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The Problem with Low-Emission Cars: Collecting Gas Revenue

Are special fees for driving green a penalty?

By Rita Beamish

 

 

A tax on virtue or a matter of fairness? The question ripples through states trying to prop up their ever-shrinking highway funds while eyeing the “free ride” enjoyed by green vehicle owners.

The fast-growing cohort of people who drive zero- and low-emission cars and trucks can take satisfaction in their lower environmental footprint. But there’s a downside, at least for states and the federal government: When cars gas up at the pump less often, governments collect fewer fuel tax dollars for highway needs. The lost revenue is just a part of the well-documented decline in highway funds as the federal gas tax remains static, auto fleets achieve ever higher fuel efficiency and new technology enables alternative fuels.

Enter the notion of recouping at least some lost revenue by slapping special fees on green drivers—notwithstanding ongoing efforts by Washington and many states to instead encourage these vehicles through income tax credits, lower registration fees and even free parking spaces. The fees are meeting sporadic success, rankling many drivers and environmentalists.

Lawmakers in Virginia touched a nerve last year with a new $64 annual tax on the state’s 91,000 hybrid owners, 90 percent of them from the northern part of the state near Washington, D.C. Objections, immediate and loud, spurred a petition that garnered more than 7,700 signatures.

Hybrid owners felt singled out for a double whammy, because hybrids using both gas and electric power are still subject to gas taxes when they fill up. Additionally, some bigger hybrids use more gas — paying more fuel tax — than new, highly efficient gas-powered cars that were not covered by the new fee, said Democratic state Del. Scott Surovell, who spearheaded the repeal petition. It was akin to charging non-smokers for not paying their fair share of tobacco taxes—“taxing people for doing the right thing,” he said. The legislature repealed the tax this year.

“The takeaway is, don’t start taxing energy efficient behavior that you are trying to encourage,” said Surovell. He said governments instead should figure out how to subsidize clean vehicles until they are widely affordable.

Virginia, however, did retain its annual tax on vehicles using solely electric power, raising the previous $50 fee to $64.

The notion of a fair-share tax resonates with many people for electric-power cars. North Carolina and Colorado this year joined Washington and Nebraska in charging electric vehicle owners annual fees -- $50 in Colorado, $75 in Nebraska and $100 in North Carolina and Washington. Drivers of hybrids so far have been spared in those states.

“Having EV drivers contribute a modest fee is a reasonable and common sense approach to maintaining our roads and highways,” said Tom Turrentine, director of the Plug-in Hybrid Electric and Vehicle Research Center at the University of California, Davis.

It only hurts the political cause of obtaining government incentives for alternative fuel vehicles if EV drivers balk at paying such “fair share” taxes, Turrentine said.

Government incentives for green vehicles have helped narrow the price gap between EVs and gas-powered models. That includes the popular leasing market, where companies can receive rebates and incorporate them into leasing fees, Turrentine said. The growth in gas-electric hybrid sales makes them no longer eligible for federal rebates.

While a few states have raised taxes on gasoline, anti-tax politics often work in favor of EV drivers facing special-fee proposals, said Democratic state Sen. Steve Farley of Arizona. Farley has argued against “economic injustice” in seeking a 1-cent per mile tax on electric vehicles, or $120 a year for an average 12,000 miles on the odometer. But he has not persuaded fellow lawmakers, despite Arizona’s sinking highway revenues and its 18-cent gas tax, unchanged since 1992.

“Electric cars are one of the reasons the gas tax is dying. While they may be a small percent of the market right now, they are going to get bigger and bigger. Anyone driving an electric car is getting out of paying anything for the roads they are driving,” Farley said. With too few electric vehicles to generate anything close to needed highway revenues anyway, he is now pushing for a task force to come up with long-term highway funding options.

Incentives in at least 39 states and the District of Columbia encourage EV and hybrid use, according to the National Conference of State Legislatures. Among many examples cited by NCSL:

  • Use of HOV lanes with only one person in the car is a popular incentive for EVs and/or hybrids in many states.
  • EV or alternative-fuel vehicle registration fees or license taxes are reduced in Illinois, Arizona and Iowa.
  • Salt Lake City and California cities of Sacramento, San Jose, Hermosa Beach and Santa Monica, and the state of Hawaii offer free parking spaces for EVs. Hawaii requires parking lots bigger than 100 spaces to have at least one EV parking space and a charging station. Some cities offer free parking for hybrids and alternative-fuel vehicles.
  • New Jersey exempts EVs from state sales and use tax.
  • State rebates or tax credits range from $1,000 in Maryland to $6,000 in Colorado.
At the federal level, a tax credit of up to $7,500 brings down the price of owning or leasing a plug-in EV.

Colorado has a new $50 tax for plug-in electric vehicles and uses the revenue not just for highway maintenance but to further encourage EV usage. Twenty dollars of the $50 goes to electric charging station infrastructure. At the same time the state extended its tax credit of up to $6,000 for EV and hybrid purchases through 2021.

In Washington state, electric vehicles are exempted from the new-car sales tax, but subject to an extra $100 registration renewal fee. The state has some 5,400 registered all-electric vehicles, but they don’t pay that registration fee in the first year of ownership. Since launching the fee in early 2013, the state has realized $252,600 in revenue.

Critics worry that the special fees could dampen enthusiasm for the clean vehicle market, especially while sticker prices outpace the price tags of comparable conventional models.

“It’s the kind of disincentive that those who oppose clean vehicles want. They want you to think twice” before switching from gas-powered engines, said Dan Becker, director of the Safe Climate Campaign, which fights global warming. The modest revenue anticipated from such fees still doesn’t provide a way out of the highway funding crisis, Becker noted, nor should alternative-fuel motorists be responsible for the failure of that funding system.

Penalty or Equity?

North Carolina’s new $100-a-year tax will tap only the 1,600 EV vehicles currently registered in the state. “It penalizes them for doing their part to reduce our dependence on oil," said Elizabeth Ouzts, state director of Environment North Carolina.

But Sen. Neal Hunt, a Republican sponsor of North Carolina’s fee, called it “a matter of equitable treatment,” adding, “Electric vehicles use these roads so they should help pay maintenance and construction costs.”

Nebraska’s $75 a year fee applies to any car powered entirely by an alternative fuel that’s not already taxed. Bill Moore, publisher of the online publication EV World, considers it fair but said if the goal is to replace fuel-tax revenue, it should approach $150 a year. Even at that level, Moore said, the fee is merely a Band-Aid en route to a new sustainable system for highway construction and maintenance.

The debate comes against the backdrop of looming insolvency for the national highway fund, which could come as soon as August barring congressional action. The Federal Highway Trust Fund currently collects about $38 billion a year in fuel taxes, nearly all to fund state and local government surface transportation.

In a February report based on 2010 data, the Transportation Department estimated that all levels of government would need to spend as much as $145 billion a year to properly maintain the nation’s roads and bridges. To dig out of the hole, officials and experts have widely discussed fundamental reform based on delinking taxes from fuel consumption.

A number of states have been exploring vehicle-miles-traveled, or VMT, systems. Among the states where lawmakers have introduced bills for VMT feasibility studies is California, the nation’s biggest auto market with the highest gas tax. (Gas was $4.26 a gallon in mid-April, including 56.8 cents in taxes and fees.) More than half a million hybrids and 125,000 electric vehicles are registered in California.

In Oregon, the idea will get an unprecedented tryout next year when 5,000 volunteers agree to pay 1.5 cents per mile driven in lieu of the tax at the pump.

Republican state Sen. Bruce Starr, a leading proponent of the plan, said he doesn’t criticize other states that seek fairness by taxing clean vehicles. But he added, “From my perspective it doesn’t get to the point. People ought to pay for the roads they use in a way that’s fair, so no matter what you use to make your car move down the road, you’re going to pay basically the same amount.”


Daniel Luzer is GOVERNING's news editor.
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