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With highway funding in decline, mileage-based fees offer a solution

Greg Nash

Most Americans don’t need to be reminded of the deteriorating condition of America’s roads and highways — it’s a daily reality on their commute to work, run to the store, or drive to school. The U.S. had an $836 billion backlog of highway and bridge capital needs in 2017 and, in some states, nearly 3 in 4 roads are in poor or mediocre condition.

To rebuild America’s highway infrastructure, policymakers need to rethink how to fund the Highway Trust Fund (HTF), the primary source of federal funding for highway maintenance and expansion. The American Consumer Institute’s recent study offers a workable policy solution.{mosads}

For almost a century, the HTF has relied heavily on gasoline and diesel fuel taxes, often collectively called the “gas tax,” for revenue. But the gas tax faces a fundamental challenge: In 2017, the average light-duty vehicle traveled 25.2 miles per gallon of gas, 22 percent higher than a decade earlier and nearly double the average in 1975. As a result, motor fuel consumption in the U.S. has flatlined over the last decade, despite millions of vehicles being added to America’s roads. The growing popularity of electric cars has also contributed to declining HTF receipts.

Since 2008, to make up for chronic funding deficits, lawmakers have moved $143 billion in general taxpayer dollars to the HTF. Unless Congress intervenes again, the HTF will be insolvent by 2021.

Increasing the gas tax might help buoy the HTF for a few more years, but it would merely postpone fundamental reform as future improvements in fuel efficiency continue to threaten revenue sustainability. Instead of delaying the inevitable, Congress should consider transitioning away from the gas tax altogether and implementing a national vehicle-miles-traveled (VMT) fee.

Under a VMT fee system, drivers would be charged based on how far they drive, not on the amount of fuel they consume. Vehicles could be equipped with special odometers during registration, while heavy trucks could also be equipped with wireless axle-weight sensors to calculate surcharges based on pavement damage. These systems, loaded with price-per-mile data for every road in the U.S., would tally accrued fees and periodically remit payment. To safeguard motorists’ privacy, old data would be destroyed after each bill is paid.

Drivers could also choose a simpler option if desired of calculating mileage annually and paying an annual fee — rather than every time they fill up at the gas pump — although such an arrangement would not allow drivers to save money when driving on rural or non-congested roads with low per-mile fees.

By decoupling HTF receipts from fuel consumption, a VMT fee would create a sustainable funding source for highway maintenance far into the future. Rates could be adjusted based on vehicle weight, road type, time-of-day, and other parameters to better reflect the actual costs motorists impose on our transportation system — meaning that Americans would no longer be contributing taxpayer dollars to repair roads they use little or not at all.

Essentially, it would be a true user fee — as the system was originally intended.{mossecondads}

For example, a VMT fee could incorporate congestion pricing, as London successfully did in 2003, to alleviate a serious problem in many urban areas. Similarly, vehicles that do more damage to roadways, like heavy trucks, would pay more. A recent study found that by using different rates to manage traffic volumes, limit pollution, and reduce accidents, implementing a VMT at a level that would boost highway funding by $55 billion per year could generate about 20 percent more overall social welfare than an equivalent increase in the gas tax.

Several states have successfully experimented with VMT fees, proving that they don’t just work on paper. In Oregon, the first state to establish a permanent VMT fee program in 2015, drivers report high levels of satisfaction.

The House held a subcommittee hearing on infrastructure issues last week and the Senate will do the same next week. With interest building, Congress needs to design an alternative mechanism to fully fund federal highway infrastructure projects. One workable public policy solution is to implement a VMT pilot program, like the proposal offered by Rep. (D-OR) Peter DeFazio, to collect and analyze critical data on the behavioral responses of drivers, evaluate methods, and gauge public opinion.

Our economic analysis indicates that with the HTF teetering on the brink of insolvency, transitioning to a VMT fee system would modernize highway funding and provide a fair, reliable source of revenue for decades to come.

Liam Sigaud works on economic policy and research for the American Consumer Institute, a nonprofit educational and research organization. Follow on Twitter @ConsumerPal.

Tags Fuel tax Highway Trust Fund Peter DeFazio Transport economics Vehicle miles traveled tax VMT

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