Ohio’s road budget could be low when switching to electric vehicles

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Switching Ohio drivers to electric vehicles could leave a nearly $2 billion hole in the state’s annual transportation budget.

Gasoline and diesel taxes of nearly $2 billion a year make up a large portion of Ohio’s $8.3 billion two-year transportation budget. They are an important (but not exclusive) source of financing for roads, bridges and other infrastructure projects.

The loss of these and other revenues from fossil fuels will likely present great challenges to state and local budgets over the coming decades, according to a recent report on the implications for public finances of the transition to low energy. own.

Ohio is relatively fortunate compared to other states featured in a recent working paper from Resources for the Future, a nonprofit environmental and economic research group based in Washington, D.C. Wyoming, for example, depends on fossil fuels for 59% of its local and state taxes. income.

Yet most state highway budgets will feel the impact as more drivers choose electric or more fuel-efficient vehicles. In Ohio, work is already underway within the state government to develop alternative financing approaches.

“Regardless of what happens with politics, the energy system is changing,” said Daniel Raimi, who leads the Equity in the Energy Transition Initiative at Resources for the Future. “I think the need to address climate change means the energy system will change faster than it otherwise would.”

What the study says

Nationally, coal, oil and natural gas revenues generated an average of $138 billion a year for states, local governments, tribes and the federal government, Raimi and his colleagues reported in their January 13 working document. According to them, planning for a just energy transition requires planning to replace these revenues as they decline.

Funding for the work comes from the Environmental Defense Fund. The paper’s authors include researchers from Resources for the Future and the Environmental Defense Fund, as well as economics researcher Gilbert Metcalf of Tufts University and Emily Grubert, formerly at the Georgia Institute of Technology and now at the Bureau of Department of Energy carbon management.

Petroleum excise taxes provided the largest share — about $48 billion a year for the states and $40 billion a year for the federal government, the team reported. Other amounts came from the extraction and initial processing of fossil fuels. Additional funds came from intermediate refining and other consumption, besides excise duties.

In Ohio, state and local governments collect about $2.5 billion a year in fossil fuel revenue, the researchers found. Nearly $2 billion of that comes from taxes on gasoline and diesel fuel, Raimi said. Severance taxes from the oil and gas industry provide another portion of funds to the state. Smaller amounts go to local governments.

The push to extend those tax revenues has largely “prompted policymakers to pursue a ‘business as usual’ scenario and try to keep those traditional generating assets open,” said Gilbert Michaud, assistant professor at Loyola University Chicago’s School. of Environmental Sustainability, which did not work on the Resources for the Future report. “That has certainly been the case in Ohio, where regressive energy policies continue to be enacted to bail out these dirty – but tax-heavy – assets while stifling the growth of the renewable energy industry.”

Still, “even under a business as usual scenario, gasoline and diesel taxes are down,” Raimi said. “And that’s a major challenge that needs to be addressed regardless of what’s happening with climate policy.”

ODOT looks to the future

“The current gas tax model is not sustainable over the long term,” said Ohio Department of Transportation spokesman Matt Bruning.

With this in mind, ODOT has started thinking about new ways to pay for infrastructure. A $2 million grant from the US Federal Highway Administration will enable the agency to collect data for a large-scale outreach program on a user-based alternative revenue program.

A road user charge, also known as a vehicle kilometer charge, is one possibility. The concept is to charge drivers based on the number of kilometers they travel. In theory, this could replace the current taxes paid at the pump for drivers of petrol and diesel cars, as well as the higher registration fees paid by owners of plug-in hybrids and all-electric cars.

The 18-month study “will gauge the public’s appetite for different options,” with the goal of a fair and equitable funding structure for users of the state’s transportation system, Bruning said. Education outreach would show why the existing funding mechanism is not sustainable in the long term and how an alternative revenue method would be different. ODOT is also hoping to get feedback on the different options for such a method.

ODOT’s consultant, CDM Smith, has been on contract since early January. An external steering committee will be set up to provide feedback on the progress of the work, Bruning said. Some members will come from other state agencies, such as the Ohio Department of Public Safety and the Ohio Department of Taxation. Representatives of local governments and various other stakeholders will also be part of the committee.

A tax on vehicle kilometers traveled may be a fairer way to collect needed infrastructure revenue than the flat fees imposed on drivers of hybrid and all-electric vehicles, Raimi said. Starting in 2020, Ohio increased the annual vehicle registration fee for all-electric vehicles to $200, an amount that is about three times the rate for gas-powered cars. The Citizens Utility Board of Ohio and others have criticized the fees as placing a disproportionate burden on electric vehicle owners, while indirectly discouraging investment in the electric vehicle industry.

Work on the ODOT project began last month and is expected to be completed by June 2023, Bruning said. “Not enough work has been done on the project to point to indications of possible outcomes,” he added.

Diversification at the local level

Local revenues from fossil fuels are much lower. Still, money from the oil and gas industry is important to parts of eastern and southeastern Ohio.

“The prudent thing for any government that is looking at lower revenues is to think about how it can diversify its tax base,” Raimi said.

A potential model is emerging in Ohio’s Mahoning Valley, home to a once-thriving steel industry whose decline has left local communities searching for alternatives.

“Our community was once Steel Valley, and now we have to focus on being Voltage Valley,” Mayor Jamael Tito Brown of Youngstown said at the Reimagine Appalachia 2022 strategic summit on Jan. 12.

Voltage Valley refers to efforts to expand manufacturing of electric vehicles and batteries. Those efforts could be boosted by an upcoming bill to boost Ohio’s electric vehicle industry, announced by State Sen. Michael Rulli, R-Salem, on Feb. 16. Brown said he also hopes Youngstown will attract advanced manufacturing, 3D printing and renewable energy. .

Further south in Appalachia, Athens Mayor Steve Patterson hopes his region will attract advanced energy manufacturing, particularly for wind turbines and solar power generation. With a new Intel factory bringing about 3,000 jobs to the state, he also wants Ohio to develop more manufacturing for the computer industry supply chain. Innovation and clean-up can also help diversify local economies, he noted.

“The people who live in Southeast Ohio are pretty resourceful in how we do it, given the hand we’ve been given and given the rise and fall of the extractive industries,” Patterson said. The region has suffered from the decline of the state’s coal industry in recent decades.

To the extent that some areas of the state are not yet working to diversify their economies, they should start doing so to secure jobs and tax revenue, Michaud said. “The energy transition is continuing and accelerating year after year.

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