The Future of the Highway Trust Fund: The Impact of EVs

From 2011 to 2021, EV sales in the U.S. increased from 22,000 to more than 2 million. Forecasts for future EV sales and market share vary substantially, and will depend on consumer behavior, public policy, and automaker production. Some estimates indicate EV sales will reach 40 to 50% of all passenger car sales by 2030. Additionally, new Corporate Average Fuel Economy (CAFE) standards will require passenger cars and light trucks to satisfy a 49-miles-per-gallon, industry-wide fleet average by 2025, resulting in 200 billion gallons of reduced fuel consumption by 2050 according to the National Highway Traffic Safety Administration.

Even before the proliferation of EVs, the HTF was in trouble. Since the gas tax is not currently indexed to inflation, the purchasing power of the tax has decreased significantly since 1993, when it was last raised. Reduced purchasing power and fuel consumption have led the HTF to become increasingly reliant on transfers from the U.S. Treasury’s general fund to maintain spending at the levels authorized by Congress.

Many people might think that highways have sufficient funding with the passage of the BIL in 2021, which included a $118 billion transfer from the general fund to the HTF. However, the BIL merely delayed insolvency for the HTF without addressing the decline in long-term revenue. The latest Congressional Budget Office projection estimates the HTF will be drained by 2028 and reach a cumulative funding deficiency of more than $240 billion by 2033.

What Exactly Does the HTF Do?

 Gas-powered vehicle drivers pay 18.4 cents per gallon for gasoline and 24.4 cents per gallon for diesel towards the federal gas tax—a small portion of the price paid for gas at the pump. Every state has an additional tax on motor fuels, with many state taxes set at higher rates than the federal gas tax. Within the HTF, there are two accounts:

• Highway Account: Provides funding primarily for building and maintaining highways and bridges.
• Mass Transit Account: Supports various forms of public transportation.

The Federal Highway Administration (FHWA) receives the bulk of HTF revenue, with the federal government providing approximately 25% of public spending for highway infrastructure across the nation, and some states covering greater or lesser shares. The FHWA administers multiple crucial federal highway programs, including:

• National Highway Performance Program (NHPP): Funding states to support projects that maintain highway conditions and performance including new construction and supporting progress towards performance targets established in state asset management plans.
• Surface Transportation Block Grant Program (STBG): Flexible funding to states and local governments to preserve and enhance highways, public bridges and tunnels, pedestrian and bicycle infrastructure, and transit capital projects.
• Highway Safety Improvement Program (HSIP): Funding to states for highway safety projects to address hazardous road features.
• Congestion Mitigation and Air Quality Improvement Program (CMAQ): Funding to state and local governments for transportation projects and programs to help meet the requirements of the Clean Air Act.

See the top HTF highway programs supported by the BIL below:

Potential Policy Solutions

 Without new streams of dedicated funding, federal transportation spending will either have to suffer steep cuts or it will require significant general revenue transfers. Reducing transportation spending could threaten the functionality and safety of travel, while relying on general revenue transfers would hamper efforts to curb federal spending and undermine the user-pay, user-benefit model that the HTF has historically embodied.

Some states have started to implement their own solutions to ensure EV users contribute to the cost of infrastructure they use:

• Mileage-Based User Fees: Mileage-based user fees, often referred to as Road Use Charges (RUCs) or Vehicle Miles Traveled (VMT) fees, charge drivers based on miles driven rather than gallons of gas purchased.
• Annual Registration Fees for EVs: 32 states have implemented higher registration fees for EVs and plug-in hybrids as an alternative to gas taxes.
• Electric Fuel Excise Tax: Three states—Iowa, Kentucky, and Pennsylvania—currently or plan to tax EV charging at non-residential stations.

The BIL directed DOT to set up a national mileage-based user fee pilot program, though it has yet to be implemented. For more information on the pilot, read our blog on mileage-based user fees here.

Conclusion

 Failure to secure revenue for the HTF could have severely negative consequences for transportation in America, such as worsening congestion and safety, as well as increasing damage to owners’ vehicles, with greater costs of repair. New taxes are generally unpopular on both sides of the aisle, so changes to the current gas tax framework may face opposition. However, poll data from the Bipartisan Policy Center and Business Roundtable shows there may be areas of compromise, as the majority of Americans surveyed reported willingness to pay more to reduce traffic and vehicle repair costs.

As our national debt continues to rise, members of Congress from both parties have made reining in federal spending a top priority. Yet without a more reliable source of dedicated funding, the HTF will likely require further general revenue transfers in the future, potentially contributing to future deficits. Lawmakers concerned about the debt should act to ensure the HTF finds a new source of revenue better suited to the future of transportation. A more reliable source of funding will hold all drivers, including EV users, responsible for contributing their fair share to the fund.