States Seek New Funding Solutions as Electric Vehicles Erode Gas Tax Revenue
By CLAIRE RUSH Associated Press March 18, 2025
PORTLAND, Ore. — The deep pothole outside Timothy Taylor’s home in Portland, Oregon, was a constant annoyance. So much so, that residents could hear the clunk of cars hitting it from inside his house.
Taylor’s experience is a relevant example. He knew the pothole and where to avoid it, but another one ended up damaging his car’s suspension to the tune of $1,000.
“Hearing that awful sound of your car bottoming out — it’s horrible,” he said.
Oregon transportation officials, like those in many states, are now wrestling with a growing problem: declining gas tax revenues. As more drivers opt for electric vehicles (EVs) and fuel-efficient cars, a major source of funding for road and bridge maintenance is dwindling, forcing states to seek alternative revenue streams.
The paradox is particularly acute in states with strong climate goals, like Oregon. EVs are seen as crucial for reducing emissions in the transportation sector — the largest source of greenhouse gases in the nation — but they also contribute to less money in 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.
Motor fuel taxes have long been the largest source of transportation revenue for states, according to the National Association of Budget Officers. However, the money generated has been falling. For example, gas taxes raised 41% of transportation revenue in fiscal year 2016, compared with roughly 36% in fiscal year 2024, the group found.
In California, where EVs accounted for about a quarter of all car sales last year, legislative analysts predict gas tax collections will decrease by $5 billion — or 64% — by 2035, assuming the state meets its climate goals. Both California and Oregon are among several states that will require all new passenger cars sold to be zero-emission vehicles by 2035.
This downward revenue trend is already playing out in Pennsylvania, which saw gas tax revenues drop an estimated $250 million last year compared with 2019, according to the state’s independent fiscal office. This is exacerbated by inflation, rising the cost of materials needed for transportation.
The Oregon Department of Transportation, citing inflation, dwindling gas tax revenues, and certain spending limitations, has estimated a budget shortfall exceeding $350 million for the next budget cycle. This could result in cuts to winter snow plowing, road striping and paving, and potential layoffs of as many as 1,000 transportation employees.
Some Republican lawmakers argue that the gas tax revenue issue has been worsened by the department’s alleged mismanagement of funds. An audit released in January found 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.
To compensate for revenue losses, 34 states have increased their gas tax since 2013, according to the National Conference of State Legislatures. California has the highest gas tax at over 69 cents a gallon when including other taxes and fees, while Alaska has the lowest at 9 cents a gallon, according to figures from the U.S. Energy Information Administration. In Oregon — which in 1919 became the first state to implement a gas tax — it is 40 cents a gallon.
The federal gas tax, set at 18 cents a gallon and not adjusted for inflation, has not been increased in over three decades.
In Oregon, where sales tax is nonexistent and tolling has faced strong opposition, lawmakers are deliberating on their next steps. Other states have implemented diverse measures, from indexing their gas tax to inflation to raising EV registration fees and taxing EV charging stations.
Michigan and Connecticut have reorganized their budgets. In Michigan, revenue from marijuana taxes and personal income taxes goes towards transportation. In Connecticut, the special transportation fund gets more revenue from sales taxes than from gas tax revenues, as a 2024 fiscal report shows.
Another possible long-term solution is a so-called road user charge. Under such a system, drivers pay a fee based on the distance they travel.
In 2023, Hawaii established a road usage charge program for EV drivers that will phase in starting this July. In 2028, all EV drivers will be automatically enrolled, with odometers read at annual vehicle inspections. Three other states — Oregon, Utah, and Virginia — have voluntary road usage fee programs. Drivers can opt to use GPS tools to track and report their mileage.
