In Search of the Perfect Highway Tax

By Don MacGillivray


The issue of devising a better way to fund and care for highways will be ongoing until it is satisfactorily solved. All levels of government are concerned with this challenge and a federal response is likely to lead the way.

Road-use fees are based on miles traveled by motorists and is a payment for direct benefits of road use, not a tax. A few of the names used for road use revenue are: tolls, mileage-based user fee, gasoline taxes, and vehicle mileage tax (VMT).

They can be flat fees based on miles traveled or a variable fee based on time, congestion level, road type, weight of vehicle, emission level, the ability to pay, or a combination of these. There are already on-board devices that capture and/or report distances driven.

The VMT is said to be the fairest and most sustainable method of replacing the tax on gasoline. Experts say it will be a decade before the VMT will be widely implemented.

In South Carolina during a test program, only 41% of the participants favored the VMT, but after the test 70% favored it.

The more closely a fee is tied to road use the greater it will reduce highway demand, improve driver performance, and allow the people that use the roads to pay for them. To have the costs of building and maintaining streets and highways come from general tax revenue means they are subsidized and subject to overuse and neglectful maintenance. This has happened in many places in the United States including here.

The principals of a sound tax policy are that it is feasible, enforceable, user-friendly, and affordable to administer. With technological advances, there are new ways to meet these principles.

Four criteria used to evaluate roadfunding mechanisms are: does it generate sufficient revenue? Will it increase over time as the population grows? Does it connect directly with road use? Does it provide the best system performance at the lowest cost?

The federal government began levying a tax of 18.4 cents on a gallon of gasoline in 1993, and it has not been increased since. The gas tax is generating billions less as vehicles become more fuel-efficient and that  situation will only get worse.

In 2012, the national Corporate Average Fuel Economy (CAFE) standards were 29 miles per gallon and by 2025 they will be 54 miles per gallon. This will be a 50% reduction in the gas tax revenue over the next 10 years. Since 1993 inflation has also significantly deceased the value of gas tax revenue.

Local governments raised $37 billion in motor fuel taxes in 2010 and $12 billion in tolls, much less than what is needed to repair and build new highways.

Environmental costs are significant, but difficult to calculate. It is estimated that smog and carbon emissions cost the United States $50 billion dollars annually. The concept of a carbon tax is an idea that is waiting to be used, but it is still too progressive for conservative interests.

Another option is to tax the vehicle. An increase of $2.75 in the annual vehicle registration fee would raise about a billion dollars nationally. Studies have shown that the majority of wear and tear on the roads is caused by heavy vehicles. This may justify higher fees on large commercial vehicles.

Accidents are a significant cost as well. Every 10 seconds a vehicular accident occurs with someone taken to a hospital emergency room. The economic cost is over $90 billion dollars a year.

Commuting is also costly. When drivers commute two hours per workday they spend a total of a month of eight hour working days in their vehicle each year. This is especially frustrating when highways are over-used and the urban traffic congestion slows movement.

According to Texas Agricultural and Mechanical University, congestion added 5.5 billion hours of additional driving time, wasted 2.9 billion gallons of fuel and cost $121 billion.

Road maintenance costs government at all levels $62 billion a year and is the third largest cost. Charging drivers by the mile could ease traffic congestion, improve the environment, and help the economy.

Currently 28 other cities in Oregon have enacted street fees. All of these cities simply increased the gas tax up to five cents a gallon like Eugene did. This may be the easiest way to raise the money needed but again, with increasing fuel efficiency a declining source of funds.

In 1919 Oregon was the first state to adopt a tax on gasoline in the United States. Oregon’s various transportation legislations continue to blaze the trail in road revenue.

In 2007, Oregon found that a VMT pilot project would be feasible. In 2012 the state conducted a second road user fee pilot study that was completed a year later.

This year Oregon has 5,000 volunteer motorists that will begin a new test program. Oregon’s approach to the mileage-based user fee concept is being watched and many other states are doing similar testing around the country.

The current methods of paying for our transportation system are unsustainable as the needs and costs of highway construction and maintenance increase.

It is hoped that solutions will be forthcoming before the challenge becomes much worse.

In Search of the Perfect Highway Tax

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