Oregon Legislative Economist Says Cap and Trade Bill Will Gut The Gas Tax That Pays for Transportation Projects

As Oregon shifts from gasoline powered to electric vehicles, lawmakers will have to replace billions of dollars in lost revenue.

As lawmakers move toward passage of the a long-debated carbon emissions reduction bill—cap and trade for short—state Rep. Caddy McKeown (D-Coos Bay) asked a legislative economist an important question: What will happen to gas tax revenues if House Bill 2020 passes?

Currently, the motorists pay 34 cents a gallon in state gas taxes every time they fill their tanks. That tax will bring in about $600 million this year and is largest source of revenues for the Oregon Department of Transportation, which also shares gas tax revenues with cities and counties.

The goal of HB 2020 is to reduce emissions to 45 percent below 1990 levels by the year 2035 and to 80 percent below 1990 levels by 2050. The only way that can happen is if Oregonians burn a whole lot less gasoline and diesel fuel in their vehicles.

HB 2020 proposes to cajole Oregonians to use less fuel by raising prices: The mechanism in the bill will increase gasoline prices by 21 cents a gallon in 2021 and ratchet up to $3 a gallon by 2050.

Policy makers' expectation is that higher prices will cause the make-up small vehicle fleet—passenger cars and trucks—in Oregon to transition from 98.5 percent internal combustion engines today to 99 percent electric vehicles by 2050.

That is a monumental shift, and one that raises all kinds of questions. But McKewn's question was directly aimed at money—what will the state's Highway Fund—the repository of gas tax dollars look like as Oregonian purchase of gasoline plummets?

The answer, according to a May 22  analysis prepared by Mazen Malik, an economist in the non-partisan Legislative Revenue Office, is that tax revenues will decline precipitously.

"HB 2020 could potentially reduce the revenue stream to the Highway Fund by as much as $18.5 billion by 2050," Malik writes in his analysis.

The good news: Malik calculated that ODOT revenue from the fund will be sufficient to repay borrowing the agency has done for current and planned projects.

The policy complication is that lawmakers will have to devise ways to replace the declining revenue, by taxing electric vehicles on miles traveled, assessing annual fees or other new revenue raising mechanisms.

"Highway fund revenues available for distributions between the state, cities and counties, will lose about 1/2 of its value through 2050," Malik writes.

"If no remedy is implemented by 2050, the highway program will be half its size by 2051 and will primarily be operating on the federally funded portion. Clearly, several strategic choices need to be made if the intent is to preserve the financial system for funding transportation in Oregon while implementing a Cap and Trade Program."

HB 2020, which is the result of a dozen years of work by Democrats seeking to address climate change, has been a source of endless negotiations before and during this session, including nearly 100 proposed amendments.

It is currently in the Joint Ways and Means Committee as proponents, who are cautiously optimistic about passage, hammer out final details prior to a House floor vote.

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