User Fees, Gas Taxes, and Electric Cars: The Coming Reckoning

I continue to have issues with cartoon hands and fingers. Given Ready Kill-o-watt has only 3 fingers, is he flipping off a gas pump or not?

The saying goes that the only sure things are death and taxes.  For electric car owners in Pennsylvania, the only sure thing is death.  Taxes seem to be a bit iffy.  PennDOT is funded by gas taxes, registration fees, and other fees and tolls.  Most of these are characterized as user fees, which over the decades has proven to be a sensible way to fund our transportation infrastructure.  For 2020-21, PennDOT should get $6.9 billion for highways and bridges.  Of that, 74% will come from gas taxes.  Currently, the Federal gas tax is 18.4 cents a gallon, unchanged since 1993. The State gas tax is 58.7 cents a gallon.  Both are folded into the pump price of gasoline.  But if you have an electric car, there are no visits to the gas pump.

User Fees and the Pump

Should electric cars get a pass for helping to fund the transportation infrastructure?  Having worked for DOT’s for over 30 years, I do believe that common roads and bridges, funded by government, are the fairest and most sensible way to maintain a transportation network.  One need only look at the numerous private bridge companies, canal companies, and toll road companies that operated in the 19th century, all of which went bankrupt or out of business, leaving their wreckage to the management of the state.  I presume some investors made a profit and the facilities operated in good condition for a while.  Ultimately, this failed business model led to the incorporation of state highway departments and the establishment of steady funding, e.g., the gas tax in 1919.  But I digress.

The Workaround

“Fortunately,” the Commonwealth has developed a process for collecting a user fee from electric car owners.  It relies on a process known as the Alternative Fuels Tax.  Each kWh that is “pumped” into an electric car is subject to a $0.0137 tax, payable to the Department of Revenue.  The tax is charged at the charging station (makes sense).  If you charge your electric car at a public charging station, the owner of that station is responsible for registering that station and remitting the tax on a periodic basis.  If you own your charging station, as we do, that burden falls on you.  You might imagine that it is a simple matter of tracking the amount of electricity used and doing a simple calculation and cutting a check.  You would be wrong. This is state government, after all.

Our charger, in the garage.

The first step is to register your charging station with the Commonwealth as an Alternative Fuels storage tank, using a Form REV-822.  We did that in October 2019 and had the permit gone through, we would have received an Account ID.  We are still waiting for the Account ID.  Then we would complete and submit an Alternative Fuels Tax Report, a form DMF-101, with a check, perhaps monthly. The form never really says.  This process covers “natural gas, compressed natural gas, liquefied natural gas, liquid propane gas, liquefied petroleum gas, alcohols, gasoline-alcohol mixtures containing at least 85 percent alcohol by volume, hydrogen, hythane, electricity, and any other fuel used to profel motor vehicles on the public highways which is not taxable as fuels or liquid fuels under Chapter 90.”  Wood is not mentioned specifically.  (Yes, there were wood-powered cars.) Nor is the wood tax rate presented (by the cord?).

Wood gas vehicle, Germany, 1946.

After waiting a year, we completed a DMF-101 for 2019 and one for 2020 and sent in our calculated taxes.  Our charger does not have a meter on it, so I had to estimate our kWh usage into the Leaf.  Each time we charged the Leaf, I recorded the miles travelled and the miles-per-kWh recorded in the car.  That yielded the kWh used.  I kept a log for each charge and totalled the kWh for years 2019 and 2020.  Klugey, but workable.  

The Problem

I don’t consider myself particularly virtuous, but I did drink the kool-aid regarding user fees and am committed to paying our fair share for use of the road.  I might be alone.  No one approached me about the Alternative Fuels Tax, or how to secure a permit, or pay the tax.  The Department of Revenue seemed to be a bit blasé about collecting the fees.  Two gentlemen did come by and visit in November, 2019 to check out my charging station.  I think they thought I was a bit crazy.

We paid our taxes for the 2,131 miles we drove in 2019 (the car was bought in September) and the 7,076 miles we drove in 2020.  We are not driving a lot right now and the amount in question is less than a good steak dinner.  There are probably fewer than 10,000 electric cars on the road in Pennsylvania out of over 10 million registered.  Is it even worth having this discussion?

I believe so.  GM is committing to an all electric fleet by 2035.  California is calling for all new cars to be electric by 2035.  Meeting climate goals will require the US to have a majority of its cars and trucks be electric by 2040. Relying on gas taxes to support the transportation infrastructure is unsustainable.  And this does not take into account improved CAFÉ standards. Coming back to my first point that user fees are a way to support transportation infrastructure, we are going to have to come up with a fair way to collect revenue, regardless of fuel type.

Possible Solutions

The current system of collecting revenue from electric vehicles suggests the system is mysterious, broken, and failing.  There are several ways this can be rectified, with and without legislation.  The current method of taxation relies on measuring electric use directly from the charger.  This can be modeled, relying on miles traveled and the car’s EPA-rated mpg-e.  In our example, in 2020 we travelled 7,076 miles.  Our Leaf is EPA-rated at a combined mpg-e of 104 miles.  Using the factor of 33.7 kWh per gallon, you can estimate a miles-per-kWh of 3.09 (104/33.7).  For the 7,076 miles traveled, you can estimate a use of 2,290 kWh.  Taxed at $0.137 per kWh, we would owe $31.37.  All that is required to be known is miles traveled and the EPA mpg-e rating by car model.

The tax could be collected at the time of annual registration, with a line added to the form.  PennDOT could provide an on-line look-up table to help.  Punch in your car model and miles traveled and it will tell you the tax.  Or, the tax could be collected at the time of inspection.  The shop inspecting the car could calculate and add the tax to the inspection fee.

The current rate of $0.0137 per kWh is admittedly low when compared to the gas tax.  Fairness would suggest that whatever the state gas tax is, the rate per kWh should be pegged to it by the 33.7 kWh per gallon factor.  At parity, the tax rate should be $0.0174 per kWh ($0.587/33.7).  Simple legislation would peg the kWh tax rate for electric vehicles to whatever the gas tax rate is at the moment, using that formula.  Who do I thank for this (unintended) discount.

Sooner or later, VMT will have to become a larger part of the user fee equation, especially if revenue is to keep up with the need for infrastructure repair.  User fees should be bifurcated into two components.  The first is the fuel tax, tagged to consumption.  Gas taxes would continue to be levied.  Electric vehicles would be taxed at a kWh equivalency.  This would reward fuel efficiency and electric vehicles, as most electric powered cars operate at over twice the fuel efficiency of gas-powered cars.  The second component would be a VMT levied on all cars, which would be the purest form of a user fee.  A 4 cent a mile VMT would roughly match the revenues generated from gas taxes, and together would double the total revenue, which most certainly be used to meet the current deferred need.  The VMT could be phased in over several years, but would buffer the projected loss in revenue from traditional gas taxes.

Understanding we need to wean ourselves from fossil fuels, I do support a carbon fee and dividend that would also apply to gasoline.  A $100 a ton CO2 fee would add a dollar to the cost of a gallon of gas.  But this fee provides nothing for roads and bridges and only hastens the (good) transition to decarbonized transportation.  Another discussion for another day.

Call to Action

The process for folding electric car owners into the revenue system is at best, haphazard.  Most owners are oblivious to their obligations.  The forms, the applications, the messaging, are all barriers to collecting revenue, especially when compared to paying the tax at the gas pump.  PennDOT should be more proactive to inform new electric vehicle owners of their responsibilities.  They should work with Revenue, and possibly the Legislature, to simplify the process.  This will pay back handsomely as the number of electric vehicles on the roads grows.

Action is needed now if there is any hope to raise the revenues needed to maintain our roads, bridges, and transit.  Recent proposals from the legislature only unfairly punish electric car owners through artificially high registration fees.  Very soon there is going to be a national push to put people into electric cars.  As someone worried about climate change, I welcome it.  However, what good will it do when half of the cars are in the shop for repairs for pothole damage, and the other half is stuck in traffic?

Transportation, Climate Change, and Mayor Pete

Isambard Kingdom Brunel during the construction of the Great Eastern, 1857

Recently, one of President Biden’s cabinet picks has come under scrutiny, largely for the apparent youth and inexperience of the candidate. Kind of a flashback to President Reagan and the then 56-year old candidate Walter Mondale 35 years ago.  How times have changed.  Pete Buttegieg, Mayor Pete, has been nominated (and as of February 2, 2021, confirmed) to head the Department of Transportation, a large and sprawling agency with almost 56 thousand employees and a budget of $75 billion.  Almost everything you buy or touch is affected by transportation.

Mayor Pete is 39 years old and the only elected office he has held has been Mayor of a small city in Indiana.  His transportation experience has largely been limited to the 18-stop bus system in South Bend, and an eternal pothole problem.  In this discussion, there are really only two questions worth pursuing.  First, what really is the job description for US DOT Secretary? And two, how does Mayor Pete’s credentials match up to the job?  The final question will have to wait for a bit.  How well is/was he doing?

What does the US DOT Secretary Do?

At the level of a US Cabinet position, the job of Secretary is the job of a manager and administrator.  They are to guide the Department, following the lead of the President, and push the President’s mission down the line.  Historically, some Departments are highly politicized and some are not.  You could say that Secretary of State is politics played at its highest level, that it is pure politics.  Some, like Transportation, or Agriculture, seem much less politicized.  Much of this depends on whether the people back home are directly affected by the actions of the Department or not.  I can tell you, that through the Highway Trust Fund, and the Federal Highway Administration, a part of US DOT, the dollars become local and immediate.  People do care whether the roads and bridges are fixed. They care how long it takes to get to work.  They care how safe the planes are, whether the airports are open or closed, and do the trains run on time.  To that end, US DOT becomes one big meritocracy, performance-based, and it has to be functioning, or there will be hell to pay.

Back when I was working at PennDOT, we used to joke that we were in the land of engineers, these bloodless and calculating souls whose job it was to squeeze a few pennies out of a contract and to ignore everyone who was not an engineer.  By and large, working at PennDOT was a pure pleasure, since science and not religion reigned in practice.  Let’s just say when trying to figure out how to build a bridge, the engineers would consult testing results and data, not the ACLU or the Pro-Life Action League.  Roads weren’t Democrat or Republican.  I suspect it is the same as USDOT.  I raise as Exhibit A, that although the most recent Secretary was one Elaine Chao who married to a certain former Senate Majority Leader, she did have prior transportation experience and seemed to have had a good grasp of the job and how to do it.  Thinking about all of the Cabinet-level appointments made by the prior President, selecting Chao as USDOT Secretary seems to be one of the least nutty choices that was made.

Wait! This is the job?!

Under normal times, the job description would be like that of a ship’s captain, keep the vessel pointed forward and try not to wreck it on an iceberg.  The little secret about DOT and most large bureaucracies like it is that there is enough inertia within to keep it moving forward on autopilot.  Yes, everyone has to do their job, but that’s precisely the point.  The Secretary is the main liaison between the agency and the President.  Undersecretaries do most of the real work and need to have the most knowledge-base.   

But these are not normal times.  The President has made it pretty clear that grappling with the warming planet is an all-hands-on-deck enterprise. A one-government approach will be needed to address our activities to help or hurt the carbon balance.  On this specific problem, a few Departments are key.  Transportation – the sector, not the Cabinet position – contributes 36% of the CO2 into the atmosphere, and (in 2017) 29% of greenhouse gases.  The transportation sector is the largest single emitter, followed by power generation, industry and agriculture.  All of a sudden, the Transportation Department has a central place at this table and what happens at Transportation will largely determine the success or failure of President Biden’s climate policy.

What are we talking about here?  Baby steps, like CAFÉ standards, only nibble at the edges. And yes, it would be nice to have cars and trucks with higher fuel economies.  But to get to the kind of carbon neutral targets that are being proposed, the entire fleet will need to become either 100% electric or mostly electric. That includes trucks.  

Biden’s climate plan gives you an indication of what lies on Mayor Pete’s plate.  He wants to create a million new jobs in the American auto industry, building this zero-carbon future. He wants to improve the infrastructure, to include smart roads, transit networks, airports, rail, ferries, and ports.  He wants to give every city with 100,000 residents a carbon-free public transportation system, everything from light rail to buses, bikes, and pedestrians.  GM seems to be on board with this vision, but it will take much more than pliant manufacturers to get to these goals.  Roads and bridges consume enormous amounts of cement, the production of which produces a lot of CO2. DOT will need to work with manufacturers to reduce the CO2 emissions from cement manufacturing.  Trains are enormously energy efficient, but these are currently controlled mostly by private entities.  Cooperation here will be needed to improve passenger rail service (I’m sure Amtrak would like that!).  In urban areas, transit is critical to move people around, but transit has been neglected for support for decades.  Soooo… much money is needed for transit. Even in Podunk Harrisburg, transit is essential and the buses will need to be converted to electric to make a difference.

Powerful interests are lined up against a climate friendly agenda.  For any incoming Cabinet Secretary, the knives will be out before any meaningful action.  A lot of what is being proposed will require bipartisan support.  In normal times, the Secretary can guide the ship.  In these times, the Secretary will have to rebuild the ship from the keel up, while it is sailing.  Mayor Pete, welcome aboard.

How does Mayor Pete Stack Up (on paper)?

Pete Buttegieg is 39 years old and has been the mayor of South Bend, population 102,000, and a career politician with a  very short career.  How does he stack up to his 18 predecessors, who have served as US DOT Secretary since the position was created in 1967?  Well, here are some fun facts:

  • Fully half of the Secretaries had no transportation experience prior to entering the position, neither with government nor industry.
  • Five had been former majors, from cities the size of Portland, OR to Denver.  I would argue that being mayor of Denver or South Bend is basically the same kind of job and experience, when the mayor acts as the chief executive and not just the agent of city council.
  • Two other nominees were 39 years old when selected.  Pete is the youngest by a few months.  The median age is 45.

Basically, the individuals coming into the position have had a range of experiences, from transportation to law, to private industry, to politics.  Possibly the best of the group was Drew Lewis, appointed by President Reagan.  Forty-nine years old, with no transportation experience, Lewis was a former business executive and political consultant and operative. He had never held elected office.   Within the company of nominated DOT Secretaries, Peter Buttegieg’s resume doesn’t stand out nor is his an outlier.

The Unanswered Question

Mayor Pete is now our Transportation Secretary.  For the reasons stated above, he will have to draw on all of his political skills to move the Department in a direction that aligns with a carbon neutral future.  He will need vision and help. He will have to use all of his God-given smarts.  He will need to be a good listener, but lead he must if he is to succeed.  From the relatively short 55 year history of the cabinet position, nothing in his resume qualifies him or disqualifies him from the job.  In previous administrations, he would be able to sleepwalk his way through it and use it as a steppingstone to higher office or a lucrative career in industry.  In this administration, he will have to work hard to make the kinds of changes that are needed to be made.  I suspect that conversation took place a while ago between the President and Mayor Pete.  For the rest of us, we shall see.