States grapple with declining gas tax revenues amid rise in EVs, fuel efficiency

• The rise of electric and fuel-efficient vehicles on American roads is causing a decline in gas tax revenues, which U.S. state governments use to fund transportation infrastructure. This shortfall poses challenges for maintaining and expanding highways, bridges, and roads.
• States like Oregon, Maryland, Washington and California face significant losses in gas tax revenue. The federal Highway Trust Fund could run out by 2028 if gas tax rates remain unchanged.
• To address this, at least 39 states have implemented additional fees on EVs, and some federal lawmakers are pushing for a national tax on electric models to support infrastructure funding.

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As the number of electric vehicles (EVs) and fuel-efficient cars on American roads continues to grow, U.S. state governments are grappling with a decline in gas tax revenues, a primary source of funding for transportation infrastructure. This shift presents a growing challenge for maintaining and expanding the nation’s highways, bridges, and roads.

What are the impacts of declining gas tax revenue?

Oregon’s Department of Transportation projected a consistent drop in gas tax revenue through 2033, with only one year anticipated to avoid the decline. Similarly, Maryland and Washington state are facing projected shortfalls exceeding a billion dollars in their transportation budgets due to reduced fuel tax collections.

Meanwhile, California — which has the highest rate of EV ownership in the country and some of the most ambitious zero-emissions policies — could see $4.4 billion in lost gas tax revenue over the next decade.

This problem has extended to federal funding as well. According to the Congressional Budget Office, the Highway Trust Fund, which allocates grants to state and local governments nationwide for road maintenance, remains at risk of depletion by 2028 if federal gas tax rates remain unchanged. Officials have not changed the tax since 1993.

How are states attempting to recoup these funds?

In response, states are adopting a range of measures to offset the decline in gas tax revenue. Maryland lawmakers are considering a bill that would give EV and fuel-efficient vehicle drivers the option of paying either an annual highway-use fee or a monthly tax based on miles traveled. States like Hawaii, Virginia, Oregon and Utah already implemented this distance-based approach.

Most other states, however, rely on annual registration fees for EVs. Vermont, for example, introduced a new fee this year requiring EV owners to pay $178 annually — double the cost for drivers of gas-powered vehicles.

What happens next?

Overall, at least 39 states have introduced additional fees on electric vehicles, with additional measures expected to come across the country. Some members of Congress are advocating for a national tax on EVs as a way to stabilize the Highway Trust Fund.