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Mileage Fees: Great Promise, Steep Hurdles

September 01, 2011 By Conrad deFiebre, Transportation Fellow

As reported on this site for years, our state and national system of fuel taxes to finance roads and bridges is profoundly dysfunctional.

It raises less than 60 percent of the money needed to maintain what we have, much less to improve it. It's highly unpopular, leaving practically no political will to increase it for inflation or fast-advancing fuel efficiency. It even allows drivers of electric cars to use the roads without paying a cent for their construction and upkeep.

It does nothing to ease congestion and, at the low per-gallon rates in Minnesota, very little to reduce tailpipe pollution. And it contributes zilch to the costs of most local streets and roads, leaving them reliant on billions of dollars in non-user property taxes.

By contrast, mileage-based user fees (MBUFs) could solve nearly all these problems. Long a subject of academic, think tank and government-funded research—including a $5 million study now underway in Minnesota—tolling by the mile instead of the gallon is often touted as a wave of the future in transportation finance.

A new University of Minnesota report confirms most of this rosy outlook, finding that mileage fees would beat or match fuel taxes for efficiency, equity, revenue adequacy and environmental sustainability.

There's just one hitch. Despite all the advantages of a mileage charge and all the drawbacks of the fuel tax, the latter has a huge edge in feasibility. It's been collected for nearly a century from fuel wholesalers, a simple, low-cost method that virtually eliminates tax evasion.

Mileage fees, however they are designed, would likely bring greater collection costs, more opportunities for dodging the revenuers, higher tax visibility that tends to heighten public disdain (but also could encourage more efficient travel choices by motorists) and Big Brotherly concerns over privacy when the government tracks every mile you drive.

"For MBUF implementation to move forward, it is important that policymakers understand the shortcomings of fuel taxes and how unsustainable they are in the long run," the report, prepared by U of M applied economist David D. Coyle and four colleagues at the Humphrey School of Public Affairs, concludes.

"It is equally important that proponents of MBUFs understand, first, the difficult transitional issues and questions involved and, second, the education and outreach efforts that will be needed if the public and policymakers are to support implementation."

This is wonky to the max, but the 91-page report also contains easily grasped descriptions of the many pluses mileage fees offer our transportation system. Here are just a few of them:

  • Fighting congestion. "Because MBUFs can be made to vary with time and location of travel [similar to express lane systems in place on Interstate Hwys. 35W and 394], using congested roadways can be priced at levels more closely reflecting the cost of congestion ... Studies have shown that users do in fact respond to these price signals," yielding significant reductions in congestion.
  • Promoting alternatives. "If MBUFs are structured to make users pay closer to the full cost they impose on the system, drivers will be better able to compare the cost of using their automobile to that of other modes such as transit, biking, walking and even telecommuting."
  • Discouraging sprawl. "The nation's fuel tax system, which undercharges vehicles for commuting, has contributed to urban sprawl ... Thus, if MBUFs can more accurately price the cost of commuting, then development pressures and decisions about where to live will be based on true costs, including transportation, and not be distorted by an artificially low cost of commuting."
  • Financing local infrastructure. A mileage tolling system based on global positioning could track use of local motorways and charge for it if communities decided to opt in. Nearly two-thirds of Minnesota's fuel tax goes to state highways comprising less than 10 percent of centerline miles, leaving small slivers for more than 100,000 miles of county, city and township roads supported mainly by property taxes.
  • Equity. "Drivers with fuel-efficient and alternative-fuel vehicles would not be able to escape a MBUF since, unlike fuel taxes, the fee is not based on fuel consumed but on actual travel."
  • Paying for wear and tear. Heavy trucks pay more in fuel and registration taxes than lighter vehicles, but not enough to cover the extra damage they do to roads. Some pay less than half their fair share. "Automobiles and light trucks are actually subsidizing the cost of wear and tear imposed by heavier trucks." Mileage fees, however, can be calibrated to reflect pavement damage based on a truck's loaded weight and number of axles. Recovering the real public costs of highway trucking could push freight onto more efficient and environmentally friendly railroads and commercial waterways.
  • Revenue stability. Average U.S. fuel economy was 13.1 miles per gallon in 1975 but 22.5 miles per gallon in 2010, reducing fuel-tax exposure by 42 percent. With new federal standards agreed to by automakers, it is predicted to reach 36 to 39 miles per gallon by 2030. But "increasing fuel efficiencies leave MBUF revenue largely unaffected."
  • Environmental sustainability. "Fuel taxes in the United States have had a relatively insignificant effect on petroleum-based fuel consumption because of their historically low rates ... MBUFs could be structured in such a way to create incentives for the use of fuel-efficient and low-emissions vehicles."

That's the good news. But because of public concerns over government snooping on people's whereabouts—albeit on public right of way, where expectations of individual privacy are debatable—plus likely resistance from truckers and others who are getting the best deals from the current system, mileage fees will be a tough sell. Technical issues, system complexity, higher collection costs and the risk of greater tax evasion pose further hurdles.

The report suggests ways of overcoming these barriers, beginning with public education about the benefits of mileage tolling. It also recommends gradually phasing in the new system side-by-side with fuel taxes, allowing voluntary opt-in by drivers who "should be rewarded so others envy them."

Other transitional strategies include assessing mileage fees at first only on electric and other alternatively propelled vehicles that pay no fuel tax, reducing fuel taxes to fund "baseline transportation needs" and introducing mileage fees "to fund road and bridge reconstruction and expansion, including right of way acquisition."

"We envision continued use of fuel taxes while a MBUF system is introduced," the report concludes. "MBUFs may one day be able to replace the need for fuel taxes."

Studies like this can help speed the day of a more rational transportation funding system. So can a current pilot test of mileage tolling being conducted by the Minnesota Department of Transportation with actual drivers. Their acceptance of mileage fees could do a lot more for this important cause than many university studies combined.

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  • Bernice Vetsch says:

    September 6, 2011 at 9:50 am

    Perhaps this idea would be more likely to succeed if the government were not using GPS tracking of all our movements.  That seems a terrible invasion of privacy and very complex.

    Instead, when we renew our auto licenses each year, the State and its deputy licensing bureaus could compare the mileage shown on our speedometers with that of a year ago and tailor our renewal fee to mileage rather than the age of our cars.