Wednesday, May 11, 2005

COLUMN -- Is vehicle miles traveled fee more fair than the gas tax?

Posted by Craig Westover | 8:46 AM |  

Wednesday, May 11, 2005

Minnesota is not the only state with transportation funding problems. A possible solution being touted and tested in Oregon is the Vehicle Miles Traveled fee, which would replace, for some drivers, the current per-gallon gasoline tax. The VMT fee provides consistent state revenue and is technologically feasible.

It also raises privacy issues and veils the seductive allure of social engineering.
Fuel taxes calculated on a per-gallon basis are the primary source of funding for state road maintenance and construction. On average, fuel taxes account for 65 to 85 percent of road use costs. In Minnesota, 82 percent of motor fuel taxes come from gasoline sales. The more fuel sold, the more state revenue there is.

More drivers are on the road than ever before and more miles are being driven — 52 billion vehicle miles of travel in Minnesota, which should be producing a lot of gasoline tax revenue. And, in the short term, it is. But looking not-so-long-term, adding alternative-fuel vehicles to the mix means better fuel efficiency and declining fuel tax revenues are inevitable.

The reality is more miles driven means more wear and tear on the roads, which leaves states looking at more costs and less revenue. This is the situation the VMT fee is meant to address.

Today average gasoline mileage is about 20 miles per gallon. But not all vehicles get "average" mileage. A Toyota Prius, for example, has an EPA combined mileage of 55 miles per gallon. A Chevy Suburban logs about 12 miles per gallon. Under Minnesota's current tax-per-gallon system, a 1,000-mile trip in the Suburban produces about $16.67 in tax revenue compared to around $3.64 for the Prius.

In a VMT fee system, both vehicles would pay tax of $12.50 (at the 1.25-cent rate) for equal use of the roads. If gas prices motivate consumers to purchase higher mileage vehicles, in the VMT fee system the state maintains its revenue stream.

There is much to recommend this system; however, the danger lies in the potential for "creeping fairness." The technology being tested in the Oregon program opens the door to a complexity and false precision like that inflicted on the school funding formula.

For example, many people suggest a VMT fee is a disincentive for people to buy fuel-efficient cars. However, that "unfair" situation could be fixed by technology. It's possible to set a higher rate-per-mile for a heavier vehicle.
But how high? What are the social ramifications beyond tax revenues? Legislators are seldom asked those kinds of questions.

Congestion pricing is another policy decision with social consequences. In the congestion rate model, specific high-traffic zones at specific high traffic times carry a higher VMT fee. Technology might also be used to address an "unfair" Minnesota problem; highway usage and cost per mile driven is not uniform across the state.

Technology required to implement a VMT fee system is a simple global positioning system that would eliminate out-of-state mileage when calculating tax. When a driver pulls in to a service station to purchase fuel, mileage data is wirelessly downloaded to a reader near the station pump. The tax is calculated and paid at the pump.

If the concept proves feasible and one or more states opt for a VMT fee system, equipment would likely be factory-installed much like special emissions systems on vehicles destined for California. Retrofitting all vehicles is impractical and any system must allow for out-of-state vehicles. A dual tax system is required unless and until some multi-state or national standardization is achieved.

VMT fees rightly raise privacy concerns. Initially, the GPS devices installed in the Oregon test will only store the number of miles traveled. Authorities will not be able to track in real time where a vehicle is or reconstruct after the fact where a vehicle has been.

That situation, however, is little reassurance to privacy advocates like David Sobel of the Electronic Privacy Information Center, a public interest research center in Washington, D.C.

"Once technology is in place," he noted, "it's virtually impossible to resist finding ways to use it."

A good idea for Minnesota? Perhaps, but there are also myriad policy and privacy issues that cannot be taken lightly. There's tremendous potential for bureaucratic abuse. Nonetheless, a VMT might be more palatable than an increase in the gasoline tax if implemented in the context of consumer choice.

This column was originally researched for an article in the Heartland Institute's "Budget and Tax News" publication.