PWF Blog

PWF Blog 5/8/2017

From Public Works Financing newsletter
April 2017

Gas Taxes are Doomed—But Road Usage Charges Won’t Solve The Problem 

By Jeffrey N. Buxbaum

Relying on gas taxes to sustain the federal highway trust fund and state road improvement and maintenance programs is doomed because cars keep getting more fuel efficient. Public Works Financing readers will certainly be familiar with this trend. Electric vehicles do not pay any fees for using roads, which lots of people rightly view as unfair. Enter road usage charges—the solution of choice for people that spend a lot of time thinking about declining gas tax revenue. Mileage-based road usage charges as a replacement for the per-gallon gas tax are enticing for sure. Everybody should pay in proportion to what they use and nobody should get a free ride. Emerging technology lets us count and identify where miles are driven and generate bills. Indeed, USDOT is poised to spend $95 million to research and test road usage charging over the next five years through the Surface Transportation System Funding Alternatives (STSFA) grant program. As I explain below, this money should be spent exploring other ways to support the national highway system.

Road usage charging is definitely “feasible”. I led a consultant team for the Washington State Transportation Commission that came to that conclusion. Other studies have echoed that finding. But the real question is whether road usage charging is a good idea, and this is where I part company with many of my friends and colleagues. Although a followup study that I led in Washington State concluded that road usage charging would generate higher net revenue than leaving the current motor fuel tax in place over 25 years, numerous questions remain, and I do not believe that those questions can be addressed satisfactorily. I am dismayed that we sink more and more resources into a solution that is doomed to failure, while ignoring those that are more practical, and arguably more fair.

While industry insiders think road usage charging is great, regular people hate it. To be sure, drivers that participated in pilot programs improved their opinion of road usage charging—but that does not translate into a groundswell of popular support. It is too hard to explain and has problems that are just too difficult to solve. If I can get someone’s attention for 10 minutes, I can explain the rationale, operation, and outcome of road usage charging to the point where people “get it”. But, at best, we’re lucky to get 30 seconds. Given the same amount of time, opponents can easily turn people against the idea with some pretty compelling arguments:

  • Government can’t make a complicated system like this work (remember ObamaCare?)
  • I don’t want government tracking me.
  • This is just a trick to make us pay more money – they waste the money we give them already.
  • This is the camel’s nose under the tent – next comes congestion pricing.
  • Why create an expensive, complicated system to replace the gas tax, which is simple and inexpensive to operate?

The lightning-rod issues are privacy and the ability to distinguish miles driven in a state different from the driver’s home state. The two issues are linked because virtually all of the past and current research is for road usage charge systems for an individual state or a group of contiguous states—not a national system. With different gas tax rates in different states, mileage-based road usage systems need to be able to tell where miles are driven, which requires an in-vehicle GPS-enabled device. The back-office systems can then allocate miles appropriately (in a multi-state system) or credit out-of-state miles (in a single-state system).

Drivers that do not want an in-vehicle “tracking” device would be allowed to opt out this technology. But this is a flawed solution because drivers who value their privacy would be forced to accept a mileage-based system that cannot credit them for miles driven out of state, leading to over-payment. This is no more fair than a system that lets electric vehicles get away with not paying at all.

Fairness comes in many flavors, and always depends on perspective:

  • It is fair to pay for roads in proportion to the amount you drive. This points to a road usage charge solution.
  • It is fair for drivers to pay for the social costs of driving, such as pollution, crashes, medical costs, and greenhouse gas effects. This points to a system that addresses the size of vehicle (bigger vehicles cause more severe crashes), and fuel consumption (related to pollution and greenhouse gas emissions), and miles driven.
  • Users benefit from simply having access to a transportation network, so it is fair to pay a fee even if I only drive a little. This points to a flat fee.
  • Non-users benefit too. Ask any developer that wants to build near a new highway interchange or transit stop. Or look at the many reports with titles such as “The Economic Benefits of the Transportation System.” We all benefit from a robust transportation system. In fact, this suggests that it would be fair to use personal and corporate income tax revenues to pay for part of the transportation network, with the progressive nature of the income tax ensuring that those who benefit most from the system (i.e., wealthy people pay the most).

This is only the tip of the iceberg. Evaluating fairness is daunting, as noted in TRB Special Report 303 called “Equity of Evolving Transportation Finance Mechanisms” (a report that I contributed to). At the risk of vast oversimplification the report concludes: “The equity implications of transportation finance mechanisms are complex, often controversial, and important in decision making. Policy makers addressing such equity issues need to have a broad understanding of the array of issues involved.”

In addition to these “big picture” issues, I have another practical objection related to the expensive bookkeeping effort needed to keep track of just a few dollars. For example, in Washington State, with a per-gallon tax rate of $0.494—second highest in the country—a typical car driven 10,000 miles per year would only pay between $100 and $300 per year in gas taxes. Why create a complicated billing system to distinguish between these relatively small amounts of money?

But it gets even more ridiculous. No one is talking about an instant transition from gas taxes to road usage charges because of the extensive public acceptance and technology challenges, meaning that both systems will be active at the same time. This transition could last a decade or two. This means that the expensive new billing system would be used simply to reconcile legacy gas tax payments and new road usage charges. For drivers of gas guzzlers, this would amount to a rebate, and gas sippers would have to pay additional tax. The net dollar amounts might be in the tens of dollars per year for many drivers—hardly worth the effort to create a complicated system for collections and enforcement.

This is by no means a comprehensive discussion, but is enough to illustrate that simply equating miles driven to responsibility for paying for roads is too simplistic. We do ourselves a disservice by jumping to road-usage charges as “the” solution that deserves millions of dollars of research money. If we are willing to consider adopting an unpopular, disruptive, expensive replacement for the motor fuel tax, we ought to also consider alternatives, which may also be unpopular and disruptive, but less expensive to implement and more aligned with a comprehensive set of social objectives.

We should consider some combination of:

  • A flat usage fee to pay for access to the transportation system, scaled by vehicle weight to address the social costs of crashes.
  • A gas tax sized to pay for the social costs of emissions.
  • An odometer charge to pay for roadway use.
  • An income tax set aside or surcharge to ensure the transportation system continues to deliver economic benefits.

In all cases, there would be important nuances to overlay a federal system onto systems that might be implemented in individual states.

Fantasy? Perhaps. But no more so than believing that we can put in place a new, complicated, costly, in-your-face road usage charge in a world where we cannot agree on simply raising gas taxes to keep up with inflation. We owe it to ourselves to consider better alternatives.

Jeffrey N. Buxbaum is a former consultant who specialized in transportation funding and finance issues over a 30+ year career.