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Revenue losses from electric vehicle switch triple DEEP estimates, according to OFA

The nonpartisan Office of Fiscal Accountability (OFA) released its estimated fiscal impact for the proposed regulation to phase out the sale of gasoline powered cars in favor of electric vehicles between 2027 and 2035, estimating the loss of tax revenue to the Special Transportation Fund (STF) will be at least double what the Department of Energy and Environmental Protection (DEEP) had estimated in their cost analysis.

DEEP’s cost analysis, prepared by Paul Kritzler and submitted to the General Assembly’s Regulation Review Committee ahead of a public hearing on the regulatory change, estimated Connecticut would see a modest 5 percent decline year over year of gasoline excise tax revenue to the STF as the state transitions toward more electric vehicles. The STF pays for much of Connecticut’s transportation infrastructure and public transportation.

However, the department ignored the Petroleum Gross Earnings Tax (PGET), which is also applied to gasoline and, at times, can bring in even more revenue to the STF than the gasoline excise tax.

The OFA indicated that making long-term estimates for this kind of change is difficult and that the fiscal impact of this regulation is “uncertain and depends on several factors including future macroeconomic conditions and consumer demand.” 

While using the California Air Resources Board (CARB) as a starting point, same as DEEP, OFA only forecasted estimated revenue losses for fiscal years 2027 and 2028, the first two years the regulations would take effect, but they estimated the potential revenue loss for the STF at more than triple what DEEP had estimated.

DEEP estimated the revenue loss in 2027 would be $5.3 million in reduced gasoline excise taxes; OFA believes the figure is between $17 and $22 million. For 2028, DEEP estimated a loss of $9.7 million, while OFA placed the number between $33 and $43 million.

The OFA also found several other problematic issues in DEEP’s cost analysis. For one, only a portion of California’s excise tax is sent to the state, as opposed to Connecticut which collects all of it, which means DEEP underestimated the impact of the change to Connecticut’s gasoline excise tax. 

Secondly, DEEP also assumes increased vehicle registration fees based on California’s surcharge for electric vehicles, but Connecticut has no similar surcharge, resulting in a smaller revenue loss. OFA also found a $2-$3 million loss of diesel tax revenue, noting the certainty of the estimate is low.

“Revenue from the motor fuels taxes and PGET are critically important to the overall fiscal health of the STF,” the OFA wrote in their analysis. “Together, these sources comprise approximately 37 percent of the total STF revenues over the next five years (or approximately $860 million annually). However, even absent the proposed regulations, over the long-term the revenue from these sources is projected to decline (consistent with national trends) due to ongoing improvements in fuel efficiency across all vehicles.”

According to the OFA’s Fiscal Accountability Report, also released yesterday, the STF is expected to run into budget deficits by fiscal year 2027 as expenditures increase and fuel taxes decline by roughly $10 million. However, the fund has built up a cumulative balance of nearly $1 billion and will be able to cover the deficits and, potentially, the lost revenue from the EV change were it to be approved.

The current fund balance for the STF is “the highest level in history,” according to OFA, but “there is a longer-term trend of fixed cost growth exceeding revenue growth.”

OFA’s analysis did not include potential cost savings associated with the switch to electric vehicles, which forms the basis for much of DEEP’s contention that Connecticut will see an overall net benefit of $272.7 million by 2040. 

Those cost savings largely stem from estimated reduced sick time, health care avoidance costs and better health outcomes from reduced emissions in the air. DEEP, along with Gov. Ned Lamont and many environmental groups are pushing heavily for adoption of the regulatory change.

OFA’s cost analysis comes ahead of an upcoming meeting by the Regulation Review Committee that will determine whether the proposal moves forward. The bipartisan committee is equally split between Democrats, who largely favor the change, and Republicans who have been campaigning against it and arguing that the matter should be decided in the General Assembly. One Democrat vote on the Regulation Review Committee against the change could scuttle the regulation and force it to the General Assembly, where Democrats heavily outnumber Republicans.

The regulation change is tied to the General Assembly’s vote in 2004 that tied Connecticut to California’s emission standards, rather than the federal standards. If passed, the regulation would apply only to new cars and trucks sold in Connecticut and other participating states and would not affect used cars or cars sold out of state.

Critics, including gasoline station owners, trucking companies and Connecticut farmers, say the change is “too much, too soon,” and that the costs of buying and operating electric vehicles without the necessary infrastructure already in place will result in higher gasoline prices, higher consumer prices and longer times getting products to market.

Meanwhile, DEEP and environmental groups say the change is necessary to protect the health of Connecticut residents, promote clean air and Connecticut’s emissions goals and fight climate change. Connecticut has set goals of reducing emissions to 2001 levels by 2030, and to put 125,000 zero-emission vehicles on the road by 2025.

Connecticut’s electric infrastructure would also require upgrades, amounting to a cost between $1.5 and $2.4 billion, according to Eversource during testimony before the Regulation Review Committee, to support the electricity required to power more EV’s and charging stations.

The Regulation Review Committee is scheduled to decide on the regulation change in a November 28 meeting.

This article first appeared on Connecticut Inside Investigator and is republished here under a Creative Commons license.

Comments

One response to “Revenue losses from electric vehicle switch triple DEEP estimates, according to OFA”

  1. Kenneth Werner

    It should be obvious that the STF has to change its primary revenue stream from a tax based on gasoline and diesel sales to a tax based on miles driven. Those of us who drive EVs now are getting a free ride: Our vehicles produce just as much wear and tear on Connecticut’s highways as gas/diesel vehicles do, but we’re not contributing to the STF at all.

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