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Getting to Yes on Mileage-Based User Fees

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Here are two recent headlines about efforts to begin the transition to paying for highways based on miles driven rather than gallons of fuel:

Senate Votes to Prohibit Mileage Tax,” Connecticut Post, May 25, 2017

States Considering Taxing Drivers by the Mile Despite Privacy Concerns,” Politico, June 8, 2017

Both articles suggest serious problems with public and political perceptions of what this transition is all about.

The difficulty is also reflected in a June 2017 report from the Mineta Transportation Institute (at San Jose State University), summarizing eight years of an ongoing national survey on federal tax options to support highways, transit and local roads. Given a choice among 10 tax increase options—eight versions of a federal gas tax increase, a new federal transportation sales tax, or a national mileage tax of one cent per mile—the last-place finisher was the per-mile tax, with only 23% support.

A common element in all three cases is presenting a per-mile charge (1) as a tax rather than a user fee, and (2) as a net tax increase (rather than as an initially revenue-neutral change that would not lose purchasing power in coming years, as fuel taxes will do).

A sometimes-insightful report last year from the Congressional Research Service, “Mileage-Based Road User Charges,” does use better terminology, but begins with the premise that the way forward is a single national MBUF that would replenish the Highway Trust Fund and also deliver revenue directly to the states. That’s exactly backwards from what most transportation researchers and state DOTs envision. Almost everyone sees the transition as being led by states that reach consensus on replacing their fuel tax with MBUFs, thereby working out ways of gaining political acceptance that other states—and perhaps eventually Congress—can learn from.

I suggest that one problem in gaining public acceptance is the confusion between a tax and a fee. As the CRS report points out, “A road user charge that funded both highways and public transportation might arguably be seen more as a tax than a user fee.” It goes on to cite legal cases on the differences between the two. Over many decades, at both federal and state levels, gas taxes that began as pure user fees—paid only by highway users and spent only to benefit highway users—were gradually converted into all-purpose transportation taxes. The original idea of a highway trust fund was basically a promise to highway users that all the money they paid in highway use taxes would be spent for their direct benefit—users-pay/users-benefit. What we have ended up with is a very different model: highway users pay/everybody benefits. And that, I believe, is one reason why a large fraction of the population is so resistant to gas-tax increases.

Instead of replicating that built-in flaw as we design the gas tax’s replacement, we should consider a different way forward. What if people’s monthly highway bill was as transparent and straightforward as their mobile-phone bill, electric bill, water bill, and cable or broadband bill? With all those utilities, you are charged based on the services you use; the funds go directly to the provider of the service; and the money is used solely for the capital and operating costs of the infrastructure used. We don’t have major political battles over a mobile-phone rate increase because the system needs to add more cell towers or upgrade to 4G or 5G. Or the need to increase water rates because the pipes have to be replaced.

Changing the way we pay for our highways and bridges (by shifting from per-gallon to per-mile) offers a once-in-a-century opportunity to rethink how this vital infrastructure is managed, as well as how it is paid for. Unlike the predominant U.S. model of investor-owned utilities, what the 20th century gave us in highways is a set of state-owned enterprises, funded by taxes and governed politically. Most of Europe’s utilities were also state-owned enterprises prior to the 1980s, when Margaret Thatcher privatized electricity, natural gas, telecoms, water and wastewater, airports, and seaports—and much of the rest of Europe then followed suit (including the tolled motorways of France, Italy, Portugal, and Spain). De-politicization of those sectors led to increased and better-justified investment, better customer service, and in some cases, competition where there had only been monopoly.
Yes, I know—that would be a massive paradigm shift, probably far too much to be done all at once. So let me suggest a possible first step. We already have well-accepted technology and procedures in place to do per-mile charging on one portion of our highway system: limited-access Interstates and urban expressways. Converting those highways, state by state, from fuel taxes to state-of-the-art all-electronic tolling (AET) would be comparatively simple, since we already have two working organizational models in operation: public-sector toll agencies and long-term P3 toll concessions. We already do variable pricing using AET, without raising Big Brother privacy concerns. The capital markets know how to invest equity and debt (toll revenue bonds) to finance major improvement projects, such as replacing obsolete bridges or adding dedicated truck lanes We are also close to having 50-state electronic tolling interoperability—and this already exists for trucking, via Bestpass and PrePass.

The Interstates alone handle 25% of all vehicle miles of travel; including non-Interstate expressways and other limited-access facilities might bring the total to 30%. That would be a serious start on the transition from per-gallon to per-mile—and the user fees would be paid directly to the roadway providers, thereby de-politicizing the process, making it more like all the other utilities we use.
States could then work to develop simple, low-tech ways of replacing the fuel taxes used for other roadways, while being relieved of having to support the ongoing capital and operating expenses of the limited-access highways, now supported instead by per-mile tolling.

I’ve left out a lot of details in this brief sketch, but I’m happy to tell you that I’ve recently completed a book-length treatment on this new paradigm for highways. 21st Century Highways will be out next spring from the University of Chicago Press. I will keep you posted as we get closer to the publication date.

(This article first ran in July’s issue of Surface Transportation Innovations)

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