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Complexity Dogs Mileage Fee Concept

July 17, 2014 By Conrad deFiebre, Transportation Fellow

It seemed like such a simple, smart idea at first. With fuel taxes paralyzed over decades of inflation, cars going farther on each gallon of gasoline (or none at all) and roads and bridges still deteriorating under traffic's wear and tear, why not switch user funding for this vital infrastructure from a levy at the pump to one based on miles driven?

Proponents argued that it would be fair, adaptable to future automotive technologies and able to support other policy objectives such as reducing congestion, pollution and accidents. Pilot testing began in 2006 in Oregon, not coincidentally the first state to implement a user-pays principle for driving by assessing a gas tax back in 1919. Following more trials, Oregon plans to roll out a live mileage fee system for up to 5,000 motorists next July.

Minnesota authorized its own $5 million study of mileage fees in 2007 at the recommendation of Gov. Tim Pawlenty, who opposed raising fuel taxes. Difficulties immediately surfaced as a first attempt at scoping the research was rejected and a second finally approved. Testing with 478 volunteer drivers from Wright County began in 2011 but was soon interrupted by a state government shutdown brought on by Minnesota's first Legislature fully controlled by conservatives in 40 years.

The Minnesota Road Fee Test quietly wrapped up last year and now is gathering dust. Findings were mixed, some positive, some discouraging, but most of all the study pointed up the danged complexity of the whole concept. Here's the evaluation report's  list of "some of the activities expected to be present in a real world deployment" of mileage fees:

  • Scheduling appointments.
  • Capturing vehicle mileage.
  • Process user agreements.
  • Installing equipment.
  • Training drivers.
  • Preparing equipment kits.
  • Uninstalling equipment.
  • Processing on-site payment.
  • Receiving and documenting a service request.
  • Providing guidance for a known technical issue.
  • Providing guidance for a new technical issue.
  • Escalating issue to a specialist.
  • Generating and mailing paper invoices.
  • Processing payments received.
  • Managing late payments.
  • Developing and testing the application.
  • Developing operational procedures.
  • Establishing fees.
  • Managing data.
  • Managing hardware and software.
  • Developing messages to drivers.
  • Developing training materials.
  • Developing and maintaining a participant portal.
  • Coordinating across organizations.

Holy Moly, Rocky! That's a lollapalooza of flies in the ointment. And it doesn't even include actual problems uncovered by the test, including "hardware or software issues [that] hindered the system's ability to reliably capture trips" and the preference of 48 percent of participants polled afterward just to keep paying the fuel tax versus 37 percent who liked the newfangled plan and 15 percent who were too mystified by the entire exercise to offer an opinion.

Using smartphone GPS technology, the system tracked 500,000 trips covering 4 million miles with 660 million data points. Interestingly, privacy, a hot issue in the wider mileage fee debate, wasn't a big concern for the self-selected participants. They believe "that they give up their privacy regularly (e.g., to mobile phone service providers). Instead, participants worried that their data would be vulnerable to access by wrongdoers (e.g., 'hackers') who would seek to misuse the information," the report noted.

And that ought to be a worry for any state that tries to rely on automated mileage tracking to assess user fees for roads, although I've not seen it addressed in reports from testing in Minnesota or Oregon. Even without any high-tech looting, more than 4 percent of the mileage bills sent to the Minnesota test participants -- who got stipends for their service and reimbursement of state fuel taxes -- went unpaid.

Another cash drain is the basic cost of collecting mileage fees, estimated at four times that for the old-fashioned way at the pump. University of Minnesota Prof. Zhirong Zhao, who made that estimate three years ago, added that improved technology could bring it down to just three times as much. I wonder. The Minnesota test went through eight software versions and three generations of hardware upgrades, boosting help line calls from participants -- 175 or fewer of them active at any one time -- to 4½ a day.

On top of all that, "challenges exist with the ability to collect fees from out-of-state drivers," the Minnesota report acknowledges.

To be sure, you can do some neat things with a GPS-powered mileage fee system. Fees can be tailored to peak congestion times and locations or to vehicle weights and emissions. One add-on in the Minnesota test was speed safety alerts transmitted to drivers both visually and audibly when they got too heavy on the gas pedal. The audible alerts worked best, researchers found, with average speed reductions of up to 9 miles per hour. 

However, the report notes that "it may be wise to phase these elements in later, so as to not complicate the public acceptance issue." And complexity may be the biggest hurdle of all. Test participants who still preferred the fuel tax often cited its simplicity. "The current fuel tax requires very little thought and ... no work on the part of the driver," the report notes, stating the obvious.

Even overcoming technical difficulties, drivers' laziness, privacy concerns, system hackers and high costs won't push mileage fees into the end zone, though. Although a 25-member Minnesota policy task force issued several encouraging recommendations along with a call for further study, a minority report from three participants said the majority overstated the benefits of mileage fees, understated their shortcomings and made no compelling case for "wholesale changes" in the transportation funding structure, "which can in fact continue to serve the state well, probably for decades to come."

The dissenters represented important interest groups in any transportation policy discussion: the Minnesota Chamber of Commerce, the Minnesota Trucking Association and a rural county board. They said the equity problem with hybrid and electric vehicles can be solved with increased annual registration fees and motor vehicle sales taxes. 

Sounds simple to me. The hard part is, and will be, mustering the political will to keep those fuel taxes on the majority of motor vehicles in line with growing costs. And that's one problem even a technically perfect mileage fee system can't solve.

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  • Elliot Altbaum says:

    July 17, 2014 at 6:13 pm

    Instead of relying on GPS systems to track mileage, couldn’t one simply read the change in the odometer from year to year? A yearly visit to the DMV to check mileage and renew tabs doesn’t seem unmanageable.

  • David S says:

    July 19, 2014 at 5:14 pm

    Reading the odometer year over year would be simple and cheap. However, I don’t believe this would be good enough for politicians or unelected bureaucrats. They will have an uncontrollable urge to tinker and to try to use mileage as a way to push the populace towards the politicians’ and bureaucrats desired ends [e.g. an algorithm to determine mileage tax based upon location, value of vehicle -to get the rich- or a graduated mileage tax to punish high mileage drivers]. My speculation is that there is an easy way for the pols and bureaucrats to get the populace to “voluntarily” [much like Mr. Reid called income taxes “voluntary”] put GPS trackers in their cars [the onboard computer diagnostic port would function nicely]. The trick is to set a painfully high mileage tax if the DMV reads the odometer, or to offer significant discounts for the “voluntary” GPS tracker.  Initially, libertarians would loudly shout about invasion of privacy. However, since this is a tax, I doubt any federal court would side against the government.

  • john Larva says:

    July 21, 2014 at 10:28 pm

    I think a mileage tax is absurd on many levels.  No surprise it would be promoted by Tim Pawlenty - what other good ideas did he have?  Here’s a couple considerations:  (1) the government taxes what it wants less of.  While our roadways are congested, it’s the importation of oil that’s weakening our economy.  And in that respect the existing gas tax is far superior to a mileage tax.  (2) If you think CO2 emissions from fossil fuels are damaging our climate, why wouldn’t the gas tax be exactly what you want - our best carbon tax and it’s already in place.  (3) No sane person should be asking for yet another completely unnecessary new tax when an existing tax is superior in so many ways except one.  It doesn’t force responsible people, with environmentally friendly vehicles, to pay more than they should.