting with such a system more than two years ago.
The vehicles of some 5,000 Oregon volunteers have been equipped with an electronic monitor used to levy fees of 1.5 cents for every mile driven. For now, participants still must pay gas taxes of 30-cents a gallon when they fill up, but then get reimbursed by the state.
The Oregon state transportation department says the average low-efficiency vehicle currently pays $30 a month in state gas taxes, while an average efficiency vehicle pays $15, and a high-efficiency gas powered car pays $8.57.
The mileage system, extended statewide, is intended to be more equitable, while adding a projected $340 million additional dollars to the Oregon highway fund over a 10-year period, the department said.
There have been “large differences in impact,” according to a 2016 report from Oregon State University, depending on geography and the types of cars driven. One surprise points to a possible disincentive to buy and drive fuel efficient cars.
From its inception, concerns about the mileage program focused on the possible impact on rural areas where motorists tend to drive longer distances. But early results show that rural drivers with low fuel efficiency vehicles could end up paying the same or less under the new system than with the gas tax.
At the same time, the benefit currently enjoyed by drivers of fuel-efficient cars, who fill up less often, could be lost as the mileage charge would increase overall driving costs.
That is one reason why the Oregon plan, known as OReGO, is controversial. While the concept has been studied since the early 2000’s, it lacked enough political support to make it part of the state’s recently approved transportation funding program.
In July, Oregon state lawmakers approved a 10-year, $5.3 billion transportation plan that includes a gradual, 10-cent boost in the gas tax; a new vehicle sales tax and higher vehicle registration fees; an additional fee on high-mileage vehicles; and a 1/10th of a percent payroll tax dedicated to public transit.
Schofer said recent public votes on transportation funding plans, such as in Los Angeles and Atlanta, show that voters will support higher taxes and fees for specific programs that are well-explained.
But replacing a nearly century old taxing mechanism that would directly affect a broad cross section of voters in an entire state is another matter. As unpopular as the one-size-fits-all gas tax is with some drivers, the alternatives can be financially, economically and politically problematic.
Toll roads wouldn’t affect all drivers in a state. Hiking registration fees wouldn’t account for the wear and tear different vehicles impose on highways. And a miles-driven system as in Oregon can lead to its own counterintuitive impact on fuel efficiency.
“There’s pushback to the mileage-based plan, and it comes from politicians who are very much focused on the next election and fearful of that,” Schofer said. “They’re saying “no, I don’t want to raise the gas tax and I can’t give you an answer on how the hell you’re going to pay for (road upkeep.). So there’s a mismatch.”
“Eventually, the motor fuel tax is going to be irrelevant,” he added.