Governor proposes flexible-fuel vehicle credits

In his recent State of the State speech, Gov. Rod R. Blagojevich unveiled a proposal to help Illinois drivers save money, promote fuel efficiency and boost the use of alternative fuels. The plan would give buyers of qualifying fuel-efficient vehicles and alternative-fuel vehicles a $500 state sales tax credit beginning July 1, 2006.

Car buyers would instantly receive a $500 credit towards their sales tax when they purchase a new qualifying car at the dealership. If a car buyer has less than a $500 sales tax liability (e.g., when they are trading in a used car with high residual value), the buyer will receive a credit for the full value of their sales tax.

“I want to help Illinois’ citizens reduce their fuel costs, and I want to help our nation reduce its dependence on imported oil,” said Blagojevich. “With the proposed $500 tax credit, we can encourage the use of efficient vehicles, encourage the use of renewable fuels like E-85, and help keep more of our energy dollars in the Illinois economy.”

To qualify for the $500 state sales tax credit in 2006, the new vehicle purchase must get at least 35 m.p.g. in city driving for gasoline or diesel vehicles or 25 m.p.g. in city driving for flexible-fuel vehicles. Based on these guidelines, the following vehicles would qualify this year:

Manufacturer, Model (city & highway m.p.g.)

Toyota Prius (60/51)

Honda Insight (60/66)

Honda Civic Hybrid (49/51)

Volkswagen New Beetle (diesel) (37/44)

Volkswagen Golf (diesel, manual only) (37/44)

Volkswagen Jetta (diesel) (36/41)

Ford Escape Hybrid (front wheel drive only) (36/31)

Chevrolet Monte Carlo (FFV) (E-85: 16/24; Gas: 21/31)

Chevrolet Impala (FFV) (E-85: 16/23; Gas 21/31)

The two flexible fuel vehicles that qualify, the Chevrolet Monte Carlo and Impala, are the most fuel-efficient FFV models on the market, both with a 16 m.p.g. city rating on E-85 fuel.

Each calendar year, the state will issue an updated list of qualifying vehicles. Vehicle mileage will also be updated annually. If no flexible fuel vehicle meets the 25 m.p.g. city rating in a calendar year, then the most efficient flexible fuel model available that year will be eligible.

“Flexible fuel vehicles can run on an 85 percent ethanol fuel. Illinois corn growers produce large amounts of ethanol,” Blagojevich added. “Encouraging consumer demand for flexible-fuel vehicles will help our nation move towards greater energy independence and security while at the same time protecting our air and expanding a market for Illinois-grown corn.”

The governor’s proposal is also a “performance-based standard,” which means that automakers are given a goal and are free to meet the goal any way they can—an approach that encourages innovation. Others in the legislature have proposed bills that would provide incentives for any vehicle that uses hybrid (battery) technologies. These “technology-based standards,” which subsidize certain technologies regardless of whether they meet the policy objective (in this case energy efficiency), are more likely to lead to unintended consequences than performance-based standards. For instance, some hybrids are not more energy efficient than their non-hybrid counterparts (because the automakers have used the increased efficiency for more horsepower and acceleration rather than more miles per gallon).

Last year in Illinois, more than 15,000 of the qualifying vehicle models were purchased.

The sales tax break requires the approval of the General Assembly. Illinois would join more than a dozen other states that offer some form of tax credit for the purchase of new, fuel-efficient vehicles.

From the Feb. 1-7, 2006, issue

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