Gas tax third rail haunts transportation funding debates

AS MORE ELECTRIC VEHICLES hit the roads in Massachusetts – urged on by state policymakers – the future of the gas tax has become something of a transportation funding elephant in the room.

“With the shift to EVs, we’re really excited about what this means for greenhouse gas emissions across the state,” said Georgia Barlow, government affairs specialist at the Metropolitan Area Planning Council (MAPC), on an episode of The Horse Race podcast. “We’re excited to see that the state is providing incentives for the shift to electric vehicles and building out that infrastructure, but it also means a decrease in the gas tax, which is one of the critical ways that our transit and transportation infrastructure is funded throughout the state.”

The gas tax in Massachusetts is an excise tax at the pump of 24 cents per gallon of gasoline or diesel, in addition to the federal gas tax of 18.3 cents per gallon. Revenues collected by the tax, which are a bit over $600 million a year from gasoline and a bit under $100 million from other motor fuels in Massachusetts, fund costs associated with highways and mass transit.

Moving to more electric vehicles is a key part of meeting the state’s climate goals, but the gas tax has been a substantial source of revenue that’s used to subsidize public transportation. While higher gas taxes incentivize people to drive less, they are also regressive. They are also deeply unpopular. A decade ago, voters balked at an attempt to tie the fee to inflation.

The gas tax is part of the complicated transit funding calculus laid before a task force given a December 31 deadline to make recommendations on financing the state’s transit infrastructure.

Asked what kinds of gas tax changes the governor would be open to, and how it relates to the state’s interest in boosting electric vehicle adoption, a spokesperson said, “Governor Healey is committed to ensuring Massachusetts has sustainable funding to improve our roads, bridges and public transportation. She looks forward to reviewing the report from her Transportation Funding Task Force and working with the Legislature on a path forward.”

Task force members, in conversations with CommonWealth Beacon, declined to air the inner workings of the group. But the gas tax math problem has been swirling through transportation funding debates for many years.

“It’s one of the fundamental issues of transportation finance,” said Doug Howgate, president of the Massachusetts Taxpayers Foundation and task force member. “How much do we need to pay for the thing we need to pay for,” meaning transportation maintenance, “while the biggest way that we paid for this stuff in the past, if we do all our plans correctly, that all goes away?”

In February, Rep. Bill Straus, the House chairman of the transportation committee and a member of the transportation funding task force, told the Boston Globe that he didn’t see many options for replacing the gas tax. “Everyone says we need a future alternative to the gas tax,” he said. “But the [other] choices don’t get any better.”

Gas tax revenues are calculated annually in June and have been on a downward slope. After climbing consistently for years after the rate was raised in 2013, from $642 million year-to-date in June 2014 to a peak of $675 million by June 2019, gasoline revenues plummeted below $600 million in 2021 during the pandemic and have since recovered slightly. The latest year-to-date collections ticked up – from $602 million in June 2023 to $615 million in June 2024. That roughly 2 percent rise in revenue lagged the 3 percent inflation rate at the time. 

The decline, Barlow notes, is driven by both better vehicle fuel efficiency in general and the push toward more electric vehicles. Pandemic-era commuting patterns impacted public transit and cars alike, though vehicle traffic quickly returned to pre-pandemic levels by late 2021.

Former Gov. Charlie Baker and Gov. Maura Healey leaned into encouraging Bay State drivers to make the switch to electric vehicles, backing policy that includes a ban starting in 2035 on the sale of new vehicles with internal combustion engines. For the past few years, federal and state incentives have dovetailed to offset some of the cost of buying electric vehicles.

Incoming President Donald Trump is expected to scrap tax credits for electric vehicles included in the Biden administration’s Inflation Reduction Act. That legislation included tax credits of $7,500 for new electric vehicles and up to $4,000 for used ones.

Trump also plans to roll back Biden-era fuel efficiency standards. Potential tariffs on goods from China, Mexico, and Canada could drive up vehicle prices generally.

While backing more green investments and policies, both Baker and Healey have bristled at the idea of new taxes. Baker took shots directly, objecting to a gas tax that rose along with inflation and threatening to veto a gas tax raise if it passed the Legislature in 2020.

Healey has been oblique in her public statements. While climate was a major issue in the 2022 gubernatorial race – and Healey, like Baker, supported regional climate coordination – Healey has not laid out explicit preferences to address transit revenues despite promising not to “kick this can down the road any longer” in her first State of the Commonwealth speech. 

Massachusetts is not alone in grappling with the gas tax conundrum. The National Conference of State Legislatures noted gas tax receipts have dipped as electric vehicle sales grew by 57 percent year over year in the first half of 2023 and eventually accounts for 9 percent of all vehicle sales by the end of the year.

The last time the gas tax rose was in 2013, through a bill upping the at-the-pump fee by 3 cents and indexing it to inflation. Voters narrowly overturned the indexing in 2014 through a ballot referendum, meaning the gas tax loses some of its potency each year. As Howgate explains, that the tax stays flat means “it only generates more revenue because people are using more gas.”

House lawmakers passed a major transportation focused tax bill in March 2020, which would have increased the gasoline and diesel taxes by 5 cents and 9 cents respectively. But when the pandemic took hold, the measure died without a vote in the Senate and the subject has stayed sidelined since.

Members of the transportation funding task force, which Healey convened in February 2024 to make recommendations to fix the $700 million budget gap facing the MBTA next fiscal year, have gestured at the looming gas tax issue.

Jim Rooney, president and CEO of the Greater Boston Chamber of Commerce and a key member of the task force, noted in April that the 2035 gas vehicle rules would lead to diminishing gas tax returns. His comments were made in response to remarks from Transportation Secretary Monica Tibbits-Nutt, who suggested border tolls as a potential revenue source. (That idea was quickly shot down by Healey.)

With just weeks to go before the end-of-year deadline to submit recommendations for transportation funding, task force members were leery about openly discussing potential revenue stream adjustments including the gas tax. As of Thursday, they were still at work on the final report – the need to adjust or augment the gas tax very much on their minds.

If the state trajectory toward electric vehicle adoption holds, dodging the gas tax debate leaves a hole in the transportation funding equation.

MAPC released a new report over Thanksgiving week with 18 updated recommendations for generating transportation revenue, ranging from increasing surcharges on transportation network rides through companies like Uber and Lyft, to increasing taxes on jet fuel, to allowing local cities and towns to raise money through ballot initiatives for special transit projects. The 10th recommendation: the gas tax should be raised consistently, and the sales tax should be applied to motor vehicle fuel sales.

“Not only are we solving for some of the systemic funding issues that we’ve already experienced” Barlow said, in reference to the $700 million MBTA funding gap and the ongoing costs of maintaining the Commonwealth’s roads and bridges, “but we’re seeing declining revenue for one of the biggest ways we’re supporting this system.”