States Face Funding Challenges as Electric Vehicles Replace Gas-Powered Cars
PORTLAND, Ore. — Timothy Taylor, a Portland resident, knows the frustration of a damaged car suspension all too well. A pothole outside his home was so deep that it caused his car to bottom out, costing him $1,000 in repairs. “Hearing that awful sound of your car bottoming out — it’s horrible,” he said.
Oregon transportation officials are grappling with the reality that revenue from gas taxes, a primary source of funding for road maintenance and infrastructure, is projected to decline as more drivers switch to electric vehicles (EVs) and fuel-efficient cars. This situation presents a conundrum for states that are actively pursuing aggressive climate goals, as EVs help reduce emissions but also erode a key funding source.
“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 constitute 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 proportion of transportation revenue derived from gas taxes has decreased. Gas taxes accounted for 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 represented approximately a quarter of all car sales last year, legislative analysts anticipate a $5 billion (or 64%) decrease in gas tax collections by 2035, provided the state meets its climate objectives. California and Oregon are among several states mandating that all new passenger cars sold be zero-emission vehicles by 2035. The downward revenue trend is already apparent in Pennsylvania, where gas tax revenues decreased by an estimated $250 million last year compared to 2019, according to the state’s independent fiscal office. Inflation has also escalated the cost of transportation materials, exacerbating budget concerns.
The Oregon Department of Transportation has projected a shortfall exceeding $350 million for the coming budget cycle. This estimate is based on a variety of factors, including inflation, expected declines in gas tax revenue, and specific spending restrictions. This could lead to cuts in critical services, such as winter snow plowing and road maintenance, and potential layoffs of up to 1,000 transportation employees.
Republican lawmakers have raised concerns about the agency’s management of funds, citing an audit released in January that revealed an overestimation of revenue by over $1 billion for the current budget cycle. The audit also found that the department failed to adequately 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 counteract the loss of revenue, 34 states have increased their gas tax since 2013, according to the National Conference of State Legislatures. California’s gas tax is the highest, exceeding 69 cents per gallon when including other taxes and fees. Alaska has the lowest at 9 cents per gallon, according to 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 of 18 cents a gallon, which is not adjusted for inflation, has not been increased in over three decades.
In Oregon, where there is no sales tax and tolling has faced strong opposition, lawmakers are deliberating on the optimal course of action. The state has already increased registration fees for EVs.
Other approaches being considered by states include indexing gas taxes to inflation, raising EV registration fees, and taxing EV charging stations. Some states are reorganizing their budgets to bolster transportation funding. Michigan, for example, now allocates revenue from marijuana and personal income taxes toward transportation. In Connecticut, the sales tax generates more revenue for its special transportation fund than gas tax revenue, as shown in a 2024 fiscal report.
Road user charges, a concept that could provide a long-term solution, are being explored. Under such a system, drivers pay fees based on the distance they travel.
In 2023, Hawaii launched a road usage charge program for EV drivers, which will be phased in beginning this July. All EV drivers will be automatically enrolled in 2028, with odometers read at annual vehicle inspections. Three other states – Oregon, Utah, and Virginia – have voluntary road usage fee programs.
