I want to thank everyone for your comments and questions.  However, I want to respond to Robin's note here.   It's not clear that other stand-alone devices could be used effectively as payment systems.  One key feature is avoiding fraud and non-payment, and stand alone devices designed for other purposes  (e.g., cell phones) might not meet this requirement.  One note on fleet transition.  In our vision, vehicles would be required to have an OEM installed device after some date and a few years after that, these vehicles would start paying a VMT (and not the gas tax that others pay).  As each new year of vehicles comes on the market, they would also pay a VMT.  At some point a decision would need to be made to transition the older cars to VMT using an after-market device.

With regard to your dicussion of open protocols and standards, I completely agree.  If such a system can be built to the level of security and accuracy needed and use open standarsds and interoperable  data that is much better.  I am not sure, however, that the smart grid will be working with this network, but certainly one could envision a whole host of applications that could be built to work with these standards that travelers might wish to avail themselves of, and in so doing make the overall investment in a VMT system much more valuable to society and travelers.  As you correctly note, that won't happen with closed, proprietary standards. 

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Gabriel Thank you so much for your comments. I realize there wasn’t a question in your comments but wanted to acknowledge them. Our mandate was, among other things, to identify ways for Congress to fund the federal Highway Trust Fund – we provided Congress with a menu of options in which to do so at the federal level. Transitioning to a VMT system was such an option. We also provided incentives and policy changes that may enable states and local governments to utilize innovative financing mechanisms in the future. While I am a strong proponent of the federal government having a role in maintaining a national transportation system, I recognize there are different views. The federal government needs to demonstrate it can handle this responsibility in a better way in the future. I hope that is the outcome at the end of the day.

Ken As always, thanks for the commentary. I certainly understand your arguments. The federal fuel taxes have not been raised since 1993 – so I would argue there never seems to be a “good” time for such a debate. And this year has many other obstacles – some of which you’ve mentioned. Having said that, personally, I am not a proponent of short-term authorization bills (one or two years).   I realize that SAFETEA-LU was two years late and it created tremendous uncertainty among states and local governments. I believe a short-term bill would do the same. But, with the SAFETEA-LU deadline looming, Congress will have to wrestle with this and many issues in the coming months.

Jon Thanks for the questions. Here are my thoughts: 1. When we proposed that Congress undertake the process to study a transition to a VMT system for the future, it wasn’t because we thought it was the silver bullet solution. If there are continued reductions in VMT, the amount of revenue raised would be impacted. However, we do not believe a reduction in VMT (in the magnitude we’ve seen in past months) would have as dramatic an impact on the Highway Trust Fund revenues as new technology and alternative fuel use will have on a motor fuel tax funding system.  2. As to privacy, while we believe a VMT system and the technology of such a system could be designed in such a way as to alleviate privacy concerns, it is a very real issue and one that cannot be ignored. Until there is a level of comfort among the public and their representatives in Congress that privacy issues are addressed adequately, I do not believe a VMT system at the national level will be established. 3. I agree that more options may be available in the area of public transportation’s use of the PPP mechanism and I hope that folks like you will weigh in with ways in which it could take place. We were certainly open to this issue and I would anticipate Congress would welcome your suggestions in this area. 4. One of the areas we discussed in the report related to having any VMT technology be multi-modal, adaptable, and able to serve as a single mechanism for taxation and pricing – one of those areas where we felt it could be compatible was with transit fares via “mobile commerce’ type technology. As the technology in this area develops, this is an area in which folks should engage in order to understand all of the possibilities of such technology. 

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Pat

Sorry for the late response. It has been a crazy week. I know others will have views on your question – so here are mine. Let me start by making a couple of statements. I am a strong supporter of having a federal transportation program. We can argue over the details of such a program (and how well the programs have been structured in the past) but I believe the federal government has a role to play in maintaining a national transportation system. I am also a strong supporter of more federal investment – if the federal government wants to maintain control over portions of the transportation system, they need to step up to the plate and provide more resources. So, having said that, I believe the debate over transportation is going to have to undergo a dramatic change. The same old arguments used in the past aren’t going to work. The transportation investment needs in this country are so great (at all levels of government), we all have to move outside of our individual comfort zones and be willing to embrace changes we might otherwise have brushed aside. The answer can’t always be “no” – we must find the areas where we can say “yes”. In addition, if there is to be change and if there is to be more investment, the debate needs to be brought down to the local level – how does investing more in transportation and reforming the federal program help me, my neighborhood, my community, my state, etc. The debate cannot take place just within the Washington DC circle.  

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As the week following the release of the Commission's report winds down, I thought I would provide a few comments.  First I would like to thank Commissioner Ruffalo for responding so eloquently to the questions posed here to date, just as she did during our almost 2  years of deliberations.  Second, I would ask that responders offer any suggestions they may have about how we commissioners should follow up the release of our report with further engagement with the larger public policy community.  Third,  I would like to thak the Bush Administration for its support of our efforts  and the tax writing committees of Congress for their interest in our work.  Finally I would ask those particularly intrerested in the subject matter to focus on Chapter 7 of the report, dealing with financing tools we recommend be available to the states to aid in the difficult task of capital formation for mega-projects. As D.J. Gribbin points out, the states have the important job of allocating limited resources, making efficient investment decisions and leveraging tax revenues.

Bern Grush of Skymeter Corp. replies to Bob Poole and Kathy Ruffalo:

Bob:
You are right that hacker-proof after-market devices are critical.  Prototypes are already available and standards are being written in the EU (ISO 17575 touches on this, but there is another standard currently called "trusted element" that was established nearly a year ago, that will take another 2 years to finalize). While non-trivial, but as Commissioner Geoff Yarema pointed out in an IPR piece a few days ago, this is not as hard as getting to the moon. Fleet turnover is critical metric or factory installs, but not to the Commission's vision. This should not, can not and will not be done without [hacker-proof] after-market devices. If we started factory installs in 2015 (say) then by 2035 the cars that were factory installed in 2015 will be a technical laughing stock.  Would you like to use my 1989 cell phone? I can't even bench-press it any more!  Besides the range of innovation for and value of multi-application after-market telematics will astonish you. The dashtop will be the new laptop.  Would you want a laptop built into your desk?

Kathy:
You are are right that industry will make these standards.  That has been underway for over 5 years (ISO/CEN). Unfortunately, only one American participates on that committee of some 30 experts! After market installation does not have to be as costly as imagined.  Hacker-proof devices can be self-installed (this requires the right enforcement infrastructure, but enforcement is needed anyway so no incremental cost here). The manufacturing cost of hacker-proof devices is currently about $125 (in volume, of course) and Moore's law will make it $50 in 5 years.  But how can we switch 250M vehicles and 200,000 fueling stations in the United States for Jan 1, 2020? We can do that by building an installed base of VMT after-market meters over a period of 10 years so we can cut over on Jan 1, 2020. How would we do that? Well, these same devices can be used for parking (huge convenience) and for insurance (save money for some) and driver rewards programs such as credits for not moving your vehicle during peak hours, hypermiling, parking loyalty and so on. Sell metering services that provide a range of desired services (including overlaying the current ORT systems). Who would do that? The cellcos.  The business model is exactly the same as the cellular telephony.  The handset becomes afixed to the windshield. The email service changes into a metering and payment service.  Everything else is identical: free meter for 3 years contract, monthly service, monthly bill, roaming, service package. AND there is not need for data exchange with fueling stations, which is done to ensure people can fuel at home from their solar or wind generators. The prototypes for everything I describe can toll 240M vehicles by 2015, or more realistically 5 years after someone says: "Go". Commissioner Yarema was so right. America has the engineering skills.
 

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Bern Grush, chief scientist for Skymeter Corp, sent us the following post. Skymeter is a member of ITS America and is a Toronto-based data services operator that enables location-based payments (the kind of technology that might be used to implement a VMT system).

Six Key issues the US must address in moving from gas tax to VMT charging.

The events of February 20 to 26, 2009, in the US have launched a significant debate for Americans regarding its critical surface transportation system. This debate will have a lot of low points such as the Lahood-Gibbs-Oberstar shouting match that helped sell newsprint for a couple of days and fewer high points such as the release of the final report of Congress’ National Surface Transportation Infrastructure Finance Commission.

The debate will cover a surprising number of issues. While the debate regarding what the Fed should the Fed do and what the States should do is critical, I will side-step that because I’d be out of my depth and because I believe we can achieve a full switchover to VMT without rewriting the Fed-State relationship in a fundamental way. So with that conveniently aside, I think these are the six that matter, and in this order.

 Privacy. Some Americans are frankly afraid of GPS and any other mysterious technology. We will not be able to explain it away for everyone. Some Americans who are not afraid of GPS are anxious not to risk its misuse. Who would fault them? Some Americans understand it is possible to have a system that does NOT track motorists but so hate taxes (or new charges) on principle that they will latch onto the privacy argument as a red-herring. Attacking privacy fears with “Don’t worry” or “ ‘They’ already know your credit card and cell phone” will serve to make these Americans, who in aggregate are possibly in the majority, only more resistant. We need to acknowledge that, correct or not, the big brother perception is powerful. We need to legislate that no VMT meter can permit location (tracking) data out of the vehicle, without specific (signed?) permission of the registered vehicle owner and its operator(s). This is already in progress in the EU. To get this underway, now, keeps the debate about VMT charging on the table and says: “first thing is to kill the big-brother possibility”.

Entitlement and Fairness. The arguments around entitlement to mobility, whether some roads are a free access public good, taxes being paid by people who do use roads directly with a private or commercial vehicle vs taxes paid by people who use the road but do not drive a private vehicle, exceptions for certain vehicles and persons, and so on, are often meritorious. We do not want to make anyone worse off, but we might. So how do we address that? There are credit schemes and tax-schemes and assistance schemes to help people move or shift modalities. What are they and how will they work. If they were understood, anticipated, and in place, some people would prepare.

Funding vs Management. If VMT is only for funding transportation, then it would be applied in a particular way – in fact the argument “just increase the gas tax” is not out of place if we can ignore an impending shift in energy source. But if VMT is also for congestion cessation, then we need to build education programs – for politicians as well as for us plain-folks, because I promise you an amazing number of people really don’t understand demand management. And if VMT charging is to be pitched for green reasons, I am further concerned. There is a lot of green print and intention – stated preferences – but when a majority of people are asked to pay, revealed preferences are otherwise. And if the argument is for National Security – well, I’ll leave that one for the reader.

Access vs Environment. “Access”, here, is just “entitlement” in sheep’s clothing. To be realistic, we need access to other places whether work, worry, wink or worship. Moving people and things from one place to another leaves a footprint. Yes, many of us would like to see that footprint minimized. Do we have a common definition of what footprint we will tolerate? Saying “a 50% reduction” or “an 80% reduction” or “the 1990 level” really makes most of our eyes glaze over. So many of the “agreements” we have made to date are not only toothless, they are also with plans to get there.

Roads vs Transit. Some drivers say “Put my money into roads, please.” (makes sense) Urban planners say “We need better transit so put some money there, please.” (correct) Then we get hard-to-follow economic arguments that moving a commuter from car to bus makes the road less congested so the motorists left standing should be happy to fund transit (uh, ok…). If balanced transportation options are good for everyone, why are motorists so damned nasty to cyclists and transit vehicles? The math on transport modal management and balance fills trucks. But most people still think their mode is the one-true-mode. Where else do we hear that rhetoric? I don’t think this problem can be worked out in a town-hall or in the newspaper. This will need urban planners with some selling skills and some politicians with testicular courage. And hopefully works will be copied by more of the same types. Beware of failure, though.

Cost. Considering how tough those five are, why even mention this one? Well, if we cannot shift the tax base from gas to road consumption at a cost close to that of collecting fuel taxes 1.01% according to the NSTIFC report – as opposed to the 20% it takes to collect the German Truck tolls – then we don’t have a deal. There are ways to get to 1.7% according to the same report. Can you name one? The Europeans can’t.

Instead of trying to read the Lahood-Gibbs-Oberstar crystal ball and divining what Obama’s really thinking, we need to start cracking some harder issues.

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 The unanimous recommendation to switch to GPS-based, privacy-protected, VMT charging, is so important, and potentially so beneficial, that the Commission can be forgiven any weaknesses in its report.

But the recommendation to levy a uniform VMT “Charge”, and to send the revenues to Washington, seems about as sensible as a recommendation to impose uniform charges on telephone calls, and have the total revenues allocated by the US Congress. The Commission can be forgiven this absurdity because it was responding to its absurd “charge”:

·      “How much revenue is needed to maintain and improve the nation’s highway and transit systems?” and

·      “How should this revenue be raised … “?

The idea that transportation “needs” can be determined by planners in the capital city is deeply embedded in planned economies but has no place in market economies. In free markets most “needs” are determined by customers’ willingness to pay, and funding by profitability. These principles can be applied to transportation infrastructure.

Members of the Commission were dealt poor cards and deserve our thanks for playing them as well as they did. 

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I also echo the thanks of others to the Commissioners for the difficult work they undertook and the willingness to bring forward new solutions to the issue.  I think that the most encouraging sentiment of the report was that there is no silver bullet to solving transportation finance, and we need to be willing to eliminate the previous arguments and start from a new perspective.

With that new perspective, however, certain questions remain.  I have the following questions of the Commissioners:

1. A VMT financing mechanism, as proposed in the report, would indirectly promote maintaining and increasing VMT (even with inflation indexing) in order to maintain or increase federal funding.  This would seem to maintain a core challenge of the current fuel tax system.  A sustainable transportation system will depend upon getting some portion of Americans to take more efficient forms of transportation, such as transit, carpools/vanpools, and even to telework instead of making a vehicle trip.  Did the Commission discuss this issue beyond the discussion of congestion pricing, and how would the commissioners here propose to deal with promoting programs that reduce VMT and do not contribute to the transportation trust funds while at the same time establishing that long term solvency for transportation funding for all modes?

2. The Commission lists privacy as an argument that could forestall movement to a VMT pricing scheme.  But is privacy a real concern, or just a concern of those who object to VMT pricing?

3. The Commission went through a fairly extensive analysis of PPP involving highway facilities.  Why wasn’t there more discussion of PPP opportunities in transit, or for small scale opportunities of PPPs in public transportation (i.e. employer-provided transportation benefits, private shuttles, privately provided public transportation, or service contracting)?

4.  Could any of the Commissioners expound more on the concept briefly mentioned in Chapter 8 of needing to create a linkage between the VMT hardware in vehicles and transit fare collection?

My thanks to Rob, Kathy, and Geoff for being willing to respond in this format.

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To Rob, Geoff, and Kathy:

I echo the sentiments of others in congratulating you on an excellent report that is refreshing and visionary. Thank you for devoting your time, talent, and energy to this important work.

E.J. Dionne had an interesting column in Monday’s Washington Post that began like this: “Our political system adjusts badly when the familiar landmarks erected during controversies of the past are swept away and prepackaged arguments become obsolete.”

This observation reminded me of Craig Lentzsch’s statement during the Commission’s press conference. I’m paraphrasing but essentially he said, You can say “no” to what the Commission is suggesting, but if you do, then you have to propose an alternative.

So, here is my question: In the coming debate over future transportation funding, what familiar landmarks of the past are swept away and what prepackaged arguments have become obsolete?  I think it’s important to clearly identify these things to begin the public education campaign that’s needed for our political leaders to adopt your recommendations.

Pat Jones, IBTTA

First, I want to thank and commend the Commission for an excellent report. You presented the financing realities (past and current) in a compelling way. I hope members of Congress, and the general public educate themselves so that we can move beyond the disfunctional status quo toward long overdue reform.

I'd like to respond to your response about the technology to be used for the VMT tax. There are about 200 million vehicles in the United States, and it will take 25 years for the fleet to turn over. Over the last 15 years, the automobile manufacturers have yet to agree about in-vehicle standards and wireless connectivity. Their efforts in this arena are ill-fated given their design and manufacturing cycle (5-8 years), and the longevity of the car (which have a half life of 9.5 years). Conversely, wireless technology and associated devices are being improved continuously with half lives between 1-2 years. There is a fundamental incompatibility between the manufacture and planning of cars and that of wireless innovation. After-market solutions must be the drivers; new car (OEM-based solutions) are too few in number to drive benefits of what is really a collective action.

A second issue has been the tendancy in the transportation sector to try to develop standards for its own piece of the radio frequency spectrum. Again, this works against the transportation industry. While transportation engineers are working on their carve-out, the world's engineers are hard at work on wireless (and electronic payment solutions) that work securely and satisfactorily for every other sector of the economy (banking, education, health care, emergency services, entertainment). The systems and devices they are producing are increasingly multifuncitonal and interoperable, useful for a wide range of purposes and across networks. Fifteen years ago who would have thought that my telephone could be used to pay for a cup of coffee in a retail store?

The transportation sector needs to leverage the investments and innovations of the vastly larger and higher volume communications devices, networks, and infrastructure being used for consumer goods and services. This piggy backing will cost dramatically less than retrofiting and building out a stand alone transportation-financing network.

Language that was recently used in the Economic Recovery Bill for the impending smart grid investments (which also use government dollars) required that "open standards and internet-protocols" be used. For VMT user fee demonstration projects and build outs, we need to extend that language even further:

"Systems that measure vehicular miles traveled should support open payment solutions and use open protocols and standards. Excess capacity of networks built for this purpose should be made open."

With such simple language, the smart grid will be able to work with the VMT infrastructure and with consumer communications devices and networks, and early efforts in one state will be interoperable with adjacent states.

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The Commission has recommended a "modest" 10-cent increase in the federal gas tax and a 15-cent increase in the diesel tax in conjunction with the upcoming authorization of the federal surface transportation program, "if not sooner". But both the Obama administration and numerous congressional leaders (including those on the tax-writing House Ways & Means and the Senate Finance committees) are on record opposing a gas tax increase in a recession. Since, short of a miracle, the recession will not be over this year (we shall be lucky if it's over in 2010), this rules out a gas tax increase as a short term solution to the funding shortfall.  

One option would be to postpone the authorization by one or two years until a more favorable economic climate made the recommended gas tax increase politically more feasible. A one- or two-year extension of the existing law could be funded with the existing gas tax revenue and supplemented with general funds---a precedent for this already exists in the recent $8 billion replenishment of the Highway Trust Fund with general funds. 

This is more by way of a commentary than a question, but I would welcome the Commissioners' thoughts on this approach (or my fellow bloggers'  for that matter), should they care to respond.

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DJ

Thanks for the question. We had some very lengthy debates on this subject. We certainly acknowledge the important role that states and local governments play in the current funding and financing system for surface transportation – and would envision the same or even growing role in the future. We have made several recommendations that we believe may further enhance the ability of states and local governments to develop innovative financing solutions. Having said that, our Congressional mandate required us to consider an “opt-out” or devolution option. We did consider this type of option and rejected it. We do believe the federal government is and will continue to be a partner in the surface transportation system and have recommended a national VMT system for funding such a system in the future. 

Mr. Crandall

Thank you for your question. You’ve raised a key issue in the upcoming debate on the surface transportation bill and probably the FAA reauthorization bill as well – should the “user pays” principle be the foundation of any funding mechanism. It was our opinion that the “user pays” method is established for many services where consumers make choices about consumption and should be continued in the surface transportation arena as well. The current major funding mechanism for surface transportation – the motor fuel tax -- has served us well over the last 50 years. But given the uncertainty about the sustainability of the motor fuel tax into the future, it is important to begin to study and establish a new method. It was very important to us to maintain a link to use of the system (to the extent practicable) – therefore, a VMT mechanism was our choice for the future. In addition, we are very supportive of maintaining the Highway Trust Fund (HTF) structure and the link between the user fees and transportation spending from the HTF. I would fear the loss of the HTF structure if the dedicated funding source related to a user fee were to end.  We strongly support the broad benefits of a national network and recognize there will be a need for cross-subsidization in the future (as today).  Personally, I believe Congress is going to have to consider a menu of funding and financing options for surface transportation – none are perfect and there is no silver bullet solution. Your proposal will certainly be part of a very spirited debate. 

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The Financing Commission did a significant service to the debate on the future of transportation infrastructure in putting together a thorough and thoughtful summary of the challenges facing this area and a number of ways to address those challenges.  My question for Rob, Geoff and Kathy is -- what role did the Commission envision states and localities playing in the financing of surface transportation infrastructure?  The report notes that non-federal sources currently make up a majority of the funding for surface transportation infrastructure and you include a number of recommendations to increase non-federal funding in the short and medium term.  But I was curious if the Commission discussed the degree to which a future system would rely on federal funding in the long term.

Kathy:

Will you and others comment, please, on why you arrived at a consensus in favor of "user pays".  I think all would agree that every citizen of the United States benefits from the existence of world class transportation facilities, whether Rail, Road, or Air.  Thus, it has always seemed to me that broad based -- say VAT -- taxation ought to bear at least a portion of the cost of transportation services.  Indeed, no matter what collection methodology is used, user fees will eventually filter back to all citizens in the form of high product and service prices -- why not simplify life and simply finance the system with broad based taxation in the first place??

Bob

Thanks for your question and also for your continued work in this area. 

Here are my thoughts on this issue:

It would be my hope that the industry would be the ones to begin the work to develop standards for any VMT technology. I believe that industry should be the driver for any standards. Having said that, DOT would eventually need to mandate the use of these standards to require original equipment manufacturers (OEM) to install the technology by a date certain that would allow for a 2020 implementation process.  After market installation of the technology on a large-scale basis would probably be quite costly. So – the goal would be for the OEMs to do the install in new vehicles with factory-installed equipment. I agree that fleet turnover will take time. During the transition – when some vehicles would have the VMT technology and others would not – we would have to have dual systems. Some drivers would pay a mileage based fee and others would pay the fuel tax.  Eventually, we would reach a level of use where the number of vehicles needing after market installation (retrofits) would be isolated to a manageable number. While we believe we can begin to use a VMT system by 2020, it will require the willingness of all participants – especially the public – to be a partner to the transition.

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Kathy,

The report talks a lot about implementation of a national (or federal-government) VMT charge by 2020, but does not make clear how implementation is defined. When I served on the TRB committee on the long-term viability of fuel taxes for highway funding, experts on VMT charging such as David Forkenbrock told us that it takes about 20 years for the passenger vehicle fleet to turn over, as new cars replace old cars that are subsequently scrapped. Unless a hacker-proof retrofit device comes along, it sounds to me like we are stuck with a 20-year transition period. Since the Finance Commission did not endorse a retrofit approach, is your 2020 deadline intended as the beginning year of this 20-year transition?

Bob Poole, Reason Foundation

Steve

Thank you for your interest in our report and for your question. We spent a great deal of time on this issue. While we did not reach a consensus on the particular issue you raised, one of the guiding principles that the Commission used during its deliberations was that users of the transportation system should bear the full cost of their use of the system “to the greatest extent practicable”.  We recognize the need and appropriateness of cross-subsidization. But we also state that such cross-subsidization should be intentional, fully transparent and meet system and equity goals. 

Question:

Under user-pays, is a user in an urban environment such as the Washington-Metro area assumed to be a user of a particular mode or of the passenger transportation system generally?  An intermodal perspective would assume that a user such as myself--who uses commuter rail, the subway, or drives depending on my daily needs--is a user of the passenger system.  A modal perspective would assume a user-pays policy would view each modal in isolation from the others.  Thee contrasting perspectives can then result in different views about how monies collected should flow back for investment (i.e., to the mode or to develop what the region perceives to be system needs)

Was there any consensus from the Commission on which perspective underlies user-pays?  And how does this tie into your views about cross-subsidization?

Thanks to the Commission members for an excellent and thorough piece of work and your willingness to address questions in this format?

Steve Van Beek