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Falling gas-tax revenues prompt cash-strapped states to eye mileage fees for electric vehicles



States that saw gas-tax revenues plummet as drivers stayed home or switched to hybrid and electric vehicles increasingly are eyeing mileage fees to replenish shortfalls in road construction and maintenance funds.

Hawaii, Massachusetts, Minnesota, Tennessee, Utah, Vermont, Virginia and Washington this year considered legislation to tax electric vehicles based on the number of miles they are driven, according to the National Conference of State Legislatures.

The bills died in Hawaii, Minnesota, Tennessee and Vermont. Washington and Massachusetts are still considering mileage fees, while Utah and Virginia recently passed laws allowing them.

Utah’s law creates a penny-per-mile mileage tax starting in 2023. It will grow to 1.25 cents a mile in 2026 and 1.5 cents in 2032, adjusting for inflation beginning in 2024.

“If you drive less, you pay less,” reads a statement on the Utah Department of Transportation and Division of Motor Vehicles website. “You’ll never pay more in the program, but you may pay less.”

Virginia launched its Mileage Choice program on July 1. More than 7,000 owners of electric and gas-powered vehicles with fuel efficiencies of at least 25 miles per gallon have signed on the program, which provides a sliding fee scale tied to vehicle specifications that the state says will save money for those who drive less than 11,600 miles a year.

Meanwhile, the Congressional Budget Office projected last year that the Highway Trust Fund will fall $140 billion short by 2031 if the 18.4-cent-per-gallon federal tax remains unchanged and infrastructure spending keeps rising at projected inflation rates. The federal gas tax hasn’t increased since 1993.

Economist Warren L. Coats, a former member of the International Monetary Fund, said “the correlation between gasoline purchases and highway use is weakening.”

“Charging drivers by their miles driven, factored by the weight of their vehicle, would be the best match,” said Mr. Coats, who lives in Bethesda, Maryland. “I drive little and pay insurance based on miles driven. It’s a fair and good approach.”

Electric vehicles, or EVs, have been hailed as the future of the automotive industry, as carmakers shift from producing petroleum-powered vehicles whose emissions are blamed for contributing to climate change. EVs tend to weigh more and run more quietly than their gas-guzzling peers.

President Biden, via executive order, has called for half of all vehicles sold in the U.S. to be electric by 2030. Last year he signed a $1.2 billion infrastructure law that includes funding for EV charging stations and pilot programs to test road-use fees nationwide.

Some states’ mileage-fee pilot programs require the installation of devices that measure the number of miles driven — a complex process that necessitates new administrative structures to enforce.

Other states ask drivers to report their miles or track them via year-over-year odometer readings when they renew their registrations.

“None of the proposals so far have been efficient or effective,” said Max Pyziur, a transportation fuel research director at the nonpartisan Energy Policy Research Foundation Inc. “Every state has a different tax collection method and different standards for cars, which complicates rather than simplifies the process.”

Drivers of hybrid vehicles in the pilot programs can pay a mileage fee and have their gas taxes refunded. Drivers of all-electric vehicles can opt for mileage fees over the special registration fees that most states otherwise charge.

According to the National Conference of State Legislatures, 30 states charge annual registration fees for plug-in EVs — from $50 a year in Colorado, South Dakota and Hawaii, to $225 in Washington.

Alabama, Arkansas, Ohio and Wyoming set or increased their annual electric vehicle fee to $200 in 2019.

A bill pending in Idaho would increase the EV registration fee from $140 to $300 a year. It also would create an alternative 2.5-cents-per-mile tax that drivers could pay in lieu of the $300 registration fee.

Officials at the libertarian Reason Foundation said they support mileage fees for EVs as long as the fees replace, not supplement, gas taxes.

“We don’t think that increasing the fuel tax is a good solution because more of the burden will shift to folks with older, less fuel-efficient vehicles, generally rural folks and working-class folks in metro areas,” said Baruch Feigenbaum, Reason’s senior managing director of transportation policy.

States have been seeing budget shortfalls since COVID-19 quarantines closed businesses and sent workers home, stifling sales and income tax revenues as unemployment claims rose.

The shortfalls have outlasted pandemic restrictions as rising gas prices have prompted more drivers to stay home or buy fuel-efficient vehicles.

The West Virginia Department of Transportation predicted last year that the state’s gas tax revenues will fall between 11% and 20% by the end of the decade. The New York State Division of the Budget projects that gas tax revenue will start to fall after next fiscal year.

According to the National Association of State Budget Officers, motor fuel taxes make up nearly 40% of state transportation funding, a share expected to drop steadily over the next decade.

At a meeting of the association in June, the Washington State Transportation Commission said the state’s 49.4 cents-per-gallon gas tax would need to increase by 1.7 cents per gallon annually through 2040 to maintain current transportation revenues.

Some states are not mulling mileage fees for EVs: Iowa, Kentucky, Oklahoma and Pennsylvania have considered taxing the electricity that vehicles draw from public charging stations.

Starting next July, Iowa will impose a 2.6 cents-per-kilowatt-hour tax at charging stations. Kentucky will levy a 6-cents-per-kilowatt-hour tax beginning Jan. 6.

Bonner Cohen, a senior fellow at the conservative National Center for Public Policy Research, said taxing charging stations brings “much-needed equity to financing the nation’s transportation infrastructure.”

“Drivers of EVs have been getting a free pass because they don’t pay gas taxes,” Mr. Cohen said. “Yet because EVs are much heavier than conventionally powered vehicles, they do far more damage to roads and bridges.”

Mileage fees have faced an uphill battle in some states, with environmentalists claiming they make electric vehicles less attractive.

Last year, a bill that would have made Oregon’s pilot program mandatory stalled in the state Legislature.

The American Legislative Exchange Council, a network of conservative state lawmakers and investors, said states will find enough money for roads and bridges when they stop diverting transportation funds to other purposes.

“Before looking to raise additional revenue, states should be looking at how to provide road maintenance and construction in a way that keeps costs down,” said Jonathan Williams, the group’s chief economist.

Bob Norton, a former assistant general counselor at Chrysler LLC, said states are nowhere near finding a solution to the problem.

“We should have a more carefully thought-out energy policy and carve out the appropriate niche where electric vehicles would be necessary and appropriate, not try to adopt a one-size-fits-all approach where every vehicle has to be electric,” said Mr. Norton, a vice president at Hillsdale College.





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