Interest Grows in Mileage-Based User Fees to Fund Transportation

As Congress struggles to come up with the kind of multi-year transportation authorization bill that was once customary and with the idea of a federal gas tax increase to pay for it still divisive despite low oil prices, one revenue mechanism that has long been considered a possible replacement for the gas tax is expected to have a pivotal year: the mileage based user fee (MBUF) aka vehicle miles traveled (VMT) fee/tax aka road usage charge. But some wonder whether the mechanism can ever truly become what transportation policy experts originally expected and whether its adoption will be derailed by privacy concerns that some say are largely unfounded. Those were some of the issues on the minds of speakers at last week’s Transportation Research Board (TRB) annual meeting in Washington, D.C.

Beginning July 1 of this year, 5,000 volunteers in Oregon will begin paying 1.5 cents per mile and receive a refund of the state gas tax. The Road Usage Charge Program is the product of legislation passed by the state legislature in 2013 that authorized the Oregon Department of Transportation (ODOT) to set up a mileage collection system. While Oregon and other states have conducted pilots of such systems before, this will be more than a test. The volunteers will really be paying and the state (or in this case their surrogates) will really be collecting this new revenue source.

“The strategic objective we’re pursuing is to create something sustainable for revenue that will establish a market that is simple and easy for payers,” ODOT’s James Whitty said during a TRB session January 13.

Volunteers will be able to choose what they’re most comfortable with as they enter the program. Whitty’s department won’t have a say in selecting the technology for them.

“Motorists must have choices … of method of mileage reporting, choices for the technology they use for mileage reporting, and they have a choice of provider,” he said.

The choice of provider will include an account manager representing ODOT and others representing the commercial sector.  

“Frankly, we don’t know how to do this,” Whitty said. “We need a private sector firm to do this. We issued (a request for proposals) last Spring and Sanef, the European electronic tolling company, won the bid and they are under contract now to essentially be ODOT. … The ODOT side must accept any volunteer. They have no choice, no matter who it is.”

This option will allow only basic reporting of miles driven. No vehicle location data will be collected. The collection won’t involve a GPS device. Sanef won’t be allowed to bundle value-added services with the collection. And they won’t be able to sell mileage data.

“On the commercial side though, we intend for the account managers to start a business,” said Whitty. “They will be able to recruit and choose volunteers. They will be able to use any type of mileage reporting technology that meets the standards of the department and they can change it over time. … They’ll be able to sell value-added services. … They will be able to bundle those services in a single billing and combine their account management practices with other value-added services. They will be able to sell mileage data if they can get approval for the sale and they can retain it beyond 30 days with consent of the road usage charge payer. … The commercial side is where we want to put all of our effort. We want that to be very successful.”

Azuga and Verizon are the firms selected so far to form the commercial market and both are in the process of meeting requirements of the program. The certification process is expected to be complete in March with operational trials starting in April.

Whitty said the interest in Oregon’s program is spreading. Eleven states have joined the Western Road Usage Charge Consortium that is committed to developing concepts for a multi-state system. Five states are reportedly looking to do pilots of their own. And last year, California’s legislature passed a bill to authorize creation of a pilot program in that state.

“We think that (California) was a very important set of circumstances that happened out there,” said Barb Rohde, Executive Director of the Mileage-Based User Fee Alliance. “This came together incredibly quickly. … In August, this legislation got written. It got passed in September.”

California wants to have a pilot in place by 2017. A committee that will design the program is scheduled to meet for the first time this week. Legislation to authorize additional pilots is expected to be introduced this year in Illinois and Minnesota, Rohde said. And the Midwest states and I-95 corridor on the East Coast have both expressed an interest in developing their own road usage charge consortia. Such developments could pave the way for a national mileage-based system down the road, some believe, and there is apparently significant bipartisan interest at the federal level in what’s going on. The reauthorization bill that was voted out by the Senate Environment and Public Works Committee last spring (but that didn’t get any further) included language to provide competitive avenues for three alternative transportation funding streams. The bill didn’t mention mileage-based fees by name but they could certainly be in the mix.

“The Secretary (of Transportation) shall carry out a research and innovation program to explore alternative transportation revenue mechanisms that preserve a user fee structure to maintain the long-term solvency of the Highway Trust Fund,” the bill said.

Rohde believes MBUF supporters have a “very good shot” at keeping that language in a new authorization bill, if one emerges this year.

“What I’m telling states and our members is ‘get ready’ because if this happens, my sense is (Congress wants) to move quickly because they want results before the next reauthorization,” Rohde said.

Indeed mileage-based user fees have some support from some unexpected quarters.

“It’s interesting because the anti-tax groups actually accept user fees as an alternative to taxation,” said Whitty. “They prefer them actually.”

Pat Gleason of the Grover Norquist-led Americans for Tax Reform told the TRB’s VMT Subcommittee January 12 that tax policy groups are realizing they can’t just say no to tax increases without offering alternatives for transportation funding.

Gleason’s group is releasing a list of things that Congress should do before they even think about raising the gas tax (Norquist wrote a letter to Congress on the subject recently). Among them: making sure that Highway Trust Fund dollars are actually spent on roads, repealing Davis-Bacon wage requirements which they contend drive up the cost of projects and dedicating revenues from the repatriation of corporate profits to the trust fund. But Gleason said Congress also needs to move towards a true user fee for the next sustainable transportation revenue mechanism.

“We see (VMT) as a way to get towards probably one of the truest user fees you can imagine,” he said. “But … there are so many moving parts and a lot of stuff both on the policy and political end that go into that—folks with privacy concerns or what have you. (But) that’s something we’re looking at incorporating … into our recommendations.”  

Others at the TRB conference expressed concern that those privacy concerns, which they believe are more perception than reality, are now guiding the VMT systems being tested in Oregon and elsewhere and limiting the functionality and benefits of developing these systems.

“What vision of VMT are we going to go down?” asked Robert Atkinson, President of the Information Technology and Innovation Foundation who chaired one of the two Congressionally created commissions that debated transportation financing options at the end of the last decade. “What path or vision are we going to follow? … Are we going to go down a path that’s essentially just a mileage charge or are we going to go down a path that has intelligence to allow … other kinds of pricing incentives?”

Atkinson said part of the problem has been a lack of understanding of the technology involved in a VMT system and the way it gets talked about in the media and elsewhere.

“You can build a VMT system that 100 percent protects personally identifiable information and never divulges personally identifiable information and the way that happens obviously is you report the data on your onboard unit on the computer and it tells you that I owe the District (of Columbia) five bucks and I owe Maryland three bucks and I owe Virginia two bucks and I owe the Feds 12 bucks,” he said. “That’s all they need to know. They don’t need to know when you drove or what road you drove on. … I think it’s super important when we talk about VMT we push back on this narrative that there is any privacy violation involved. …The reality is there is no privacy violation involved if you design the system as a one-way system with all personally identifiable information kept on the onboard unit and only released when the person chooses to and automatically deleted from the unit when a payment is made.”

One mistake some make, Atkinson said, is comparing the technology used in a VMT system to a cellphone, a credit card transaction or even a toll transponder system like E-ZPass.

“A VMT system has a one-way signal,” said Atkinson. “I think it’s critical that we push back when we hear statements that are like this: ‘though a GPS tracker isn’t really more of a violation of your privacy than a cellphone, the issue has become an obstacle to rational discussion.’ What’s wrong with that statement? … The problem is it is not the same as a cellphone. A cellphone is a two-way system. It has to be a two-way system. … When people in this debate say things like ‘it’s no more a violation than your cellphone,’ they’re basically giving ammunition to the Luddites and the tinfoil hat people who believe that the government is tracking everything and forcibly implanting tracking chips in our bodies.”

But Atkinson believes we’d be missing a prime opportunity by not incorporating dynamic pricing based on location into VMT systems. This would allow motorists to be charged according to location, time of day, congestion level or other factors.

“I understand the political constraints, don’t get me wrong, and I understand the pressures to go forward and do something,” he said. “I think in some ways the real question is: is what we’re doing now essentially a dead end? Is it going to put us in a cul-de-sac where we can never move to GPS-based pricing or is it a sort of interim step to get people comfortable with it and then we add on GPS-based pricing later? I don’t know the answer to that but I think it’s probably the most important question for the next 50 years of road financing.”

Ed Regan, Senior Vice President for engineering and construction firm CDM Smith, agreed.

“If the system is going to work properly and most effectively in changing mobility—not just supplying revenue—then we’ve got to look for more sophisticated solutions in the permanent sense,” he said. “Everything (Jim Whitty is) doing is part of getting to where we need to be. … The key to me though is why are we moving away … from the more sophisticated systems and I assume it is the privacy issue—the perception that the public won’t accept it. … But … I’m quite confident that there are technology solutions to ensure privacy. Whether or not the public believes that they’re really being protected is another question. But it can be solved.”

Oregon’s decision to turn away from the GPS-based devices used in earlier VMT pilots was largely about politics and the inability to overcome perception, said ODOT’s Whitty.

“I defended GPS devices in cars for this purpose of taxing by the mile for six or seven years,” he said. “I started to learn that no matter how much I explained what it didn’t do and how people’s privacy could be protected, it was like running in the mud. I couldn’t get traction. So we had to abandon that idea, not because it’s not true but because I couldn’t defeat the perception. Perception was in the way of developing policy. And then the optimum idea of having congestion charging, pricing roads and all that (is a) wonderful idea. The difficulty with it is if you take the idea of a new tax, which is always hard to do … then you put the complexity of congestion pricing on top of it, there is no ability to pass it politically. So we opted in Oregon … to make some policy choices that may not be a perfectly optimal system but will allow us to get there. And I would say the way to get there is slow steps. We’ve learned that when people experience a new system, if it’s done well, they tend to say ‘it’s okay.’ But until the experience, they absolutely hate it.”

Ultimately, a VMT system must be about more than revenue collection, Atkinson contends, or about collecting revenue from drivers of electric vehicles as some want to do to jumpstart the VMT implementation process.

“I think fundamentally if we just have a system that is about making a few more bucks because we can put some VMT charges on some Chevy Volts, I don’t think we’re going to get that far,” he said. “Number one, I don’t think the risk of having a big diminution of revenue from the gas tax (as a result of these vehicles) is really all that great in the near term. We have 70,000 battery-operated cars today. There’s no evidence that they’re growing at any serious rate. Battery technology is still pretty bad. It’s really expensive and it isn’t very energy dense so we’re a long way off from getting really good batteries. … Fundamentally I don’t think the threat to the gas tax and the Highway Trust Fund is about high-mileage cars.”

Atkinson said the real threat comes from the fact that the United States isn’t willing to increase the gas tax and index it to inflation.

“There are people who argue (with) the VMT we’ll be able to raise large amounts of money (for transportation),” he said. “Only, I guess, if you trick people. Because why would people be willing to pay more for VMT when they’re unwilling to pay more for the gas tax? So I just think that the notion that VMT is this secret, magical thing that all of a sudden we can increase revenues by a significant amount by using a different tool, I just don’t see why that would be the case.”

If privacy concerns or limited functionality and innovation don’t derail the inevitability of mileage-based user fees, one other factor could: gas prices.

Whitty thinks if gas prices remain low, it could impact the urgency of moving forward to further test VMT systems and allow states and the feds to avoid some of the controversy that surrounds them by simply moving forward to enact gas tax increases. On the other hand, a return to volatility in the market could benefit the VMT concept.

So I guess something else that happened last week should also be noted here: the U.S. Energy Information Administration predicted gas prices will likely remain well below 2014 levels for the rest of this year and next.

Nevertheless, most signs continue to point to 2015 being a big year for the future of mileage-based user fees.