Transitioning to New Funding Framework: A Mileage-based Direct User Fee System

The following specific recommendations detail the Commission's general recommendation to begin transitioning immediately to a new federal revenue mechanism and to plan for full implementation in the shortest possible time. These recommendations should be considered in combination with the related and critically important RD&D recommendations addressed later in this chapter. Without such efforts, the transition simply will not be possible.

1-5. Congress should initiate the transition to a broad mileage-based direct user fee system (i.e., VMT fee system) as soon as possible and should establish 2020 as the date certain for comprehensive implementation. Congress should establish overall goals for the transition and outline specific transition steps to be taken over the next decade and incorporate these into in the next two federal program reauthorization cycles.

At a point in the future, the current fuel tax-based system will be simply unsustainable at any "reasonable" tax rates (due to increased fuel efficiency and new technology). Moreover, the time frame for this is likely to come much more quickly than previously thought due to a new invigorated focus on solving the greenhouse gas emissions challenge and advancing technological progress. Even absent a decline in future motor fuel consumption, there would be compelling reasons for shifting to a VMT-based system that supports more efficient pricing and use of our nation's surface transportation infrastructure.

The Commission recommends that Congress articulate a clear roadmap, with appropriate research, development, and demonstration testing for this transition beginning with the next reauthorization of the federal surface transportation program. We must move aggressively to make a VMT charge system the central means of funding the federal program, over time replacing fuel taxes and other current federal HTF sources.

The new system must be designed to provide a sustainable revenue source for the future that is capable of charging all types of vehicles regardless of whether they use motor fuel, electric motors, or alternative energy sources. The system should ultimately result in all vehicles- including personal automobiles and commercial vehicles-being equipped with a device that accommodates per mile charges. The system should be designed to be multimodal, adaptable with technology updates, capable of protecting private information, and able to serve as a single mechanism to be used for all transportation taxation and pricing, including:

•  VMT fees for multiple jurisdictions, including federal, state, and local

•  Toll facility charges (both public and private)

•  Congestion pricing and managed lanes applications at the state and local level as desired

•  Appropriate emission charges, if not handled through other means

•  Transit fares via "mobile commerce" type technology (e.g., smart cards and mobile phones) that can be integrated with in-vehicle VMT fee technology

•  Other vehicle-related charges, including charges on heavy vehicles, possibly based on axle weight

The national VMT fee system should also have the following basic characteristics (additional details can be found in Chapter 6):

•  The VMT fee system must be reliable, secure, and enforceable and must protect against identity theft. It also must permit the efficient transfer of revenue among the federal government, states, local jurisdictions, and private service providers.

•  In support of the dual objectives of ensuring transparency and maximizing the benefit of pricing signals, the VMT fee system must provide travelers and commercial vehicle operators with information on applicable rates, through a combination of roadway signage, in-vehicle devices, and the Internet (e.g., computers, cell phones, etc).

•  The VMT fee system should provide a means for preserving privacy and allow for anonymous operations for motorists desiring such protection. The Commission has concluded that available and emerging technology will be able to accommodate the highest degree of privacy protections. Further, the VMT fee system should incorporate and offer the user choices of protections that may include but are not limited to allowing cash or cash card payment methods that separate use reporting from payer identity, limiting the amount or type of information collected, encrypting the information, or combining these approaches, with the ultimate choices factoring in the associated relative costs.1

•  The VMT fee system should be designed to maximize cost-effectiveness. Recognizing that the system will initially have higher collection costs than current fuel taxes, all efforts must be made to reduce system costs, including for equipment and administration. The aim should be for the total annual net cost of operation to be less than 10 percent of the total revenue collected within a few years of implementation and less than 5 percent in the longer term.

•  Finally, if there is a phased transition, the system must be designed so that during the transition highway users are not paying both the gas or diesel tax and the VMT fee simultaneously except to the extent that all or a portion of these motor fuel taxes are converted to a "carbon tax," in which case all users would be required to pay either the VMT fee and the "carbon tax" or the fuel tax (which would incorporate both charges).

I-6. Once implemented, mileage-based user fees should be set to meet the designated federal share of national surface transportation investment needs and be indexed to inflation.

At the federal level, the Commission believes that future mileage-based charges should be established and maintained at rates sufficient to fund the entire federal share of annual needs. Exhibit 8-5 illustrates the level of per mile charges that could meet this objective under the two Base Case needs levels reviewed in Chapter 2. For comparison purposes, it also provides illustrative fee levels required to match current HTF revenue levels, to match current federal highway and transit program spending levels, or to equal the Commission's recommended Augmented HTF Level via the motor fuel tax increase previously outlined. It should be noted that these scenarios do not incorporate any additional assessments for a "carbon tax" should Congress choose to use this mechanism for the purpose of reducing greenhouse gas emissions.

For illustrative purposes, to meet the "Need to Maintain and Improve" annual investment level ($96.2 billion in 2008 dollars according to the Commission's base case analysis), the federal

VMT fee assesed on all miles driven, regardless of the system where they occur, would be approximately 2.3¢ per mile for light-duty vehicles (LDVs) and 13.2¢ per mile for heavy trucks (an average of 3.2¢ per mile for all vehicles). If, alternatively, the VMT charges were limited to miles driven on the federal-aid highway system, the approximate fee would be 2.7$ per mile for LDVs and 15.5¢ per mile for heavy trucks (an average of 3.7$ per mile for all vehicles). In either case, those rates would need to be adjusted to account for inflation and changes in total travel. For point of comparison, they would be equivalent to a 48.4$ per gallon federal gas tax and 75.9$ per gallon federal diesel tax. However much revenue Congress decides to raise at the federal level, the Commission believes it is critical to move forward with a VMT fee system.

These scenarios do not account for the additional amounts that would likely need to be charged to recover the cost of administering a national VMT fee system. These costs are currently unknown but are expected to exceed the current costs for administering motor fuel taxes (about 1 percent of total revenues). To provide some perspective, the additional fee needed to cover administrative costs equal to 5 percent of total national VMT fee revenues would be in the range of 0.1-0.2$ per mile.

A comprehensive road pricing system, as envisioned here, would allow greater finetuning of individual fees than the current fuel tax-based system permits. As a result, it may be necessary to establish a body that advises Congress on the federal rates. Such a body could review and propose adjustment to differential charges by vehicle class and weight, location, and other factors, as appropriate. Further, since there may be disputes among jurisdictions regarding non-federal VMT charges or situations where such charges could place an undue burden on interstate commerce, consideration should be given to establishing a quasi-judicial body with specific expertise on VMT rate setting to address such situations.

1-7.  As a national mileage-based fee system is put in place, Congress should reduce and ultimately eliminate the current fuel and vehicle-related taxes as the primary mechanism for funding the surface transportation system.

A fully implemented national mileage-based system will reduce the need for other federal revenues for the HTF, assuming rates are set at a level sufficient to meet needs. In all likelihood, however, some method may be required to charge specifically for carbon emissions in order to send the right price signals to vehicle owners and users. These charges could occur as a continuation of the current fuel taxes (which would then be acting as a "carbon tax"), under a "cap and trade" type system, or potentially as a vehicle-specific surcharge to the VMT fee. To the extent that such carbon charges are implemented, a portion of those proceeds should be credited to the HTF and dedicated to funding carbon reducing transportation strategies.

1-8.  Congress should give U.S. DOT the authority and mandate to develop standards for VMT pricing technology and require original equipment manufacturers to install that technology by a date certain that will accommodate the desired 2020 comprehensive implementation.

Any technology deployed should be designed to accommodate the full range of potential charge systems because the Commission anticipates that state and even local charges may piggyback on the national system. Further, these systems should allow states, local governments, and private toll road operators to use such a system to charge for travel on their roads. States would not be required to join into the system, but they would likely find it beneficial to do so since all vehicles would be equipped. A single system or national account could be used for all transportation taxes and fees anywhere in the country.

The national VMT fee system should have the following technical characteristics in addition to those listed in the introduction to this section (also see Chapter 6 for additional details):

•  The chosen VMT fee system must accommodate multiple forms of payment, including for individuals who choose to pay by cash, credit card, automatic bank debit, and through multiple channels, including via the Internet.

•  To the extent possible, the VMT fee systems should be designed to facilitate integration with intelligent transportation systems, such as traveler information systems, and with emerging IT-based safety applications such as vehicle infrastructure integration programs. It should, to the extent possible, also have the ability to integrate with existing in-vehicle GPS systems (such as GM's OnStar system or after-market devices from companies like Garmin or TomTom).

•  The VMT fee system must be established so that initially only new vehicles will be equipped with the appropriate technology, and the process of equipping all new vehicles with factory-installed equipment should begin at the earliest feasible time. When a substantial share of vehicles in the fleet (e.g., approximately 90 percent) has factory-installed technology, the remaining vehicles can be addressed through retrofit approaches.

1-9.  Congress should require that any state, local, or private system be interoperable with the national VMT standard.

As noted earlier, the Commission anticipates that the national VMT fee system will serve as the backbone for an integrated system of charges by federal, state, and local governments as well as private toll facility operators. To the extent that states, local governments, or private operators implement their own systems, possibly doing so before the national system is in place, Congress should require that these systems be interoperable with the national system and meet all national standards. Should these state and local systems be established prior to the federal system and standards, states and localities should be afforded an appropriate amount of time (e.g., five years) to comply with national standards.

1-10.  Congress should facilitate the transition to a VMT charge system by making existing and additional discretionary federal funds available to states for the costs of developing and implementing state-level VMT charge system programs.

To the extent that states choose to transition their systems to a VMT-type charge system, and to encourage them to invest in appropriate RD&D, the costs associated with RD&D for new state systems should be fully eligible for federal funding, under either existing programs or preferably a new targeted discretionary funding category.

1-11.  Congress should support and U.S. DOT should initiate extensive public outreach to foster broad understanding of the current funding problem, the proposed solution, and the intended method of implementation.

A change as bold as a shift to a VMT-type charge system will require a great deal of public discussion and learning. A comprehensive outreach approach will be critical to a successful and timely transition. Akin to comprehensive efforts to educate the public on safety issues like drinking and driving and the use of seat belts, the public education required to bring about such fundamental change will require a partnership with state and local governments to launch a broad outreach program. This should include campaigns to circulate information on the costs and consequences of our deteriorating transportation system, how VMT pricing would work in a person's daily life, what the costs and benefits would be for various types of transportation system users, how problems and concerns would be dealt with, and so forth.