Starting the transition from gas taxes to per-mile charging

Most transportation professionals are convinced that paying for America’s highways through per-gallon fuel taxes is no longer sustainable. While the transition to electric vehicles has slowed somewhat, hybrids increasingly contribute to lower fuel-tax revenues, and federal new-car fuel efficiency requirements are now the largest factor in projected decreases in gas-tax revenues.

Over the past nine years, Congress has funded a growing number of state mileage-based user fee (MBUF) pilot projects, which have had generally positive receptions from the very small fraction of a state population that participated. But state and federal elected officials are all over the map on how to replace fuel taxes, with some calling for a new federal vehicle registration fee and others wanting electric vehicles to pay twice as much per mile as petroleum-fueled vehicles pay today.

In the Infrastructure Investment and Jobs Act, Congress authorized a national road user charge (RUC) pilot project that would charge real fees. It asked the Biden administration to appoint a steering committee to design and oversee that program. The Biden White House dithered but eventually appointed that committee last year, but failed to announce the members. It has not convened, and so it has not defined the national pilot project. The Trump White House has said or done nothing about it. So there will be no results from a non-existing national pilot project to provide lessons learned for next year’s surface transportation reauthorization bill, as originally intended.

Given this lack of progress, we need a better way to actually begin this needed transition from fuel taxes to mileage-based user fees. That requires figuring out a workable approach for large-scale per-mile charges, including the rates to be charged to various types of vehicles, as well as affordable technologies.

However, to win political and popular support, transportation policymakers must also address the very real concerns of motorists, truckers, and elected officials. The most important concerns and issues about mileage fees are:

• Privacy: People fear the government—“Big Brother in your car”—tracking everywhere they go. 
• Drivers also view mileage fees as double taxation or a new tax that they’d pay in addition to the current fuel tax.
• Transportation officials are concerned about the high cost of collection compared to the gas tax.

Several years ago, I suggested that instead of beginning with some type of vehicle (e.g., EVs), we should begin with one type of roadway. My suggestion is to begin this transition with Interstates and other limited-access highways, using all-electronic tolling. This first step would address all three of the above concerns.

• Privacy: The only miles recorded would be from on-ramp to off-ramp, so there would be no data suggesting the trip purpose. Millions of people drive on tolled Interstates and turnpikes today, and the electronic tolling does not seem to raise privacy concerns.

• New tax: The answer to concerns about double taxation is to provide refunds of the fuel tax paid for the miles traveled on the newly priced highways. That’s a simple calculation that both the Massachusetts Turnpike and the New York Thruway have been doing for many years for truck fleets using those toll roads.  

• Cost of collection:  The cost of collecting fuel taxes for personal vehicles is about 2% of the revenue collected. With all-electronic tolling, the cost is as low as 5% of the revenue. By contrast, consulting firm WSP last year estimated the cost of collection for scaling up technology used in recent state mileage fee pilot projects as between $4 and $9 a month per vehicle. That is clearly not ready for prime time. So we should start where it is feasible to use relatively inexpensive all-electronic tolling.

Starting the transition to per-mile charges with limited-access highways should not be mandated by Congress. But it should be allowed by Congress in the 2026 reauthorization. Reason Foundation has recommended this as the best way to jump-start the transition from per-gallon fuel taxes to per-mile charges. If all U.S. limited-access highways were converted, that would be more than one-third of all vehicle miles of travel.

The bill should make use of an existing but never-used federal program: the Interstate System Reconstruction and Rehabilitation Pilot Program (ISRRPP). Instead of being open to only three states, the program should be open to all 50 states. And instead of allowing a participating state to convert only one Interstate, it should be able to convert any or all of them.

Potentially more controversial, but crucially important, is refunding fuel taxes for the miles driven on newly priced highways, to avoid double taxation. This is actually a good deal for state transportation departments because the rate charged on tolled Interstates is typically at least twice as much per mile as what is paid in fuel tax for driving the same highway. That’s because the toll rate must cover the capital and operating costs of the more costly limited-access highway. The state DOT would be freed from devoting any of its fuel tax money to those expensive Interstates, so those dollars would be available to do a better job of sustaining and improving state highways. (I crunched the numbers on this in a peer-reviewed paper in the Transportation Research Board’s journal, Transportation Research Record, in 2023.) A similar proposition is potentially true for federal fuel taxes, whose proceeds would no longer be needed for Interstates that transitioned to per-mile charges.

While this program would begin as a pilot test of the concept, there is good reason to expect several states to volunteer as early adopters. Over the last decade or so, the following states have commissioned detailed studies of the feasibility of converting some or all of their Interstates to toll financing: Connecticut, Indiana, Michigan, Minnesota, and Wisconsin. In addition, four states took part in a federally funded Corridors of the Future study that would have allowed rebuilding I-70 with toll financing and dedicated truck lanes (Missouri, Illinois, Indiana, and Ohio). After participating in two of these studies, Indiana this year became the first state to pass legislation for converting its Interstates to toll financing.

The first few states to take part in this mileage fee program will serve as role models for others, just as California, Florida, and Virginia have done for express toll lanes. Over the next decade or two, as states transition their limited-access highways to per-mile charging, the tech industry may develop low-cost, privacy-respecting technology for per-mile charges on all other types of roadways. And that would be the beginning of converting the other two-thirds of vehicle miles traveled to paying by the mile, rather than by the gallon.

A version of this column first appeared in Public Works Financing.

The post Starting the transition from gas taxes to per-mile charging appeared first on Reason Foundation.

Source: https://reason.org/commentary/starting-the-transition-from-gas-taxes-to-per-mile-charging/