Should electric vehicle owners pay higher fees to help fund state roads?

Automakers say higher registration fees for alternative-fuel vehicles will discourage sales in a still-developing market

 

LANSING — Automakers are pushing back against proposed higher state registration fees for alternative-fuel powered cars.

The extra fees — $30 for hybrids and $100 for electric vehicles — would go toward a nearly $1.5 billion road funding plan and are being portrayed as a tax fairness measure since alternative-fuel vehicles use less gasoline and so their owners pay fewer gas taxes.

But automakers, racing to meet more rigorous federal fuel-economy standards, have concerns the fees will discourage would-be buyers of the fuel-efficient vehicles in a still-developing market.

In a letter last month to state Senate Majority Leader Arlan Meekhof, the Washington, D.C.-based Alliance of Automobile Manufacturers said lawmakers should be offering incentives to buyers rather than raising fees. The alliance represents a dozen global automakers, including the Detroit 3.

“Public policies that negatively differentiate advanced technology vehicles — such as electric and hybrid vehicles — discourage consumers from adopting these new technologies,” wrote Wayne Weikel, the alliance’s state government affairs director.

“Consumer choice is the key factor in driving competitiveness in the marketplace, and state policy should not penalize residents of Michigan who purchase one vehicle over another.”

What’s fair?

The argument in some ways is over a relatively small amount of potential revenue — up to about $2.5 million annually, at least initially.

But Rep. Eric Leutheuser, R-Hillsdale, sponsor of House Bill 4612, said the fees are a way to ensure fairness in a system in which everyone would have to pay more.

“You don’t want to discourage innovation. You don’t want to discourage early adopters,” said Leutheuser, who owns Buick and GMC dealerships in Hillsdale.

“I just circle back to the notion that even though those are true statements, we pay for our roads with two things — (fuel taxes and registration fees),” he added. “I want to make sure I’m applying those as fairly as possible.”

HB 4612 is pending in the House after being returned from the Senate this month.

The Senate’s version added higher registration fees for commercial vehicles that weigh more than 8,000 pounds, should they adopt alternative fuel technology — $100 for hybrids and $200 for electric.

Other pieces of the Senate plan include raising diesel and gasoline taxes from 19 cents to 34 cents per gallon by 2017 and tying them to inflation, as well as cutting $700 million from unspecified state departments.

If the bill is adopted, the nonpartisan House Fiscal Agency estimates the extra fees on alternative-fuel vehicles could annually generate between $764,000 and $2.5 million — a wide gap explained in part because the Michigan Department of State doesn’t know how many passenger vehicles would be covered.

As of April 2014, the state department counted more than 25,000 vehicles powered at least in part by electricity by searching model names such as the Honda Insight, Nissan Leaf, Toyota Prius or Chevrolet Volt, the agency said.

If all of those were considered passenger hybrids, that would raise $764,000, compared to $2.5 million if all were electric, the agency estimated.

Call for lower fees

The automakers’ alliance, in the letter to Meekhof, recommended a lower fee structure of an additional $25 for plug-in hybrids and $75 for battery-powered electric vehicles, should the Legislature move forward with the plan.

It also urged that the higher fees be paid when renewing a vehicle yearly, not at the time of purchase.

“The Senate should carefully consider whether increased fees paid by the purchaser of a vehicle at the time of sale will act as an obstacle to that sale,” Weikel wrote. “The more upfront costs that state policy adds to a vehicle purchase, the more money that consumers will need to have in hand to make that purchase.”

In 2014, Michigan registered 337 new electric vehicles and nearly 12,400 hybrids, according to data from Southfield-based IHS Automotive.

But Michigan pales in comparison to nation-leading California, which registered more than 29,500 new electric vehicles and nearly 145,500 hybrids last year, according to IHS.

California also offers incentives to encourage buyers to consider hybrids or electric cars, according to the U.S. Department of Energy’s Alternative Fuels Data Center.

The federal government also offers income tax credits of up to $7,500 for the purchase of electric or plug-in hybrid vehicles.

Michigan does not offer any such credits, although some utilities, including Detroit-based DTE Energy Co., offer incentives to residential customers who charge plug-in electric vehicles at home.

Automakers like incentives because they can boost demand for hybrid and electric vehicles at a time when many customers still question their range and the availability of charging stations, among other infrastructure hurdles, said Stephanie Brinley, a senior analyst with IHS. Gas prices also have been lower, sending buyers back to trucks and SUVs in greater numbers.

And manufacturers need people to buy the new technology to help them comply with federal average fuel economy standards that will reach 54.5 mpg fleet wide by 2020.

Higher registration fees won’t dissuade serious customers, Brinley said. But if adopted everywhere, it could become a disincentive to purchase.

“(In) trying to address it through this road bill, we’re trying to answer a question legislatively that hasn’t been handled in the market yet,” Brinley said, adding that lawmakers should wait at least five years for the market to settle. “I would almost say any answer is wrong right now. We just don’t know how it’s going to play out yet.”

Add the fact that Michigan has such a small fleet of hybrids and electric cars on the road that any revenue generated will be small, she said, and “it’s also a nice little political throwaway.”

Leutheuser said he intentionally proposed conservative fee increases based on the average number of miles driven in Michigan per year and the average fuel economy of vehicles that would be considered hybrid or electric under the bill.

The idea, he said, is that drivers of hybrids or electric cars will save more in fuel than they will pay in higher fees. But he said the state should not arbitrarily determine buyer behavior.

“We are the car capital. We want to be pro-innovation and we want to be pro-technology,” Leutheuser said. “We don’t want to be known for having the highest fees in the country.”

Other states have taken similar steps. For example, Idaho charges owners of plug-in electric and hybrid vehicles annual fees of $150 and $100, respectively, on top of standard registration fees, according to the federal energy department.

Georgia, which eliminated its purchase incentives for plug-in electric vehicles, added an annual license fee of $200 for passenger EVs and $300 for commercial vehicles.

Toyota, in submitted testimony to the House, proposed an “access fee” that would replace the state’s gas tax with a flat fee determined by the state. That could be an average of $140 per vehicle.

Toyota said the fee would be technology-neutral, wouldn’t punish adopters of new technology and doesn’t raise privacy concerns the way a vehicle-miles-traveled fee would.

Leutheuser said he understands the industry’s position. But, he added, states have to do something to combat lower fuel tax revenue that is an offshoot of better fuel efficiency reducing gasoline use.

“We do our roads with fuel taxes and registration fees. It may not be the best system, but it’s the one we’ve got,” he said.