States Leading the Way on Mileage-Based User Fees

On page 723 of the $305 billion, five-year federal surface transportation legislation approved by Congress last year is a $95 million grant program that some believe could help determine whether there will ever be another long-term transportation bill and that appears likely to put states at the forefront of determining the future of transportation funding.

Section 6020 of the Fixing America’s Surface Transportation--or FAST--Act requires the U.S. secretary of transportation to set up a program to “provide grants to states to demonstrate user-based alternative revenue mechanisms that utilize a user fee structure to maintain the long-term solvency of the Highway Trust Fund.”

Although the language was left intentionally vague, the program is being viewed as a way to further explore the possibilities of the mileage-based user fee concept being pioneered by Oregon and other states. Speakers at the International Bridge, Tunnel and Turnpike Association’s Transportation Policy and Finance Summit held March 14-15 in Washington, D.C., said the stakes are high for the program.

“We’re never raising the (federal) gas tax,” said Alex Herrgott, deputy staff director for the U.S. Senate Environment and Public Works Committee, one of the Congressional committees that shaped the FAST Act. “I don’t care if the price of gas is 50 cents. We’re never raising it. Not even 5 cents. … If we do not have a solution absent the gas tax in the next two or three years, I can assure everyone in this room that we will never ever have a bill that’s longer than two years.”

That would likely be a concern to state departments of transportation, which rely on the promise of federal reimbursement dollars to keep long-term transportation projects on track. 

Western States Furthest Along

Numerous states have already done significant work in exploring the mileage-based road user fee concept, said Barb Rohde, executive director of the Washington, D.C.-based Mileage-Based User Fee Alliance.

“We have well over half of the states in this nation now that either have their governors looking at this, their legislators looking at it or different groups,” she said.

Oregon has been perhaps the most visible, with work going back more than a decade and two successful pilot projects. In July, a legislatively mandated permanent program started the largest scale demonstration to date with 5,000 volunteer drivers who will pay 1.5 cents per mile and receive a refund of the state’s gas tax. But Oregon’s neighbors to both the north and south also are moving forward with tests of their own.

California is seeking 5,000 volunteers for its pilot that will test five different mileage reporting methods. Originally scheduled to begin early next year, the pilot has been accelerated by state officials and will now commence this July. Jim Madaffer of the California Transportation Commission said the urgency with which California is pursuing the pilot reflects the state’s dire revenue and infrastructure situation.

“We’re 45th in overall highway performance,” he said. “We’ve got a $300 billion, 10-year funding shortfall. …The California Transportation Commission just a month and a half ago slashed three quarters of a billion dollars from our state-funded projects because the money is just not coming in anymore. This is a serious problem.”

Washington state, which was one of eight states to approve a gas tax increase last year, also has been exploring mileage-based charges. But Reema Griffith of the Washington State Transportation Commission said they’ve endeavored to keep their pilot a bit under the radar for an important reason.

“Our legislature raised our gas tax 11.9 cents last June and so we’ve got a $16 billion transportation package we’re able to deliver over the next 16 years,” she said. “(But) it’s created an interesting dilemma with the public because we’re raising the gas tax and we’re talking about it not being sustainable so it’s created a little bit of a messaging challenge.”

Privacy Among Concerns for State Pilots to Address

These states and any others that could apply for funding under the FAST Act’s $95 million grant program, which authorizes $15 million for the current fiscal year and $20 million for subsequent years, face a difficult road ahead. The law requires pilots to address complex issues of implementation, interoperability, administrative cost, protection of personal privacy, equity concerns of mileage-based fees including potentially diverging burdens on urban and rural drivers, and the reliability and security of technology. 

The privacy concerns generated by mileage-based systems, particularly those that rely on technology that identifies a driver’s location, are seen as a potential roadblock to widespread political and public acceptance. States involved in testing the concept have sought to alleviate some of those concerns by providing drivers a choice of mileage reporting methods, providing low-tech and no-tech options such as an annual odometer reading and giving drivers a choice of technology providers. 

But some fear that in an effort to alleviate privacy concerns and seek public acceptance for the concept, states may be committing to a future of “dumbed-down” mileage-based fees that don’t improve on the shortcomings of the gas tax. A recent report from the non-partisan Congressional Budget Office, or CBO, found that “spending on highways does not correspond very well with how the roads are used and valued.” One approach Congress could consider that would make spending more productive, according to the report, would be to “have the federal government—or allow states or private businesses to—charge drivers directly for their use of roads more often, including charging them more for using roads when traffic is more congested.” 

“(The CBO report) stresses the benefits of variable charging and congestion management and more appropriate capital investment decisions based on revenues collected by facilities,” said Ed Regan, senior vice president at consulting and engineering firm CDM Smith. “Basically all things that can’t be done with the gas tax and unfortunately they can’t be done with a no-technology road user charge system that does not specifically link charges to facility used or the time you travel.”

Regan argued that some of the money for pilots in the FAST Act program should be used to challenge technology and service providers to develop a system that addresses solutions to privacy concerns while still providing a full range of functionality.

“We need road-user charges to become more than just a replacement for the gas tax,” Regan said. “We need to use future pilots to demonstrate innovative technical solutions to privacy and other difficult challenges. For the long term we need to solve these challenges.”

Despite Challenges Ahead, States Leading the Way Makes Sense 

The complexity of the task at hand makes some skeptical about the short-term prospects for mileage-based road user fees at the federal level.

“I would think it would be fairly tough that within the next authorization, which is four-and-a-half years from now, that we would be able to actually find a way of financing a national program through some sort of user charge,” said Chris Bertram, staff director for the U.S. House Transportation and Infrastructure Committee. 

Still, many believe the future of transportation funding is in good hands.

“I think it’s critically important that we continue supporting state efforts to lead the way on this,” said Bob Poole, director of transportation policy at the Reason Foundation. “A kiss of death for mileage-based user fees in the near term would be for the federal government to come along and try to impose something from the top. There is zero political credibility for Congress in terms of transportation funding. That’s why you’re not getting a federal gas tax increase. States have much greater credibility and they should be the ones in the lead on this in trying out what works and what doesn’t work.”

Herrgott, from the Senate Environment and Public Works Committee staff, will be keeping a close eye on where the $95 million in the FAST Act ultimately goes. He believes it will take conducting successful demonstration projects on a large enough scale to convince policymakers to move forward. 

“We’re looking for a state-sourced solution,” he said. “Every good idea that’s ever happened in the federal government originated in the laboratories of the states. … The constituency will never develop unless the laboratories (of democracy) bring it home.”

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