The state’s gas tax is now the issue du jour.
Gov. Glenn Youngkin is pushing for a “tax holiday” that would suspend the state’s gas tax in response to the sharp spike in gas prices lately.
Of course, the governor generally believes that Virginians are overtaxed. During the recent General Assembly session (the regular one, not the special one), he pushed to roll back last year’s increase in the state gas tax. Now he wants to waive the entire gas tax for awhile.
Democrats think this is nuts. They say there’s no guarantee that a suspension of the gas tax would really lower prices at the pump; how do we know gas companies won’t simply raise their prices and deprive drivers of the savings? Instead they’ve proposed sending every car owner $50, or, as House Majority Leader Terry Kilgore, R-Scott County, put it, “barely enough for a tank of gas.” But their big question is: How will we pay for roads?
There could not be any finer example of the differences between the two parties – or the geographical forces at play. Many of those Virginia Democrats are from Northern Virginia, where transportation is always a paramount issue, so the idea of giving up transportation revenue is anathema to them.
I could write a whole column on it, but where’s the fun in that? At the very mention of “Republicans believe this …” and “Democrats believe that …” people have already chosen sides.
So let’s look beyond this immediate controversy to the one coming down the road. (See what I did there?)
Before we do that, we need to look in the rear view mirror: Why did Virginia raise the gas tax last year?
Is it because Democrats were in charge and they are voracious tax guzzlers? Sure, think that if you want. But here’s some math: Gas tax revenues had basically stalled out. In 2016, they generated $861 million. In 2018, they actually declined to $857 million and stayed there for 2019, before rising to $887 million in 2021. Further, they were projected to go down over the next five years unless something was done.
Why? Because we’re driving more fuel-efficient vehicles – and, increasingly, vehicles that don’t use any fuel at all.
And that’s the real point I’m driving at. (OK, I’ll stop now.)
The philosophy behind gas taxes is that they are effectively a user tax – those who use the roads should pay for them. (The philosophy isn’t perfect: Someone who is a patient in a nursing home and doesn’t drive still benefits from having a good road network. That’s how the nurses get to work, that’s how the food and medicines arrive, but let’s not get hung up on that.)
Now we have a whole class of vehicles taking to the roads that don’t use gas at all. Are those drivers effectively getting a free ride, so to speak, while drivers of gas-powered vehicles do all the paying for road maintenance?
In terms of the gas tax, yes they are.
That’s why Virginia in 2020 instituted a “highway use fee” that owners of electric vehicles have to pay – $88.20.
Like many things, there are several ways to view this fee. One, this is a disincentive to buying an electric vehicle. Why is the state punishing people for doing something environmentally friendly? Two, this is fair because electric cars use the roads, too. Three, this is still a bargain compared to the gas taxes someone would have to pay over the course of a year. Four, this is an outrageously low fee – drivers of conventional vehicles are still being forced to foot the bill.
However you view it, we must still look ahead to what the fiscal math will be when there are a lot more electric vehicles on the road and a lot fewer gas-powered ones: How will we pay for roads when there is no more gas tax revenue because there are no more gas-powered vehicles on the road?
That may seem an absurd question now but we’d still be remiss if we didn’t acknowledge that there’s an energy revolution underway and that it’s changing the type of cars on the road.
Right now, electric vehicles are still something of a novelty, at least in this part of Virginia. According to the credit reporting company Experian, 2.2% of new vehicle registrations in Virginia last year were for electric vehicles.
But that figure is ticking up: In 2019, it was 1.89%.
Yeah, sure, you say, but that’s California, not Carroll County.
True, but we all know that trends start in California and eventually reach us here.
If you want to think about this politically, culturally – and these days it’s hard not to see things in political terms and cultural terms – consider this: Florida and Texas are two pretty conservative states. They are also the second and third biggest states for electric vehicles. In Florida, 7.9% of new vehicle registrations last year were for electric vehicles. In Texas, 6.0%. Now, maybe all those Teslas and Leafs and Bolts were in trendy Austin and now Amarillo, but the point is, two years ago Florida’s rate was 1.3% and the Texas share was 0.47%.
Electric vehicles are a real thing and they’re becoming more real every day. Their rollout will be uneven, as trends always are. They remain expensive, prohibitively so for many of us – Kelley Blue Book says they tend to cost $11,000 more than a full-sized gas-powered car and nearly $30,000 more than the average compact car. The electric car may be cheaper over the life of the vehicle but the upfront costs are a barrier.
I’m not here, though, to debate the economics or the environmental considerations. I’m just looking at numbers. And the numbers speak plainly: We’re going to see a lot more electric cars on the road. President Biden has set a goal for half of all U.S. vehicles electric by 2030 There are some legitimate questions about how quickly that can really happen. Just last week the U.S. Senate Energy and Natural Resources Committee heard testimony about how much the electric vehicle industry is going to be dependent on Chinese materials and parts unless we dramatically ramp up domestic mining of cobalt, lithium and nickel, and domestic production of batteries. Those are good questions but let’s set aside a politician’s goal — one way or another Biden won’t be in office in 2030. The free market, though, will still be around and here’s what it’s doing:
Ford expects by 2030 that 40% to 50% of its global volume will be in electric vehicles; last year it announced big plants in Kentucky and Tennessee to turn out either electric vehicles or batteries or both.
General Motors announced last year that it expects to phase out all of its gas-powered vehicles and go all-electric by 2035.
Honda has set a target of all-electric sales in North America by 2040.
Some day you may not have a choice about whether to buy an electric car or a gas-powered on, no matter who the president is. Gas stations will hang on as novelties to service an aging fleet of soon-to-be antique gas-powered models. A few years ago I was at a Sheetz in Northern Virginia; the store had a whole bank of electric car charging stations in addition to its gas pumps.
Closer to home, Campbell County – one of the more conservative counties in the state – now has electric school buses. The Volvo plant in Pulaski County just announced a big contract for electric trucks. The rival budgets that House and Senate negotiators in Richmond are haggling over both include money – just different amounts – to add more car-charging stations in rural Virginia. The House version (and keep in mind the House is controlled by Republicans) justifies this in the name of tourism. Apparently the tourists we want to attract will be arriving via electric cars. Oh, that House money was proposed by House Majority Leader Terry Kilgore, R-Scott County (who originally asked for $15 million).
So the point is, electric vehicles are on the way and we need to think about the implications. One of the big ones will be: How do we pay for roads then?
Now, keep in mind that the gas tax doesn’t pay for everything: For Virginia’s fiscal year 2022, the gas tax is projected to bring in $1.2 billion. Total state funding is about $6.9 billion; add in federal money and total transportation revenues are projected at $8.1 billion. Of course, some of that federal funding comes from federal gas taxes and they’ll be affected by the same gas-to-electric conversion.
How long will we keep raising the gas tax – trying to squeeze more money out of a decreasing share of drivers of gas-powered cars?
How do we fairly impose a fee on drivers on electric vehicles to make up for missing gas tax revenues?
When, if ever, do we shift to some other system completely and what would it be? How many toll gates can we put up to pay for roads that way? Can we, should we, start billing car owners based on their mileage – those who drive more pay more? Virgina’s already experimenting with a program like this U.S Secretary of Transportation Pete Buttigieg endorsed the idea earlier this year, although that endorsement hasn’t made its way into any federal policy yet.
Even with the relatively small percentage of electric cars on the road, but the prospect of many more, states are already starting to grapple with these questions. Wired reports on this irony: “Washington Governor Jay Inslee — the guy who, while running for president two years ago, proposed a nationwide ban on sales of gas-powered cars by 2030 — vetoed a statewide ban on gas-powered car sales by 2030.” Why? Because Washington state still needs those gas taxes to pay for roads.
Wired goes on to report on a long list of problems involved in changing how we pay for roads: “Collecting a gas tax is easy and cheap; drivers pay at the pump. But a per-mile charge would require gathering data and fees from millions of vehicles. Some states have experimented with radio transponders, others with devices that plug into vehicles and send data to transportation departments. Skeptics have raised concerns about tracking residents’ locations. And it’s not clear that such a system would raise more money than it costs. Others question whether such a road user fee is fair. Rural drivers tend to drive farther just by virtue of where they live; should they always pay more? Critics also argue that the whole idea, like the gas tax itself, amounts to a regressive tax, one that will collect a larger share of low-income drivers’ earnings.”
So how’s this going to work? Don’t expect me to have the answers. These questions will no doubt all be robustly debated and they should be. But make no mistake, those debates are coming. If we want an early preview, we should look to the Nordic countries. That’s where electric vehicles are making the biggest inroads. In Norway, nearly 75% of the vehicles sold in 2020 were electric. In Iceland, 45%. In Sweden, 32.2%. Since not every car on the road is a new car, the percentage of total cars on the road that are electric is smaller. Through 2020, 18.1% of Norway’s total fleet was electric. Iceland was next highest at 5.5%. The U.S. rate was just 0.7% so we don’t have to answer the basic question of how we pay for roads in an electric car era right away but, make no mistake, it’s coming and Norway will have to answer that question first, so it’s useful to look there for an answer.
It’s hard to compare countries because so many things are different – social safety nets, for instance. Norway also generates a lot of national wealth from North Sea oil, which has enabled it to subsidize a rapid acceleration to electric vehicles (either ironic or poetic, depending upon your viewpoint) – and also pay for roads. Norway, despite its picturesque fjords, is also a country where 83% of its population lives in urban areas, which makes it easier to set up mass transportation and toll roads. And, yes, electrified Norway does rely on toll roads for up to 30% of its transportation revenue.
In Virginia, tolls account for less than 1% of road funding.
At least for now.