Mileage-based user fees without GPS might be the best step to replace fuel taxes

Over the last 20 years, the fuel tax has become an increasingly unreliable revenue source. Researchers across the political aisle have identified mileage-based user fees as the most technically ideal replacement for the fuel tax.

The transportation community’s ‘plan A’ has been implementing a high-tech geographic positioning system, or GPS-based system, to calculate vehicle mileage. However, current GPS methods are expensive, and rollout has been slow. Given the need to implement an alternative revenue source in the near future, it’s time to move on to the transportation community’s ‘plan B’ and start the mileage-based user fee (MBUF) transition with low-tech odometer readings.

The problem with fuel taxes did not pop up overnight. Since the federal fuel tax was last increased in 1994, the tax’s purchasing power has decreased by 50%. Some of the decline is due to the tax not being indexed for inflation. But some of the problems with the fuel tax today stem from the growing number of electric vehicles, which don’t buy gas or pay fuel taxes at all, along with hybrid vehicles and the growing fuel-efficiency of internal combustion engine vehicles that can drive further while paying less in fuel taxes than the cars and trucks of decades ago.

Elected officials don’t tend to take action, especially when it comes to raising or replacing taxes, until a system reaches a crisis point. A full transition from the fuel tax to a mileage-based user fee will likely take 10 to 15 years, so, in this case, we’re already reaching the crisis stage of needing a sustainable revenue source to replace fuel taxes to fund the maintenance and construction of our roads and bridges.

Today, only five states have permanent mileage-based user fee programs: Hawaii, Oregon, Utah, Vermont, and Virginia. Three of these state MBUF programs are open only to electric vehicles.

Only one state, Hawaii, has plans to require all vehicles to participate in the MBUF program by 2033. Another state, Oregon, is considering making mileage-based user fees mandatory.

The state with the most participants in its mileage fee program, Virginia, with 40,000 participants, has been hampered by high administrative costs thus far. That puts Virginia’s leaders in the awkward position of wanting to encourage driver enrollment for policy reasons but discourage it for revenue reasons.

Mileage-based user fees could be an improvement over the fuel tax. For example, with a fuel tax, all vehicles pay the same rate regardless of the type of road used or the time of day traveled. With a full, GPS-based MBUF, agencies can charge differing rates for driving on an Interstate compared to driving on a local street. With the fuel tax, all vehicles pay a similar tax regardless of the type of road, time of day or traffic congestion. With a mileage-based user fee, transportation agencies could charge more to drive on the highway during rush hour than on the same road at 10 pm.

However, charging different rates based on the type of road or time of day requires the adoption and acceptance of technology, specifically GPS. With GPS, which many of us are familiar with, a receiver detects broadcast radio signals and uses the time of arrival to calculate the vehicle’s distance from orbiting satellites. Using the distance calculations from satellites, a receiver can determine its position and time.

Unfortunately, this gold-standard technology for mileage fees has its drawbacks. First, replacing fuel taxes with GPS-based mileage fees seems unpopular in the United States. In polls and surveys, even after the technology has been explained, only about half of Americans say they would voluntarily participate in a GPS mileage fee program.

GPS programs are also expensive to administer. One advantage of the fuel tax is that the cost of collection is less than 3% of the revenue generated. Most researchers predict that MBUFs at scale can have a cost of collection close to 5%. However, current technologies have collection costs anywhere from 10% to 40%.

These common concerns and expenses mean that the rollout of GPS systems is going to be slow. Unfortunately, we might not have the luxury of time. The greatest threat is that, without a reliable users-pay/users-benefit funding mechanism, we will default to funding transportation from the general fund. Already, more than 20 states subsidize their highway programs with general funds. Some states receive almost 50% of their funding from the general budget.

Using general fund revenue for transportation funding has several problems. Ideally, road users pay the full costs of using the roads and bridges they drive on. With money from the general fund, since revenue cannot be guaranteed each year, state transportation departments cannot use it to bond long-term major projects. Transportation agencies cannot factor the general fund money from future years, which they might not get from the legislature for any number of reasons, into their planning.

Transportation would also compete with other policy and spending priorities that get money from the general fund, such as education, law enforcement and health care. In competing for limited general fund dollars, transportation almost always loses.

These challenges are why transportation leaders must replace the fuel tax with odometer readings. This non-GPS, more straightforward approach does not allow differential pricing. But odometer readings could be implemented today in many states with no new technology needed. In states with annual vehicle inspections, mileage data is already collected. In regions with emissions checks, the data could also be gathered. In other states and regions, repair shops could collect this data when vehicles are serviced. Given that the infrastructure already exists, collection costs would be low.

To ensure affordable payments, drivers could be given a choice of paying for the miles they drive once a year, semi-annually, or quarterly. Many states use this method for vehicle registration and property taxes. With odometer readings, the fuel tax could be sunsetted for all drivers. The mileage fee would replace the fuel tax, preventing double taxation.

Transportation leaders need to be practical about what works and implement it. The transportation community cannot be so focused on winning the battle for GPS-based approaches that it loses the principle of users-pay, users benefit for road funding. GPS-based mileage-based user fees are likely the future of road funding. But odometer readings are available today and are a step toward shifting away from unsustainable fuel taxes while maintaining the critical users-pay, users-benefit principle.

The post Mileage-based user fees without GPS might be the best step to replace fuel taxes appeared first on Reason Foundation.

Source: https://reason.org/commentary/mileage-based-user-fees-without-gps-might-be-the-best-step-to-replace-fuel-taxes/