How should we pay for the roads?

The problem

The West Central Tribune reports:

Chippewa County will be joining the growing ranks of counties imposing a wheelage tax on vehicles to help fund road and bridge needs.

On a unanimous vote on Tuesday, the County Board of Commissioners approved a $10 wheelage tax effective for vehicle tab renewals in 2025.

The tax is projected to raise $132,000 annually for the county, according to Candice Jaenisch, board chair.

Currently, 54 of Minnesota’s 87 counties participate in the wheelage tax program, according to the Department of Public Safety. Kandiyohi, Renville, Swift and Lac qui Parle counties are listed among area counties as participants.

In a related action, the commissioners also agreed to hold a public hearing to consider the possibility of adopting a .005% sales tax. It could raise an estimated $500,000 to $550,000 per year, according to discussions at the meeting.

If approved, the sales tax revenues would also be dedicated to road and bridge needs in the county.

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In discussions, the commissioners noted that the wheelage and sales taxes help spread the tax burden. The tax burden currently falls almost entirely on property taxes.

This illustrates a problem that many local and state governments face. They are tasked with building and maintaining roads. They generally do so using revenue from three sources: “a motor fuels tax, a tax on vehicle registration, and a motor vehicle sales tax.” The Motor Fuels Tax — the gas tax — is the largest source, accounting for 35.1% of state and federal highway funding in Minnesota in 2020, according to the Minnesota House Research Department, as Figure 1 shows.

Figure 1: Minnesota highway funding from state and federal sources, 2020

But this source of funding has been squeezed in recent years by three factors.

The first factor is inflation. Minnesota imposes a gas tax of 28.5 cents a gallon which, according to the Tax Foundation, is the 31st highest rate in the United States, as Figure 2 shows. It is a rare tax which is not relatively high in Minnesota.

Figure 2:

But inflation erodes the purchasing power of money. Minnesota’s gas tax went from 28.0 cents a gallon to 28.5 cents a gallon in July 2012. Thanks to inflation, what 28.5 cents could buy in July 2012 would have cost 39 cents in May 2024. Gas tax revenues don’t go as far as they did.

The second factor is improved fuel economy. The Department of Energy writes:

In 1975, the sedan/wagon class had the highest average fuel economy of all new light-duty vehicles produced, at 13.5 miles per gallon (mpg). By 2021, the average fuel economy for the sedan/wagon class had risen to 31.7 mpg. From 1975 to the mid-1980s, all vehicle classes experienced a sharp increase in fuel economy. This was followed by a period where the average fuel economy among vehicle classes remained relatively flat. Beginning around 2000, fuel economies began to rise again. While all vehicle classes have experienced impressive gains in fuel economy over the past two decades, the car SUV class (see note) has seen a 70% improvement since 2000. The sharp increase in the van/minivan class in the last few years is likely due to the introduction of hybrid and plug-in hybrid models.

Figure 3 illustrates these increases in fuel economy in terms of more miles driven from each gallon of gasoline.

Figure 3

But if we are imposing a tax on each gallon of gas sold to cover the construction and maintenance of the roads, this improved fuel efficiency means that you will be imposing more wear and tear on the roads for each 28.5 cents you pay. In 2012, for example, the Department of Energy’s data show that a Car SUV travelled an average of 23.3 miles for each gallon of gas and each 28.5 cents of gas tax paid. By 2021, this had risen to 30.5 miles travelled for each gallon of gas and each 28.5 cents of gas tax paid. The miles travelled and wear and tear imposed increased by 31%, but the amount of gas tax revenue generated to cover it remained flat.

The third factor is electric vehicles (EVs). According to the Minnesota Department of Transportation, the number of electric vehicles registered in Minnesota increased by 1,440% between 2016 and 2022, from 749 to 11,534, as Figure 4 shows. The state government wants to increase this further, so that “5 percent of light-duty vehicles registered in Minnesota [will] be EVs by 2025 and 65 percent by 2040.”

Figure 4

This presents two problems. First, these vehicles impose wear and tear on roads and bridges but do not pay the gas tax to cover it. Instead, EV owners pay an annual $75 fee in lieu of the state gas tax.

This isn’t nearly enough. The Federal Highway Administration reports that Minnesotans drive an average of 11,361 Miles per Vehicle annually with an average miles per gallon of 16.68. Working out average gallons of gasoline purchased (11,361 / 16.68 = 681.1) we can calculate that the average Minnesotan motorist pays $194 in gas tax annually (681.1 x 0.285 = 194), more than double what an EV driver pays in lieu.

Second, while contributing less than their fair share, electric vehicles actually impose more wear and tear on roads and bridges than conventional vehicles. The State Smart Transportation Initiative notes that while cars generally have got bigger and heavier:

EVs exacerbate this problem due to the massive batteries they require. For example, an electric Ford F-150 Lightning weighs at least 1,000 pounds more than the standard F-150, one of the most popular vehicles in the country.  

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This added weight and impact energy will also take a toll the country’s roads, bridges, and other infrastructure. A longstanding rule of thumb, called the fourth power law suggests even a modest increase in weight results in at least twice as much road damage. A 50% increase yields five times more damage. 

This extra wear and tear from vehicles which are not paying their fair share towards road and bridge maintenance is a source of pressure on budgets which will only grow if EVs become as prevalent as governments want them to.

Solutions

Regarding each of these three factors, indexing the gas tax to inflation, as Minnesota’s state government did in 2023, was good policy. And, as I wrote in 2022, “as a permanent policy fix, it would make sense to adjust the gas tax for factors such as improved gas mileage and more electric vehicles.” There might even be a more radical yet better solution. Watch this space.