In Portland, Oregon, resident Timothy Taylor has become all too familiar with the aggravation caused by a deep pothole outside his home. The sound of vehicles hitting the pothole can be heard even from inside, and Taylor can sympathize with the unfortunate drivers. He has become adept at maneuvering around the nuisance in his neighborhood, but a separate pothole did manage to cause $1,000 damage to his car’s suspension. “It’s a terrible sound when your car hits the bottom,” Taylor remarked.
Oregon transportation officials have warned that without securing additional funding, road, highway, and bridge quality is at risk of deteriorating further starting this year. However, with the increasing adoption of electric and fuel-efficient vehicles, revenue from gas taxes is predicted to decline. This has left officials searching for alternative funding methods for transportation infrastructure.
States with ambitious climate policies, including Oregon, find themselves in a dilemma. While electric vehicles (EVs) are essential in reducing emissions in the transportation sector—which is the largest source of greenhouse gases in the nation—they also result in diminished gas tax revenue. “We’re focusing on reducing reliance on fossil fuels and internal combustion engines. Yet, we must find the funds to maintain the roads used by EVs,” commented Carra Sahler, the director of Lewis & Clark Law School’s Green Energy Institute.
Relying on gas taxes has steadily produced less revenue. According to the National Association of Budget Officers, motor fuel taxes previously made up the largest portion of transportation revenue for states. However, there has been a noticeable decrease—from 41% of transportation revenue in the fiscal year 2016 to around 36% in 2024. In places like California, where zero-emission vehicles represented approximately a quarter of car sales last year, legislative analysts foresee a potential $5 billion drop in gas tax collections by 2035 if the climate targets are successfully pursued. California and Oregon are among the states mandating all new passenger cars sold to be zero-emission by 2035.
The trend of declining revenue has already been observed in Pennsylvania, where gas tax revenues have fallen by an estimated $250 million last year compared to 2019, according to the state’s independent fiscal office. Additionally, inflation has driven up the costs of transportation materials, further straining budget resources.
Specifically in Oregon, the Department of Transportation anticipates a budget shortfall exceeding $350 million in the upcoming budget cycle, attributed to inflation, declining gas tax projections, and spending restrictions. This could potentially lead to reductions in services such as winter snow plowing and road maintenance, along with the possible layoff of up to 1,000 transportation department employees.
Some Republican lawmakers argue that the situation with gas tax revenues in Oregon has been exacerbated by financial mismanagement within the department. A recent audit revealed the department had overestimated its current budget cycle revenue by over $1 billion and had not properly tracked specific funds. “It’s about ensuring the existing funds are spent efficiently and effectively,” stated state Sen. Bruce Starr, the GOP co-vice chair of the joint transportation committee.
To combat revenue loss, 34 states have raised their gas taxes since 2013, as reported by the National Conference of State Legislatures. Figures from the U.S. Energy Information Administration indicate that California has the highest gas tax at over 69 cents per gallon, whereas Alaska’s is at a low of 9 cents. Historically, Oregon was the first state to implement a gas tax in 1919, which currently stands at 40 cents per gallon. The federal government’s gas tax is 18 cents per gallon and has not been adjusted for inflation in over 30 years.
In Oregon, due to the absence of a sales tax and strong opposition to tolls, legislators are contemplating the next best steps. Some states are indexing their gas tax to inflation, while others are raising EV registration fees or taxing EV charging stations. To boost transportation funds, some have reorganized their budgets; for example, Michigan allocates a portion of marijuana and personal income tax revenues to transportation. In Connecticut, the sales tax now surpasses gas tax revenues as the primary contributor to the state’s special transportation fund, as shown in a 2024 fiscal report.
A potential long-term remedy is the implementation of a road user charge system, where drivers pay fees based on the distance traveled. Hawaii has initiated a program for EV drivers that will start phasing in July 2023, enrolling all EV drivers by 2028 with odometer checks at annual inspections. Similarly, Oregon, Utah, and Virginia have voluntary road usage fee programs allowing drivers to use GPS tools for tracking and reporting mileage.
