Illinois could lose billions in motor fuel taxes as electric vehicle sales grow, report warns

SPRINGFIELD — Despite Illinois’ efforts to smoothly integrate electric vehicles into the state’s economy, a new report from the Illinois Economic Policy Institute is warning of a potential steep decline in transportation revenue as the process of electrification accelerates.

The primary issue is motor fuel taxes, which will see a significant drop as more electric vehicles get on the road and fewer people fill cars with gas.

Because motor fuel taxes make up the backbone of state funding for road and bridge projects, the institute, which has ties to labor, warned that new revenue sources would have to be identified to ensure the state’s 10-year capital improvements plan remains on track.

“There’s absolutely a benefit to having EVs, but it will ultimately have a strong impact on transportation funding,” said Mary Tyler, the report’s author.

The motor fuel tax is the state’s leading source of transportation funding and makes up 52 percent of Illinois’ transportation revenue and 82 percent of its contributions to the federal highway trust fund.

The report’s main recommendation is implementing a vehicle miles traveled, or VMT, fee that would replace the existing motor fuel tax with a fee determined by the number of miles a car travels.

The idea has been floated in the past, including by J.B. Pritzker in an interview during his 2018 gubernatorial campaign.

States such as Oregon “have done tests recently for a VMT tax because we have more and more electric cars on the road, more and more hybrids, and because gas mileage is rising,” candidate Pritzker told the Daily Herald. “It’s only fair if you’re on a road and traveling on that road that you should pay your fair share.”

Pritzker as governor has not made a serious push for a VMT.

It’s an issue the institute says will become more pressing as the state moves toward its goal of putting 1 million electric vehicles on the road by the end of the decade — a goal written into law in the Climate and Equitable Jobs Act in 2021.

Even before this promise was made, Illinois was seeing a yearly increase in electric vehicles on the road. From 2017 to 2021, registrations rose from 8,255 to 36,482. The most recent data shows that, as of December, there are 57,311 registrations.

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According to Tyler, Illinois would have to add 119,000 electric vehicles every year in order to meet its goal of 1 million by 2030. If that happens, the state would lose $765 million in sales and motor fuel taxes when accounting for added EV fees. Counting federal revenue, that figure would be $1.1 billion.

Electric vehicles aside, Tyler said fuel-efficient vehicles pose another threat to the state’s transportation revenue. Roughly 10 percent of registered vehicles in Illinois are electric, and the rest of the 11 million are becoming more fuel-efficient.

“If you take a look at the picture of all the vehicles on the road, as newer vehicles come out that are more fuel-efficient, that means we’re just having ... a more fuel-efficient fleet,” she said.

Tyler says the total state and federal revenue loss over the next decade from an increase in EVs and better fuel efficiency would be about $4.3 billion.

That loss would be especially threatening to the back half of Pritzker’s 10-year, $45 billion capital infrastructure plan.

The roads-and-bridges portion of the 2019 program was made possible in large part by doubling the state’s motor fuel tax, then tying it to inflation in subsequent years. The infrastructure plan also increased Illinois’ annual electric vehicle registration fee by $100 annually.

Tyler said that although the fee hike helped replace some of the lost revenue, it won’t go far enough.

“As soon as the change can be made, the better,” Tyler said. “There are EVs on the road that are not paying as much as they would be on motor fuel tax. So there is an impact, it’s just right now the impact isn’t as big as what it will be in the future.”

Other policy areas to explore, Tyler suggests, include increasing existing registration fees, implementing a separate hybrid fee and creating an electric vehicle kilowatt-per-hour fee.

Joseph P. Schwieterman, a DePaul University transportation expert, said something needs to be done.

“The state government is approaching a fiscal cliff as fuel taxes fall, largely due to the frenetic expansion of electric vehicles,” he said.

“We don’t necessarily need to adopt a per-mile user fee, but we need fees that are scaled to the intensity with which people use our streets and highways.”

P.S. Sriraj, director of the University of Illinois Chicago’s urban transportation center, said the way to offset lost fuel taxes is “the billion-dollar question.”

But he raised equity concerns that adding tolls to highways could take away free options for people who can’t afford to pay the extra fee.

Freeways use the word “free” for a reason, he said.

Taxing electricity used, or miles driven by checking odometers should all be considered, he said.

“It’s good to start talking about the possibilities right now because electric vehicles are here for sure,” he said.

Capitol News Illinois is a nonprofit, nonpartisan news service covering state government funded primarily by the Illinois Press Foundation and the Robert R. McCormick Foundation.

Contributing: Mitch Dudek