An Overview of Mileage-Based User Fees: A Potential Replacement for the Fuel Tax
Photo 1128828 © Kateleigh | Dreamstime.com

Commentary

An Overview of Mileage-Based User Fees: A Potential Replacement for the Fuel Tax

Road usage charges should replace fuel taxes, not supplement them.

A mileage-based user fee, also often called a road-user charge, is the idea of charging road users based on the distance they drive rather than via fuel taxes, which tax the gallons of gas they use.

There are five major advantages to user mileage-based user fees:

  • Fairness. Mileage-based user fees (MBUF) ensure that those who pay the user fees are the ones who receive the benefits.
  • Choice. MBUFs give users more control of what, when, and how often they pay.
  • Flexibility. MBUFs give state departments of transportation (DOTs) the ability to adjust revenues and expenditures, as economic conditions, consumer demand, and technology change.
  • Better incentives. Mileage-based user fees create incentives for drivers and DOTs to think seriously about the efficiency, quality, and costs of transportation. 
  • Constraint. MBUFs can help prevent overconsumption and negative externalities, such as traffic congestion and air pollution.

The fuel tax has been a very successful user fee but its days are numbered. For an increasing number of vehicles, the connection between road use and fuel use is breaking down due to rising fuel economy standards and the increasing number of hybrid and electric vehicles. 

Mileage-based user fees are currently being tested in pilot projects and used in limited cases until the technology, system designs, and costs issues are resolved.

New Zealand and Germany have a distance-based fee for trucks. Australia and several European countries are doing pilot projects on applying the fees to passenger vehicles.

In the U.S., states have been testing mileage-based user fees for over a decade. And six years ago the Fixing America’s Surface Transportation (FAST) Act created the Surface Transportation System Funding Alternatives Program (STSFA) which has given grants to states to accelerate testing of mileage-based fees. 

Some motorists have raised concerns about mileage-based user fees. There is some concern that they would be an additional user fee on top of today’s taxes. However, the pilot programs are testing mileage-based fees as a replacement for fuel taxes, not as a new additional charge to drivers.

The top concern many have about mileage-based fees is privacy, which can be addressed by having users choose to pay a calculated fee with no data collected on their actual road use. Alternatively, users who choose an option with a technology that measures their road use can choose to own their data, determine what data to share, and use private vendors to ensure that their data is not shared with the state government unless the user agrees to share it.

The costs of collection are another concern for policymakers. Currently, the cost to collect mileage-based fees is higher than for fuel taxes collected at the gas pump. But the costs of collection for MBUFs do appear to come down with scale. Pilot projects are increasingly exploring how to reduce those costs.

Equity is another concern. All user fees are levied according to use, not according to income or wealth, so they tend to be regressive. A mileage fee is no more regressive than is the fuel tax, so the shift in user fees will not reduce, or increase, the regressivity of the main transportation user fee.  

Many rural residents are concerned mileage-based user fees would be unfair to them. But mileage-based fees are better for rural drivers, who already pay more in fuel taxes because they travel further using more fuel and typically have less fuel-efficient vehicles. Research by the RAND Corporation and by the states of Oregon, Washington, and North Carolina, found that rural drivers benefit from a shift to mileage-based fees and would pay slightly less than they pay in gas taxes.  This is appropriate because rural roads also tend to be less expensive to build and maintain than urban ones.

Some environmental groups are worried that mileage-based user fees will discourage the purchase of electric vehicles. Currently, electric car drivers avoid paying fuel taxes. Asking them to pay a fee for the roads they use is reasonable and fair to all drivers. States that have imposed road use charges on electric vehicles report no change in the trends in electric vehicle adoption. 

Mileage-based user fees are a long-term replacement for the gas tax. In the meantime, it is important to continue state pilot programs, expanding their scale and scope and starting to address the transition issues. A national MBUF pilot program could be helpful—if it is well designed and executed, allowing for larger scale and more extensive testing. A national MBUF pilot should learn from and build on the experience of the states. 

We recommend that any mileage-based user fee program adopt the following principles:

  1. Road usage charges should replace fuel taxes, not supplement them.
  2. Road use charges are not a tax, but a user fee.
  3. Road use charges should focus on paying for use of that infrastructure and attempts to deal with issues such as congestion, emissions, or noise should be separate.
  4. Road use charges must provide for user privacy and, in the event of shared data, must ensure that users’ data are protected.
  5. Road-use charge systems should provide users with better information about their travel costs and choices, and when data is voluntarily shared, it should provide road owners with better information about the use of their infrastructure.