California recently passed legislation that will allow only electric vehicles to be sold as new cars beginning 2035. While the regulation boasts many advantages to clean air and health, it also begs the question of how California will pay for its roads after 2035, and reminds Utah policymakers that a solution for transportation funding is needed.
This is a problem that has loomed large for many years. Over the last several decades, cars have become increasingly efficient in their miles-per-gallon (MPG), reducing the need for drivers to fuel up despite driving more than ever. Consequently, the gas tax has become outdated, and a decreasing revenue source. The resulting funding gap between gas tax revenue and needed transportation maintenance and construction has grown steadily on both a national and a state level which ultimately puts drivers at a disadvantage since roads cannot be adapted to accommodate rising demands, and wear and tear becomes hazardous.
Colorado’s recent idea was to impose a Retail Delivery Fee: a 27-cent fee on every delivery that includes an item which is subject to sales tax. The new, additional fee will be added to receipts and passed along to consumers, though retailers will be responsible for filing the appropriate tax return forms on a quarterly basis. The fee will apply to both in-state and out-of-state retailers. The Colorado legislature anticipates that this charge will raise more than $750 million over the next 10 years, and the revenues will be used for infrastructure, green energy, and mass transit.
Although this attempts to fix the problem of the funding gap between gas tax revenues and transportation costs, it unfairly burdens consumers who are not using the roads for their online purchases, and retailers who are already paying tax on the deliveries via the gas tax when they fuel their delivery trucks. When a delivery truck goes to a neighborhood and deposits a package at every door, each delivery is being taxed at 27 cents – a price that far exceeds the cost of use of the road.
The more equitable solution to the problem of diminishing gas tax revenues is Utah’s Road Usage Charge (RUC) program, which is currently being piloted with electric vehicle users. This program charges drivers a cents per mile amount based on how much they drive. Such a program ensures that those who drive more, pay more. Users of a service should pay for that service; consequently, road users – whether those driving trucks or those driving Teslas – should pay the appropriate amount for their use of the road.
In its current form, the RUC is a money-saving option for electric vehicle owners who drive infrequently. Rather than pay the $123 flat-fee charged to EV owners at the point of registration in lieu of a gas tax, drivers can opt into the RUC program and pay a per-mile fee. At the current rate of 1.52 cents per mile, an electric vehicle user would have to drive 8093 miles to break even. However, any miles driven over this would not be charged; the limit would be $123 for the year. Assume the typical car in Utah gets 25 miles to the gallon and drives an equal 8093 miles in a year. With the current state and federal gas tax rate of $0.5095 per gallon, they would pay about $164.94 in gas tax. This is already more than what EV owners would pay, but there is no limit to how much they might pay if they were to drive additional miles; the average annual mileage is about 13,500 which would mean a total gas tax cost of $275.13.
After more than a year of work with various groups, your Utah Taxpayers Association helped pass HB 186 (Ward-R-Bountiful) during the 2022 legislative session. This legislation will increase the annual registration charge for electric vehicles, and slightly decrease the RUC beginning January 2023. The registration charge and the Road Usage Charge will then increase on an annual basis to become a stable source of revenue and ensure that EV owners are making a fair contribution for their use of the roads. As the gas tax becomes less reliable, the RUC will hopefully become the primary source of revenue for transportation costs in the state.
The demise of the gas tax forces us to fill an almost $400 million gap in our transportation budget. However, it is important that we find a solution that puts the burden of road maintenance on those who use it. The Road Usage Charge does this while avoiding unnecessary burden on non-road users. Utah continues to lead the way in formulating good solutions in this area while California and Colorado provide the nation with examples of what not to do.