Richard Gilbert, a reader from San Diego who has clearly given this issue a great deal of thought, sent us this post:

Taxing Vehicle Miles Traveled

As we wean ourselves off gasoline with alternative energy means ( electric, hydrogen or whatever), there will be a need for supplanting the current gasoline tax. A program is currently underway that proposes to install GPS computers in each and every road vehicle to measure vehicle miles traveled for the purpose of taxing such mileage (http://www.roaduserstudy.org/). You would be billed periodically for your use of the roads. This elaborate system would run well into the billions of dollars and present invasion of privacy issues.

This proposed GPS system is totally unnecessary. All vehicles (cars, trucks, busses, motorcycles) on the roads today have recorders of vehicle miles traveled. These recorders are rugged, reliable and tamper-proof. They are called tires. You want to tax vehicle miles traveled? Tax tires.

Proponents of the GPS computer scheme claim that high usage roads could be charged at higher rates. A system for doing that is already in place; it uses toll booths.

Now some people might tend to drive conservatively, within the speed limit, slowing down for curves, etc so as to get more mileage out of their tires, but think of this as a reward, like a charitable deduction on your income tax. Others may get less mileage by driving aggressively, speeding, cornering fast, etc. Think of this as sin tax. Tires on a Lincoln may not wear as well as those on a Ford Focus; think luxury tax. It all sort of makes sense, doesn’t it?

Overall, there would be increased economic pressure to buy vehicles with high tire life; they, of course, would be small and lightweight, consuming less energy.

You might think there would have to be a downside to this approach and you would be right; there is. It’s in the numbers. Let’s say you drive 20,000 miles per year and get 20 miles to the gallon; that’s 1000 gallons per year. With the current federal tax at $0.184 per gallon, that’s revenue of $184 per year. Now to get that much out of taxing tires, what would the tire tax have to be? Let’s say a set tires is good for 60,000 miles. At 20,000 miles per year, it last’s 3 years. So to get $184 per year, the tax on the set of tires would have to be $552. That’s a big chunk of dough all at once. It would take time to get used to that, so it might have to be phased in over several years as gas tax revenues decline.

With the tire tax approach, there might be a temptation to run tires beyond their safe life. Tire manufactures might need to incorporate wear indicators or alarm chips to signal owners (and police) of excessive wear. Perhaps something along the lines of red light cameras might be feasible. That is certainly more cost effective than installing an onboard GPS computer in every vehicle. Furthermore, the thought of multi-lane bumper-to-bumper commuter vehicles all continuously and simultaneously querying GPS satellites boggles the mind.

It should be noted that a federal excise tax on tires has been in effect since 1918 (except for a few years from 1926 until the Great Depression). It's scheduled expiration date is 1 October 2011. This information is taken from "Federal Excise Tax on Tires: Where the Rubber Meets the Road" available at https://www.policyarchive.org/handle/10207/957. Quoting from this source, "This excise tax is said to be easy to administer with minimal federal collection costs."

Topping it all off is the fact that the tire tax approach has no privacy issues.

In summary, the tire tax approach has the following attributes:

Zero cost
No privacy issues
No billing requirements
Simplicity
Ruggedness
Tamper-proof detectors
Detectors already installed
Reward for conservative driving
Penalty for aggressive driving
Encouragement for buying small, light vehicles Richard Gilbert San Diego, CA

I would like to echo many of the statements made by my colleagues here, especially on the challenges facing the long-term viability of the fuel tax and the potential for VMT-based fee mechanisms to overcome these challenges. Since VMT fees are based on actual use and not fuel consumption, revenues from a VMT-based fee will not decline as Americans shift to more fuel-efficient vehicles. Furthermore, fees based on use equalize the cost of driving across all users and they can be designed to accommodate any number of various policy goals.

However, I would like to temper these statements by noting that there is still much that we need to learn regarding how implementation of VMT-based alternatives to the fuel tax might proceed, particularly with regard to public acceptance. Determining what technologies are most appropriate for a given pricing application will obviously be an important step. But I am confident that once federal, state and even local policy makers clearly affirm what they seek from a VMT-based pricing system, then the technology will naturally follow. Convincing the public that a shift in how we finance transportation is necessary may be much more difficult than determining how we get it done.

Our research here at TTI has indicated that the general public does not fully understand how the fuel tax, or transportation financing for that matter, works. Chances are if you approach somebody on the street and ask him or her to tell you the amount of the state’s respective state and federal fuel tax, that person will have no idea. Many people do not know that the fuel tax is affixed to the gallon and not the purchase price. It’s hard to get excited about a brand new financing mechanism when you do not really know how the old one works.

Issues of privacy will have to be addressed, plain and simple. Rarely has the subject of VMT-based fees been brought up in our public acceptability research without the term “big brother” being raised. For decades American drivers have enjoyed relative anonymity when they drive, but a fee system that utilizes GPS technology can give the impression that drivers’ movements are being tracked. Federal and state officials can work to ensure privacy, but complete privacy protection may be at odds with ultimate flexibility of the system by eliminating the ability to charge by time of day or by facility. To what extent then is the public willing to trade some degree of privacy for a system that incorporates any number of various pricing applications? Or can we have our cake and eat it too, by having a system that completely safeguards privacy, yet remains flexible and dynamic?

The public does not want to see a brand new administrative apparatus developed in support of a new fee system. The fuel tax is well-established and the system runs rather efficiently and unobtrusively. The public is averse to wasteful government spending. Implementing a new financing system that is viewed as more cumbersome and intrusive is likely to be viewed as unnecessary and wasteful. To put it simply, if it costs more to collect a dollar of VMT fees than to collect a dollar of fuel taxes, the public will not support the transition. Thus, a new fee system will enjoy more success to the extent that it can minimize administrative costs. There are a number of strategies that may be employed to do so, be it through private sector involvement, bundling of value-added services, or piggybacking off of existing information systems. What are our other options and what will work best?

The central theme in packaging VMT-based fees for presentation to the public should be “added value.” How is this new system an improvement over the existing system? We can sit here all day and talk about how state and national road networks as a whole will be better off, but can VMT-based fees be packaged as an improvement to the individual driver? How will people be better off? Making this case is the true challenge we all face.

A secondary theme should be that of fairness. The fuel tax is generally viewed as fair, as most drivers still see it as a viable proxy for road use. VMT-based fees are being portrayed as punishment for drivers who choose to purchase more fuel-efficient vehicles, as they will most likely see the largest increases in total taxes and fees paid. However, our research has shown that the increase in taxes paid by the drivers of hybrids is potentially small compared to the overall savings these vehicles generate in terms of fuel purchases. A VMT-based fee will not put hybrids and other highly fuel-efficient vehicles on par with gas guzzlers in terms of fuel costs. Successfully implementing a VMT-based fee system will hinge on our ability to present such fees as being more equitable than the fuel tax.

With the growing interest in this topic there is certainly a need to advance the discussion. To that end, TTI and its partners at the University of Minnesota will be holding a symposium on April 14-15 in Austin, Texas, to gather experts in this area and begin addressing some of these questions or at least put us on the right track to answering them. For more information on this conference, see http://tti.tamu.edu/conferences/mbuf09/.

A quick survey of this blog, the daily press, congressional reaction and statements by a spectrum of interest groups and coalitions shows a near-unanimous approval of the Commission's report and its recommendations (compare this with the highly critical reception of the Policy and Revenue Commission's report back in December 2007). Admittedly, we have heard largely from the "Beltway Insiders" so far. We have yet to hear from the grassroots.

Did anyone else find it ironic that the lead recommendation in OMB's budget document for DOT encompassed the exploration of road pricing?

I agree with the many who found the Financing Commission report a very well balanced statement of both needs and options for dealing with meeting those needs. We can hope that it will survive into the coming debate.

The discussion on the blog this week has been relatively unanimous: all funding options for transportation should be on the table, and that includes exploring the options for a VMT financing scheme (to remove the monikers of “tax” or “fee”). From the aviation community, to the research community, to the environmentalists and road builders, the unanimous cry has been to look at more than the gas tax.

What this conversation leaves behind, however, may be more telling than what it includes. It has not discussed a funding stream that incorporates a concept of accruing benefits. The fundamental issue with the gas tax, and collaterally with a VMT financing structure, is that very little transportation activity is for the sake of itself. It is “doing” something that has an economic value. If we choose to maintain a financing scheme based on the activity, we place ourselves in jeopardy of creating a similar situation down the road as to that we find ourselves in now. That is not to say that VMT financing shouldn’t be explored, nor that the gas tax doesn’t have worth, just that we should be cognizant of the end result that we are encouraging. In the end, the end recipient of the benefits of the transportation system needs to have a financial stake (as well as seats at the planning tables) in its maintenance.

Let me also take a moment to echo the disbelief of others over the response of the Obama administration to this issue. President Obama should clarify the administration’s position as soon as possible so as to not further impede the next transportation authorization.

Today we are facing a perfect storm of problems associated with transportation financing and infrastructure. The system is deteriorating faster than we can keep up with repairs and new capacity. At the same time, the funding mechanisms employed for 90 years are no longer sustainable, resulting in growing deficits and a bleak financial future. Luckily, a perfect storm is also aligning for solutions.

These solutions start with a new vision for transportation that focuses on extracting more value from each federal dollar invested. By improving federal approval processes to save time, we not only make the federal dollar more valuable, we optimize private and local government investments as well. There's been some talk about this by past administrations. It’s time to deliver on this value proposition.

The critical part of reaching our goal of sustainable funding is how we deal with the transition. The optimal funding mechanism should include three major elements: for all new cars, replacing the gas tax with a road use fee; dedicating at least 10% of a carbon pollution fee to greening the infrastructure and addressing equity concerns; and creating a minimum floor price for petroleum through an indexed oil fee. My colleague, Congressman Peter DeFazio, has proposed a flat per-barrel fee; regardless of the mechanism, the end result must provide price stability by raising revenue from oil producers.

Our first steps must include two immediate actions. First, I am requesting hearings on sustainable transportation funding before the Ways and Means Committee, the Select Committee on Global Warming and Energy Independence, the Budget Committee and the Transportation and Infrastructure Committee. The urgency is critical: the Budget Committee must complete its work by April 15 in order for the Transportation and Infrastructure Committee to do its job. Second, we need to apply what we’ve learned from Vehicle Miles Traveled (VMT) pilot projects – the technology, the merits, and the public acceptance -- and replicate it in communities across America. The recent VMT pilot project in Oregon provides valuable information that will help in this effort.

I am absolutely convinced that this is the right course for the next 10 to 15 years. Using the Transportation Authorization before Congress this year to transform our transportation financing system will set us on the right course for a 21st Century system for our families and communities.

Kudos to the Commission

In light of the VMT kerfluffle last week, the Commission handled their recommendations just right. James Whitty's thoughtful comments about transitioning the concept are right-on, bringing it in gradually helps both gain acceptance and avoids a direct link between a VMT recommendation and a tax increase. The right strategy is baby VMT steps this surface authorization cycle that lay the groundwork for future transformation during the next cycle.

More revenues are necessary but it appears in the short-term that they are much more likely to come from economic recovery-style stimulus or further general fund injections into the HTF, than they are new revenues that bring the HTF into long-term balance.

Steve Van Beek

Ken

Thanks for your report on the Financing Commission’s press conference, and for reproducing Kathy Ruffalo’s remarks, which were indeed eloquent.

But I am puzzled by her reference to a “national VMT system”. Are all the revenues from VMT charges to come to DC, to be allocated by Congress to the states, as skillfully as at present?

One advantage of VMT charges is that they can be varied to take account of the place, time, and length of trips. Would it not make more sense for the revenues to be paid to those in charge of the roads that generate them, be they states, local authorities or private entities?

Before we delve deeply into the impressive final report of the National Surface Transportation Infrastructure Financing Commission, I must point out a relevant VMT charge question now asked by bond rating agencies such as Moody’s and Standard and Poor who rate highway construction bonds backed by gas tax revenues. Now that this nation’s highway construction activities have become ever more dependent upon state revenue bond financing, these rating agencies want to know, “How quickly can a VMT charging system be put in place?” They have a good reason for wanting to know. The health of these highway revenue bonds—indeed the ability to issue new highly rated bonds for highway construction at all—now depend upon an adequate flow of pledged gas tax revenue. As gas tax revenues decline, so do revenue bond ratings and accordingly the ability to affordably finance road construction.

Given this developing situation, though the gas tax may be part of the road funding mix for quite a few years, simply augmenting it with a VMT charge may not be enough. Once bond rating agencies begin to communicate to legislators concerns about the issuance of bonds based on a declining source of revenue—the gas tax—a shift to VMT charges will become an even more appealing public policy.

Policymakers and underwriters have the ability to weave the VMT charge together with gas tax collections during a transition away from the gas tax. Pledging VMT charge revenues along with gas tax revenues during the transition will support road-based revenue bond ratings and prevent an inevitable decline in the ability to finance highway construction. To stabilize road-based public offerings well into the future, the VMT charge must gradually become the primary source of road funding; not a secondary one.

Those of us who attended the Financing Commission's press conference today could not fail but be impressed by the Commission's report, the compelling nature of the arguments the Commissioners put forward to support their recommendations and by the sincerity of their convictions as expressed in their brief remarks following Chairman Rob Atkinson's commanding presentation of the Commission's conclusions. I was particularly struck by the simple yet eloquent remarks of Commissioner Kathy Ruffalo, which I reproduce verbatim below:

"This has not been an easy process and we certainly have had our disagreements over time. But we have learned from each other, educated each other and I feel we have developed a strong, balanced and comprehensive menu of options for Congress to consider. Just as we've had to leave our individual comfort zones, I would ask policy makers to do the same. There is no silver-bullet funding solution. But if we are to move forward, there are difficult choices to make. We weren't asked to come up with politically popular solutions -- we were asked to recommend ways to fund and finance our nation's transportation system for this generation and generations to come.

"We recognize that a transition from the fuel tax system to a VMT system faces some resistance and hesitation. It is important to remember, however--- no one needs to decide on such a transition today. But the dialogue does need to happen now. There are serious policy considerations that need to be addressed--- such privacy, impact on rural drivers, point of collection of a fee and the cost to administer a national VMT system, among others. Congress should use the next few years to study this issue, get answers to their questions and feel comfortable that their concerns can be met. But the most important aspect is public acceptance of a VMT system. The public needs to understand and accept this new way of paying for our transportation.

"Bottom line -- if we, as a country, stick our head in the sand and hope the problem of crumbling infrastructure will go away or hope that someone else will fix it -- we will regret it. As I like to say -- business as usual is not going to work and doing nothing is not an option. We can't afford to approach this problem in the typical way or the way we've approached it in the past. The consequences are far too great."

Because of the significance of the Commission's report, I have suggested to Lisa that the record be kept open, as it were, for another week to allow further reflections prompted by the Commission's landmark report.

ATA recognizes that future changes in vehicle technologies will significantly reduce fuel usage, putting the viability of fuel tax as the primary means of financing highway improvements in jeopardy. However, these changes will take decades and during the interim there is no infrastructure funding problem that cannot be fixed by simply increasing fuel tax and targeting that revenue towards our nation’s roads and highways.

Fuel taxes are the least expensive, most efficient source of highway funding available today. At present, 99 cents out of every 1 dollar in collected fuel tax goes to the Highway Trust fund. Other systems such as VMTT cannot come close to offering taxpayers that type of efficiency. In fact, the most efficient VMTT system in use in the world today costs 23 cents for each dollar collected.

VMTT is an elaborate, expensive, and environmentally unfriendly solution in search of a problem. A simple fuel tax is already an approximate tax on miles traveled because drivers pay more as they drive further and use more fuel. This provides incentive for individuals to use more fuel efficient vehicles.

Under the current fuel tax, heavier vehicles including trucks pay more because they get less fuel mileage (trucks also pay more because the federal tax on diesel is higher than the federal tax on gasoline – 24.4 cents vs. 18.4 cents per gallon). Under a VMTT a less fuel efficient vehicle like a Hummer would pay the same tax as a hybrid for the same amount of miles travelled – clearly not the best plan for the environment or the reduction of carbon.

In addition to extensive administrative costs, privacy is a major issue with VMTT systems of taxation. VMTT relies on technology to monitor vehicle movement and collect fees. Protecting the public from identity theft, fraud and other illegal activities will be a constant process that will add costs and complications that are not present in the fuel tax collection system.

Trucking companies, according to many VMTT advocates, could also be required to additionally track roadways used, time of day (for proposed congestion pricing), and ever-changing truck weights – a recipe for enormous administrative costs. Tax evasion and loss due to error are serious problems for all vehicles paying a mileage tax. Over the years about 20 states have tried and repealed various forms of mileage taxes for much these same reasons.

The trucking industry advocates increases in fuel taxes over other methods to address Highway funding shortfalls as long as those funds remain dedicated to improving highway infrastructure.

Yes to a VMT Charge

As others have already noted on this blog, our current highway funding system based on taxing petroleum fuels is broken (i.e., failing to provide sufficient revenue) and not sustainable in a world in which national policy favors reducing our dependence on petroleum as a transportation fuel.

But the problem goes deeper than that. Over the last several decades, what was once a fairly decent user fee has grown increasingly disconnected from serving that function. With each subsequent reauthorization, it has become more and more of a generalized public works funding source, now drawn upon to provide bike paths, recreation trails, transportation museums, and very costly rail transit systems. The more the gas-tax funding system gets politicized, the more it become, in reality, a tax on motorists, rather than a user fee.

That’s why the Infrastructure Finance Commission has done this country a real service via its bold proposal to begin the transition away from fuel taxes to a VMT charge. The Commission’s clearly stated principles emphasize the importance of there being a direct connection between what users pay and what they get—as in other network utilities. By linking revenue with benefits, we achieve two very important goals. First, we create a constituency for continued investment in transportation that serves its users’ (customers’) needs. Second, a system in which payment is based directly on use sends clear signals about what parts of the system are in greatest demand and where investments should be made.

There are many questions and challenges in actually bringing about a transition to a VMT-charge system. The Finance Commission’s report has laid a good foundation on which we can build. And this year’s reauthorization provides an excellent opportunity to take the initial steps the Commission has proposed.

(Note: My Reason Foundation colleague, Adrian Moore, who is a member of the Finance Commission, contributed ideas for this blog post.)

It was rather odd that the White House -- or at least its spokesman -- had such a visceral and negative response to even considering a vehicle mile tax and increasing the gas tax. The seeming willingness of this Administration to have an open mind on issues and consider various ideas has been refreshing. But to say now that these options are off the table before real discussions and negotiations on a bill have even really begun in earnest is not helpful.

Everyone in transportation circles knows that the gas tax is beginning to outlive its usefulness and will need to be replaced sometime in the near future. It has been a worthy surrogate for road usage in the past and has been a good way to fund transportation improvements through the user pays principle. We need to begin to have a discussion on whether we want to continue the user-pay principle and, if so, what is the most effective method to charge users in the future.

Obviously, the vehicle mile tax is one option that should be on the table. There are many issues that would need to be resolved -- such as privacy issues -- but many experts (and federal commissions) have endorsed looking at this system of financing. There is no simple or easy answer, and we probably need to do a variety of things to confront the hole we are in. Everything must be on the table.

Similarly, everyone knows that the Highway Trust Fund needs additional revenues. Congress had to appropriate $8 billion to the Trust Fund last year and may need to do more this year. With the gas tax not having been raised since 1993, it is no wonder that highway needs vastly outstrip funds available. At the very least, we need to discuss indexing since we lose purchasing power each year. The gas tax remains the only viable option for the short-term until a new alternative can be put in place.

We are being penny wise but pound foolish to not adequately fund our transportation needs and will only require even more investment in the future to make up for current neglect. In the meantime, commerce and economic growth will stagnate, safety will decline, and costs to motorists due to congestion and increased vehicle maintenance will only continue to go up.

Almost two years ago I provided testimony before the U.S. House of Representatives Subcommittee on Highways and Transit Committee on Transportation and Infrastructure and said, “There is no silver bullet that will solve these financial problems. However, new and innovative ways to finance, design, build, operate and maintain transportation facilities must be part of the solution.” Today, I remain steadfast in my belief that categorically rejecting any possible funding source, without ample investigation, is not in the best interest of transportation.

Every available means, including VMT, which has been endorsed by many, must be on the table. Two congressional commissions and a number of states endorse VMT. We need to see and understand the reasoning behind current White House rejection, before discounting it. I believe these statements by the Administration are premature.

The issue of funding is not just on the minds of policy makers and state departments of transportation—average citizens have opinions too. HNTB's recent survey showed Americans overwhelmingly believe our national infrastructure is crumbling and are willing to spend more of their tax dollars to fix it. They also recognize improving infrastructure creates jobs and improves quality of life. And, while the general public is ready for sacrifice, misinformation, mistrust and a lack of vision could threaten long-term transportation funding unless leaders persuasively educate the public on the scale of the problem and the options America has to consider. (For more on America THINKS survey, www.hntb.com)

This latest question about the so-called “VMT tax” and the machinations from the Obama Administration last week demonstrate the outcome from the time-honored pitfall of putting the cart before the horse. While Secretary LaHood’s comments were entirely appropriate and thoughtful, the reaction from the media and others was simply a replay of what has occurred whenever someone has the temerity to actually discuss a tangible solution to a grossly unaddressed problem.

The fact remains we are facing a devastating surface transportation financing crisis--one which many of our elected officials and certainly the general public at large do not fully appreciate. Absent a proactive solution, federal highway/transit investment will have to be cut by more than 50 percent in the next two years. Furthermore, the latest projections show investments in these programs over the life of the next reauthorization bill will be billions of dollars below current levels.

The cumulative impact of these funding reductions would be over three hundred thousand more Americans out of work. This is at a time when transportation investment was cast as a cornerstone to the job creation and economic recovery goals of the recently enacted economic stimulus law.

Until people come to grips with this stark reality, any discussion of financing solutions will be thrown under the bus of political reality. How politically realistic is it for Congress to fail to act when they know hundreds of thousands of jobs are about to be lost in one sector over the next five years?

The choice for policymakers is really quite simple: dramatically cut highway and transit investment, deficit spend on these programs, or raise new revenues.

How to finance future transportation improvements has been studied ad nauseam in the past few years. The recommendations of two congressionally-chartered commissions and countless stakeholder groups have reached the same conclusion. America is in urgent need of significant increases in transportation infrastructure investment, and every financing tool should be on the table, including an increase in the gasoline tax which will generate additional revenue immediately, congestion pricing, public-private partnerships, tolling and bonding. A motor vehicle mileage tax should also be a part of the mix, though most experts agree implementation of a national system is not viable for at least the next 10-15 years.

The revenue options to finance significant new transportation improvements have been identified. It remains to be seen whether the Congress and President will have the political courage to include them in a meaningful way during the writing of the upcoming surface transportation investment bills.

I have not seen an account of exactly what Secretary Ray laHood did or did not say about whether a VMT tax should replace the gas tax, but when speaking on the subject of transportation financing--whether in aviation or surface--the Transportation Secretay's words will be parsed as if he were the Chairman of the Federal Reserve on whose words markets go up or down in sometimes volatile and irrational ways. And if there were any doubt about this, that doubt was removed by Press Secretary Gibb's explicit and public statement of what Administration policy would not be and follow-on suggestion to the reporter that a clarifying call to the Secretary would be in order. Must be nice to be Amtrak or high speed rail where these issues do not seem in play--thanks, at least in the current environment to the General Fund of the Treasury. In any event, the overriding objective here should be a Highway Trust Fund that is both solvent and serves transportation policy objectives.

First, if the aim is for the Trust Fund to finance all or substantially all of the Federal contribution to highways and bridges, spending levels cannot be set at levels substantially higher than projected income, regardless of whether receipts are generated by fuel taxes, a VMT, or some combination of different taxes levied on defined taxable events. This may seem self-evident or a truism, but apparently not.

Second, the devil is in the details with any tax or fee and the VMT is no exception. Regardless of the nomenclature--whether it is called a "charge", "tax", or "user fee", important issues must be addressed. The fuel tax is comparatively easy to administer and less expensive to collect. To avoid massive fraud with a VMT approach, a reliable tracking device with integrity would be necessary and the cost would have to be borne by someone. Somewhat similar issues exist in the aviation area with the question of who foots the bill for new on-board avionics systems and at what cost when the equipment is made necessary by FAA's transition to a satellite-based system. One important question here is whether the primary beneficiary, at least in the early years, would be the FAA.

Third, the essential design of how highway dollars are distributed would necessitate an ability to know where a vehicle travelled--that is, in which states, where the travel occurred, how many miles were travelled. This already has raised privacy and civil rights concerns that must be addressed.

Fourth, does a VMT approach penalize lower-income commuters disproportionately and, if so, would the inequity be the same as or more disproportionately and, if so, would the inequity be the same as or more pronounced than the current gas tax structure? Are there situations where the gas tax, albeit at a higher rate than the current fuel tax, would be more equitable, and other circumstances where a different approach to taxation would be preferable?

Fifth and finally, how long a transition would a new or hybrid system of taxation require--5, 10, 15 or more years? The last surface reauthorization, where this was not an issue, went through 10 extensions, if my recollection serves. FAA reauthorization is still pending and is closing on the surface reauthorization in terms of how many extensions of current law will be required. I have lost track, but financing was a central issue in the FAA reauthorization. The point here is that as the surface reauthorization debate enters full season, the question inevitably becomes what do we do in the near term as in the next 5 or 6 years. We should not lose sight of just how difficult the answers for the short term will be.

Gabriel Roth makes a good point in his last post (addressed to Robin Chase) about my using the word "tax" to describe the VMT. It could just as easily be referred to as a VMT "fee" or "charge." I used the word "tax" simply because it's the word being used in the mainstream media, but given how loaded it is I should really switch to a more neutral term. Thanks for keeping me honest in my responsibility to report information and raise questions in the most accurate and neutral manner possible, Gabriel!

The following was submitted by Steve Kirkikis of Shreveport, La., who has been involved in transportation and highway financing for more than 40 years:

A road use tax for "miles driven" will address the issue of wear and tear on roads and highways caused by more fuel efficient vehicles, and by vehicles that do not use gasoline such as electric vehicles, and vehicles that use propane, compressed natural gas and hydrogen.

For the non-gasoline fueled vehicles, the road use tax can be 1 cent per mile driven, or more, that is paid at the time the vehicle is purchased by paying, for example for an electric vehicle, $200 for 20,000 miles to be driven; with a cut-off switch on the ignition when the 20,000 miles are driven with warning lights on the dash to alert the motorist that the road use tax mileage will run out soon.

For liquid fueled vehicles, a bar code is installed on the vehicles to reflect the EPA miles per gallon rating for the vehicle, and a scanner is installed on the pump hose handle, after safety issues are addressed, to read the bar code. The road use tax of 1 cent per mile, or more, is calculated by the pump to reflect the gallons of gas pumped according to the EPA rating for the vehicle. The road use tax for trucks will be 5, 10 cents per miles, or more, depending on their weight.

A vendor has been contacted and to implement this method of a road use tax for "miles driven", applicable state and federal laws can be amended to allow the National Council of Weights and Measures to tax motor fuels by "miles driven" instead of the present method of tax-by-gallon.

By implementing this road use tax of "miles driven" over a 2 year period of time to allow vendors and motorists to retrofit their equipment and vehicles, sufficient revenues can be generated to pay for repairs and new construction of roads and highways.

When this road use tax of "miles driven" is implemented, the present per-gallon tax is repealed.

Provisions can be provided for out-of-state-motorists whose vehicles are not retrofitted for this "miles driven" road use tax.

Robin –

Your unambiguous support for VMT charges is refreshing and welcome, but I am puzzled that you refer to these charges as “Taxes”. Would it not be better to treat VMT charges as prices for road use, to be used (as prices generally are in a market economy) to allocate scarce road space and to finance appropriate capacity expansion?

Do you use the word “tax” because Lisa used it in the question? Or do you envisage the charge as a travel tax to finance governmentally-determined expenditures and/or slush funds for politicians?

This week's question has spurred some thoughtful responses. I especially agree with Mort that this may not be a replacement but a supplement in terms of policy, and with Steve that should serve the function of providing an incentive for demand moderation as well as revenue generation.

I notice everyone is in favor of considering this policy seriously. Rob Puentes of Brookings and I agree, which is why we penned a piece for another blog, infrastructurist.com. Our final point in that piece is worth bringing up here -- revenue investment policy deserves a serious look. This is a worthy end in itself, and also a means to another end: The best way to make the sale regarding a new charge, fee, or tax is to offer a program worth buying.

I also notice that no one has been quite as blunt and direct about this as T & I Chairman Oberstar, whose response to the White House was covered by ABC this morning. This is the best sign I've seen that the issue is not going away, and I look forward to a robust debate.

FYI, here's a link to the summary and text of the transportation section of the House Appropriation Committee's FY09 omnibus, as well as the relevant section of the conference report:

summary: http://appropriations.house.gov/pdf/THUDFY0902-23-09.pdf

text: http://appropriations.house.gov/pdf/2009_Con_Bill_DivI.pdf

conference report: http://appropriations.house.gov/pdf/2009_Con_Bill_DivI.pdf

VMT--The Road Ahead

I agree with much of what has been said. The results from Oregon are indeed promising.

If we want to maximize the likelihood that VMT will be adopted gradually (by the states, or by certain vehicle types as others have noted), it should be sold as a superior method of collection that introduces the right incentives into transportation decision-making, not as a method of bring more revenue to the system (or what individuals hear "raising my taxes"). Introducing it as a revenue-neutral method (i.e., raising the same amount as the gas tax) will help focus the discussion on the right question--how to collect revenue while introducing the right incentives.

In the short-term, however, we still have inadequate revenue coming in from the Highway Trust Fund to support our infrastructure needs. The recently enacted Economic Recovery legislation was a good start in filling some of the gap through both targeted spending and tax incentives. I suspect this is the kind of model for the short-term, muddling through with untidy solutions rather than adopting the perfect plan with the right incentives and sufficient user fees.

If the last week has shown us anything, it is that tackling these issues will be politically difficult. This means we have some educating to do and a consensus to build. If one needs an example of how challenging it can be to switch from one system of collection to another, one need look no further than the user fee vs. ticket tax arguments that happened with the FAA reauthorization bill. If a politically powerful constituency opposes a switch, it makes the job doubly difficult.

Steve Van Beek

Our traditional source of funding for surface transportation is broken. I see two major reasons for this: one that reflects changes largely beyond our control and one that should be within the control of the transportation community.

Motor fuel taxes and related truck fees are a form of user fee. While not as precise or elegant as proposals that exist for congestion pricing, there is a rough and ready link between fuel consumption and use of the highway system. During the 1960s, 1970s, and much of the 1980s it was common practice for states to increase their tax on motor fuel by a few pennies every few years – a dozen or more such increases were not uncommon on an annual basis. By the late 1980s and 1990s, however, there was a shift in terminology and what had been called user fees now became known as taxes and thus also became a political problem.

The other barrier to increasing revenues is that the transportation community has done a poor job in convincing the public and thus their representative that money spent on transportation was a good investment. The “bridge to nowhere” and the Big Dig are better known than the rate of return on investment and productivity gains. One problem is that today’s economy uses transportation in somewhat different ways than the past – reliability and predictability are key concepts.

While improving automobile fuel economy and a slower rate of growth in VMT weakens the dollar return per penny of fuel tax, this system is still viable – we just have forgotten how to use it. In addition to trying to breathe new life into the fuel tax system, we have several options: 1) Reliance on the general fund. The stimulus bill and last year’s $8 billion temporary fix of the Highway Trust Fund show this is not impossible, just unlikely. 2) Use of congestion pricing and public-private partnerships should be pursued wherever possible. While these can be very valuable in certain locations, they are not a universal solution. 3) The political momentum for cap and trade is strong, in part since it should generate large sums. But how much, if any, of these will be diverted to transportation – and if so, will they only be used for transit? 4) Then there is the VMT fee. This has technical issues to overcome and concerns over privacy that need to be addressed. The fact that the White House is dead set against it (at least for now) is not a major problem since a logical step would be to try pilot tests in a few states or regions.

I believe in the “layered look” approach to finance – that is try everything. Certainly VMT fees should be part of this effort. The tests in Oregon and Puget Sound are encouraging, but we now need two or three full scale tests. The states are the logical laboratory, both to test the technologies and to test the political will.

A VMT tax can and should be a cornerstone to this nation’s economic recovery, something that just about everyone supports because the benefits will be pervasive and transforming. I’m not just referring to a solvent transportation fund, but to the creation of a nation-wide mobile internet.

What happened last week was a common reaction of politicians taken by surprise with the issues of raising gas taxes, exploring mileage-based user fees, and introducing congestion pricing. But time and knowledge always brings them back to the same conclusion: there are no good alternatives. We have to improve and provide for the long-term viability of our transportation financing system.

Four years ago, on the campaign trail, Arnold Schwartzenegger promised he wouldn’t raise gas taxes, and today it is on his agenda. Two years ago, Deval Patrick did the same. Yet last week he held a press conference to announce his support for a 19 cent gas tax increase, tied to the consumer price index, and his intent to begin experimenting with VMT fees. State of Oregon lawmakers clearly saw the writing on the wall and bit the political bullet earlier than anyone else. I don’t know that history, but they are much farther along than the other states.

The Obama administrations response on Friday was surprising for two reasons:
• Candidate Obama alone held his head when McCain and Clinton declared the need for a “gas tax holiday.”
• The former administration, in particular Transportation Secretary Peters, spent a significant part of her tenure warming politicians up to the idea. So she had laid the political groundwork.

So I expect the Obama administration will come around and support Secretary LaHood’s rational comments, hopefully sooner rather than later because there are some very compelling national economic benefits to be gained if we implement a mileage-based tax thoughtfully.

With the same wireless infrastructure investment needed for implementation of road pricing, we can create a mobile Internet – an incredible engine for economic growth. And we can combine it with the other ubiquitous nation-side wireless infrastructure about to be built: the smart grid. A few simple sentences, built into every project dollar (state and federal), will set the stage.

Systems that measure vehicular miles traveled should protect the locational privacy of the driver. These systems should support open payment solutions and use open protocols and standards. Excess network capacity should be open to the public.

I’m definitely simplifying in this venue. More can be found here:
http://networkmusings.blogspot.com/2008/03/mesh-networks-on-transportation-will-it.html
http://networkmusings.blogspot.com/2007/10/technology-recommendations-for.html

An advantage of mileage-based charges is that they can be varied to take account of the costs imposed by different trips, e.g. to the places and times of trips, as well as to their length. Investment decisions can then be based on the willingness of road users to pay the costs involved.

And those keen on multi-modal transport planning would have an easier task because road and rail projects could be assessed by the same yardstick — excess (or deficit) of revenues over costs.

“Charges” should be a better word than “taxes”, because those who pay charges expect something in return.

VMT is not a bad idea. In fact it's a very good one. Over the long term, as gas tax revenue dwindles, we'll either have to raise the tax rate, tax replacement fuels, or find other ways to raise revenue. In this brave new world, VMT is an idea that beats others I've heard hands down. Why? Because its equitable, efficient and can be adjusted in so many different ways depending upon policy priorities. I think the Administration needs to consider it carefully.

It appears that the "damage control" effort is based on an assumption that the public is not ready of a VMT-based user fee system. Yet it is likely that state pilot programs will continue to expand and the pockets of the public will begin to get used to these systems.

The reality is that VMT-based taxes will take some time to develop and could not be implemented as a "solution" during an Obama Administration anyway. As long as the pilots continue and expand, the public will have opportunities to weigh in on privacy and zone pricing schemes that may concern them.

Another reason the VMT charge is unlikely to occur anytime soon is that it would replace a system that has a relatively low-cost to administer (at a few hundred terminal racks) with a system that must be collected from hundreds of millions of motorists, with potentially higher administrative costs and new tax-evasion schemes. So these issues all need to be worked out and the states seem to be the best laboratory for that.

In the meantime, adjusting the fuel user fees to make up for inflation & mandated fuel economy changes, while making sure that all alternative energies can be taxed at equivalent rates, seems the path that transportation advocates should focus on for the 2009 surface authorization bill. Without a stable source of revenue, transportation programs will face huge shortfalls that could render a new authorization bill impossible to enact.

Well, we've had another reminder that the "T" word (whether it stands for taxes or tolls) is always a lightning rod, even when the context is that we ought to think about future actions. But I don't think the subject should be off limits nor that it will go away.

I'm reminded of the flap that occured when the Clinton Administration sent its NEXTEA proposal to Congress. We had included (and gotten fully cleared) a proposal for limited tolling of Interstates, to finance reconstruction and expansion needs. Not surprisingly, t was the sole focus of the press--leaading to my being dispatched for a special White House Press Room briefing to defend this radical concept in front of Helen Thomas, Sam Donaldson, et al. They were appropriately skeptical and critical, but as we recall, the provision finally made it into TEA-21 and has been continued. Maybe someday we will see the three demonstration slots fully used.

Obviously, it's premature to advocate a specific proposal for VMT taxing or any other new means of revenue raising. Lots of issues need to be addressed in both policy and practice, and I hope that the forthcoming Commission report will make that point. But looking towards an authorization bill debate this fall, no one should think that the motor fuel tax, as currently configured and currently collected, is able to sustain the investment levels we have managed over the past decade. It would be ironic and disappointing to think that we might be forced to cut base investment programs in half just as we are augmenting them significantly in the pursuit of economic recovery.

But the need to augment revenues doesn't necessarily lead directly to the VMT tax. Broadening the base of fuel taxation to include all forms of propulsion, indexing to keep up purchasing power, even increasing the base level are all options. The point is raised that we shouldn't be dependent on more fuel consumption in order to meet our investment needs, but I think the same argument could be raised with respect to a VMT levy, as well as the concern that it would likely charge all vehicles comparable rates rather than differentiating according to energy use. And one cannot dispute that the current fuel tax is a much cheaper solution to revenue raising than an elaborate nationwide VMT system.

The VMT system could have much more power, however, in areas of congestion management, pricing of specialized facilities, and other applications of ITS that are dependent of vehicle identification. Targeting its development towards these uses, with a major emphasis on privacy protection, is a more likely way to go than a leap to a universal pricing system for all facilities. To get to that point will require actions and cooperation by all of the states (who maintain the responsibility for registration of vehicles) and by the manufacturers of motor vehicles. Structured properly, these user fees could be restricted to those motorists who choose to drive in particular places and times, rather than imposed on all of the public.

Let's separate the debate into one that first identifies what we want to accomplish and then how the goals can best be met. Direct user charges such as VMT taxes have their place, but they may be supplements to a broad based system like the fuel tax, not a replacement.

The immediate and negative White House response to LaHood’s suggestion is symptomatic of the sound bite politics that has driven the country to so many bad choices in the past.

It is quite clear that using gasoline taxes to finance our highway system will not work for long. Since energy conservation is a clear national priority, and improved mileage for vehicles an important component of achieving success, we will have to find other means of maintaining the roads.

At this juncture, the right answer isn’t clear since we have not yet debated – or decided – whether transportation, including highways, should be primarily user or beneficiary paid. But it would have been far better for the White House of acknowledge that gasoline taxes alone will not suffice, to encourage debate of the LaHood idea and other alternatives, and perhaps to take the opportunity to appoint a commission to study available choices, educate the public and suggest a solution.

Transportation Secretary LaHood’s comments last week expressing support for a vehicle miles traveled (VMT) tax prompted widespread media interest, swift clarifications from the Department of Transportation and the White House, as well as media polls showing strong opposition to the idea. The response demonstrates the significant challenge transportation leaders face not only in identifying funding solutions that can meet the nation’s transportation needs going forward, but in garnering the public support needed to make any future funding proposal viable.

The fact is, a number of credible sources have come to similar conclusions about the need to shift to a vehicle miles traveled tax for the long term, including the Transportation Research Board, the National Surface Transportation Policy & Revenue Study Commission, and the soon-to-be-released report from the National Surface Transportation Infrastructure Financing Commission. But a nationwide VMT tax, or even a state-level tax, can’t be implemented next week, next month, or even next year. Pilot tests in Oregon and other areas have demonstrated some of the technical challenges that need to be overcome, in addition to addressing the public’s significant concerns about privacy.

The same reports that cite the need to transition to a VMT tax also conclude that the federal gas tax is a viable funding option for the next decade or so. During this period of transition, we also face the challenge of generating enough revenue to address current needs. All funding options must be considered, but in the context of a reformed federal program. Reforms, accountability and assurance that existing revenues are being invested appropriately are the critical steps required to generate public support and the political will for future funding increases.

While additional testing of the VMT concept is conducted, policymakers will need to be upfront with Americans about the various transportation funding options – what they’ll be asked to pay, and what they can expect in return. Public-private partnerships and increased tolling will have to be part of the mix, but advocates for those options shouldn’t sugar-coat them. Just because they’re not called a “tax” doesn’t mean transportation users won’t pay more than they currently do under the gas tax.

Where the Obama Administration needs to think “outside the box” – to borrow the phrase from the Secretary – is in a new vision for the federal transportation program that identifies which national priorities will truly help enhance U.S. competitiveness in a global economy and ensure safe, reliable mobility for all citizens. The funding solutions should fall into place once those new priorities and programs are identified.

Few quarrel with the Obama administration’s policy goal of dramatically reducing our nation’s dependency upon oil. Effective pursuit of this goal should benefit the environment and improve our energy position in the world. Without additional consideration of the consequential impact on road funding, however, this single perspective policy may further imperil the financial health of a national road system already buffeted by a decline in economic activity and greater market acceptance of highly fuel-efficient vehicles.

It is self defeating to rely upon the volume-based gas tax for sustainable road funding under a national policy with the objective of reducing gasoline consumption. Fundamental change for road funding must begin to occur soon after keen deliberation.

The principal policy question remains whether to change to a user pay system or whether users should receive subsidies from other elements of the economy. The nation should have a healthy yet urgent debate around this issue.

Since the gas tax already is a user pays system of sorts—albeit a flawed one that cannot realistically keep up with steady increases in fleet fuel efficiency—moving to a general tax or other generally applied tax would present revolutionary alteration of the connection between driving and maintaining the health of the road system. In this context, moving to a mileage-based tax—a charge even more closely associated with driving—may well offer opportunity for modest yet preferable change for road funding, provided the design of the collection mechanism proves acceptable to policymakers and citizens.

The options for a mileage tax collection system are varied. Investigators across the world now sort through various system options: self-reporting of data, pay at the pump, central billing, pay by tolling transponder.

Under the self-reporting method, motorists report their mileage manually to the collection department—or have a government official read their odometer—and pay once a quarter or once a year. As this may lead to widespread under reporting of mileage data, a hassle for motorists and a fairly large government bureaucracy to ensure fairness, a system built upon contemporary electronics may provide a more efficient system. Electronic reporting and payment of mileage taxes can ensure compliance, operational cost savings and ease of motorist use but government mandated technology tends to raise fears among some members of the public.

When first encountering the idea of a mileage tax, citizens often jump to conclusions based on false assumptions leading to perceptions not founded in reality. Like walking into unfamiliar territory on a dark night, citizens may see horror in the shadows. During times of societal stress, the potential dangers appear even more menacing. Correcting these misperceptions will be the primary challenge for the mileage tax going forward.

These reactions do not lack legitimacy. If not careful, a government could make poor public policy decisions. If careful, however, a government can employ a mileage tax system able to count miles but unable to monitor vehicle movements or keep a travel history, one that makes compliance simple and fair, apportions the tax burden appropriately, requires a small government operation and only imposes taxes on motorists that replace the gas tax or otherwise benefit their travel experience.

Since a national consensus has yet to form on the optimal mileage charging system for the United States, opportunity exists to bring the public along. To do so, Congress must establish public policies guiding mileage fee system development according to public needs and sensibilities. The process must be transparent and participatory. If conducted properly, at the end of the process the bulk of the citizenry should be able to reach the point of acceptance.