News: CJ Exclusives

Chamber Resurrects Idea of Vehicle Mile Fees

Gas tax revenues not keeping pace with transportation demands

The N.C. Chamber is resurrecting an idea to pay for roads that eventually could confront concerns over the growing gap between increasing highway use and dwindling fuel tax revenues.

The idea goes by a number of names, but it’s most commonly known as a vehicle miles traveled tax, or VMT fee. If fully implemented, fuel taxes would be replaced by a fee assessed on motorists for every mile they travel on public highways. Setting the rate and determining how it would be paid — at gas pumps, as part of vehicle registration, or using some sort of regular billing procedure — remain to be decided.

Moreover, some critics of the proposal cite privacy concerns, saying electronic tracking devices may need to be installed on vehicles and monitored by government officials to count mileage accurately.

Even the 18.4 cent-per-gallon federal gas tax combined with North Carolina’s 36 cent-per-gallon state tax do not produce enough money to finance highway construction and maintenance needs. The Tax Foundation has reported that taxes finance only about one-third of total highway spending nationwide.

North Carolina, with a state fuel tax higher than the national average of 21 cents per gallon, fares somewhat better, paying about half the cost of highway funding through fuel taxes. But as traditional cars become more fuel-efficient, hybrid vehicles gain in popularity, and highway maintenance demands continue rising, officials are scrambling to find alternative forms of financing.

“In virtually every city and county and hamlet [in North Carolina], the roads seem to be just not being repaired and kept in the same state that they used to be a couple of decades ago,” said Rep. John Torbett, R-Gaston, at a recent legislative hearing.

“The reason we’re looking at raising revenue is because of the unmet needs that are currently out there.”

The VMT fee surfaced as a potential transportation revenue source in 2007 and 2008 when it was studied by a commission looking into the state’s 21st century transportation needs. However, the proposal never gained traction.

No state is using the VMT as a major source of income now, but a handful are studying it and this summer Oregon is set to test the program through a pilot program involving up to 5,000 vehicles.

Daniel Findley, senior research associate at the Institute for Transportation Research and Education at N.C. State University, conducted a study of potential transportation funding sources for the N.C. Chamber, and found a number of advantages to using a VMT tax as a primary source for transportation funding.

“Looking at vehicle miles, it both has the potential to generate enough yield” to keep up with the demand for highway maintenance and construction, Findley said. “It’s a relatively stable measure so as the economy grows, typically, vehicle miles traveled increases as well.”

One other advantage of the VMT approach is that it works well as a user fee. “The people who drive or benefit from [highway use] are the ones who pay for it,” Findley said.

Adrian Moore, vice president of the Reason Foundation, said states will need to consider a method of replacing the gasoline tax as a means for paying for road construction and maintenance.

“We’re not using less roads, but we’re using less gasoline,” Moore said. “It’s like paying for the health care system by taxing cigarettes.”

Kevin Pula, policy associate at the National Conference of State Legislatures, said 18 states have entered into small VMT pilot programs, with Oregon’s being the most prominent.

“I think Oregon will really pave the way for other states,” Pula said. “They’re trying to prove that this can work on a large-scale basis.”

Oregon will give volunteers participating in the pilot project rebates on their gasoline taxes. Participants will have options for reporting their mileage, including GPS tracking, odometer readings, and monthly self-reporting.

Moore said Oregon has addressed privacy concerns in its VMT law. He said Verizon, a private company, will track mileage for the state. The contract with the private vendor says that they can’t track private information, Moore said.

Motorists could sue both the vendor and the state if they violated the provision, Moore said.

“You can do it without tracking, and you can do it with protections,” Moore said. He said that there are simpler ways already available if the government wants to track where a motorist is going.

Moore noted that Oregon’s program is in its infancy. “You have to start with baby steps,” Moore said. “This is a big, complicated, 20-year change process.”

He encourages states looking for a way to replace gasoline tax revenue with the VMT to go ahead and begin studying it.

“I say, study it now, try to work out the kinks,” Moore said.

There are a number of them.

While the VMT fee is expected to be a stable source of revenue, it comes with collection problems and administrative headaches, Findley said.

For example, the VMT fee would not collect revenue from motorists who live across the North Carolina border and come here for work, recreation, or shopping. It also wouldn’t capture revenue from out-of-state tourists. Currently, they pay the gasoline tax when they fill up in North Carolina.

But the current gasoline tax system isn’t perfect either, Findley said, such as people traveling through the state on Interstate 95.

“People fuel up in Virginia and drive and drive, and don’t fuel up until South Carolina, or vice-versa,” Findley said.

Moore said states that study and experiment with a VMT system now will be in a better position to implement it once the administrative problems are solved. States that wait a few years to test the program will be even further behind, he added.

Barry Smith (@Barry_Smith) is an associate editor of Carolina Journal.