Fuel efficiency is a two-way street: It reduces fuel consumption—but it also reduces gas tax revenue that states rely on to fund transportation infrastructure.
“We have a problem where we’ve got new technologies coming on board that we really don’t know how to tax,” Kansas Rep. Shannon Francis told a session on the issue at NCSL’s 2024 Legislative Summit. “We have per hour charging taxes. We’ve got road usage charges. Some of us have looked at our annual vehicle registration, vehicle weight fees and again road usage charges. There’s not a one-size-fits-all solution.”
Contrary to what some think, electric vehicles aren’t the main reason for the loss of gas tax revenue, says Baruch Feigenbaum, senior managing director of transportation policy at the Reason Foundation, a libertarian think tank.
“While electric vehicles and hybrids are a growing part of the problem, and we talk about them a lot and we need to solve them, the biggest problem is your traditional internal combustion engine, your Toyota Camry that gets five more gallons per mile than it did 20 years ago,” he says.
Fuel sales have increased slightly in states with the 10 fastest rates of growth and have decreased in states with slow or no growth, he says. The situation is exacerbated by the fact that construction inflation is stretching gas tax dollars.
“So, if you are building a road, if you are building a rail line, if you are building anything in construction, the amount of revenue that you have doesn’t go as far as it used to. I know we’re all experiencing inflation, but in the construction industry it’s been about twice as bad as average since COVID,” Feigenbaum says.
User-Pays Model
Some states have turned to road-usage charging, also called miles-based or distance-based user fees: a roadway tax that uses miles traveled as the measure of consumption instead of the amount of fuel that one uses.
“States are coalescing around road-usage charging because it does three things,” says Andrew McLean, transportation specialist at the engineering and construction company CDM Smith. “It returns to the user-pays model where you pay for the miles that you drive. It’s more equitable for everyone, and it provides sustainable funding like the fuel tax used to. The measure of consumption is no longer fuel, but instead the miles one drives. So even if the energy sources change from electricity to hydrogen, for example, the measure around which the system is based will always work—that is, until we start using flying cars.”
McLean says the fuel tax penalizes people who drive larger or older cars, who tend to have lower incomes or live in rural areas. But with a road-usage charging system, “You pay for what you use, like folks used to 40 or 50 years ago when most of the cars got relatively similar miles per gallon. So the current funding system is inequitable and that disparity is growing every year with increasing fuel efficiency and more hybrid and electric vehicles on the road.”
Taking a Toll
States focusing on relieving traffic congestion discovered that “managed lanes”—where use is restricted or variable tolls apply—can also produce significant revenue, says Chris Tomlinson, managing director at Deloitte Consulting.
“There are people who will use these and pay to use them even if there isn’t a traffic congestion problem because they feel safer in the lane and (value the) improved customer experience,” he says. “Most of these lanes are generating enough revenue to not only cover their costs but to generate additional revenue.”
Tomlinson says unlike with the gas tax, collecting road tolls can be a problem. “You need to accept that there’ll be some things that can’t be collected. If you’re using a license plate and there’s a big trailer hitch blocking it, I don’t care how good your equipment is, you can’t identify the person to collect that fee from.”
Regional passes are starting to catch on, Tomlinson says. “That means you have an additional chance to collect that revenue, especially for people who are outside your state. They’re putting wear and tear on your roadway, but they’re not helping pay for it. This is going to make it easier for you to collect from them.”
He says when it comes to equity, the users of pay lanes aren’t necessarily rich. “We’ve had customers in Georgia, so it’s anecdotal, who’ve said, ‘Hey, having access to that lane has allowed me to get to my kid’s soccer game on time. It is cheaper than the dollar per minute that my day care charges if I’m late.’”
Some states are experimenting with equity programs that give discounts based on income, but that can be a slippery slope, Tomlinson says.
“If you were charging to try to make the lane move and you make it cheaper, you may find that your original intent of (relieving) congestion is compromised.”
Lisa Ryckman is NCSL’s associate director of communications.