New Momentum for Mileage-Based User Fees

Graphic source: I-95 Corridor Coalition

From a purely economic perspective, the ideal system for funding road and highway improvements would be a Mileage Based User Fee (MBUF) in which motorists would pay in direct proportion to which they use the public road network. Charging for road usage would incentivize Virginians to drive less, thus reducing both congestion and carbon emissions. Plus, an MBUF (also known as a Vehicle Miles Driven tax) would replace Virginia’s increasingly antiquated and jury-rigged system of transportation funding that relies on retail and wholesale gasoline taxes, sales taxes, motor vehicle registrations, and other revenue sources that transfer wealth from low-mileage drivers to high-mileage drivers.

Aside from the fact that such a system would create winners and losers, which would complicate a political implementation, the idea of a VMT tax has been beset by practical issues. How would the technology work and how much would it cost to administer? How could peoples’ privacy be protected? And how does one account for inter-state travelers — if Virginia couldn’t collect the tax from out-of-staters using state roads and highways, would such a system unfairly burden Virginia taxpayers?

But the idea is gaining new respectability. The I-95 Corridor Coalition, a partnership of more than 100 state transportation agencies, toll authorities, and public safety organizations, is exploring the feasibility of establishing MBUFs. If Virginia converted its 22.39 cents-per-gallon gasoline tax and 26.08-cents-gallon diesel tax to an MBUF on a revenue-neutral basis, it would have to charge 1.02 cents per mile. (That compares to the IRS mileage tax allowance of 58 cents per mile.)

According to the coalition website, studies so far have included two phases.

Phase 1. A pilot project in Delaware found that 20% of the miles driven were outside the state where the participant lived, confirming that dealing with out-of-state mileage is important. According to the Coalition, the study also showed that it is feasible for MBUF technology to collect tolls. Concerns about “privacy of my personal data” dropped as a high concern among participants from 57% before the study to 30% afterwards.

Phase II. A second study phase is focusing on the special challenges of motor freight carriers. These heavy road users pay a significant share of the cost of building and maintaining roads and highways (although some would say not enough). Commercial vehicles must adhere to a long list of regulations, including Electronic Logging Devices, the International Fuel Tax Agreement, and the International Registration Plan. A goal of the study is to determine how easily it would be integrate mileage-based fees with existing rules.

An expanded, third phase is now underway. As part of that study, the I-95 Corridor Coalition is teaming up with Transurban, Virginia’s partner in Northern Virginia’s Interstate 495 and Interstate 95 express lanes, to see how a per-mile tax would work alongside toll lanes. Transurban hopes to include about 400 drivers from across the D.C. region, reports WTOP TV.

New technologies are making MBUFs a more attractive prospect than they were a decade ago when Bacon’s Rebellion was pushing the idea for Virginia. States the coalition website:

With watches, phones, ride hailing apps, and on-demand services, we are more connected and more demanding than ever before. Currently, tons of information is sitting within our vehicle, but remains out of reach for most drivers. Value-added amenities break down the barrier between the vehicle and driver by creating tools such as a battery life monitor, check engine message decoder, trip logs and vehicle safe zones. The same technology used to create these value-added amenities can also calculate a mileage-based user fee. The relationship between value-added amenities and MBUF is being explored in pilot studies.

Technology can make it easier to track battery voltage and health. Insurers can reward drivers for safe driving habits. Motorists can gain information about their driving habits that can guide them to more fuel-efficient driving. Parents can set up geographic “safe zones” and receive notifications if their teen drivers cross them. If MBUF proponents can pitch the fees as a value-add rather than a privacy concern, the political prospects would improve immeasurably.

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13 responses to “New Momentum for Mileage-Based User Fees”

  1. LarrytheG Avatar

    It’s true, there is a LOT of data now as well as a lot of surveillance of the vehicle by cameras so that they do have your plate number and a time stamp and a location but what they do not have is your mileage and that’s something that would have to change.

    But the bigger issue is treating miles the same cost no matter the congestion level and that’s thats the same problem with the gas tax – and it’s the angst on dynamic tolls which apparently are hated with great vigor by a more than a few folks but the reality is that congestion LEVELS are also a COST that should be accounted for and attributed to those who are not only using the roads but using them at congested times – which leads to wait times for everyone and/or increase transportation costs to add lanes.

    The funny thing is that we’re all accustomed to and accepting of the airlines using a pricing scheme that reflects congestion. The more you want to fly at a peak hour – the more it’s going to cost you. If you want to save money – time shift.

    I just think it’s easier to implement tolling and dynamic tolling than mileage – from a technical point of view and I’d be curious to see a poll where people had to choose between dynamic tolling or mileage-based tolls.

    But the bottom line is that fixed-cost pricing does not work in terms of affecting congestion – only dynamic tolling does that.

  2. I tend to feel the current system works quite well, but many motorists are unhappy that higher MPG vehicles pay less tax.

    In the last 2 years, sadly, a number of (red) states have imposed unfair taxes on regular hybrids, like Virginia tried a few years ago but later revoked. So in those states, you have could buy a 25 MPG SUV like a Highlander, but if you paid extra for the hybrid version, you now have to pay up to $100 a year more, which adds up to $1000 over typical car life. And Highlanders are not plugging in at all, they are just filling up with gasoline like everyone else. Somehow the word “hybrid” qualifies for tax punishment in some states.

    Now then, if you say, all cars over say 25 MPG owe extra fuel taxes, I do not prefer that policy, but it does not unfairly attack certain makes and models. New Hampshire had proposed that approach, but I do not think it was implemented…not sure

    1. LarrytheG Avatar

      The issue about fuel efficiency is not so much about how “pure” one is on emissions but rather how much of the road system you are using – regardless of whether you have a fuel efficient car or not – you still “use” the road system and it has to be paid for – so what is a fair way of allocating those costs?

      Then there is the question of WHAT road you use and WHEN because it costs money to add more lanes to support higher volumes of traffic – in much the same way the airlines have to pay for more infrastructure to support higher intensity of volumes – i.e more gates, more planes, etc to serve greater numbers. I-95 will have higher volumes of “demand” at 7 am than 3am whereas some country road out in the middle of RoVa may have few cars on it even at “peak” hour so it can function quite well and quite cheaply with two minimal lanes that cost 1/10th as much money to build and maintain than lanes on I-95.

      1. TooManyTaxes Avatar

        I agree with Larry that alternative fuel vehicles need to pay some level of taxation to fund VDOTs’ road costs, both capital and expenses. Hybrid vehicles do pay some gas tax and everyone in NoVA and Tidewater pays the extra sales taxes but pure electric vehicles, such as Tesla, are not paying any fuel-related taxes towards covering VDOT’s costs. That’s neither good economics or fair.

        It would be unfair just to surcharge electricity as non-electric vehicle drivers would pay more to subsidize electric vehicle users. Unless we are ready to measure those drivers’ mileage, some flat-fee taxation is necessary. I don’t know whether $100 per year per car is fair.

        1. I agree totally, plug-ins are a different story.

          As Toyota would say it, fuel taxes should be technologically neutral within the 100% gasoline vehicle class. It should not matter if your car is built from Aluminum or is hybrid or whatever.

          Once you start plugging-in using alternate fuel (eg; electricity) then an extra fee is warranted to equalize tax payments. Now of course, many electric car owners strongly advocate for getting tax breaks, so that is part of the problem.

  3. LarrytheG Avatar

    see we’re mixing two different things.

    The first thing is how we pay for roads and how we’d justify something other than equal allocation of costs based on actual usage.

    The second thing is, quite apart from one’s use of roads, whether they merit some discount because, despite their road use – they “pollute” less – because that’s what it is really about.

    So… don’t conflate the two.

    Everyone should pay for their use of the roads – no matter how efficient or non-polluting your vehicle. You still need “road”.

    Now, if we want to reward folks for polluting less – that’s a separate issue.

    I personally think it’s misguided because using electricity instead of gasoline to power a car, does not mean less pollution – unless the electricity generated is less polluting and even then a good conventional 4 cylinder will pollute less than a hybrid 8 cylinder.

    At any rate – that’s different from road use.

    And if we want to do that – then perhaps the place to do it is on the taxes on cars, The more efficient, less polluting cars would get a tax rebate – automatically applied when the car is taxed. That could be done at the local level or it could be done in the form of a rebate at the time you purchase the car and are subject to the sales tax for cars.

    We got started down the wrong path when we started letting Prius drive in the HOV lane and the people who bought the Prius did not give rats behind about less pollution – they just wanted to be able to drive in the HOV lanes.

    But the bottom line is that people – everyone should pay their fair share of road costs – no matter what they drive and if the State wants to reward them for driving a lower polluting car – fine – do it separately with a proper nexus – don’t screw up the concept of all of us paying our fair share of the roads – and especially the more congested roads. I favor dynamic tolls on them.

  4. The gas tax is the most effective way currently available to make those who use our roads pay for them. Everything else, including MBUFs, are an attempt to approximate that result with a technology that doesn’t yet have the same level of organized political resistance — but would be disruptive and expensive to implement. Any idea what that cost might be per vehicle?

    You are correct, there were a lot of Priuses in VA and elsewhere sold to take advantage of special treatment for commuters. The gas tax also rewards energy efficient gas-using vehicles. But it fails to collect a fair contribution from those who power vehicles electrically from the grid. That share is going to increase sharply I think, enough so that we need to anticipate it now before it becomes a sore point.

    As the MBUF technology is blind to the power source, I’m for it, for that reason. But what sort of time frame and cost are we talking about?

    1. I would say some, but not a lot, of hybrids are sold in Virginia for commuting incentives. Originally of course Va. was a leading hybrid sales state for that reason. But since 2006 Virginia has been phasing out the benefit, and the HOT lanes are mostly putting the final nail in the coffin, when they are complete out to Arlington and I-66 to Manassas.

      New owners since 2011 cannot get I-66 and since 2006 cannot get I-95. Some “grandfathered hybrids” out there but per above not too much longer.

  5. LarrytheG Avatar

    There’s another reality here that we are missing in this discussion and that is that in Virginia, fuel taxes only currently pay for 1/3 of transportation funding.

    Fully 2/3 of our Virginia funding now comes from sales taxes on goods and vehicles. 1/3 on the general sales tax and 1/3 for new cars.

    In NoVa – the percent of sales tax funds are even higher as they have a separate, additional sales tax.

    The fuel tax itself is no longer per gallon but a percentage of sales.

    And to give context – the transportation budget is about 5.5 Billion which is about 1/2 the budget for MedicAid which is about 9 billion.

    if you break this number down on a per capita basis – it breaks down into about $588 per capita. For a household of 2.5 people – that’s almost $1500.

    That’s a bunch of money and that does NOT count the money that localities collect on personal property tax on cars.

    The Feds allow 54 cents per mile for auto costs. The fuel costs per mile for a 20mpg car are about 10 cents a mile.

    some folks say that we should increase the gas tax to get more revenues but studies show that doing that actually no longer “works” because – like electricity – the higher the price of fuel – the more steps people take to get more fuel efficient cars – including electric powered and hybrids.

    And thats why MBUF is on the table now. Folks with fuel efficient cars are essentially evading their share of road costs…and pushing those costs onto others.

  6. I haven’t checked the numbers recently, but Larry’s estimate that gasoline taxes account for about 1/3 of all VDOT revenues sounds about right. That implies that converting all transportation taxes to an MBUF system would translate into a mileage-based user fee of about 6 cents per mile. Compared to the 58 cents per mile cost of automobile ownership, that’s a modest sum.

  7. Rural drivers in Virginia want to keep gaso taxes low because rural drivers have drive lots of miles in bigger vehicles. But even if we switched to a miles-driven tax, that is still a formula unfavorable to rural drivers. So that’s probably why we are only 33% VDOT-funded by gaso tax. Virginia is bending over backwards to not hit too hard on gaso taxes, which means the money has to come from somewhere else (NoVA as usual?).

    But I would like to see the Va. give NoVA more latitude to increase local gaso taxes here, because I feel the pump price may not reflect the local gaso tax increase.

    1. vaconsumeradvocate Avatar

      It appears that there are fewer big highway improvement projects in rural Virginia – especially based on the miles of highways here. We appear to be spending a lot in urban areas. Every time I go east toward Va Beach or toward DC the area getting new lanes is farther out. It appears that we are already spending on some level of consideration of taxes paid in the region. We rural people contribute to the state and federal tax dollars that are used in NOVA and its kin. We’ve got some rural roads in horrible condition – getting worse every winter – and worse as pipelines that won’t serve us are built.

      For years the state has been planning to replace a bridge just at our property. We just signed the papers for them to take part of our land – we’ll get $100! The project won’t begin for another year, at least, and will take a year to complete. Only the bridge will be addressed, not any of the adjacent problems – like the water that runs almost constantly and freezes easily.

      I’m not convinced rural areas are mooching off the rest of you to the extent so many seem to believe. We often do without what you have, like real internet. Few utility workers are available, having been redeployed to populated areas (business decisions, not government influence) but we pay significantly more every month to get access to some level of service – not full service. Maybe some of the folks who are convinced that all the money is going to rural areas could visit real rural areas to learn the truth about what we do/do not have.

      1. Hard to say but keep in mind all the HOT Lanes construction is paid for by the toll paying motorists. Some projects are paid for by the Transport bill of a few years ago, which resulted in a sales tax increase in NoVA and Hamption Roads.

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