“Paying Their Fair Share”: Getting EV Fees Right in Michigan’s Road Funding Debate

As Michigan’s infamous pothole season is set to begin, state leaders will once again be debating potential funding options to address road conditions that continue to rank among the worst in the country.  What’s less clear is whether those road funding solutions will continue to penalize those behind the wheel of electric vehicles. 

The Ecology Center has released a new report offering original research and policy recommendations for a road funding model that promotes--rather than hinders--a clean transportation shift benefitting the health of Michigan’s environment, people, and economy. “Paying Their Fair Share: The Problem with Michigan’s EV Road Funding Fees and Potential Solutions” addresses an overlooked equity issue with the current model.

The Ecology Center’s research shows that battery electric and plug-in hybrid vehicle owners are charged more in taxes and fees than owners of comparable gasoline-powered cars and trucks. A lot more. Plug-in vehicle drivers currently pay between $300 and $390 in up-front vehicle registration fees each year, about twice as much as comparable vehicles. Since these vehicles represent fewer than 1% of cars and trucks on the road today, the disproportionately high fees accomplish very little to improve our state’s roads and bridges. However, the fees do make cleaner cars less appealing and accessible for cost-conscious consumers.

Even when including the gas taxes that comparable gasoline vehicles pay, total fees and taxes paid are as much as 67% higher for electric vehicles (EVs) and 30% higher for plug-in hybrid electric vehicles (PHEV) than their internal combustion counterparts. A typical EV driver currently pays $90-$160 more each year than the driver of a comparable gasoline-powered car or truck, and someone with a PHEV pays $20-$70 more. And because the EV surcharge is tethered to the gas tax, these disparities will grow even wider if gas taxes are increased without a change to the current surcharge formula.

Michigan’s road funding comes from a combination of gas taxes and vehicle registration fees, along with $600 million from the general fund. Because our fuel taxes weren’t indexed to inflation and because all vehicles have gotten more fuel efficient, Michigan has fallen behind and doesn’t collect enough revenue to keep its roads maintained. 

While compromise legislation raised gas taxes and registration fees across the board in 2015, it also added annual surcharges for plug-in electric and hybrid vehicles--intended to make up for lost gas tax revenue. Unfortunately, the 2015 adjustments weren’t enough to solve long-term funding shortfalls, and they imposed a calculation formula that overburdens EV drivers.

Electric vehicles should pay their fair share of transportation system costs, but this means that the additional fees they pay should be lowered to a level comparable with what efficient internal combustion engine vehicles pay, rather than the fuel taxes and wear-and-tear expectations of “average” gas-powered vehicles. Currently, for example, EV fees are assessed based on the amount of gas consumed by a 25 mpg vehicle, such as an Ford F-150 pickup truck.  Most EVs, however, are more similar in size and efficiency to a Ford Fusion or Honda Insight averaging closer to 50 mpg.

Another problem is that EV owners are essentially being asked to pay twice: first, for the higher registration fees that they already pay and second, for the electric vehicle surcharge for not paying gas taxes. Because plug-in vehicle owners pay more for their cars up front, they already pay higher sales taxes and registration fees, even before the electric vehicle registration surcharge. These higher registration fees largely make up for any lost gasoline tax revenues, even before the surcharge. 

“Exorbitantly high fees on the small number of EVs on state roads are not a real solution to Michigan's transportation funding problems,” says report co-author James Vansteel. The fees primarily serve as an added cost barrier to electric vehicle adoption. And it’s a hindrance affecting many more people than potential EV buyers, given the role EVs will inevitably play in mitigating climate change and shaping the future of Michigan’s automotive industry. “As a state we should be considering ways to support this emerging EV market rather than penalizing it, while exploring more innovative and sustainable ways to maintain our roads and bridges," said Vansteel.   

Ecology Center Climate and Energy Director and report co-author Charles Griffith also emphasizes the economic significance of EV fees: “Given Michigan’s stake in the future of the auto industry, which is increasingly electric, it is critical that our state take a more nuanced and fair approach to levying fees on these vehicles,” said Griffith.  “If we want the rest of the world to buy the advanced technology vehicles that our auto sector is producing, we need to guide the way in developing the advanced vehicle policies that will help to accelerate their adoption.”

“Paying Their Fair Share” proposes several options for legislators to improve the current situation. One straightforward stopgap measure would be to lower PHEV and EV fees to more equitable rates, or at least to freeze them at their current rates. A better, more equitable approach in the short or medium-term would be to replace a single fixed EV surcharge with differentiated fees based on the total road funding fees and taxes that comparable gasoline vehicles pay.

Longer-term, additional solutions will still need to be explored to address anticipated increases in vehicle fuel-efficiency overall, as well as reflect the actual mileage that plug-in vehicles travel each year. “Paying Their Fair Share” suggests applying several key principles to future decisions: revenue sufficiency and sustainability, taxation paid proportionally by system beneficiaries and cost-causers, social equity, and incentivization of cleaner and more efficient technologies.

“We know that it’s possible for Michigan to simultaneously generate sustainable revenue for maintaining and improving the state’s roads and bridges, promote less polluting technologies, and treat all vehicle drivers fairly at the same time,” says Griffith. “Now is not the time to penalize those who are buying the next-generation of cars and trucks that our state’s iconic industry is now literally banking its future on.”  

 

Published on January 13, 2020