Budget Roadblocks Ahead for States as EV Adoption Accelerates

The continuing rise in electric vehicle adoption across the U.S. is presenting budget challenges for federal and state road maintenance and construction funds, as well as other possible revenue and expenditure implications.

Dr. Jay Golden, a professor and director of the Dynamic Sustainability Lab at Syracuse University, presented the results of his recently published research “The Emerging Highway and Roads Revenue Gap” at a webinar hosted the Center for Energy Policy and Management as part of its Energy Lecture Series.

States account for about four-fifths of the funding for roads, and most do so primarily through a fuel tax on gasoline. The federal government also relies on an 18.4-cent per gallon tax on fuel to fund its Highway Trust Fund and Mass Transit Account, both of which are projected to be running at a deficit that will reach $241 billion by 2033.

States, including Pennsylvania, that rely heavily on fuel tax to fund road maintenance are also seeing a decline in their fuel tax revenue as the number of EVs increases and the fuel efficiency of gas-powered vehicles increases. The number of EVs on Pennsylvania roads increased 362% between 2019 and 2023, and is expected to keep rising. At the same time, the state Department of Transportation faces a funding gap of about $9 billion for all road needs that is expected to grow to $14 billion over the next 10 years.

Pennsylvania’s legislature recently approved an EV road user fee that will require EV owners to pay $200 in 2025, rising to $250 in 2026, to help fund road maintenance. The fee replaces an alternative tax that required owners to self-report the amount of electricity they were using to charge their vehicles that was not well understood. However, it will raise just $16 million rising to $30 million, which Golden called “a drop in the bucket.”

Other states are also looking at alternatives for meeting their road budget needs, including a vehicle mileage tax based on the yearly number of miles a vehicle travels, and tolling of roads.

“There are a lot of challenges in how we rebuild the tax structure and the implementation of that,” said David Draine, an investigator for The Pew Charitable Trusts, a leading nonprofit that supported Golden’s research. “In Pennsylvania, the challenge is the scale of the problem.”

Golden also spoke about other potential consequences of EV adoption, including a loss of sales tax as EVs require less maintenance and owners don’t have to stop at convenience stores for gas, and often other items. Loss of lottery ticket sales is also a potential issue, since 70% of those occur at convenience stores. In addition, there will be increased infrastructure expenses moving forward since EVs weigh, on average, 30% more than other vehicles.

Golden said states need to begin working on these issues and addressing their funding streams. The Dynamic Sustainability Lab that he heads is also putting together a guidebook for local governments, which will also face the effects of a diminishing fuel tax stream to pay for local road repairs. To view a recording of the webinar and the PowerPoint presentations, visit https://www.wjenergy.org/programs-webinars.