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How to collect a fuel tax for electric vehicles

Thomas Clatterbuck

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Tax fairness and capital improvements are the hot topics in Springfield at the close of the legislative session. However, new technologies have added complications to one of the most common taxes, the motor fuel tax. This tax, levied on the sale of gas and other liquid fuels, helps pay for road repairs and improvements. In an era when every vehicle bought gas or diesel at the pump, it was easy to collect and reasonably fair for everyone who used the roads.

Electric vehicles are an exciting new technology, but they disrupt this system. Electric vehicles refuel at charging stations, and thus do not buy gas. But they still use the roads, even though they are not paying to maintain them the way other drivers do. Many people rightfully consider this unfair.

One proposal to correct this is a higher registration fee for electric vehicles. State Senator Marty Sandoval has put forward a $1,000 a year regulation fee to offset the gas tax that is no longer being collected. While many balk at the high price tag, the real issue with the $1,000 price tag is the arbitrariness of the figure. Unlike the motor fuel tax which is based on use, $1,000 is just a nice round number.

Levying a electric fuel tax

There is, however, a way to make electrical vehicles pay the normal fuel tax. The local utility in Springfield, CWLP, has a program which allows customers to pay a lower rate for charging their electric vehicles at off-peak times. The high draw these chargers need can be a problem for neighborhood transformers, and CWLP wanted to encourage customers to spread out the load. Although the logistics of such a program sound complicated, it is easily operated off of new meters installed on the Level 2 chargers for electric vehicles. Currently, the CWLP program applies to home stations, but there is no reason it couldn’t also be implemented on public and commercial charging stations as well.

If usage can be tracked so the rate is lower, usage can also be tracked to allow a tax to be levied. Since there is already a fuel tax on gas, the tax on electricity can be set to match the average number of miles equivalent vehicles would get from gas. Light vehicles average 22 miles per gallon, and currently pay a 19 cents per gallon state fuel tax. This gives a starting point for calculating what the tax should end up being on a kilowatt hour of charging. And since the power used by a Level 2 charger can be tracked separately from a customer’s total usage, the tax could be applied only to electricity that fuels an electric vehicle. This type of tracking is already being done by CWLP.

The number of electric vehicles in Illinois is still small, and the fuel taxes they are no longer paying is only a drop in the bucket for Illinois’ infrastructure needs. But they are currently enjoying a free ride in a time when everyone else is being asked to pay more. By levying a tax on the power electric vehicles use to operate, they can pay the same fuel tax as everyone else. This will only become more important as the number of electric vehicles rises. The technology exists to make collecting this tax is already in use, so it is possible to make sure all the users are paying their fair share.

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Senior strategist, statehouse reporter and political correspondent for Springfield Daily. Graduate of District 117 and UIS. Thomas covers stories in both Morgan and Sangamon Counties, as well as statewide politics.

Local

Golf revenue continues to fall in Jacksonville

Thomas Clatterbuck

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2018 was another bad year for the Jacksonville’s Links golf courses. Like most municipal golf courses, the Links loses money every year. It was clear as early as August that 2018 was going to be a particularly bad year for the courses. The recently released 2018 audit shows just how dire the situation is becoming for the courses.

Total operating losses totaled $198,000. This is nearly triple the losses suffered in 2012. Expenses were up eight percent since ’12. The real driver is that revenue is down 24 percent, from $377,000 in ’12 to just $288,000 last year. This is why the cash infusion from the city came much earlier in the year; the Links was struggling to cover payroll expenses due to low revenue. And unlike in years past when the bailout is needed in the winter months, last year the Links needed help during the fall.

Fixing the root problems at the course will not be easy. Golf participation is declining nationally, and Jacksonville has not been spared from these trends. But the first step is admitting there is a problem. A golf advisory committee was created in February 2018 and they did provide some good recommendations for improvements. But their last meeting was more than a year ago. In full council meetings, council members are reluctant to even acknowledge that revenue is down substantially from years past.

Six-figure losses are the new normal for the Links. It is up to the council to decide if they want to continue to write these losses off, or come up with a more sustainable plan for the courses.

You can read the full audit here.

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Local

CWLP explains Integrated Resource Plan

Thomas Clatterbuck

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What will CWLP look like in 20 years? Ensuring the city will have plentiful and reliable power is key for the wellbeing of the city. And because the City of Springfield owns the utility, this question is doubly important to residents. The city council wants to make the best planning decisions possible, and so earlier this year work began on an Integrated Resource Plan (IRP).

The IRP is a report that will help guide CWLP and the city as they decide how much capacity the power plants will have in the future, and what energy sources they will rely on. Because these decisions will have major ramifications for Springfield for decades to come, the city wanted to have as much public oversight as possible. As part of this process, the utilities committee was given a presentation on the progresses of the IRP so far. Part of the presentation was responding to public comments from the last meeting and listening to concerns from the current one.

How does the IRP work?

IRPs rely on very complicated economic models. They must first find all of the expenses the utility has now, and then predict how all of them are going to change over the coming decades. With more than 750,000 line items in the budget, that is easier said than done. This includes costs for fuel, personnel, regulatory compliance, new equipment and maintenance of old equipment.

Just as importantly, future usage patterns need to be predicted. CWLP needs to know how much power it needs to be able to produce before it can answer how it will actually do it. During the last IRP process in the early 2000s, the experts got this part wrong. Demand is 23 percent lower than the models projected, and so the other decisions that were made ended up being wrong.

The model is based on both facts and assumptions. Small changes in the assumptions can have major impacts on the final results. To create the most accurate prediction possible, nine different scenarios are being considered. These will look at what high coal prices, carbon taxes, or better renewable options will mean for the industry.

But models are impacted as much by what they leave out as by what they include. Items that are considered “out of scope” for the IRP model include health impacts, the coal ash ponds, and the proposed second lake. These factors all impact the real costs of coal-fired power plants. Most of the new public comments focused on the omission of these elements from the IRP. The decision not to include them struck some as a thinly-veiled effort to shift the outcome of the final report.

Other issues

The IRP has also suffered from delays. While the report was authorized to take six months and be ready at the end of the year. Instead, it will be presented in mid-March. This delay was caused by The Energy Authority (TEA), the company assisting with the IRP, bumping CWLP down in the priority queue. While some delays are understandable, the council noted that they had only been informed of this delay the day of the meeting.

Still, the council is more concerned about getting reliable information than a fixed timeline. Previous resource plans did not age well. The city decided to add Dallman Unit 4 in the mid 2000s based on research about how the economics of power were supposed to play out. Higher prices and demand meant protecting the rate-payers from market volatility was going to be particularly valuable. It was also believed that CWLP would be able to sell excess power on the market for a profit. However, those projections did not pan out. By 2008, energy use entered a period of “unprecedented decline,” and the price of power collapsed. Overall, energy demand is 23 percent lower than projected, and average prices are down 40 percent. While this is not to second guess those decisions, the inaccuracy of the previous analysis still has major ramifications for CWLP and the city today. So it is a good sign that the city council is doing what it can to ensure this IRP is more accurate.

The next meeting to discuss the IRP will be the quarterly utility committee meeting in January. There is no set date for that meeting yet.

To learn more about the IRP process, check out the CWLP presentations from the June and September meetings. You can also watch the full September presentation in the player.

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2018 Election

Illinois Republicans voice opposition to mileage tax

Thomas Clatterbuck

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It is no secret that Illinois needs to improve its roads and bridges. Both Republicans and Democrats can agree that we need to invest in infrastructure development. But how we should pay for it is another matter. Most road projects are supported by the gas tax. While this tax worked well for many years, in recent years it has not generated sufficient revenue. Competing government objectives are partly to blame for the shortfalls. Government mandates for better fuel efficiency have reduced the amount of gas people need to buy. Now, the same amount of driving generates less gas tax revenue.

One idea to generate new revenue is a “Vehicle Miles Traveled” (VMT) tax, or just a mileage tax. Conceptually, it is very simple: drivers pay a fee based on the number of miles they travel. In practice, there are significant issues in implementing such a tax. Mileage taxes have a unique infrastructure issue in addition to all of the normal political issues regarding new taxes.

The technology problem

Mileage taxes do not enjoy the same bureaucratic infrastructure that helps with normal taxation. There is already a record of every transaction for the gas tax or other sales tax. Property taxes have the assessment system to know how much a property is worth. But even though every car has an odometer, there is no centralized tracking of how many miles any particular vehicle has traveled.

Relying on individuals to report their mileage would likely prove unreliable and inconvenient.  Without some independent reading of the odometer, people might misreport how many miles they traveled, just as online sales tax long went under-reported. It would also be a huge pain for taxpayers. Annual or quarterly reporting would stick drivers with huge bills. More frequent reporting would result in smaller bills, but higher compliance costs.

Some technical solution would thus be necessary to ensure compliance. Only tracking the change in mileage could be done in a relatively nonintrusive way. But such a simple measure would not be sufficient. It is doubtful Illinois could levy a tax on miles driven in other states, or miles driven on privately owned roads. More sophisticated tracking would thus be necessary to tell when a vehicle traveled taxable miles. GPS tracking would be highly reliable for this, but raises major privacy concerns.

The political problems

Any mileage tax system would necessarily introduce some degree of increased government surveillance. The systems that would be legal to implement require high levels of GPS tracking. That alone would make a mileage tax politically toxic.

But there are other issues that make a mileage tax unpopular. Rural areas would be hit hardest due to the longer distances residents travel. Farmers would be hit particularly hard. And of course, any new tax is a tax increase, which historically is not popular. A VMT would raise the general tax burden in the state, which is already much higher than our neighbors.

Although Republicans from other states have expressed interest in the idea of a mileage tax, Illinois Republicans have come out strongly against the idea. Governor Bruce Rauner has repeatedly spoken out against the idea. He highlighted the technical necessity of a tracking device for any such scheme to work. State Representative Avery Bourne (R-95) also noted that the privacy was “another reason” to oppose a mileage tax. Congressman Rodney Davis (R13) said that he was “not as big a proponent of the VMT” as other revenue options. Davis said that the tracking issue would “impact” the ability to pass a mileage tax at the federal level.

Rauner and other Republicans have used the mileage tax issue in their attacks on the Democrats as well. Rauner has repeatedly claimed that JB Pritzker wants to implement a mileage tax. Although Pritzker has said the idea is “worth exploring,” Pritzker has denied having a plan to implement such a tax. Democrats have pushed mileage taxes in the past, but the effort was withdrawn in the face of stiff opposition. That plan had options for both GPS tracking and flat-fee options.

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