California Fuel Tax Revenue to Decline by Billions

With California being a leader in the transition to electric vehicles, reports estimate that it could come at the expense of critical transportation infrastructure. 

Currently, the state funds highway maintenance projects largely with fuel taxes. However, with electric cars becoming the new normal in California, fuel tax revenue is expected to decline. 

Electric Vehicles 

The State of California has become the leader in the United States regarding electric vehicles and decarbonizing its transportation sector. 

On the public policy side, California became the first state to prohibit the sale of gas cars by 2035. 

However, California residents are not waiting until then to purchase them. In the second quarter of 2023, over 25% of all new vehicle sales were electric cars. In comparison, electric vehicles only accounted for 8% of new vehicle sales in the country. 

California is exceeding its expectations when it comes to demand for these vehicles, and it could cause unexpected consequences. 

Transportation Infrastructure 

Highway maintenance in California is largely funded by the fuel tax, which taxes consumption on gasoline. 

However, with the rise in electric vehicle sales in the state, less fuel will be consumed by Californians. Thus, there will be a steep loss in revenue that the fuel tax generates, resulting in a lack of funding for highway maintenance. 

According to the Legislative Analyst’s Office, revenue generated from the state’s taxes on fuel will decline by almost $6 billion in the next decade. This will put critical highway maintenance projects, like the one we just witnessed for the 10 freeway, in jeopardy. 

While it remains to be seen how California lawmakers will react to the new report, legislation to address this future budgetary issue is likely the answer. 

We’ll make sure to update you on the latest on California’s fuel taxes. 

Until then, keep up with BOMA on the Frontline for the latest news in the Greater Los Angeles area.