Transitioning to electric vehicles will exacerbate declines in fuel tax revenue and boost demand for infrastructure funds, according to Syracuse University’s Dynamic Sustainability Lab, which urges states to plan for future transportation budget shortfalls.
The report indicates that EV adoption rates vary by state (generally higher on the East and West coasts), but an eventual nationwide EV transition is “inevitable.” States need to prepare for the budgetary challenges this change will bring because the fuel tax revenues that have traditionally funded transportation needs will decline as additional EVs and more fuel-efficient gas-powered and hybrid vehicles are placed on the road.
The Syracuse study, with support from the Pew Charitable Trusts, examined the percentage of EVs in new car registrations in all 50 states as of the third quarter of 2023. New Jersey (13.24%) had the sixth highest share, behind Colorado (14.07%), Oregon (15.15%), Washington State (18.6%), and California (25.98%). Among all states, the national average for the EV share of new vehicle registrations was 9.28%.
Revenue from state and local motor fuel tax revenue exceeded $53 billion nationwide in 2021. However, as gas tax revenues decline in the future from increased EV usage, infrastructure costs will rise. EVs weigh about 30% more than gas-powered vehicles, which increases maintenance costs for roads, highways, and bridges, according to the report.
Additionally, states will need to install and maintain EV charging stations, upgrade utilities to support charging infrastructure, develop new revenue streams to offset fuel tax revenue losses, and deal with potentially abandoned underground storage tanks after gas stations close.
To determine how the decline in fuel taxes would impact state budgets, the study examined what percentage of a state’s tax collections came from fuel taxes.
New Jersey may be better positioned than most states; motor fuel taxes represented only 0.88% of all tax revenues collected in New Jersey in 2021, tied with Hawaii for the lowest percentage of tax collections derived from fuel taxes.
In California, where there is a high percentage of new EV registrations, motor fuel taxes represent 3.3% of all tax revenue collected. The states whose budgets are most reliant on gas tax revenues are South Dakota (8.83%), Ohio (7.23%), and Montana (7.07%).
Because decreasing fuel tax revenues and increasing expenditures will create a budget gap, the Sustainability Lab recommends that states model their transportation budget shortfalls to see how different EV adoption rates would reduce fuel tax revenues and increase expenditures. Currently, only four states – California, Michigan, Rhode Island, and New York – are modeling this budgetary impact.
Revenue-raising options states have adopted or are considering include:
- Road User Charges (RUCs): Vehicle owners are charged based on miles traveled per year.
- Annual EV Registration Fee: An additional fee on top of annual registration fees.
- Fuel Tax Increase: Places a greater financial burden on drivers of internal combustion engine cars.
- Electricity Sales Tax: Paid by users of EV charging units based on electricity used.
- Expansion of Road Tolls: Expanding toll roads using available technology but facing potential public pushback.
The Emerging Highway and Roads Revenue Gap white paper can be read at the Dynamic Sustainability Lab’s website. Information and interactive graphics about these findings can also be found on Pew Charitable Trusts' website.
