CSG Transportation Policy Academy Part 4: Presentation on Oregon’s Mileage-Based Road Usage Charge Program

Day two of the CSG Transportation Policy Academy in Portland, Oregon began with an in-depth briefing on Oregon’s exploration of a mileage-based road usage charge as a replacement for the gas tax. Just two weeks earlier the Oregon legislature had approved legislation, Senate Bill 810, authorizing a program under which up to 5,000 vehicle owners will pay a 1.5 cents-per-mile road use charge and receive a refund of the state gas tax. Officials from the Oregon Department of Transportation, including the head of the Office of Innovative Partnerships and Alternative Funding Jim Whitty, as well as a team of consultants who have worked with the agency on the program looked back on Oregon’s pilot programs and how the legislation came about. They also discussed how the state has addressed concerns about privacy, communications and myths about mileage differences for urban and rural drivers.

“What you’re about to go through is something that really very few legislators in the state of Oregon have gone through, which is essentially a training, an education, a class, if you will, on the per mile charge,” Whitty told academy attendees at the outset of the July 19th session at the Portland Marriott City Center.

Declining vehicle miles traveled, increasing fuel efficiency, a changing vehicle marketplace for electrics and hybrids, and impending corporate average fuel economy standards in 2025 are all factors that have led Oregon to the mileage-based fee, Whitty said.

Whitty looked back on the history of per-mile charging pilot projects around the country. Those included a one-year (2008-09) field test in 12 cities, conducted by the University of Iowa.

“The one thing that they did that was very important is … they confirmed that public perception is positively impacted by experience. So the fear that may have gone into ill regard for this concept in the past, once people experience it, they start to calm down.”

The First Oregon Pilot

Oregon’s first pilot project in 2006-07 was a pay-at-the-pump model that used a GPS device in cars to track mileage. It was called the Road User Fee Pilot Project. The success of that pilot brought a considerable amount of attention to the concept.

“There was a lot of review of this nationally,” Whitty recalled. “Two Congressional commissions and several other think tanks reviewed it and basically said ‘this appears viable with a lot of challenges going forward.’ They were concerned about the privacy problem with the GPS and selling that to the public. They were concerned about massive cost for equipping the vehicles and equipping the fueling stations and all of that and whether this thing was scalable at all. So while it worked, there were some big challenges and those critiques were dead on accurate.”

A period of reflection followed the first pilot as Whitty and his team contemplated how to address those challenges. Whitty said he came somewhat reluctantly to realize that GPS in every car was never going to fly. Even tech savvy types who carried smart phones in their pocket told Whitty they didn’t like the idea because, unlike their phones, the GPS box was not something they had chosen. Whitty had a revelation.

“Let’s don’t choose the technology,” he said. “Let the public choose the technology.”

That led to a redesign of the concept into a system that would provide choices for mileage reporting without government-mandated technologies.

“There won’t be a government box. … They’ll have an access to the open market.”

The Road Usage Charge Pilot Project

The new concept took shape in the latest pilot project, the Road Usage Charge Pilot Project, which ran from November 1, 2012 to February 28, 2013. Forty-four volunteer participants from Oregon, including eight state legislators, were enlisted for the pilot.

“Our participants had the choice to choose two service providers,” said Randal Thomas, Senior Project Executive in Whitty’s office. “One service provider was the private sector (firm) Sanef and if (participants) chose Sanef they were able to do online payments, manage their accounts online and pay by credit card and debit card. Sanef offered three of the five plan options. The first option was called the basic plan. It had a device that you put into the vehicle that had no GPS or location data at all in it. The second option that was offered was what was called the smartphone plan. Similarly, (it had) a basic device that was put into the vehicle and when you activated an application on your smart phone, it would differentiate miles if you were in state or out-of-state and that was the Raytheon technology that was being used there. Then the third option was what was termed the advance plan. That’s the GPS option. You put the device in the vehicle and it has the location data and differentiates if you are on public roads or private roads and if you were in-state or out-of-state.”

“The other service provider was the Oregon Department of Transportation. … If one chose the government option, you had one choice for payment and that was to pay by check and everything was via the U.S. Postal Service. The government option provided only two choices. The basic plan—that was the no-GPS option (where) you put the device in your car that reads all miles travelled and you pay for all miles that you travel. The other option that we had was a flat rate plan. Basically what that was is you paid for a maximum mileage.”

The engineering firm CH2M Hill administered the pilot project.

“No one had done anything like this before,” said the firm’s Principal Technologist Louis Neudorff. “Yes, there had been pilots but nothing where people were going to actually pay real money, where we were going to provide choices and it had to be an open system. So we were completely reliant on the market. This was not something that could be a university research project.”

Neudorff said an initial concern was whether private sector firms were going to be interested in participating.

“Well, as it turned out, they were,” he said. “We started out with the (Request for Information) and a vendor workshop—three days of one-on-one interviews. We had 20 companies come in and talk to us and ask us questions and we were able to ask them questions. The RFI we had 26 responders. Based on the great information we got from that, we sent out a Request for Proposal. We got nine proposals representing teams encompassing 17 companies. We reviewed them, looked at budgets, looked at what they could do. We down-selected to three, did an initial unit test of what they offered and then we down-selected to the two vendors (Sanef and Raytheon). … The fact that we had two different vendors providing the things that plug into the car and they were communicating with another vendor’s account management system was exactly what we wanted to show in an open system. That means other vendors could provide this. Other vendors could provide that. This is a system as it moves forward that will not be locked into a specific vendor and that is so crucial.”

One key lesson from the latest pilot involves the OBD-II. That’s the computer port in most automobiles that can be tapped into to read on-board diagnostics. It can also be used for GPS tracking as part of a mileage-based system, among other things.

“There’s only one OBD-II port and it’s becoming very popular,” said Neudorff.  “When you start looking at such things as pay-as-you-drive insurance and other (vehicle) concierge services (such as OnStar), those are devices that also plug into the OBD-II port. A gentleman from OnStar said we have to be careful of what he called an OBD-II land grab. So it’s going to be very important and what we want to see happen is that the road usage charge becomes a value added to these other services. I think our long-term view … (is eventually) we don’t want there to be anything that you plug into your car and that’s why we want to use telematics. The data is already there. You look at most projections and 49 percent of new vehicles will have telematics by 2017. That’s the goal we want to go towards. … But that’s the direction we think this will need to go to be a long-term success.”

D’Artagnan Consulting conducted an evaluation of the pilot program and deemed it a success. D’Artagnan Senior Partner Steve Morello said the concept was proven, there were no malfunctioning mileage recording devices, no missing miles or missing invoices identified. Nearly all participants found the system quick and easy to use and—as in the University of Iowa field test—most participants said their impression of the road usage charge improved during the pilot.

“Participants generally were supportive of road usage charging because there’s a real need for a source of revenues for transportation systems,” Morello said. “A lot of people were convinced of this. There is fairness in charging. But there were concerns on this whole notion of a government-run and big government creating a new bureaucracy because a lot of governments in the United States and around the world are looking to trim. Having new full time employees in any government agency or entity in most governments around the world is something that people are really, really against. So that’s one of the reasons of having the private sector involved … One of the goals (of the pilot project) was to get the private sector in and have them be involved in operating the system on behalf of and for the government as a service that could be in addition to others. … If you think about it, it’s a pretty cool idea to be able to implement a new tax with very little augmentation of government bureaucracy to do it. It’s one of the beauties of the potential transition from the fuel tax to a road usage charge fee or tax.”

The Road to Senate Bill 810

As the latest pilot wrapped up, the Oregon legislature was already in session and Whitty and the legislative champions of the mileage-fee concept began the push for legislation.

“We passed legislation of course this session,” said Whitty. “Senate Bill 810 and I’m delighted by this step but a little bit disappointed because our preference and the bill that was worked on by the Road User Fee Task Force was another bill—a House bill (HB 2453). … That would have imposed a road usage charge on vehicles rated at 55 miles per gallon and above.”

Early on in the session it looked like the House bill might fly.

“The tax mandate bill made it through several committees,” Whitty recalled. “It made it through Transportation, Revenue in the House and then it made it through the Ways and Means Committee. It was on the Speaker’s desk to go to the floor. In fact, at one point House Bill 2453 was on the Speaker’s desk at the same time as Senate Bill 810 ready to come to the floor for a vote. It was a matter of which one was going to go. At the end of the day, we had opposition from the automakers. … It’s hard to sell vehicles that are 55 miles per gallon and above and this would be a perceived added additional burden that they didn’t want to have added on to things like cost and range problems and things like that.”

Whitty picked up the story of the bill’s journey through the legislature.

“We had identified the necessary votes for a supermajority. In Oregon, to pass a tax, which this has been declared to be, you had to have 36 votes. Ordinarily you only have to have 31 to pass a bill. Those votes were identified by name. … It looked like it was going to pass the House. But then at the last minute, we were hard hit by the automakers—the only opponent—and lost a couple (votes). We had to make the decision to go to the backup plan, which was Senate Bill 810. This is a great bill too however.”

The legislation calls for a program to include 5,000 volunteer drivers of light vehicles who will pay 1.5 cents per mile.

“Now we have to market (this),” Whitty said. “We have to get 5,000 vehicles in. This is a whole new game for us. We’ve never done that and we’ll use external expertise to sell the 5,000 volunteer program to the public and communicate with them about the system. That can be a game changer if we do it well because there’s a lot of unknowns out there.”

Whitty believes a good communications program will be critical to the program’s success.

“When people hear about this for the first time, they may learn one thing about it. But if you have to know 10 things about it to understand it, they’ll make up the other nine. Guess what they hate about what they determine the system is—what they made up. It’s true. I’ve experienced it over and over and over again.”

CH2M Hill’s Kristin Hull said much about communicating with the public was learned during the most recent pilot.

“We really learned that using online media we were able to refine our message as we went,” she said. “We realized quickly that one of the mistakes that was being made consistently was people thought that (the road usage charge) was on top of the state gas tax. So we trained ourselves to start everything we said with ‘as a replacement to the state gas tax, ODOT is beginning to study…’ and that had to be the first thing out of your mouth because once they thought it was going to be another tax, they stopped listening to you.”

Rural-Urban Issues

Another key concern involves the perception that rural and urban drivers would be impacted differently under a mileage-based road user charge. The Oregon DOT contracted with DHM Research to assess the driving habits of Oregon drivers. The firm found that urban and rural drivers were not that far apart in the number of miles driven each year. While those in urban areas make more trips to grocery stores, restaurants and shopping, those in rural areas make fewer trips but drive further distances to get there. Whitty and his team hope the research will help dispel the myth that rural drivers would pay more in road usage charges.

“Pre-empting this rural vs. urban discussion may be one of the first steps you have to do on this issue, whether it’s (with) your own colleagues or with the public because they’re going to have that myth likely,” DHM President Su Midghall told policy academy attendees. “I think many of you probably had your own myth around that and you have to break that myth.”

Solving Privacy Concerns

But it is privacy concerns about a mileage-based system that are still mentioned as one of the highest hurdles the concept still must clear. Whitty described how they went about trying to address those concerns.

“This was our number one issue to try to resolve in all the changes we did to the thinking we had (after the first pilot),” said Whitty. “The first (solution) you picked up on by now: choices. If you provide choices of not only any kind of electronic recording device or that you didn’t have to choose something with GPS in it, that made a big difference. Then again, if you (offer) a choice of provider so you can choose with GPS or anything else who you get it from, that matters to people. I had the opportunity before the (2013) session last year to go around the state talking to communities on this topic and this mattered to people. The government wasn’t going to choose the technology, they get to choose it and they’ll have options for how they report. It matters.”

Another protection Whitty’s task force came up with was protecting personally identifiable information collected under the system.

“(In) the bill, it’s section nine. … It limits who has access to it to essentially who’s necessary for the tax processing and reporting and then imposes an obligation to protect (the data). This includes both the government and the private sector entities involved. All have that obligation. In fact, ODOT will be required to impose penalties on private sector entities that violate that as part of the contract with those entities.”

But during the first hearing on the bill in the House Transportation Committee, the road user charge bill ran into opposition from the American Civil Liberties Union, who argued the privacy protections were not good enough.

“So I sat down with them and I said ‘we have no problem improving this bill for privacy. All we care about is making sure we can (create) an operational system,” Whitty said. “We worked it out very quickly. All they really needed was destruction of the data in a short time frame. So we worked out destruction of the (mileage) data for both government and private sector entities—anybody involved. … (It would be destroyed) thirty days after the later of payment processing, dispute resolution or noncompliance investigation. … The ACLU came forward and said ‘the bill passes our test. We don’t have any problems with privacy on this bill.’ I thought that was huge to have the ACLU come forward and say that in a public forum.”

Cost and Revenue Modeling for Road Usage Charging

The development of the Oregon legislation involved the consideration of many factors and scenarios along the way. Consultants at D’Artagnan Consulting helped Whitty and his team assess the impact of each new wrinkle and change on the costs of collecting the road usage charge and how much it could be expected to produce.

“There’s a lot of variables at play and a lot of (policy) levers to pull on,” said D’Artagnan’s Travis Dunn. “The rate setting problem. There’s the question of which vehicles are in, which vehicles are out. Are you going to provide user choice versus a uniform system? There’s a tradeoff between privacy and technology … Public versus private administration. … And then on the enforcement side, whether you have a robust enforcement system versus a system of harsh penalties for noncompliance. So these are among the many tradeoffs that went into the development of the bill in Oregon and these were policy questions that Jim and the legislature working together had to answer. And each time a question like this was resolved, it had an implication on how ultimately the system was going to be operated. What were the options that were going to be offered, what were the choices that were available to users, how could they pay, how could they report mileage and so forth. These operational concepts in turn had an important influence on the policy question that really matters the most here which is: how much money can we get out of this? How much money can be generated from the road usage charge? In order to answer that question, you have to ask two questions: what’s the gross revenue and how much does it cost to collect? … We called the answers to these questions the outputs. … And we called the other things that we care about the inputs—all those policy questions: how many cents per mile? Who’s in? How to measure the mileage? How do we enforce it? Who’s going to collect it?—the answers to these questions are the inputs.”

The D’Artagnan consultants sat down with Whitty and his team at ODOT and the engineers at CH2M Hill to build a schema for a model that could be used to assess the many potential tweaks that were to come.

“Because Jim was going to be sitting before committees answering policy questions and he wanted to be able to have credible answers to them,” Dunn said. “So we sketched out a high level schema of what types of costs we would consider, what types of revenues, what types of variables. … There’s actually 766 input variables. Jim could sit down at night and tinker with 766 input variables to determine if you change this, if you change that, if we do refunds for these types of vehicles but not those types of vehicles, this is the impact on what it’s going to cost to run the system.”

Dunn said one of the important variables involved the question of how many people would choose the different options for collection.

“How many people do we think will choose to pay with a basic method versus an advanced, location-based method versus a simplified maximum mileage reporting method?”

The modeling provided a somewhat surprising conclusion, Dunn said.

“Providing choices is not costly. I read a lot of the industry magazines and commentaries that have opined on the Oregon system and a lot of them seem to parrot this idea that Oregon’s system is complex because it provides a lot of choice and that choice is going to cost them. That’s not actually true. Having choices does not drive up the cost because the way that the tax is collected and the way that we model the tax collection is based on a fairly simple principle.”

But that’s not to say the overall cost of administering the per-mile charge will be insignificant.

“Obviously in the early years when you only have a few vehicles in the program, it’s going to look very expensive to collect the tax because you don’t have a lot of vehicles participating,” Dunn said. “So the percentages in 2015 through 2017 are rather high. But as you grow the program, more vehicles enter the system and those costs come down rather dramatically so it’s highly scalable and this was the case in just about every scenario we ran.”

Of course when compared to the gas tax, any collection costs are going to seem high.

“The system costs for this are higher than the gas tax,” Whitty said. “I think they’re at an affordable level … but the gas tax is unbelievably wonderful from an administrative standpoint. Those of you that work with it understand (administrative costs are) below 1 percent in every state. But of course it’s failing because vehicles aren’t in it or not paying as much of it anymore and so the fact that it’s a nearly perfect tax goes away because it’s failing.”

The Road Ahead

Whitty explained what’s ahead for Oregon in setting up the mileage-based road user fee system.

“The Oregon Legislature gave us two years (until 2015) to work out all the bugs and to figure out who’s going to do what at ODOT. We have the Motor Carrier Division that runs the weight mile tax for heavy trucks. That’s a logical place (to handle enforcement of the road usage charge). But my team will build the system over the next two years and make a recommendation to the head of the agency about where things should sit. My team will not operate the system.”

Oregon will also look to enlist other partners in moving towards what could one day be a national system.

“The bill (SB810) actually has provisions—Section 29 and 30—for engaging in multi-jurisdictional agreements,” Whitty said. “The legislature is directing us to now go beyond the borders of the state of Oregon and work with other states to work on things like communications, to work on interstate issues and operational issues, and to develop multi-state pilot programs. To use the Oregon platform—that computer code, which has no geographical limitations—invited other states in to basically run very quick and inexpensive pilot programs. … But if we do that, the industry will be excited. Things are happening. There is action happening in multiple places. The market will inform and it will be easier to go forward nationally.”

Additional Resources

“Oregon’s Road Usage Charge Program: Paying for Distance Traveled” (Jim Whitty PowerPoint presentation)

“Cost and revenue modeling for road usage charging,” (Travis Dunn PowerPoint presentation)

“Evaluation of Oregon DOT Road Usage Charging Pilot Program,” (Steve Morello PowerPoint presentation)

“Road Usage Charge Pilot Program Administration and Lessons Learned,” (Louis Neudorff PowerPoint presentation)

“Road Usage Charging Urban-Rural Analysis,” (Su Midghall PowerPoint presentation)

“Pilot program communications,” (Kristin Hull PowerPoint presentation)  

House Bill 2453 – The 2013 tax mandate bill Whitty and his team were seeking

Senate Bill 810 – The 2013 mileage-fee legislation approved by lawmakers.

Road User Fee Task Force website (includes meeting minutes, research, presentations)

D’Artagnan Consulting Publications

Further Reading

“Q&A: Oregon’s New Mileage Tax Explained,” Stateline, August 1, 2013

“Technology Will Make or Break Oregon’s Mileage Tracking Program: Oregon’s plan to charge drivers by the mile is gaining speed with the help of cheaper off-the-shelf devices,” Government Technology, July 29, 2013

“Oregon to Charge Drivers by the Mile—Not the Gallon,” Governing magazine, July 15, 2013

“Oregon Adopts Road user Charging Legislation—First in the Nation: An Interview with Jim Whitty,” International Bridge, Tunnel & Turnpike Association Blog, July 10, 2013

“The Era of Pay-Per-Mile Driving Has Begun,” The Atlantic Cities, July 10, 2013

“Oregon legislature enables road use charge (RUC) of 1.5c/mile to start as voluntary scheme July 2015,” TollroadsNews, July 8, 2013

“Road use charges—two views on Oregon’s innovation,” TollroadsNews, July 8, 2013

“Lawmakers switch gears on per-mile road-usage charge,” Statesman Journal, July 7, 2013

“Vehicle-Miles Tax on Rural Drivers: Everything You Believe May Be Wrong,” Transportation Issues Daily, April 23, 2013

“28 companies respond to Oregon-organized road use charge pilot,” TollroadsNews, March 28, 2012