Navigant Research Blog

Should the U.S. Replace the Gas Tax as the Federal Funding Vehicle for Transportation?

Lisa Jerram — November 17, 2011

I asked this question in my last blog post, which examined a recent GAO report that all 50 U.S. states received more transportation funding from the federal government than they sent to it in gas taxes from 2005-2009. The GAO concluded that fuel taxes may no longer be a viable source for transportation funding since vehicles are becoming more efficient and are running on alternative fuels. I agree with this assessment, based on Pike Research’s own projections of plug-in vehicle uptake and on the proposed new mileage standards formally proposed yesterday by the Obama Administration. These new standards will raise fuel economy to 54.5 miles per gallon by 2025, requiring cars to increase fuel economy 5% every year.

The revenue gap is simply going to widen. This issue has been a key sticking point in Congressional negotiations over the next U.S. transportation authorization bill. The last one ran out in 2009, and Congress has spent the last two years unsuccessfully trying to pass a new one. While Congress these days hardly needs an excuse to drive itself into gridlock, this is an issue that requires rethinking the way the United States pays for infrastructure, and that is not something that will be easy to do.

The simplest solution is to raise the gas tax. My colleague Dave Hurst has already outlined the case for this – and the dim chances that it will happen. Suffice it to say, increasing gas taxes has never been an easy sell to the American public and is likely to be even less popular in the current economic climate. The unknown factor here is that pretty much all of the federal budget is considered fodder for deficit control measures right now, so that could change the dynamics somewhat. But a gas tax hike remains unlikely, so what about an idea that has been floated for a number of years – taxes based on vehicle miles travelled (VMT)?

This has the benefit of seeming more “fair,” with all drivers paying based on their actual road usage. I looked at this concept in researching a Pike report on the state of smart technologies in transportation. A VMT based tax hits many of the intelligent transportation touchpoints. It takes advantage of increasing vehicle connectivity, which is occurring for a variety of reasons such as improving safety or offering in-vehicle information. It allow real-time responsiveness, which in turns means the potential to create a variable tax structure that charges more during peak times. It also raises the issue of who pays, since some vehicles potentially would have to be retrofit with tracking devices and the system must be managed. And it raises privacy concerns among some in the public, similar to those we have seen with smart phones GPS tracking.

The Oregon DOT conducted a road user fee pilot project in 2006 and 2007. The agency found that the prototype tracking technology needed improvement; since the pilot ended, vehicle telematics has been progressing significantly, so technical issues are not likely to be the show stopper. More likely is then the potential political pushback, as drivers object to having their travel data collected or to the possibility that such a system would be designed to modify their behavior – for example, by discouraging rush hour driving. This concept has already run into trouble with the introduction of high occupancy toll (HOT) lanes, with some arguing it turns driving during peak hours into a “luxury” activity. This argument would certainly be used against a variable road user tax, making this concept politically challenging. Based on some of these early concerns, while states and the federal government will keep exploring VMT based taxes, they may have to look to other innovative ideas.

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