The pothole outside Timothy Taylor’s home was so deep, he could hear the clunk of cars hitting it from inside his house.
The Portland, Oregon, resident could sympathize with those drivers: He knew to avoid his own neighborhood pothole, but another one damaged his car’s suspension to the tune of $1,000.
“Hearing that awful sound of your car bottoming out — it’s horrible,” he said.
Oregon transportation officials say that without more funding, residents like Taylor could see further declines in the quality of roads, highways and bridges starting this year. But revenues from gas taxes paid by drivers at the pump are projected to decrease as more people adopt electric and fuel-efficient cars, forcing officials to look for new ways to fund transportation infrastructure.
States with aggressive climate goals like Oregon are facing a conundrum: EVs can help reduce emissions in the transportation sector, the nation’s largest source of greenhouse gas emissions, but they also mean less gas tax revenue in government coffers.
“We now find ourselves right now in a position where we want to address fuel use and drive down reliance on gases and internal combustion engines. But we need the funds to operate our roads that EVs need to use as well,” said Carra Sahler, director of the Green Energy Institute at Lewis & Clark Law School.
Gas tax revenue is set to fall
Motor fuel taxes are the largest source of transportation revenue for states, according to the National Association of Budget Officers’ most recent report on state expenditures. But the money they bring in has fallen: Gas taxes raised 41% of transportation revenue in fiscal year 2016, compared with roughly 36% in fiscal year 2024, the group found.
In California, where zero-emission vehicles accounted for about a quarter of all car sales last year, legislative analysts predict gas tax collections will decrease by $5 billion — or 64% — by 2035, in a scenario where the state successfully meets its climate goals. California and Oregon are among the multiple states that will require all new passenger cars sold to be zero-emission vehicles by 2035.
The downward revenue trend is already playing out in Pennsylvania, where gas tax revenues dropped an estimated $250 million last year compared with 2019, according to the state’s independent fiscal office.
Inflation has also driven up the cost of transportation materials, further exacerbating budget concerns.
What is going on in Oregon?
The Oregon Department of Transportation — citing inflation, projections of declining gas tax revenues and certain spending limitations — has estimated a budget shortfall topping $350 million for the next budget cycle.
That could mean cuts to winter snow plowing and the striping and paving of roads, as well as layoffs of as many as 1,000 transportation employees.
Republican lawmakers say the gas tax revenue issue has been compounded by the department mismanaging its money. An audit released in January found the department overestimated its revenue for the current budget cycle by over $1 billion and failed to properly track certain funds.
“It really is about making sure that the existing dollars that are being spent by the department are being spent efficiently and effectively,” said state Sen. Bruce Starr, GOP co-vice chair of the joint transportation committee.
How states are boosting transportation funding
To make up for lost revenue, 34 states have raised their gas tax since 2013, according to the National Conference of State Legislatures. California has the highest gas tax at over 69 cents a gallon when including other taxes and fees, while Alaska has the lowest at 9 cents a gallon, according to figures from the U.S. Energy Information Administration. In Oregon — which in 1919 became the first state to implement a gas tax — it is 40 cents a gallon.
The federal gas tax of 18 cents a gallon, which isn’t adjusted for inflation, hasn’t been raised in over three decades.
In Oregon, where there is no sales tax and tolling has met fierce opposition, lawmakers are debating next steps.
Other states have taken steps ranging from indexing their gas tax to inflation, to raising registration fees for EVs, to taxing EV charging stations.
To bolster transportation dollars, some have reorganized their budgets: In Michigan, where Gov. Gretchen Whitmer was first elected using the slogan “Fix the Damn Roads,” some revenues from marijuana taxes and personal income taxes now go toward transportation. In Connecticut, the sales tax now brings in more money for its special transportation fund than gas tax revenues, a 2024 fiscal report shows.
Another concept that could provide a long-term solution is a so-called road user charge. Under such a system, drivers pay a fee based on the distance they travel.
In 2023, Hawaii established a road usage charge program for EV drivers that will phase in starting this July. In 2028, all EV drivers will be automatically enrolled, with odometers read at annual vehicle inspections.
Three other states — Oregon, Utah and Virginia — have voluntary road usage fee programs. Drivers can opt to use GPS tools to track and report their mileage.
