March 19, 2019

Future of the gas tax? Running on empty.

HBJ File Photo
HBJ File Photo

The gas tax is at the core of the argument about whether to bring tolls back to Connecticut highways. But this story is not about tolls – it's about the tax, its nexus with climate change, and what that means for the state.

At least one part of the story is fairly straightforward.

Because of climate change, experts predict, the gas tax will eventually disappear. That's it. Connecticut, just about every other state in the nation, and most countries are realizing that a major way to reduce greenhouse gas emissions, which are the chief cause of climate change, is by switching to electric vehicles.

This is great for the environment, but not so great for the transportation fund, which is how every state — including Connecticut — uses its gas tax. Electric vehicles, also known as EVs, don't use gas.

No gas tax = no revenue.

It's a policy conflict, admits Tom Maziarz, chief of policy and planning at the Connecticut Department of Transportation.

"That does create this tension in policies where you want to build and improve the transportation system but what we're doing in terms of climate policy is working against that," Maziarz said.

Let's be clear – no one believes EVs will take over tomorrow, but just about everyone thinks it will happen.

Bloomberg's 2018 outlook "shows sales of electric vehicles increasing from a record 1.1 million worldwide in 2017 to 11 million in 2025, then surging to 30 million in 2030." It predicts that in 2040, 55 percent of new car sales and 33 percent of the overall fleet will be electric.

In the U.S., about half the states are beginning to deal with that transformation by exploring, if not already adopting, policies to deal with an EV-perpetuated gas tax crisis. That's because they're all similar to Connecticut – running out of transportation funding in part because gas tax revenue is decreasing, due both to increased sales of fuel-efficient and hybrid vehicles, and because tax revenues don't buy as much as they did in the past because the tax isn't indexed to inflation.

But Connecticut has not begun planning. In fact, the state arguably has boxed itself into a corner with policies that are prohibiting it from exploring some of the solutions other states are already experimenting with.

"That does create this tension in policies where you want to build and improve the transportation system but what we're doing in terms of climate policy is working against that."

Those solutions broadly aim at getting EV owners to pay into the transportation system they use – roads, bridges, things like that – but are not helping to fund to the same extent as drivers of non-electric vehicles. Annual fees on EVs are already collected in about 20 states and the idea of a road usage charge in the form of a mileage-based fee is being widely tested.

While these fees have been discussed in environmental circles, they are not part of the overall debate about Connecticut's transportation fund even though there was some acknowledgment of the problem by the Governor's Council on Climate Change.

The Council did not include the issue in its final report late last year recommending an interim greenhouse gas emission level of 45 percent below 2001 levels by 2030, and the longer-standing target of an 80 percent reduction by 2050.

But a separate document called "The Economic and Fiscal Impacts of Connecticut's Greenhouse Gas Reduction Strategies" filed on the Council's web page, did explore the problem in detail.

It featured a chart showing a drastic discrepancy between required transportation funds and fuel tax revenue projections out to 2030, along with this: "We do not include in the economic model the gas tax revenue shortfall relative to the CONNDOT (Connecticut Department of Transportation) required revenue as a decline in state and local government spending because we assume there will be an offsetting revenue-generating policy."

"That initial link, just to what's happening to the gasoline tax, I think is recognized but probably not fully appreciated," Maziarz said.

Maybe not in Connecticut, but plenty of other states appreciate it.

Other states and actions

Annual fees on EVs are the only widespread policy in the U.S. designed to make up some of the lost gas tax. They're easy to implement, though some states have rejected the idea.

Connecticut hasn't considered it – which is fine with the environmental community. Its broad view is that a fee would stop too many people from buying EVs. Groups, including Connecticut Fund for the Environment, argue that fees would be premature and the policy focus should stay with the immediate and more urgent challenge of cleaning up transportation emissions since they are the largest sector of greenhouse gas emissions in the state.

Connecticut is also part of a Zero Emissions Vehicle mandate with California and other states. As part of the mandate, Connecticut would have 500,000 ZEVs on the road by 2030, about 17 percent of registered vehicles.

Concerns about the state's ability to achieve that if an EV fee existed may be well-founded.

"We will need to figure out some way for EV drivers to pay their fair share. We've got to be open to the evolving market and not take options off the table."

A study conducted through the University of California at Davis's Institute of Transportation Studies to assess alternatives to a $100 EV fee approved by that state legislature in 2017 found that as many as 20 percent of respondents said they would have reconsidered their EV purchase had they known about the fee.

More important, however, according to author Alan Jenn, the research director at Plug-In Hybrid and Electric Vehicle Center, fees alone are "not a very good replacement" for gas tax revenue. In California, Jenn found that the fee would only bring in about half the revenue that the vehicle would have contributed had it's owner been paying a gas tax.

Jenn threw cold water on several other alternatives, including the idea of a surcharge on the electricity used to charge an EV, something advocated by Acadia Center in Connecticut.

"Its going to be the easiest option for consumers to understand because they've been paying taxes in that way as long vehicles have had a gas tax," said Emily Lewis O'Brien, a senior policy analyst at Acadia.

But Jenn's study showed that would require expensive separate meters for every vehicle. "Implementation-wise, it is almost entirely a non-starter," he said.

The Connecticut DOT has been pushing for congestion pricing as part of its tolls package. Jenn said that this has been discussed, but never tried, in the U.S., despite being effective in other parts of the world as a way to reduce traffic.

"It's not designed … for raising lots revenue," he said. "It's specifically meant to reduce traffic."

So what does Jenn's study actually recommend? A road usage charge (RUC) – but with a caveat.

RUCs east and west

RUCs are being piloted in about half the country and are operational in one state – Oregon. They charge a per-mile fee on vehicles, which gas-powered car owners pay instead of a gas tax.

But there is a host of growing pains. Drivers of old gas-guzzlers will save money paying per mile instead of per gallon, for one thing, and EV owners could have to pay just the same as anyone else.

RUC systems tested so far require drivers of gas cars to pay taxes at the pump and then get reimbursed for the state portion. Federal gas tax would still be required. That would require a clunky and expensive administrative system.

Mileage monitoring for EVs and other new cars would be easy using on-board diagnostics that most now include. Older cars would have to use GPS or cellphones – both of which come with privacy concerns.

"It's sort of a blunt instrument," said Acadia's Lewis O'Brien. "If you apply it to all vehicles it would be fuel neutral – but it doesn't take into account environmental contributions."

Oregon, which instituted the nation's first fuel tax in 1919, now has the nation's first RUC, launched in 2015. But they started looking into it in 2001.

It's voluntary, and capped at 5,000 cars. EV users can choose to pay the state's annual $110 fee or the per-mile RUC of 1.7 cents.

Washington state, which has raised its gas tax three times since 2003, began looking into a RUC in 2007 and has just completed a one-year pilot with 200 drivers and a per-mile 2.4-cent fee. A report with results and recommendations is due next year.

In the meantime, the state has a $150 annual EV fee, but that money goes into a fund for EV infrastructure development.

"[Connecticut officials] have made it clear they don't want to participate in exploratory research. It's unfortunate."

Reema Griffith, executive director of the Washington State Transportation Commission conceded that startup costs are steep but "at the end of the day a road charge way out performs a gas tax."

Jenn at UC Davis has heard and studied all of it. His report recommends that California adopt – or at least test – an EV-only RUC. It avoids all the extra administrative work and the problems with older cars, while finding a way for EVs to contribute financially to the transportation fund.

So far, Connecticut is having none of it.

The state is a member of the I-95 Corridor Coalition, which a few years ago began looking at the idea of a user fee. It won a federal grant requiring a 50-50 match to run demonstration projects.

Connecticut not only said no, it passed a law in 2017 that prohibited the use of state money for any kind of mileage fee study.

"They have made it clear they don't want to participate in exploratory research," said Patricia Hendren, executive director of the coalition. "It's unfortunate."

So the state missed out on a pilot last summer that included 13 states, a multi-state freight pilot that is just ending with 57 trucks that traveled through 27 states, and a 1,000-person pilot planned for this spring.

Rep. Roland Lemar, D-New Haven, co-chair of the Transportation Committee, said he had no plans to overturn the user fee ban, even though he voted against it two years ago.

"We will need to figure out some way for EV drivers to pay their fair share," he said. "We've got to be open to the evolving market and not take options off the table."

Rep. Laura Devlin, R-Fairfield, the ranking Republican on the committee, was unaware of the actions in other states. "We really need a comprehensive plan," she said. "For EVs – what are our alternatives? That discussion needs to happen."

Some believe it essentially is happening – through the Transportation Climate Initiative (TCI).

Waiting for a rescue

TCI is envisioned as a multi-state cap and invest program for the motor vehicle sector that would be modeled on the Regional Greenhouse Gas Initiative – a cap and invest program for the power sector designed to lower greenhouse gas emissions and generate revenue. RGGI has done both.

But an earthbound power plant is a whole lot easier to monitor and measure than millions of moving cars and trucks that cut across all socio-economic levels, move across state lines, and involve many other variables.

So far TCI encompasses all the RGGI states plus a few more. It's been worked on for nearly 10 years. Late last year participants decided they were ready to move to the next phase – actually developing a program. While they pledged to have a plan by the end of this year, RGGI took four years to develop from the time states signed their memorandum of understanding.

In the meantime, the message coming to Connecticut from states that are already wrestling with gas tax decreases is to think holistically and long-term.

"The biggest challenge is public opinion," said Michelle Godfrey, a spokesperson for the Oregon Department of Transportation.

The key, said Washington's Griffith, is starting a conversation with the public to explain how infrastructure is financed and why that's not sustainable now. Griffith has been having that conversation for seven years. "People are coming around to understand this is a solution," she said. "People may not love it, but at least they understand the problem."

And how soon should Connecticut start doing something?

"ASAP," she said.

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