Lawmakers eye higher gas taxes and registration fees for electric cars

New Jersey lawmakers are fast-tracking a bill that would raise New Jersey’s gas tax collections by roughly 18% over the next five years and create a new tax on electric vehicle registrations to fund road and bridge work in the state.

The bill, sponsored by Sen. Paul Sarlo (D-Bergen) and Assemblyman Clinton Calabrese (D-Bergen), would raise the gas tax’s $2 billion revenue target by $366 million over five years, with the first $32 million hike hitting on Jan. 1.

Sarlo, the Senate budget chair, said in a statement that the added revenue is needed to “address the state’s infrastructure needs, create jobs and fuel economic growth.”

“The state’s infrastructure is the backbone of commerce and the economy in New Jersey. Our roads, bridges, tunnels, and railways need to be repaired, maintained, and improved,” he said.

The changes would be the first major statutory shift to transportation trust fund revenue since 2016, when lawmakers approved a deal that reduced the state’s sales tax and eliminated its estate tax in exchange for more than doubling its levies on gasoline and diesel.

Prior to those changes, New Jersey’s gas tax was the second lowest in the country. Today, New Jersey’s 42.3-cent-per-gallon tax on gasoline and its 49.3-cent tax on diesel are among the nation’s highest. Both taxes automatically adjust to hit revenue targets, rising if there’s a shortfall and declining if there’s a surplus.

Revenue from those taxes goes into the trust fund, which uses the money to pay debt service on bonds that fund transportation capital projects in the state. The trust fund is supported primarily through constitutionally dedicated gas taxes and receives at least $200 million in constitutionally dedicated sales tax revenue annually.

Other changes being proposed would increase the trust fund’s bonding authority — allowing it to borrow an additional $3.6 billion through June 2029 — and delay the expiration of existing bonding authority, which would otherwise sunset on July 1.

At present, the transportation trust fund has roughly $5.2 billion in unused bond capacity, according to financial statements.

The bill would also allow the trust fund to spend $2 billion on transportation projects each year, up from $1.6 billion under current law.

The spending limit would increase by about $60 million annually at the start of fiscal years 2027, 2028, and 2029, and the bill would require the additional $185 million in spending to be equally split between local, county, NJ Transit, and Department of Transportation projects.

Republicans still examining the bill have questioned whether the trust fund needs additional revenue to continue and said their Democratic counterparts should slow the process down to explore alternatives.

“We certainly, on the back of the envelope, have some real concerns about whether this is necessary and believe we should — before we ask the public for one more dime of their hard-earned money, of which we take too much already — we should do our homework,” said Sen. Declan O’Scanlon (R-Monmouth), the Senate GOP budget officer.

The bill is set to see a vote before the Assembly’s transportation committee on Thursday, and the Senate Budget Committee is scheduled to weigh it on Monday.

Sarlo and Calabrese did not return calls and text messages seeking comment. Spokespeople for Gov. Phil Murphy declined to comment.

Politico New Jersey first reported lawmakers’ plans to raise gas taxes.

Electric vehicles not pulling their weight

The bill also seeks to tackle how electric vehicles will contribute to maintaining New Jersey’s roadways as the state moves toward its phase-out of new gas-burning cars by 2035.

Currently, electric vehicle owners do not pay directly into the transportation trust fund through gas taxes, and their contribution to road wear has gained increasing attention as such vehicles have grown more common on New Jersey’s roadways.

The heaviest electric vehicles — battery-run trucks and buses — produce significantly more road wear than their gas-burning counterparts because of their additional weight. Though passenger electric vehicles also weigh more than gas-burning cars, the difference is typically not so large as to create additional road wear.

“Putting the burden to maintain our roadways, having that burden solely rest on people who drive internal combustion engine cars is unfair and highly regressive,” said O’Scanlon. “Let’s be honest: The people driving electric cars up to now — and it’s changing slowly as you see prices come down — it’s rich people, for the most part.”

In lieu of charging fees or other mechanisms that could charge drivers based on how much they use roadways, the bill proposes a flat $250 annual fee on zero-emission vehicle registration renewals that would rise by $10 each July until 2028, when it would reach $290. If approved, the fee would go into effect on July 1.

“The purpose of the gas tax is obviously to place a higher burden to fund transportation infrastructure on those who drive more,” said Alex Ambrose, a policy analyst for progressive think tank New Jersey Policy Perspective. “As we transition away from gas-powered vehicles, we need to continue that model, ensuring that people who use the roads help pay for them.”

Some transportation advocates worry the provision could stymie New Jersey’s emission reduction efforts by sharply increasing upfront costs for electric vehicles since new vehicle registrations can last up to four years.

“All of that would be upfront for as long as the registration is for, so if your registration is for four years, you’re going to be paying over $1,000 up front,” Ambrose said.

Murphy has separately proposed phasing out a sales tax exemption for electric vehicles over the next three years that would effectively add thousands of dollars to electric vehicle prices. That proposal, coupled with the proposed higher registration costs, may redouble opposition to Advanced Clean Cars II, the plan to phase out new gas-burning car sales by 2035. 

Advanced Clean Cars II has drawn opposition from Republicans and some others, chiefly because electric vehicles are still more expensive than cars with internal combustion engines in general, despite some more recent models bearing competitive pricing. 

“Increasing the cost of something that you’re trying to incentivize an uptick in adoption rates is basic economics 101,” O’Scanlon said. “So yes, it can’t help but be counter to that goal.”

There were 95,097 battery electric vehicles registered in the state in June 2023, according to Department of Environmental Protection data, and a $250 fee on each of those registrations would generate roughly $24 million, though that number would grow as electric vehicles become more common.

New Jersey saw 26,683 new battery electric vehicle registrations between June 2022 and June 2023.