Mileage Taxes: New Highway Funding or Smart Growth Proxy?

A growing number of federal and state lawmakers are considering new types of taxes, called value pricing or direct user charges, to finance highway construction and maintenance projects to make up for a projected shortfall in fuel tax revenues as vehicles become more fuel-efficient.

Among the nonhighway toll concepts being funded through millions of dollars in grants from the U.S. Department of Transportation are mileage-based taxes, congestion pricing, surcharges for parking during peak hours, parking cash-out policies, and pay-as-you-drive pricing, including pay-per-mile car insurance premiums and innovative car ownership, leasing, and usage arrangements that reduce fixed costs in favor of higher variable usage costs.

Transportation officials, long-range planners, and lawmakers refer to these “pricing mechanisms” as user-based fees, not taxes.

North Carolina is one of six states participating in a two-year national field study of the new vehicle-based mileage tax. The University of Iowa Public Policy Center, funded by a $16 million federal grant, installs a GPS-monitoring device in participants’ vehicles to record the number of miles driven. Supporters say the system, should it be implemented, would charge only for the actual miles driven.

This technology, however, raises privacy concerns. The Public Policy Center acknowledges on its Web site that the acceptance of such a system will depend largely on how the public perceives privacy and security issues. Can drivers’ records be subpoenaed for criminal or civil cases, for example, or what happens if the data are breached by computer hackers?

Participants in a mileage-based user fee public opinion study conducted for the Minnesota Department of Transportation in August 2007 said they were skeptical of claims that any information collected would not be tracked and watched by “Big Brother.”

These concerns might be justified. An article on About.com reported that American Car Rental was sued for attempting to charge its clients $150 for each instance of speeding, which had been determined by GPS devices in the cars that tracked drivers’ speed and location. The device wirelessly phoned the company every time a client drove faster than 79 mph for than two minutes. While the court determined the company could not charge a fee, it did not prevent the company from continuing the GPS tracking policy.

Annalee Newitz, a policy analyst with the Electronic Frontier Foundation in San Francisco, reported that a Washington state court had held that law-enforcement officers must obtain warrants to install GPS devices on vehicles to track suspects. The judge in that case ruled that these devices could “only be installed under the most extreme circumstances,” Newitz said, because the “devices are considered so privacy-invasive.”

Debating fairness

Proponents of the satellite-based technology system say it is fairer than the current fuel tax system because those using the roads in a jurisdiction would be paying for them, with a fuel tax drivers can purchase gasoline in one jurisdiction but primarily use roads elsewhere.

Even some libertarian and conservative analysts think tolls and user-based fees are fairer and would be a more efficient and cost-effective way to fund highway construction and maintenance.

Critics, however, say that a mileage-based tax would penalize drivers of fuel-efficient and electric vehicles and could discourage Americans from buying these vehicles, even as government mandates automakers build more fuel-efficient and alternative fuel vehicles.

FreedomWorks, a Washington D.C.-based organization that advocates for lower taxes and less government, believes a mileage-based tax also would unfairly burden those who have to commute long distances to work.

A recent report from the Oregon Department of Transportation shows that, under the vehicle mileage tax system, those driving vehicles that get 20 or more miles per gallon would be the losers, with the biggest losers being those with vehicles that get 70 mpg. Under the gas tax system, drivers of vehicles getting less than 20 mpg pay the most.

Also at issue is that many states considering the mileage tax would not scrap the gas tax but would have both. Some in Congress support not only the new user-based taxes but an increase in the gas tax. Among the supporters are Rep. James Oberstar, D-Minn., chairman of the House Transportation and Infrastructure Committee; and Rep. Peter DeFazio, D-Ore., chairman of the House Highway and Transit Subcommittee, according to a report from the Oregon Department of Transportation.

Congress created the 15-member National Commission on Surface Transportation Infrastructure Financing, which has called for an increase in the current federal 18.4 cents-per-gallon tax on gasoline and the federal 24.4 cents-a-gallon tax on diesel and has recommend fuel tax rates be indexed to inflation.

In addition to pushing for an increase in the federal tax, the commission also is urging states to do the same and to increase their use of toll roads and user-based taxes, particularly congestion-based pricing that makes users pay more for traveling during peak times.

“Absent much higher tax levels and/or major infusions from supplemental sources, the current funding approach is simply inadequate over the long-term,” the commission said in its interim report in February 2008. Citing Oregon’s 2006-07 pilot program of GPS-based vehicle miles traveled, the commission said “such programs may not be ripe for widespread implementation in the U.S. yet, but are maturing rapidly.”

‘Smart growth’ agenda

Some analysts and industry experts say that the push for user-based fees has more to do with promoting “smart growth” policies that favor public transit and align to an environmentalist agenda.

In a recent Associated Press article, Charles Whittington, chairman of the American Trucking Association, said his group supports a fuel tax increase if the money goes to highway projects instead of being used as a carbon tax.

But a Congressional Policy Brief from the Pew Center on Global Climate Change in fall 2008, along with several reports on the U.S. Department of Transportation Web site, reveals a strong emphasis on public policies and tax strategies aimed at cutting greenhouse gas emissions by reducing the number of vehicle miles traveled. These policies favor public transit and carpooling over the building of new highway infrastructure.

In conjunction with a vehicle mileage tax and increased tolls, the Pew Center recommends pay-as-you-drive insurance that links premiums to miles traveled, which rewards drivers who rarely use personal vehicles, or alternatively having drivers pay for their insurance each time they purchase fuel for their vehicles (pay-at-the-pump) through an additional fuel surcharge.

The report promotes the notion that smart growth policies, such as high-density, compact, mixed-use development, encourage more Americans to use mass transit and alternative modes of transportation, including carpooling, vanpooling, bicycling, and walking, instead of driving.

In a 2008 hearing, the House Committee on Ways and Means looked at ways to draft comprehensive global warming legislation that would promote a reduction in vehicle miles traveled, saying it would reduce congestion and carbon emissions, and conserve fuel.

Critics say behavioral tools, such as compact developments and mass transit, are intrusive, ineffective, and more expensive. Long-range transportation and land-use planning actually worsen congestion and per-capita driving. Randal O’Toole, a senior fellow with the Cato Institute, said in a 2008 report that urban planners admit “congestion is our friend” because it “is a powerful disincentive for sprawl [and] creates political pressure to create a quality transit, bicycle, and walking system.”

Rail transportation is not only the most heavily subsidized form of transportation, said O’Toole in another policy brief, but “many light-rail operations use more energy per passenger mile than the average sport utility vehicle, and almost none uses less than a fuel-efficient car such as a Toyota Prius.”

Urban transit costs 61 cents per passenger mile, but highway subsidies average less than a penny per passenger mile. “A mile of rail transit line typically costs more to build than a four-to-eight-lane freeway and typically carries fewer than half as many people as a single freeway lane mile,” said O’Toole.

Karen McMahan is a contributor to Carolina Journal.