STUDY: More Electric Vehicles for Illinois and Higher Fuel Economy Standards Could Mean $4 Billion LESS for Transportation Projects Over Next Decade

La Grange:  Rising fuel efficiency standards and putting one million electric vehicles on the road over the next decade is projected to reduce the motor fuel tax revenues that Illinois would otherwise collect to support state and federal transportation projects by $4.3 billion, according to a new study by the nonpartisan Illinois Economic Policy Institute (ILEPI).

Read the report, “The Impact of Electric Vehicles and Increased Fuel Efficiency on Transportation Funding.”

Currently, Illinois relies on motor fuel taxes for 52% of its total transportation funding and 82% of its contributions to the federal highway trust fund.  Supported by hundreds of millions of dollars in new state and federal investment in electric vehicle infrastructure and tax incentives, the state has set a goal of putting one million electric vehicles (EV) on the road by 2030.  Between 2017 and 2022, Illinois saw its number of EV registrations grow 493% and the number of new hybrid registrations grow 49%.   Additionally, federal Corporate Average Fuel Economy (CAFE) standards were increased in March 2022, increasing the fleetwide average by 10 mpg for model year 2026 compared to 2021.

“While Illinois’ transportation system maintenance and modernization efforts were supported through its historic Rebuild Illinois plan, the higher CAFE standards and increased reliance on electric vehicles will present a longer-term fiscal challenge for policymakers,” said report author and ILEPI Transportation Director Mary Tyler.  “The greening of our automotive fleet will not reduce the number of miles traveled by Illinois drivers, but it will reduce the amount of motor fuel it takes to get them there.  This will demand a reimagining of how we fund state transportation projects.”

To address the significant transportation maintenance backlog and begin the transition to more electric vehicles and higher fuel economy, Illinois enacted a number of measures as part of its historic Rebuild Illinois plan in 2019.  These included modest increases in title and registration fees for gasoline powered vehicles, raising the state’s motor fuel tax for the first time since 1990, and a $100 increase in registration fees for electric vehicles.   The study notes, however, that based on current travel trends, the average driver contributes $187 to transportation revenues from motor fuel taxes—and that the average EV driver is still contributing $87 less than this amount, every year.

To perform her overall financial impact analysis, Tyler assumed that Illinois would meet its goal of one million EVs by 2030, while also incorporating fuel economy improvements, and projections on annual vehicle miles traveled per year by the US Energy Information Agency.

“While the expansion of EV infrastructure will create thousands of good-paying jobs across our state, it will ultimately translate to less spending on motor fuels, at a ten-year projected impact of $1.1 billion to transportation revenues,” Tyler said.  “Additionally, the combined effect of both EVs and improved fuel economy, while good for consumers struggling with rising prices and good for the environment, will have a $4.3 billion impact on the overall fuel consumption that generates transportation project revenue over the next decade.”

To address potential funding shortfalls that could arise down the road from an over-reliance on motor fuel taxes, Tyler lays out three potential policy solutions that could be considered by the Illinois General Assembly: replacing motor fuel taxes with a vehicle miles traveled fee, increasing the EV registration fee and joining six other Midwestern states in adding a hybrid vehicle registration fee, and assessing a kilowatt per hour fee on public EV charging stations.

“While Illinois has made huge strides towards reversing decades of neglect to the roads, bridges, and highways that are the lifeblood of our state’s economy, we are living through a time of technological advancement that will eventually render our existing funding models obsolete,” Tyler concluded.  “To protect the progress we’ve made and the investment our infrastructure will continue to need, now is the time for policymakers to consider reforms that can better align future funding needs and the new types of energy technologies that will power use of our state’s transportation system.”

The Illinois Economic Policy Institute (ILEPI) is a nonpartisan nonprofit organization which uses advanced statistics and the latest forecasting models to promote thoughtful economic growth for businesses and working families.