Analysis: Electric vehicle transition will drain $217M from state coffers by 2035

The road to electric vehicles is paved with price tags: to build charging stations, offer rebates, not to mention a precipitous decline in the state’s gas tax. 

All together, the tax revenue losses and new expenditures associated with a transition to electric vehicles could slash $216.9 million that would otherwise flow into state coffers by 2035, according to analysis shared by a group of Syracuse University master’s degree students.

The presentation to lawmakers and transportation officials at the State House on Tuesday comes a week after Gov. Dan McKee unveiled his plan to adopt California’s emissions standards, phasing out the import of new, gas-powered cars and trucks to the state by 2035.

McKee’s announcement, now subject to a public vetting process led by the Rhode Island Department of Environmental Management, was met with swift backlash by Republican lawmakers, who decried the regulations in a statement and over social media.

McKee’s office did not immediately return inquiries for comment Tuesday.

The nine-figure losses calculated by Syracuse University’s Dynamic Sustainability Lab could fuel further outrage. But that’s not why Sen. Lou DiPalma, a Middletown Democrat, invited student researchers to the State House.

The path to analyzing the financial impact of electrification in Rhode Island began well before McKee’s announcement, when DiPalma attended a presentation given by the same group of students – except focused on New York – at a national conference on state transportation. Fascinated by the findings, DiPalma asked the students to do the same analysis for Rhode Island. 

“It’s going to set the foundation for what we need and want to do,” DiPalma said on Tuesday. “Now, it becomes a policy position.”

Department of Transportation takes biggest hit

Indeed, the heads of state transportation agencies did not appear alarmed at the forecasted revenue losses, which include major cuts to the $146 million annual gas tax income that funds much of their agencies’ work.

“This is an important conversation that we needed to begin,” said Peter Alviti, director of the Rhode Island Department of Transportation (RIDOT). “The work we do relies on the revenue we get. This is a fiscally responsible conversation.”

RIDOT stands to suffer most severely from the expected drop in motor fuel taxes resulting from more people driving electric cars. The state transportation agency gets 18.25 of the 35-cents-per-gallon tariff on gas-powered vehicles, according to the presentation by Syracuse students. Which means more than half of the $44.7 million decline in gas tax revenue forecasted by 2035 will directly affect RIDOT.

Scott Avedisian, CEO of the Rhode Island Public Transit Authority (RIPTA), also said he welcomed future conversations about the topic. RIPTA gets about 25% of the gas tax revenue.

While declines in motor fuel tax revenue is the biggest driver of losses, the students’ analysis also accounted for sales and use taxes of car parts and items bought at convenience stores, along with lottery taxes. Fewer drivers fueling up at local gas stations will depress lottery tax income and sales taxes from convenience store purchases,  though both revenue sources are still expected to rise.

Then there are the new expenses: to expand the state’s network of charging stations ($6 million); for more road maintenance since heavier electric-powered cars and trucks will create more wear and tear ($11.2 million) and for the state’s DriveEV program which gives Rhode Islanders up to $2,500 back on new electric vehicle purchases ($8.1 million).

Taken together, the revenue losses and new costs amount to a 61% cut to the $557.3 million in income state would have made from those tax sources if there was no transition to electric vehicles, according to the students’ analysis.

Regardless of what happens with McKee’s proposed vehicle emissions rules, though, that’s no longer an option. The market has already steered toward electric rather than gas-powered vehicles, with the number of electric vehicles on the roads nationwide 60% higher than a year ago, according to the students’ presentation.

“This is happening,” Ibrahim Tahir, one of the students, said. “It’s happening across the U.S. It’s happening across the globe.”

How to make up for lost revenue?

Now, the question is how Rhode Island takes the wheel to balance the state’s budget. Students laid out policies adopted by other states that could generate new income to make up for losses to other tax streams.

Among them: a road usage fee which charges a per-mile fee on electric vehicles, with the potential to bring in $147 million to $190 million a year in Rhode Island, depending on the rate. 

A separate $100 electric vehicle registration fee could tack on another $750,000 to $3.5 million in state income by 2030, depending on how quickly and widespread electrification happens. 

Students recommended the registration fee as one of three measures that would allow the state to reap the most income with the fewest roadblocks, known as the “high impact, high ease” scenario popular in statistical modeling. A road usage fee, in comparison, has a high impact but far less ease due to privacy concerns associated with devices that monitor vehicles’ miles traveled.

The analysis also included an interactive spreadsheet allowing users to see in real time how changes to state policies, electric vehicle adoption rates or other factors translate to revenue impacts and costs.

DEM will hold a virtual public input session on the proposed vehicle and truck emissions rules on Thursday at noon. More information and registration is available online.