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Commentary By Diana Furchtgott-Roth

Mileage Fees Over Gas Taxes?

Energy, Economics Tax & Budget

Memorial Day is just ahead, with trips to mountains and beaches heralding the summer driving season. Yet with cars becoming more fuel-efficient, and gasoline use per mile declining, federal and state fuel tax revenues are increasingly insufficient to build and maintain roads. In the future, roads will need another stream of funding.

Consider that on many roads the costs per mile driven are greater than the fuel tax revenue. And between 1980 and 2008, vehicles miles driven by Americans increased 96%, but lane-miles of road rose only 7.5%, leading, as we all know, to growing traffic congestion. This costs time and wastes gasoline.

Of course, governments could just use general revenues - exacerbating budget deficits - for road construction. But this wouldn’t require drivers to pay for their road use. The most obvious substitute for fuel taxes is to charge drivers directly for vehicle miles traveled (VMT), enabling them to get the roads they are prepared to pay for.

Transportation Secretary Ray LaHood said in one of his first speeches on the job that he favored VMT fees, whereupon White House press secretary Robert Gibbs announced that such a fee “is not and will not be the policy of the Obama administration.”

But the decline in fuel tax revenues is not going away, and individual states, such as Oregon, and countries, such as Germany, are experimenting with VMT charges.

Current fuel taxes, with 2008 collections of $36.4 billion, aren’t yielding sufficient revenues for maintaining or improving the road network, according to the 2009 report of the National Surface Transportation Infrastructure Financing Commission, chaired by Robert Atkinson, president of the Information Technology and Innovation Foundation. The report is the most comprehensive source of data on road finance.

Federal gasoline taxes, now 18.4 cents per gallon (24.3 cents for diesel), yield revenues equivalent to VMT charges of 0.9 cents per mile for cars and 5 cents for trucks. But the Commission estimated that to improve the road network between 2008 and 2035 would require gasoline taxes of 48.4 cents per gallon - or mileage charges of 2.3 cents per mile for cars and 13.2 cents for trucks.

Payment on the basis of VMT could cost more, or less, depending on the type of road and time of day. Charges for trucks could account for axle configurations, since, for the same weight, trucks with more axles do less road damage. Some drivers might prefer to pay more for a faster trip and a better-maintained road, just as many cell phone users prefer the more expensive iPhone.

Technology for VMT pricing now exists from numerous companies worldwide, such as Skymeter Corporation, Siemens, Continental Automotive Systems, Satellic, eROADS Technology, and Octo Telematics.

For example, Bern Grush, chief scientist and founder of Skymeter Corporation, has developed on-board meters to pay for VMT. These could also be used to pay for street parking and tolls, find a vacant parking space in the city center, and get discounts at parking garages.

According to Mr. Grush, “Cars dominate our travel preference, vehicles are becoming more efficient, and we are beginning to electrify our automobiles. The migration from fuel tax to pay-by-use is fairer and likely inevitable. Whether we use odometers, GPS, cellular triangulation or swearing on a Bible is not the core issue. The key is uninterrupted funding to keep our transportation system running, safe, and expanding.”

In Oregon, GPS-based distance measurements were designed as a pilot program in 2001 to replace the fuel taxes it now levies to pay for the use of its roads. Drivers had a choice of paying either fuel taxes or mileage charges in a pilot program in 2006 and 2007. When they filled up at participating gas stations, a device on their car calculated how far they had driven on Oregon roads. Instead of being charged the gas tax with their purchase, they were charged for the miles they had driven.

James Whitty, manager of the Oregon Department of Transportation’s Office of Innovative Partnerships and Alternative Funding, told me that “Oregon’s pilot program successfully demonstrated a system for collection of mileage-based user fees. Providing drivers choices may well lead to public acceptance of mileage fees as an alternative revenue source for our nation’s roadways.”
Mr. Whitty is now preparing Oregon’s broader pilot program.

What’s the best way to switch from gas taxes to VMT charges? Drivers could volunteer to participate in exchange for a reduction in license plate fees or a credit against federal and state fuel taxes. Drivers could be exempt from license-renewal fees, but instead pay road charges that could vary by type of road used and time of day. Low-income drivers could be given credits on their bills - cash incentives - to take part, ensuring that they have the opportunity to save money by avoiding peak-hour driving.

One challenge is how to deal with drivers who travel in several states, with disparate state fuel taxes. With interstate telephone service, people pay one company, such as Verizon, and that company pays hundreds of other companies around the country to complete telephone calls. In the same way, a private biller could collect mileage fees from a driver and distribute them to different states on the basis of miles driven.

In fact, the people who bill for wireless phone services such as AT&T, Verizon, and Sprint might also be able to bill for road use under VMT.

We’re fortunate that as cars are becoming more fuel-efficient, the technology to price road use has become widely available and reasonably affordable. As concerns about federal and state budget deficits increase, and gas tax revenues per mile driven decline, America should consider VMT charges instead of fuel taxes. Then, superior roads might just mean faster trips to the beach - and also to work.

This piece originally appeared in RealClearMarkets

This piece originally appeared in RealClearMarkets