CARE: Comments About Responsible Energy

Coming to a state near you - a tax on miles driven, instead of fuel consumed

Read Care favorite Furchtgott-Roth's take on the issue

Taxing Miles Driven Over Fuel Consumed

By Diana Furchtgott-Roth

RealClearMarkets.com
March 1, 2012

SALEM, OREGON--It was an unusually sunny day in Oregon on Monday, and at the Oregon Department of Transportation Jim Whitty was in a sunny mood. Even though last year the state legislature ended his pilot program to replace motor vehicle fuel taxes with a charge for vehicle-miles traveled, he is going back to the drawing board to come up with a revenue substitute for taxes, road charges based on gallons of fuel purchased.

Cars are becoming more fuel-efficient and rising gasoline prices are discouraging driving. As the Transportation Department's Manager of Innovative Partnerships and Funding, Whitty hopes to submit to the legislature in 2012 a new proposal for collecting revenue on the basis of miles driven, rather than on motor fuel consumed.

Other states, also concerned about their future revenues, have been developing their own programs. They are monitoring the progress of Oregon's pilot project and waiting to see what Whitty and the Beaver State will try next.

Whitty anticipates increased use of hybrid vehicles, which burn less motor fuel. If hybrid or electric cars are the wave of the future, states and Uncle Sam will have to work out how to charge owners of these vehicles for road use.

It is now technically practicable to charge drivers on the basis of vehicle-miles traveled, or VMT, either by on-board meters that use GPS, or by odometer readings, or by tapping into an automobile's internal electronics. With prices of transponders and on-board meters falling, sophisticated and efficient systems are now available, with drivers paying as easily as they pay for cell phones or E-Z Pass tolls.

Groups such as the National Surface Transportation Policy & Revenue Study Commission, the American Association of State Highway Transportation Officials, the International Bridge, Tunnel and Turnpike Association, and the National Surface Transportation Infrastructure Financing Commission have endorsed the concept of VMT as a substitute for motor fuel taxes.

One advantage of VMT taxes is that it might lead to roads financed by private capital instead of by governments. Such private investment in roads was the norm in the 18th and 19th centuries but fell out of favor in the 20th, because of the unpopularity of paying tolls.

One exception is the ten-mile express "tollway" added to California's State Route 91 (east of Los Angeles) which is subject to variable tolls, the tolls being varied electronically to ensure that traffic on them is uncongested at all times. Another example is the Dulles Greenway in Virginia.

Private road building and financing would let market-economy criteria for pricing and investment be applied to roads, thus enabling motorists to get most of the roads they would be prepared to pay for. Road providers could set tolls in conjunction with the state, like a regulated utility, because there might be controversy about letting them set tolls unilaterally.

Oregon has been a leader in charging for road use. It was the first state to levy a gasoline tax, in 1919. In 2001, a voluntary pilot program incorporating GPS-based distance measurements was designed to replace the fuel taxes that pay for the construction and maintenance of roads. In 2006 and 2007, the 299 drivers in the pilot program had a choice of paying either fuel taxes or mileage charges. When they filled up at participating gas stations, a device on their car calculated how far they had driven. Instead of being charged the gas tax with their purchase, they were charged for the miles they had driven in Oregon.

Although Oregon's program was technically successful, the legislature did not renew it in 2011, citing, among other issues, privacy concerns. With government-provided GPS devices on their cars, some people feared that the government was tracking their movements and whereabouts. Oregon assured residents that their whereabouts were not recorded, but quite a few Oregonians were not convinced.

So, Jim Whitty has moved on to a different way to charge for miles driven. It would allow road users, if the legislature approved, to choose from a variety of devices, supplied by different providers, so that the VMT system is not necessarily linked to GPS.

Whitty told me, "Providing drivers choices of devices and choices of providers may well lead to public acceptance of mileage fees as an alternative revenue source for our nation's roadways."

His object now is to build a road user-charging system based on existing realities in the marketplace. Rather than requiring motorists to use a particular device, such as a government-supplied GPS monitor, people would choose their own device. It would not have to have GPS, so they would not have the feeling that Big Brother was able to watch them.

One must note that there is some inconsistency in the privacy objection. These days ever more people are walking around with smartphones, which contain GPS software capable of tracking their movements. This does not appear to trouble them. They are troubled if the government, rather than a private vendor, asks them to purchase a GPS compatible device. This leads Whitty to believe that if individuals have a choice about the device to monitor their driving, they will find it less objectionable.

Such a device could be an app on a smartphone, or perhaps an invention still to come. The important point is that it is chosen by the consumer, and it has the capability of being integrated with other systems.

The Oregon Transportation Department is developing standards for such devices to be designed by private sellers. Motorists will be able to choose a device, and also pick a method of payment, such as mileage charges on a credit card, phone bill, or gas or electricity bill.

The devices and accounting methods would be certified by the state to make sure they are private, efficient, and free of fraud. Rather than becoming a provider of VMT devices and a collector of revenues, the State of Oregon would become a certifier of different technologies and accounting methods, while the road providers (whether public or private sector) would collect the revenues.

Possible technologies include reporting of mileage from a car's odometer, or from an onboard device. Another possibility is a flat annual fee to cover unlimited driving. In addition, providers would be able to offer services that could be related to mileage driven, such as vehicle insurance. Such devices could also be used for purchasing parking, or as a phone, or for music storage.

Whitty is asking companies to demonstrate technologies that they would like to sell to drivers, and he is asking drivers to volunteer to test them, paying VMT charges instead of motor fuel taxes. He hopes to be ready for demonstrations of the devices by December.

In 2013, the project would go before the state legislature for a vote. If approved, the system could be phased in, starting on a voluntary basis in July 2013, according to Whitty's ambitious timetable. A compulsory system, covering all vehicles, including security features, could take several more years, including establishing an independent certifications agency, setting standards for security, anti-tampering, accuracy, and privacy, as well as auditing and enforcement.

Other states are interested. Pilot projects and draft legislation are under way in Nevada, Colorado, Ohio, Maryland, Pennsylvania, and Wisconsin.

As fuel efficiency increases, and as Americans purchase more hybrid and electric cars, it has become time to look beyond the gas tax for revenues for road use. Whitty is to be congratulated for moving the ball forward.

Diana Furchtgott-Roth is a senior fellow at the Manhattan Institute.