PORTLAND, Ore. (AP) — Timothy Taylor, a Portland, Oregon, resident, knew the pothole outside his home well. He could hear the telltale clunk of cars hitting it from inside. Unfortunately, he also knew the pain of road damage. He had to avoid his own neighborhood pothole, but another one damaged his car’s suspension, costing him $1,000.
“Hearing that awful sound of your car bottoming out — it’s horrible,” Taylor said.
Oregon transportation officials are warning that residents like Taylor could face further declines in road, highway, and bridge quality this year unless they secure more funding. The problem? Revenue from gas taxes is projected to fall as more people switch to electric and fuel-efficient cars. This forces officials to find new ways to finance transportation infrastructure.
States with ambitious climate goals, like Oregon, face a dilemma. Electric vehicles (EVs) can help reduce transportation sector emissions — the nation’s largest source of greenhouse gases — but also mean less gas tax revenue for government coffers.
“We now find ourselves right now in a position where we want to address fuel use and drive down reliance on gases and internal combustion engines. But we need the funds to operate our roads that EVs need to use as well,” said Carra Sahler, director of the Green Energy Institute at Lewis & Clark Law School.
Gas Tax Revenue Set to Fall
Motor fuel taxes are the largest source of transportation revenue for states, according to the National Association of State Budget Officers’ most recent report on state expenditures. However, the money they bring in has been declining. Gas taxes raised 41% of transportation revenue in fiscal year 2016, but only about 36% in fiscal year 2024, the group found.
In California, where zero-emission vehicles accounted for about a quarter of car sales last year, legislative analysts predict that gas tax collections will drop by $5 billion — or 64% — by 2035, if the state meets its climate goals.
California and Oregon are among several states that will require all new passenger cars sold to be zero-emission vehicles by 2035. The downward revenue trend is already playing out in Pennsylvania, where gas tax revenues fell an estimated $250 million last year compared with 2019, according to the state’s independent fiscal office.
Inflation has also increased the cost of transportation materials, adding to budget concerns.
What’s Happening in Oregon?
The Oregon Department of Transportation (ODOT), citing inflation, declining gas tax revenue projections, and certain spending limitations, has estimated a shortfall exceeding $350 million for the upcoming budget cycle. This could mean cuts to winter snow plowing, road striping and paving, and potential layoffs of up to 1,000 transportation employees.
Republican lawmakers argue that the ODOT’s management of its finances has compounded the gas tax revenue issue. An audit released in January revealed that the department overestimated its revenue for the current budget cycle by over $1 billion and failed to properly track certain funds.
“It really is about making sure that the existing dollars that are being spent by the department are being spent efficiently and effectively,” said state Sen. Bruce Starr, GOP co-vice chair of the joint transportation committee.
How States are Boosting Transportation Funding
To offset lost revenue, 34 states have raised their gas taxes since 2013, according to the National Conference of State Legislatures. California has the highest gas tax, at over 69 cents a gallon including other taxes and fees, while Alaska has the lowest, at 9 cents a gallon, according to data from the U.S. Energy Information Administration.
Oregon—which in 1919 became the first state to implement a gas tax—currently has a gas tax rate of 40 cents a gallon. The federal gas tax of 18 cents a gallon, which isn’t adjusted for inflation, hasn’t been raised in over three decades.
In Oregon, where there is no sales tax and tolling has faced strong opposition, lawmakers are considering next steps.
Oregon is among the states that have already increased registration fees for EVs. Other states have chosen to index their gas taxes to inflation, raise registration fees for EVs, and tax EV charging stations.
Some states have reorganized their budgets to bolster transportation funding. In Michigan, where Governor Gretchen Whitmer was first elected using the slogan of “Fix the Damn Roads,” some revenue from marijuana taxes and personal income taxes now goes toward transportation.
In Connecticut, sales tax revenue now contributes more to the special transportation fund than gas tax revenue, a 2024 fiscal report shows.
Another long-term solution involves road user charges. Under this system, drivers pay a fee based on the distance they travel.
In 2023, Hawaii established a road usage charge program for EV drivers that is phasing in, which started this July. By 2028, all EV drivers will be automatically enrolled, with odometers read at annual vehicle inspections. Three other states—Oregon, Utah, and Virginia—offer voluntary road usage fee programs. Drivers can opt to use GPS tools to track and report their mileage.
