The Financial and Policy Impact of Electric Vehicles and Improved Fuel Economy on Delaware’s Motor Fuel Tax Revenue

PROJECT SYNOPSIS

Two unavoidable technological changes will negatively impact Delaware’s motor fuel tax (MFT) revenue and the long-term health of the Transportation Trust Fund that is critical to the development, operation, maintenance, and management of the state’s transportation and transit systems. First, gasoline and diesel vehicles are becoming more efficient and can drive more miles on the same amount of fuel. Second, electric vehicles (EVs) are becoming more popular, yet their owners pay no motor fuel tax because the vehicles are powered by batteries.

The EV transition in Delaware was codified in a state regulation finalized in November 2023. The regulation requires that 82% of all new vehicle deliveries to Delaware in 2032 must be zero- emission vehicles. Given these technological inevitabilities of improved fuel economy and EV sales, and the fact that both changes will depress motor fuel consumption in Delaware, analyses are required to inform a path forward. A financial analysis is required to forecast MFT revenue; and once the magnitude of the revenue shortfall is estimated, a policy analysis can help illuminate the options available to address the budget challenge and identify policy tradeoffs.