Low tech mileage-based user fee options

Introduction: Overview of mileage-based user fees

For the past 100 years, most arterial highways throughout the United States, including the Interstate Highway System and most state highways, have been funded by the motor fuel tax. However, over the last 20 years, due to the combination of a growing number of electric vehicles, a growing number of hybrid vehicles, and the greater fuel efficiency of vehicles powered by internal combustion engines, fuel tax revenue has declined significantly. Given these trends, the motor fuel tax will not be a sustainable revenue source for roads and highways over the next 100 years.

The motor fuel tax can be compared to a rock star on his farewell tour. It is still producing revenue, but it is not as effective a mechanism as when it was at its peak. Further, most transportation analysts know that it is time for something more sustainable.

Over the past 20 years, researchers have examined a number of different alternative transportation funding sources, such as a freight charge per ton, tire fees, registration fees, and sales taxes. About 10 years ago, officials with the American Association of State Highway and Transportation Officials (AASHTO) created a comprehensive funding matrix. The impetus for the chart was the decline in revenue from the motor fuel tax. AASHTO was examining how fuel tax revenue could be replaced. The organization looked at more than 35 funding sources based on the users-pay/users-benefit principle (in which people who use roadways more pay more, those who use roadways less pay less, and those who do not use them pay nothing at all) and using general funds, the most significant of which are detailed below in Table 1.

After looking at all of the options, researchers determined that the mileage-based user fee (otherwise known as a road usage charge, road charge, or vehicle-miles traveled fee) was the most promising of all of the revenue sources that they studied. A mileage-based user fee (MBUF) charges drivers based on the number of miles driven, compared with the fuel tax, which charges drivers based on the number of gallons of fuel consumed, or a sales tax, which charges consumers based on the value of goods purchased. The mileage fee ranked extremely high in economic efficiency and equity, and medium-high in implementation and administrative efficiency.

From a fiscal perspective, mileage-based user fees would generate $246 billion over an estimated six-year period, dwarfing every other revenue source, including a 10% increase in the motor fuel tax rate ($120 billion) and implementation of a gasoline sales tax ($156 billion).

Further, MBUFs were the only option that could generate enough revenue to replace the motor fuel tax (more than $200 billion for automobiles and trucks combined), more than any other option in the AASHTO matrix.

MBUFs also more closely adhere to the users-pay/users-benefit principle. In addition to being an economic advantage, it is also a political one. Transportation must compete with other policy priorities such as health care, education, and defense. And transportation usually loses out to those other priorities in a fight for general revenue sources, such as sales taxes and income taxes. Therefore, any revenue sources that do not rely on the users-pay principle are unlikely to lead to sustainable transportation revenue.

Even though MBUFs scored well in implementation and administrative efficiency, there is room for improvement. Parts 3 and 4 of this policy brief examine some of these challenges and how they can be addressed.

Equity implications are mentioned multiple times in the 2015 and 2019 versions of the AASHTO matrix. Specifically, the report examined geographic equity and equity among drivers of different propulsion methods. While many drivers would assume that rural residents would pay more, many rural drivers would pay less in MBUFs than in fuel taxes because they tend to drive older, less fuel-efficient vehicles. With fuel taxes, drivers pay varying amounts depending on their vehicle’s powertrain, despite the fact that all light-duty vehicles wear out pavement at about the same rate. Drivers of electric vehicles pay no fuel tax at all, while drivers of hybrid vehicles pay approximately half of what drivers of conventional fuel vehicles pay. With MBUFs, all light-duty vehicles that travel the same distance pay the same amount, regardless of powertrain.

The AASHTO matrix did not seek to explain MBUFs, but in some ways, they are most similar to what Reason Foundation calls 21st-century per-mile tolling. Both mileage-based user fees and tolling charge drivers a per-mile rate. The biggest difference is in the geography. Tolls are charged for a specific stretch of highway, while MBUFs are charged for the entire system. For this reason, both are better user fees than the fuel tax, which charges drivers a per-gallon rate regardless of where they drive.

However, both MBUFs and 21st-century tolling would be different from today’s toll roads, which often employ double taxation. Currently, motorists on most toll roads pay both a fuel tax and a toll, with only two states offering a rebate on fuel taxes. Motorists may also pay a variable toll on express toll lanes, although that toll is designed to manage congestion, not to raise revenue. In mileage-based user fee pilot and permanent programs where money is exchanged, drivers receive a rebate for any fuel tax that they pay. It is crucial that any potential MBUF pilot refunds fuel taxes and tolls to prevent any double taxation.

Regarding implementation, because they charge for the exact amount of roadway that a vehicle uses and can be varied based on the type of highway, many transportation researchers consider GPS-enabled and location-based MBUFs to be the ideal solution. Currently, pilot and permanent MBUF systems are divided into high-tech and low-tech MBUFs. The following section of this brief provides a brief overview of how a high-tech MBUF functions.

Full Policy Brief: Low tech mileage-based user fee options

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Source: https://reason.org/policy-brief/low-tech-mileage-based-user-fee-options/