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Long-Term Federal Revenue Options
AASHTO believes a four-phase approach should be taken to increasing revenues to the levels needed.
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In phase one, Congress should take action in FY2009 and FY2010 to preserve highway funding at the levels authorized by SAFETEA-LU, and avoid cutting the highway program $18 billion from $43 billion to $25 billion.
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In phase two, Congress should restore the program’s purchasing power by increasing highway assistance from $43 billion to $73 billion between 2010 and 20015, and transit assistance from $10.3 billion to $17.3 billion.
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In phase three, from 2015 to 2025, Congress should increase the program toward meeting the “cost-to-improve” goals, estimated in U.S. DOT’s Conditions and Performance Report, but adjusted to year of expenditure dollars using the Consumer Price Index (CPI). For example US DOT estimated a 2004“cost to improve” annual highway capital investment level of $118.9 billion in 2002 dollars. Adjusted over time using the CPI, the “cost to improve” figure would be $189 billion by 2015 and $242 billion by 2025.
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From 2025 and beyond, Congress should use a vehicles miles traveled tax to supplement or replace fuel taxes as the principle revenue source for the Highway Trust Fund.
AASHTO is developing a supplemental report on additional long-term federal revenue options which will be published later this year.
The Need to Supplement or Replace Fuel Taxes
Between 2025 and 2035
For the period between 2015 and 2025, increasing fleet fuel efficiency and the increasing use of alternative fuels may begin to slightly erode Highway Trust Fund revenues, assuming the current tax rates remain the same. The 2006 TRB study, The Fuel Tax and Alternatives for Transportation looked at this situation. It stated that “A reduction of 20 percent in average fuel consumption per vehicle mile is possible by 2025 if fuel economy is driven by regulation or sustained fuel price increases. Offsetting the revenue effect of such a gain would not require unprecedented increases in fuel tax rates… Without new regulations, fuel price increases alone probably will stimulate only a small improvement in fuel economy in this period.”
President Bush’s proposal to increase CAFE standards for automobiles from the current fleet average of 25 miles per gallon by 4 percent annually to 2017, may or may not pass. If it does and if concern over global warming in subsequent administrations increases CAFE standards further, the 20 percent change scenario may come into play by 2025. But as the TRB study concluded, the only adjustment this scenario would require is an offsetting increase in fuel tax rates.
A different scenario may come into play in the period from 2025 to 2035. By 2030, it is conceivable that overall fleet fuel economy could increase from 21 mpg today to 31 mpg. That would reduce revenues by 33 percent. It is also conceivable that by 2030, alternative fueled vehicles, which pay no gas or diesel taxes, could represent 15 percent of the market. These could include vehicles fueled by hydrogen, by electricity, and by natural gas. That would reduce revenues by 15 percent.
It is also conceivable, that as the world demand for petroleum grows from the United States, Europe, Japan and emerging powers like China and India, and the supply struggles to keep pace, gas prices will increase. This could dampen consumption by 5 to 10 percent. That would reduce revenues by 5 to 10 percent. So somewhere between the point where there is a tolerable revenue loss which can be offset by rate adjustments, and the point when the loss is too serious, the states and the federal government will need to have fashioned an alternative highway user fee which supports the Highway Trust Fund. (Table 8.)
Table 8. Long-Term—Alternatives to Supplement or Replace Fuel Taxes
Oregon’s Mileage-Based Fee Field Test
Over the past three years, Oregon has been field testing a mileage-based user fee, which could be the alternative needed. They have developed and implemented a pilot test to assess a mileage-based fee designed to produce revenue roughly the equivalent that being generated through their current state gas tax. Two hundred sixty trial participants have had a mileage recording and global positioning system device installed in their car. The device tracks miles driven in Oregon, miles driven out of state, and miles driven in the Portland Metropolitan area during weekday rush hours. They will only be charged for miles driven in Oregon. The past six months of the test will evaluate having a peak-period surcharge (congestion price) in place.
Oregon DOT anticipates that adoption of a mileage-based fee system will require legislative support which will require the understanding and support of the public. Enforcement and privacy concerns will have to be addressed. In addition, it may require testing and evaluation in other regions; funding for installation of vehicle and service-station technology; development of new state and federal legislation governing administration, coordination with vehicle manufacturers, the fuel distribution industry, and organizations representing the general public and the trucking industry.
The Hudson Institute in its report 2010 and Beyond, outlined a mileage-based system similar to that being tested in Oregon. In addition to a base fee levied on the basis of vehicle miles traveled, Cambridge Systematics which developed this concept for Hudson, proposed an optional service fee, levied at peak-demand periods, “to stimulate some users to divert their trip to a less congested route, less congested time, or to transit, thus removing some of the need to build additional capacity.”
What Oregon’s experiment has demonstrated is the complexity of implementing what technologically is not all that complicated a system. Congress should be urged to fund additional pilots and studies during the reauthorization periods from 2010 to 2021. By 2021, enough research should have been conducted on a Vehicle Miles Traveled user fee to determine how it can best be configured to supplement or replace the cents per gallon fuels tax by the period just beyond 2025. It would be highly desirable if consensus could be reached between the states and the federal government about which vehicle mile tax system to adopt, so motorists will only have to adjust to one approach at the pump.
Oregon is currently field testing a mileage-based user fee, using such a recording device.
