Vehicle Fees Are Ready For Modernization

The increasing fuel efficiency of road vehicles and adoption of alternative power sources like electricity, natural gas, and hydrogen is lessening the ability of gas taxes to pay for transportation systems. The federal gas tax has been 18.4 cents/gallon since  1993 (it would be 30 cents/gallon if it kept up with inflation) and the Highway Trust Fund is projected to have a $14 billion shortfall by 2015. The average state gas tax is 31.1 cents/gallon (Washington’s is 37.5 cents). Amid funding gaps and recent examples of crumbling infrastructure, advocates are calling for increasing fuel taxes and legislators are listening after years of delay. Considering the trends in vehicle technology and research on road damage, though, state and federal legislators should adopt a new taxing system that charges based on road usage.

A road usage charge program collects taxes from drivers based on the distance they travel instead of the amount of fuel they purchase, which more equitably captures the costs of using public roadways. The state of Oregon has been pioneering this idea since 2001 with several pilot programs. A 2007 program that used GPS tracking devices in each vehicle generated privacy concerns, so the Oregon Department of Transportation (ODOT) ran another study 2012 to 2013 with about 100 participants to test five payment alternatives. The options varied in privacy and administration by ODOT or private contractor Sanef: the flat rate plan charged a monthly fee based on average statewide mileage; two odometer plans used a device plugged into the vehicle’s diagnostic port to track mileage driven; and two GPS plans used a device to track both mileage and location to prevent charging for out-of-state travel. ODOT says the GPS options do not report location or driving behavior to ODOT or Sanef, only whether the vehicle is on a public road in Oregon. For all of the options participants were charged 1.56 cents/mile, which is about equal to the state gas tax they would have payed at the pump with a 19 miles-per-gallon (MPG) vehicle; 17 other states have tested usage charges, but Oregon is the only one to actually tax participants (and reimburse fuel charges).

A report for the Oregon legislature (PDF) concludes the system was easy to use, accurate, fair, and protected privacy. Last August the legislature authorized 5,000 volunteer drivers to start a statewide roll out of the system in July 2015. The timeline after that is unclear; an alternative bill that failed in the House would have implemented a full system only for alternative and fuel-efficient (55+ MPG) vehicles, and it may be revived this year. Ideally, the user charge system would eventually be applied statewide to all vehicles and the state gas tax would be repealed at the same time.

Freeway traffic in Los Angeles. (

A modified approach would charge different rates per mile based on vehicle weight, as heavier vehicles cause more wear and tear on road surfaces. A widely circulated op-ed from a University of Texas estimates “…a half-cent fee per ton mile would cost a typical American car owner about $50 per year and would cover the [federal] highway fund’s revenue shortfall…”. The fee could be higher for freight trucks, which damage roads much more than passenger vehicles, and lower for alternative-fuel vehicles, which impact the environment less. To avoid doubling administrative efforts, a federal ton-mile fee, in addition to any state fees, could be collected by states using the same technology Oregon is testing.

A insurance company’s mileage device, similar to that used in Oregon, plugs in under the steering wheel in most cars. (

Per-mile charges are not only in the government’s domain. In the last few years the insurance industry has developed usage policies that offer discounts based on driving performance. Beyond the traditional metrics of age, gender, credit rating, and other factors, it’s a fact that the more a person drives the more likely they’re to be in a collision, so insurance companies have an incentive to reward less driving. State Farm, Allstate, and Progressive all have programs that track mileage; Progressive’s ‘Snapshot’ program, for instance, has users install a device to monitor speed, braking, and time of day, but not location, and after 6 months users return the device and may receive up to a 30 percent discount if the data shows they drive safely. And then there’s MetroMile, a new company based out of Portland that only offers usage-based policies and is marketing to the urbanites who have cars but don’t use them often; the company says people who drive less than 10,000 miles per year will save money compared to traditional insurance policies.

Despite the benefits of a road usage fee system, citizens have understandable concerns with the government keeping track of their driving. GPS devices should be optional, and when they are used they should follow Oregon’s example and only record whether the vehicle is in or out of a state, not anything related to coordinates, routes, or driving behavior like speed; for many people, especially in the larger states, driving out-of-state is so uncommon this wouldn’t be a likely choice anyway. That leaves the basic odometer device, which collects no positional data, and for the truly paranoid paying a flat fee should always be an option. Once users in Oregon understand these choices and other states adopt similar policies, privacy fears will be less of an issue.

Another concern regards what governments will do with this new type of revenue. Though in theory road usage fees collected today would (or should) be similar to what gas taxes bring in, before high-efficiency and alternative vehicles grow in popularity, the fact that they are collected equally from every user may bring new priorities for spending. Ideally, distance-based revenue would stop prioritizing gasoline car-based infrastructure like highways and support all users who pay the fee, which would include alternative fuel vehicles, trucks, and even public buses. Investments from such revenue could include new fueling stations, freight routes, and bus lanes, respectively. Spending road fees on transit, in particular, would benefit all users because of the reduced congestion when people choose to not drive. Also, making drivers more aware of their driving habits through road usage fees could lower vehicle miles traveled (VMT), congestion, air pollution, collisions, and all of the other negative effects of car use.

A separated bike path in Montreal. (Streetsblog)

Regarding road usage, some proposals have gone further. Amid Chicago’s growing network of bicycle infrastructure an alderman has proposed a $25 bicycle licensing fee, which in principle has some merit since cyclists are benefiting from the public investment, but the mayor acknowledges it would be difficult to enforce. Opponents may also argue bicycles have minimal or no impact on the road surface, benefit other street users by reducing traffic, and are more likely to shop at streetfront businesses than car drivers. And from Washington state, of all places, a ruckus arose earlier this year when a representative was misinterpreted to suggest bicyclists pay a carbon tax for exhaling.

The future of transportation funding will require innovative solutions. Americans are moving to cities, adopting public transportation and bicycling, and driving cars that pollute less. These all present challenges to officials scrambling to keep up with maintenance of critical infrastructure and build new systems that help people and goods move more efficiently. Somebody pays no matter what is built or repaired, and technology is opening avenues for society to make taxes more equitable and viable.

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5 Responses to Vehicle Fees Are Ready For Modernization

  1. dad says:

    Interesting read, Sotty. One my age would not have equated less polluting vehicles to less money coming in from gas taxes. Money has to come from somewhere to maintain the roads we do have…some are in bad need of repair!

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