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As gas use declines, California could lose $4 billion in transportation funding, report finds

Cars drive on Highway 50 in Sacramento.
Andrew Nixon

Cars drive on Highway 50 in Sacramento.

Taxes on gas and vehicle fees fund about a third of California’s transportation spending. But as the state transitions away from gas-powered vehicles to electric, a new report says this will need to change.

A report from the state’s Legislative Analyst’s Office projects a net transportation funding decline of about $4.4 billion — or 31% — within the next decade. This number is based on the assumption that other fees, like registration fees for zero-emission vehicles, will partially but not completely offset the declining fuel tax revenues. This money is a primary funding source for highway maintenance.

Overall, the report projected revenue decreases of about:

  • $5 billion, or 64%, from the state’s gasoline excise tax 
  • $290 million, or 20%, from the state’s diesel excise tax 
  • $420 million, or 20%, from the state’s diesel sales tax 

“We’ve already started to see gasoline consumption decline in the past five years or so,” said Frank Jimenez, a senior fiscal and policy analyst with the LAO.
He said the recent decline could be happening for many reasons outside of the transition to electric vehicles, like lingering impacts from the pandemic. But with California’s plans to transition away from gas, he said a decline is inevitable.

The report says these revenue decreases, especially if gone unchecked, could result in deteriorating highway conditions for drivers.

“We're kind of in this early stage in seeing the state's vehicle fleet transition,” said Jimenez. “But our report and our recommendation is that further planning needs to be done in order to think about potential solutions for this long-term problem that we've identified.”

Asha Weinstein Agrawal, a professor of regional and urban planning for San Jose State, said states have long relied on gas taxes to upkeep transportation systems. The first gas tax was introduced in Oregon in 1919 and by the 1930s, Agrawal said it was used nationally.

“States instituted a fuel tax as a way, directly, to have a user fee — to charge drivers for their use of the roads and then plow that money back into building and maintaining the system,” she said.

The report suggests a variety of solutions, like an increase in existing fuel taxes and vehicle fees or shifting transportation costs to other existing sources of funding.

Another solution suggested in the report is a road charge, sometimes also referred to as a mileage fee. This would be a tax based on the number of miles driven in an individual vehicle. Some states, including Oregon and Hawaii, have implemented their own limited versions of this charge in recent years.

Agrawal said she sees the mileage fee as a promising solution. She said it’s similar to the original idea behind the gas tax.

“We can continue that tradition very easily with mileage fees because it's very directly tailored to how much you use,” she said. “So it’s similar [to] like, how much electricity in your home are you using, and you pay proportionately.”

Agrawal said the success of this fee in California would depend on exactly how the state decides to approach it. She said some issues could arise from how the fee is issued. Would it be once a year? Once a month? Something people can pay whenever they’d like? And how would the state track mileage in the first place?

She said that Hawaii’s approach, for example, involves a yearly charge based on an odometer reading that’s taken as part of an annual vehicle inspection. California, however, does not conduct annual inspections, so she said the state may not take the same approach.

“A lot of this depends on the details of how you structure and choose … to track people's mileage and then bill them,” she said.

Regardless of whether or not this approach is adopted, the report makes it clear that California officials must think of solutions sooner rather than later. Agrawal said she’s been doing research related to this issue for much of her career and in recent years, as the transition toward electric vehicles seems more imminent, she’s seen more interest in solving this issue from policymakers.

“I definitely don't see this as oh, 30 years into the future,” she said. “It might be more like 10 years into the future, or maybe sooner, if we switch over to zero emission vehicles quite fast.”

Last year, California announced that sales of new cars and light trucks sold within the state must be zero-emissions vehicles by 2035.

Manola Secaira is CapRadio’s environment and climate change reporter. Before that, she worked for Crosscut in Seattle as an Indigenous Affairs reporter.
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